A broker has been ordered to pay almost $300,000 compensation to a client after an insurer declined its commercial premises fire claim and cancelled the policy due to misrepresentations.

The October 2022 fire caused extensive damage, but insurer QBE said it would not have offered cover if it had known about the presence of asbestos in the property.

The insurer said other disclosure failings included the presence of expanded polystyrene (EPS), that the insured’s tenant was involved in manufacturing, previous policy declinatures and that multiple buildings were at the site.

In a separate dispute ruling, the Australian Financial Complaints Authority backed QBE in declining cover, but a determination against Community Broker Network finds the broker involved failed to make reasonable inquiries about the property and provided incorrect information in the policy application.  

The authorised representative said he attended the property in 2016 or 2017 and there was one building on the site, and the client told him the premises did not contain asbestos or EPS.

But broking records from 2016 or 2017 in support of that position were not retained because it was more than seven years ago.

“The failure to retain records of this nature, which document critical information from the client about the nature of the risk to be insured, and relevant for the procuring and renewal of insurance, is not consistent with the broker’s duty of care,” AFCA ruled.

The broker accepted “manufacturing” was mistakenly left off the business description, while arguing the insurer knew or ought to have known the nature of the tenant’s operations – a health food enterprise – from previous applications.

AFCA finds the broker did not breach its duty in arranging a policy with a sum insured of $2 million, rather than $6.25 million, saying it is satisfied the complainant provided instructions to reduce the amount, consistent with seeking lower premiums.

The complainant says that after the policy was cancelled, cover was obtained elsewhere.

AFCA, after applying an underinsurance clause and other adjustments, says the broker should pay the complainant $296,951 in compensation plus interest, and should reimburse up to $5000 in legal costs.

“The panel is satisfied that the insurance broker’s breach has caused the complainant to be uninsured at the time of the loss,” the authority said. “It is fair and reasonable that the insurance broker compensates the complainant for its losses because of the fire.”

The decision is available here.