Brokers Beware – Failure to properly explain optional benefits gives rise to a breach of duty of care

Has your insurance broker taken the time to properly explain the Statutory Accident Benefits Schedule Optional Benefits to you and your family members when you renew your car insurance policy?

As a result of the recent Ontario Superior Court of Justice decision in Zefferino v. Meloche Monnex Insurance you may find your broker spending a little extra time going through these benefits with you when your policy comes up for renewal.

On May 27, 2005, Ms. Zefferino suffered serious injuries in a car accident.  She was unable to work and under the terms of her policy received an income replacement benefit at $400 per week.

Prior to the collision, Ms. Zefferino renewed her car insurance policy with Meloche Monnex.  The call centre representative asked Ms. Zefferino if she wanted to purchase optional benefits but did not take the time to provide a detailed explanation as to what the benefits were.  Ms. Zefferino declined to these benefits.

Ms. Zefferino subsequently brought an action against Melosh Monnex alleging its representative failed to properly offer optional income replacement benefits to her.   The issues before the court were as follows:

1. Did Meloche Monnex owe Ms. Zefferino a duty of care in the sale of her car insurance policy?
2. If so, did Meloche Monnex breach its duty of care by failing to properly offer optional benefits to Ms. Zefferino?
3. Would Ms. Zefferino likely have purchased the optional benefits if they were properly offered to her and if so, what benefits would likely have been purchased.

The court had no difficulty in finding that Meloche Monnox owed Ms. Zefferino a duty of care with respect to the sale of the car insurance policy and this duty was breached.   Meloche Monnex’s practice of merely offering the benefits was more in line with a solicitation of interest.

In order to meet its obligations under the SABS, Meloche Monnex was required to provide a level of detail which would have allowed Ms. Zefferino to weigh her need for coverage against the cost of same.    This would include:

• Explaining the nature of the optional benefits as applicable to the particular customer and
• Providing hypothetical loss scenarios and asking the consumer to draw draw their own conclusions about whether optional benefits would be necessary.

Although Ms. Zefferino was not able to establish she would likely have purchased the benefits had they been properly offered to her, the court has made it very clear that the insurers must provide sufficient information to ensure the customer is given an understandable alternative which would allow them to measure the need for more coverage against risk and cost.