Moonstone Monitor: Policy Conditions and the Advisor's Responsibility
In his judgment, the judge referred to two previous determinations to explain his view:
The nature of an insurance broker’s duty to an insured was succinctly expressed by Potgieter A.J. in Lenaerts V JNS Motors (Pty) and Another 2001 (4) SA 1100 (W) where the learned judge said the following at p. 1109H-J:-
“I consider that in our law, as in English law, the duty to exercise reasonable care and skill in appropriate cases extends to the duty to take reasonable steps to elicit and convey material information both from and to the insured. This includes information about terms of the policy which, if contravened, might leave the insured without cover. It is part and parcel of the broker’s general duty to use reasonable care to see that the insured is covered.”
That approach was ratified by the Supreme Court of Appeal in Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd 2004 (2) SA 1 (SCA) where Lewis J.A., after quoting the above passage referred with approval to the remarks of Diamond J in Harvest Tracking Co. Ltd v P.B. Davies t/a P.B. Davis Insurance Services [1991] Lloyd’s Rep. (QB) where the learned judge said:-
“The ordinary function of the insurance broker or other intermediary is to receive instructions from his principal as to the nature of the risk or risks and the rate or rates of premium at which he wishes to insure, to communicate the material facts to the potential insurers and to obtain insurance for his principal in accordance with his principal’s instructions and on the best terms available. The liability of an insurance agent to his employer for negligence is comparable to that of any agent. He is bound to exercise reasonable care in the duties which he has undertaken. In no case does the law require an extraordinary degree of skill on the part of the agent but only such a reasonable and ordinary degree as a person of average capacity and ordinary ability in his situation and profession might fairly be expected to exert.
The precise extent of the insurance intermediary’s duties must depend in the last resort on the circumstances of the particular case, including the particular instructions which he has received from his client. . . . It is normally not a part of the broker’s . . . duty to construe or interpret the policy of his client, but this again is not of course a universal rule. . . . (I)f the only insurance which the intermediary is able to obtain contains unusual, limiting or exempting provisions, which, if they are not brought to the notice of the assured, may result in a policy not conforming to the client’s reasonable and known requirements, the duty falling on the agent, namely to exercise reasonable care in the duties which he has undertaken, may in those circumstances entail that the intermediary should bring the existence of the limiting or exempting provisions to the express notice of the client, discuss the nature of the problem with him and take reasonable steps either to obtain alternative insurance, if any is available, or alternatively to advise the client as to the best way of acting so that his business procedures conform to any requirements laid down in the policy.”
Essentially then, the onus is on the advisor to clearly understand the needs of his client, to make sure that the product he recommends complies with this, and to make sure that the client understands what he has bought, particularly in respect of issues like exemptions.
