Songs of Innocence: Broker’s Liability to an Innocent Co-Insured


In November 2007 Richard Beck killed his estranged wife, Karen Beck, and set fire to the family home where he had been residing alone since 2005. As a result of the fire, the Estate of Karen Beck (the “Beck Estate”) claimed for the value of the home and contents under a policy of homeowner’s insurance issued by Canadian Northern Shield (“CNS”). CNS initially denied coverage under the intentional act exclusion but ultimately settled the claim for 50% of the value of the home leaving a shortfall of $160,765. The Beck Estate then commenced an action against Karen Beck’s broker, Johnson, Meier Insurance Agencies Ltd. (“JMIA”), for this shortfall.

A broker’s duties and responsibilities have long since been set out by the Supreme Court of Canada in the seminal decision of Fletcher v. MPIC 1990 CanLii 59 (S.C.C.) wherein the Supreme Court of Canada cited with approval to the earlier Ontario Court of Appeal decision of Fine’s Flowers v. General Accident and articulated a broker’s duty of care as:

  • Private insurance agents owe a duty to their customers to provide not only information about available coverage, but also advice about which forms of coverage they require in order to meet their needs.
  • Where the customer adequately describes the nature of his or her business to the agent, the onus is then on the agent to review the insurance needs of the customer and provide the full coverage requested.
  • Should an uninsured loss occur, the agent will be liable unless he or she has pointed out the gaps in coverage to the customer and advised him or her how to protect against those gaps.
  • The extent of the duty owed by an insurance agent, both in placing insurance and in indicating to the insured which risks are covered and which are not, is a fairly stringent one for the agent.

In the Beck decision Madam Justice Griffin measured JMIA’s conduct as against the above duty and standard of care. The evidence was that from the time she moved out of the family home in 2005, Karen Beck continued to deal with JMIA for insurance:

  • From 1995 though 2007 JMIA had issued 13 policies on the home for the Becks. Some of the carriers on the policies changed over the years but from 2002 onward the policy was placed with CNS.
  • In September 2006 Karen Beck went to JMIA’s Chilliwack office and purchased a tenant’s insurance policy for her new rental home. At this time no questions were asked about the existing insurance on the family home.
  • On January 3, 2007 Karen Beck attended at JMIA’s Maple Ridge office and cancelled the tenant’s insurance policy as she was moving in with her parents. Again, no questions were asked about the insurance on the family home.
  • The CNS home policy expired July 31st if not renewed.
  • In May 2007 JMIA placed a call to Karen Beck about renewal of home insurance which expired on July 31st. They couldn’t reach Karen Beck so they simply renewed the same policy for an additional year.
  • Karen Beck received the invoice at her parent’s home. There was no cover letter attached to the invoice. Nothing asking or suggesting she contact JMIA.
  • According to her mother, sometime in the summer of 2007 Karen Beck went to JMIA’s office to pay the insurance bill and discovered Richard Beck was still a named insured. Karen was allegedly upset over footing the bill for insuring him.

Karen Beck’s broker at JMIA gave evidence that it was her practice when selling a homeowner’s policy to review the exclusions with her clients. Her affidavit stated that she “believed” that she had advised Karen Beck that the homeowner’s insurance did not cover an intentional act. However, under cross examination she admitted that this belief was based upon her standard practice and that it was not her standard practice to review exclusions at the time of renewals, only on initially obtaining the policy. Madam Justice Griffin declined to accept this evidence, preferring the evidence of Karen Beck’s mother that Karen was never advised of the intentional act exclusion in the CNS policy, or in any predecessor policy with another insurer. Madam Justice Griffin further held that:

“… I am not persuaded that Mrs. Beck was ever advised of the intentional act exclusion in the CNS policy, or in any predecessor policy with another insurer. Further, even if she was advised of the existence of this exclusion years earlier when she and her husband first purchased homeowner’s insurance from the defendant, in 2001, I am not persuaded that it would be sufficient to meet the defendant’s duty of care in 2006, as it was too far in the past, it was not sufficiently connected to the change in living circumstances that occurred when Mrs. Beck moved out of the home, and it was never identified that the intentional act of one insured might exclude coverage for the innocent co-insured.”

The Beck Estate led expert evidence that it would be standard practice for a broker to attempt to call each client prior to renewing a policy and to ask basic questions in order to ascertain whether or not the expiring policy is still appropriate for the client’s needs. Further that it was standard practice to ask questions to determine whether or not the person is still living in the property and whether or not it has been rented out. If it was discovered that the person was no longer living in the property and was renting it out, then it would be standard practice for a broker to advise the client about changes in coverage and potential issues. The option of switching to a broad form policy that covers rental homes and provides for additional coverage should then be pointed out to the client.

The above opinion as to standard practice is really not too controversial. However, the Beck Estate’s expert went even further and opined that:

“It would be standard practice for a broker to make enquiries of the client if the broker knew that the client was no longer living at the property and that she was estranged from her husband. … it would have been standard practice for the broker to remind the client that any loss caused by the intentional acts of her husband would mean that she would not have coverage for the property because they were both insureds on the same policy.”

Madam Justice Griffin ultimately held that JMIA had not met it’s duty of care towards Karen Beck in that they had clear notice that she was no longer residing in the family home and ought to have followed up on the potential change in her insurance needs.

Having found a breach of their duty of care the Court considered on the basis of the “but for” test, whether the loss was caused by the breach. JMIA argued that even if they had canvassed Karen Beck’s insurance needs when they learned she had moved out of her home, she would still not have obtained insurance that would have provided coverage in the event of Richard Beck’s intentional act. JMIA led expert evidence that in the circumstances a reasonably prudent broker would have placed the same type of policy, namely a homeowner’s comprehensive, with an estranged spouse as an additional insured. It was his evidence that this combination provided the best price with the broadest insurance coverage.

Madam Justice Griffin rejected this opinion and held that if advised of the intentional act exclusion, Karen Beck would have purchased rented dwelling insurance for the following reasons: she would not have had confidence that Richard Beck or a tenant would not harm the property and she would have wanted to be protected from that risk; she desired to separate her financial affairs from Richard Beck; and she was a cautious person who wanted the most available insurance coverage.

Madam Justice Griffin ultimately held that:

[77] I find that if Mrs. Beck had received proper advice from the defendant’s brokers, she would have been advised that her homeowner’s policy showed Mr. Beck as a co-insured, that one of the exclusions in the policy meant that she would not have coverage for any intentional acts by him, and that she could obtain on the market a rented dwelling policy that would not have a similar exclusion, but it might be more costly. I find that if Mrs. Beck had received this advice, it is more likely than not that she would have chosen to obtain a rented dwelling policy without an exclusion for intentional acts of a tenant, whether the tenant be Mr. Beck or someone else.

As such, JMIA was found liable for the shortfall of $160,765 in insurance proceeds. On it’s face this decision places brokers in the unenviable position of having to give coverage advice on unpredictable and unforeseeable circumstances [i.e.: intentional act on the part of an estranged spouse]. However, a close read of the Beck decision shows it can be interpreted as merely a generous application of the Fine’s Flowers principles. JMIA owed a duty to Karen Beck to provide advice about available insurance coverage to meet her needs. In failing to follow up on the effect of a change of living circumstances on her insurance needs JMIA breached this duty of care. In failing to point out any applicable exclusions in the policy JMIA further breached their duty of care. While the Court’s factual finding that had she known of the intentional act exclusion Karen Beck would have purchased a rented dwelling policy may be controversial on the basis of the evidence available, it does provide a causal link between JMIA’s breach of their duty of care and the damage sustained by the Beck Estate.

We have been advised that a Notice to Appeal has been filed and we will keep readers advised of the result.