Can you undo an honest mistake when it comes to placing insurance?

This is a question that regrettably comes up too often.

Hi Allan

It’s been a while since you have heard from me, I hope it’s been a relief!!!

I was wondering if you are aware of any precedent for an insurer applying a “differences in cover” principle where a broker (us) has inadvertently selected
the incorrect policy from a drop down menu when processing a new business.

We have unsuccessfully attempted to get it addressed through Internal Dispute Resolution and I am almost ready to lie down and die on it but I still feel that since it was an innocent unintentional mistake that they should be able to find a way to let us pay the difference in premium and have access to the cover intended to have been taken out.

We had intended to select motor trades for the faulty workmanship cover but we selected mobile business which doesn’t have faulty workmanship. They are one after the other.

I argued unilateral mistake but they responded that we should have noticed the difference from the documentation that was printed off  (which is pretty
true I must say).

Just thought I would try…

S.. [Name withheld on blog but name and email provided]

My response was as follows:

Regrettably this is not going to be easy S…. Insurers really have been pushing the responsibility for getting this sort of stuff right, including the correct ANZSIC industry classification, to brokers for years and once a claim has occurred have little or no sympathy for such errors, honest or otherwise. In one recent case I did the broker simply forgot to seek and endorsement for a few weeks and by the time it was processed a claim occurred and the insurer would not back date the cover although there was clear documentary evidence the cover was sought and it was an honest oversight. The broker in that case had been broking business to the insurer for over 28 years and we found other cases where the insurer had allowed it and taken the premium where there had been no claim during the period.

There are differing requirements at ‘common law’ and in terms of the ‘law of equity’.

In terms of basic principles, a contract of insurance can be rectified where there is a mutual mistake (i.e. both you and the insurer were mistaken) or where there is a unilateral mistake inducing the other part to contract on unfavourable terms (e.g. you were misled by the insurer into agreeing the terms).

Regarding a mutual mistake, you would have to show that a prior agreement was reached and that the policy issued did not reflect this agreement.  This is a difficult burden to prove and does not appear to apply on the facts as you have described them.

A unilateral mistake alone is insufficient.  For example, it was held in the Australian High Court matter of Taylor v Johnson [1983] 151 CLR 422 that:

“ … a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension …”

On the facts at my disposal, neither scenario applies and you will have to hold out for a benevolent response.

As I mentioned at the start of this article, this is not an uncommon type of mistake. It is imperative that the broker/adviser double check their work prior to sending it off to the Insurer or Insured and certainly before moving on to the next task. With everyone being time poor I appreciate that this is easier said than done but the consequences of not following this risk management requirement can lead to a professional indemnity claim on the broker/adviser.

I really feel for this broker as I know them and they, like the vast majority of insurance brokers do try hard to do the very best and I can sense the despair in their email.

One additional point that I would add is that the inclusion of endorsements to vary the printed wording has become an issue and brokers really need to double check what they get back to what they thought they had placed.




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