Kotku Bread Pty Ltd v Vero Insurance

Kotku Bread owned and operated a bakery business. The broker had placed Kotku Bread’s business insurance with Suncorp for a number of years. Then Suncorp ceased to offer such insurance and informed the  broker that this business now be placed with Vero. Suncorp set up systems, using the Sunrise electronic platform, to assist brokers to transfer such business to Vero on expiry.

In February 2010, the broker completed an online proposal form on behalf of the client. One of the questions required the broker to select the percentage of EPS (Sandwich Panelling) contained in the internal construction of the premises (eg walls, linings, ceilings, cold rooms and general fit out), from a selection of three options: 0%, 1-33% or over 33%. It was held that the broker manually selected 0%. It was conceded that the broker had not checked this information with Kotku Bread as to the percentage of EPS prior to completing the quote. The bakery actually contained more than 33% EPS Sandwich panelling.

In August 2010 the bakery premises were destroyed by fire. Kotku Bread made a claim on its Vero policy. Vero declined cover on the basis that Kotku Bread’s had misrepresented the percentage of EPS in internal construction of the premises. The court accepted that had the broker selected the ‘over 33%’ option, Vero would not have accepted the risk at all. As such, Vero was entitled to reduce its liability to nil. Kotku Bread was instead entitled to recover from the broker, which had breached its duty to obtain the correct information from Kotku Bread prior to completing and submitting a proposal form.

With the proportion of business now transacted by the completion of (unsigned) electronic proposals completed by brokers, there are increased risks to us. 

One tool us brokers use is to generate and send a confirmatory 'what you told us' document to the client and ask or require the client to sign and return it or otherwise acknowledge its accuracy. Most electronic platforms have a facility to generate such a document but not all. Vero is one of them.

The risk in the Kotku case was even more pronounced as the data entry occurred in the context of a portfolio transfer from one insurer to another (within the same group of companies). The prior insurer did not have the same stringent guidelines around underwriting EPS that the new insurer had despite being part of the same group. Brokers have to be alert to changes in both policy coverage and underwriting risk appetite when carrying out portfolio transfers and have to treat such transfers (even within the same group) as new business not renewal business.

This information is intended as a general overview and discussion of the subjects dealt with. The information provided here was accurate as of the day it was posted; however, the law may have changed since that date. This information is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. 

Kotku Bread v Vero Insurance

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