Professional Indemnity FAQ

Professional Risks that come with Premium Funding

Professional Risks that come with Premium Funding

For many of us Insurance Brokers, we have probably taken for granted our own professional exposure when it comes to arranging Premium Funding for our clients.

For the uninitiated, premium funding is what we call when a short term loan is arranged from a finance company to pay insurers the premium, but repayments are made monthly (usually ten months but no more than a year) back to the financier. Simply the Insurance policy is the security. If they default on the repayments, the policy is cancelled and any refund is returned to the premium funder/financier to pay off the outstanding amount.

But what happens if the Broker has arranged a non-cancellable policy? Is the Broker obligated to inform the Premium Funder? Afterall, sometimes a small commission is earnt for connecting the client to the Premium Funder.

It appears the High Court has determined the issue in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited [2010] HCA 31.

Briefly the facts are that Consolidated Timber Holdings Limited ('Consolidated Timber') retained an insurance broker, Miller & Associates Insurance Broking Pty Limited ('Miller'), to negotiate a $3.975 million loan with a financier, BMW Australia Finance Limited ('BMW'), on its behalf. .The cancellability of the policy in this case was not subject to any express communications between Miller and BMW.

Consolidated Timber ultimately defaulted on the loan, leaving BMW unable to recover $2.715 million of the $3.975 million borrowed. It commenced proceedings against Miller in the Victorian Supreme Court alleging, relevantly, that Miller had engaged in misleading and deceptive conduct contrary to s52 of the Trade Practices Act 1974 in:

The primary judge found against BMW, but it successfully appealed to the Victorian Court of Appeal. Miller then applied to the High Court for special leave to appeal. The High Court unanimously found for Miller, overturning the Victorian Court of Appeal's decision and reinstating the decision of the primary judge.

According to the majority, the relevant circumstances in this matter were that:

  • BMW failed to make reasonable inquiries following receipt of the certificate, which put it on notice that the underlying policy may be an unusual one
  • There was nothing in the conduct of the parties to put Miller on notice that BMW was under a misapprehension that the policy was cancellable, or that cancellability was important to the determination application. In fact, BMW's requested directors' guarantees suggesting not.

The policy was not a lengthy document and apparent it was not a property policy, nor cancellable.

It was not disputed that Miller knew that the cancellability of insurance was important to a premium lender's determination of a loan application. Nevertheless, in light of the factors referred to above, the majority held that: 'There was no foundation for the conclusion that the known importance of cancellability gave rise to a reasonable expectation,With respect to the policy wording itself, the majority considered that 'Miller's failure to draw to BMW's attention a circumstance that the document itself disclosed was not misleading or deceptive.'

Similarly, Chief Justice French and Justice Kiefel noted that the knowledge of the person to whom the conduct is directed, and 'the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business' may be relevant in characterising conduct in commercial dealings. They concluded that '..as a general proposition, s52 does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party. A fortiori it does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence.'

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This week it was announced as part of Small Business Week,  that Robert has been named one of the 100 faces of small business for a State Government promotion on the great value that small businesses play in the State of Queensland.

You can see Robert's entry here:

It is the third accolade for CPR Insurance Services in a month and after seven and a half years in business is a real pep up for the company.

For Robert, it is the culmination of many years experience, becoming well qualified, experiencing the highs and lows of a career and always wanting to contribute to his community. Sometimes, these things just come together and you receive recognition for your efforts.

Robert says that there is no doubt that starting your own business is a huge challenge, but with the right research and planning, the right people around you and a good set of values that you apply to the vision of the company, you have a very good chance of making it all succeed.

Robert says he is lucky. He has a strong supportive Wife, Mandy, who is also part of the business, along with efficient and hard working staff such as Julia McLauchlan and Aidan Harmer who are building up their own skills in a learning environment. 

However, the most important and most supportive people for CPR Insurance Services are our clients who have stuck by us and supported us over the past seven years. Our focus remains on providing the best possible service we can and always acting in their best interests. To all our clients, we say thank you!

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Judging came from various parts of the industry. It is a great honour to be recognised for our hard work and particular Business values we follow. A full list of winners is listed here.

Success comes from having great staff, and we thank Aidan Harmer and Julia McLauchlan as important support staff for helping us win such an award.

CPR Insurance has been in operation for more than 7 years now and is only successful because of the wonderful support from our staff, insurers and most importantly, our fantastic clients who put their faith and trust into our company to be their Risk Advisers and Brokers. 

Thank you to all.

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