Australian professional indemnity broker taken to court

One Australian professional indemnity broker was recently taken to court in New South Wales after trying to get out of paying several legal claims on a technicality.

Financial services company Prosperity Advisers, based in Newcastle, has become placed into administration after becoming embroiled in a legal battle with its former professional liability insurance provider in regards to claims from disgruntled investors.  The business liability insurance provider was disputing erroneous advice given to clients of Prosperity during the 2004-2005 financial year that resulted in net losses of millions of Australian dollars (AUD).

In excess of 160 clients sued Prosperity for negligent investment advice.  AUD 17 million in claims were referred to Dexta, Prosperity’s commercial insurance provider.

Prosperity took Dexta to court after the insurer rejected the broker’s position that only one AUD 40,000 deductible excess was payable on all 160 claims.  Instead Dexta had insisted that each claim required a separate deductible.

Legal experts familiar with the case state that it demonstrated how organisations that rely on brokers and do not seek out legal counsel on the adequacy of their business insurance cover have being taking unneeded risks.

According to the NSW Supreme Court, Dexta had breached its duty of care to Prosperity by providing incorrect advice in regards to the legal effect of the excess provisions in its policy.  Legal experts remarked that assessments of insurance cover in regards to the effectiveness in which it meets the needs of a firm needs the input of a lawyer.

The real exposures of a business simply cannot be determined if the person reviewing the customer and employment contracts is not qualified to identify them, legal experts said.  Likewise advisement on whether limits or deductibles are appropriate is impossible without a strong understanding of the principles of insurance law, they added.

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