Supreme Court, 3 October 2005, Litigation concerning insurance premiums and fraudulent acts
An insured paid his premium to a broker, who did not forward it to the insurer. Shortly thereafter, a loss occurred and the broker admitted that it had received the premium and that it had never forwarded it to the insurer.
It should be noted that the premium had not been paid in full by the insured. Therefore, the insurer maintained that, in addition to the misappropriation of funds, there had been a breach of duty on the part of the intermediary because it had not requested that the insured pay it the balance still due. The insurer compensated the client and sued the broker on these two grounds. The broker’s defence was that it could not be held solely liable due to the fact that the client had failed to pay the remainder of his premium and, therefore, the client should also be held liable for the loss sustained by the insurer.
The Court of Appeal held the broker liable and ordered it to reimburse the insurer for the amount of the indemnity paid. The intermediary therefore appealed to the Supreme Court. The Supreme Court also held against the broker on the grounds the broker was at the origin of the loss caused to the insurer.
In addition to the issue of misappropriation of funds, this case raised the issue of which party had caused the loss to the insurer: the insured because he had not paid a sufficient sum to be compensated for his claim under the terms of the policy, or the broker for not having requested payment of the sum still owed? The court ruled against the broker on the grounds that had the broker fulfilled its obligations, the insured would have paid the correct amount of premium. This judgment highlights the need for intermediaries to prepare documentation in advance certifying that it has properly fulfilled its obligations to the insured. This could have enabled the broker to prove that it had warned the insured of the risks inherent in a partial payment of the premium, and thus mitigate its liability.