The insured owned a fish and chip shop and arranged insurance cover for material damage through her broker. The fat in the shop’s deep fat fryer overheated and caught fire destroying the shop. The insured made an insurance claim.
The insurance assessor determined the fire was caused because an integral part of the deep fat fryer cut-out switch had been removed, meaning that the heating element in the deep fat fryer overheated the fat to the point where it ignited. The insurer declined her claim because she was unable to show that she had complied with her obligations under the commercial cooking warranty in the policy to have the deep fat fryer serviced annually. If the deep fat fryer had been properly maintained the cut-out switch would have stopped the fat from overheating, avoiding the fire.
The insured said she was unaware the policy contained a commercial cooking warranty, which was her undertaking to the insurer that she will maintain and service the deep fat fryer annually, to minimise the fire risk posed by deep fat frying. She complained that the broker did not tell her she needed to have the deep fat fryer serviced annually to maintain insurance cover.
After the fire, she read the annual renewal letter, the policy schedule, and the policy document. Although the annual renewal letter advised her warranties applied, and that she should read the policy as the warranties would affect her cover, the policy schedule stated that no warranties applied. The policy itself stated that warranties only become part of the policy if they were listed on the policy schedule.
In the insured’s view, the commercial cooking warranty was not listed in the schedule, therefore it was not part of the policy, she was not obliged to have the deep fat fryer serviced annually and the insurer should not have declined her claim.
She wanted the insurance broker to cover her loss.
The insurance broker agreed it had made a mistake by not listing the commercial cooking warranty on the policy schedule. The commercial cooking warranty had been listed on the schedule when the policy was first placed a few years earlier, and at every annual renewal except the most recent one. The insurance broker also said it would have told the client about the commercial cooking warranty when the policy was placed four years earlier.
The broker advised, and the insurer confirmed, that the insurer would have been highly unlikely to insure a fish and chip shop without a commercial cooking warranty. Because deep fat fryers pose a high fire risk if they are not properly cleaned and maintained, it is standard practice to include commercial cooking warranties when insuring fish and chip shops.
In the broker’s view, even if it had included the commercial cooking warranty on the schedule, the insured would not have acted any differently. She would not have had the deep fat fryer serviced, the deep fat fryer would have caught fire and the insurer declined the claim.
The broker declined to pay compensation and the client complained to FSCL.
We considered her submission that the commercial cooking warranty did not form part of the policy and therefore she did not have to comply with the warranty’s terms. However, this approach seemed inherently unfair. In our view, the broker’s error did not cause the insured’s loss. By her own admission she said that she had not read the policy schedule or the policy itself. The loss was not caused by the broker’s error, but by her failure to:
• read the policy as directed by the broker every year at
renewal time
• service the deep fat fryer at least once a year
• notice the safety mechanism had been tampered with.
We also considered her submission that the broker had failed to tell her to have the deep fat fryer serviced every year to comply with the policy warranty. We checked with another broker and were advised that this level of advice is unwise. The independent broker advised that best practice would be to:
• alert the client to the warranty
• direct the client to the policy wording and
• leave it to the client to decide what steps to take to satisfy their
obligations under the policy.
Outcome
We recommended the complaint should not be upheld. We considered the client knew, or should have known, that the warranty was intended to apply. The loss was not caused by the broker’s error, but by her failure to read the policy to understand her warranty obligations and take steps to satisfy those obligations.
