FSCL Case Study

We are starting to see a few complaints about insurance brokers arising out of Covid-19 disruption and expect we may see more as time goes on.

We anticipate that as clients, in particular small businesses, discover that their insurance policy does not cover them for losses arising from a pandemic, they will turn to their broker asking why they were not given a policy that would cover pandemics, or why they were not told that there was no cover for pandemics, which would have enabled them to better prepare for a loss or shutdown of business as a result of a pandemic.

In one complaint that is currently being investigated, it appears that the broker gave misleading advice about the extent of cover under the policy, so that the client thought they had broad cover for a pandemic, when in fact the level of cover available was far more limited. Although in this particular case, there may not have been any cover available for a pandemic, we will have to look at the inconvenience caused to the client, who would have arranged his business commitments differently had he not received misleading information from the broker.

As with so many complaints we investigate, clear communication and good record-keeping are key.

The first case note below concerns poor communication by the broker in not fully explaining the type of cover to the client and the circumstances in which cover under the policy would be triggered. That communication led to the broker losing the client and paying compensation for inconvenience.

In the second case, again the client had not understood the type of insurance cover he had bought. The client thought that his income protection policy would cover him if he was made redundant when, in fact, the policy only provided cover in the event of disability. The client blamed his broker for arranging the wrong type of cover.

Fortunately, the broker had very good records which did not support the client’s recollection and so we did not uphold the complaint. However, the complaint may have been avoided altogether if the broker had taken more time and care in fully explaining the policy benefits to the client at the time the client bought the policy.



The insured operated a natural beauty product business and imported a mixed-fungi product to make his lotions. One fungus became listed as a “new organism” and was prohibited from entering New Zealand. The insured contacted his manufacturer and requested that his mixed-fungi orders exclude the prohibited fungus. 

A shipment of fungi was caught at the border and quarantined by border security. The insured needed the mixed-fungi product immediately for his lotions so that the lotions could enter the market at the most profitable time of the year. To avoid missing this window, he had to have another batch of fungi flown to New Zealand. 

Unfortunately, the air-freighted fungi did not arrive in time and he was not able to sell his lotions within the window of demand. The insured lodged a business interruption claim to claim for his lost income and a marine cargo claim for the spoiled shipment. 

In the meantime, it came to the attention of the relevant Government Ministry that the ingredient list on the quarantined bottles of the shipped product included the prohibited fungus. The insured, with the support of the manufacturer, said that the product was incorrectly labelled and did not contain the prohibited fungus. The Ministry tested the shipment. The investigation found the prohibited fungus and then destroyed the shipment. The insured contacted his broker to ask it was possible to claim under his statutory liability policy for this further loss. 

After an extended period, he did not receive any updates from his broker about his claims. He began to feel increasingly desperate for information and complained to his broker. 

When the broker told him that he was only covered for his marine cargo claim, the insured alleged that his broker had failed to arrange the insurance that would have covered his other loss. He also felt that the service and communication from his broker was unsatisfactory. He complained to FSCL. 


The insured complained that his broker failed to provide product recall insurance that would have responded to the situation that had caused his financial loss. After complaining to FSCL, he moved his business to a new insurance broker who said he had identified a policy that would have responded to his loss. The insured also believed that his previous broker’s service, when he was making the claims, was unacceptable. He felt that he was not given any information about progress on his claims and that his broker had failed to advocate for him to the insurer. 

The broking firm stated that there was no insurance policy that would have responded to the loss caused by the Ministry quarantining and destroying the fungus. The firm felt that the broker had been diligent and had apologised for any mistakes that occurred throughout the claims process. 


We explained to the insured that we could only require the broker to compensate him for any financial or economic loss that was a direct cause of the broker’s actions or omissions. 

We asked him to provide a copy of the policy that his new insurance broker said would have covered his situation. After considering the insured’s situation, we formed the view that although the policy provided his  business with some extra benefits, it did not cover this particular loss.

This was because the policy provided for “product recall”, which was the recall or withdrawal of the sale or use of the insured’s product. The quarantining and destruction of  imported fungi was neither recall nor withdrawal. The policy also required the product to be defective for there to be cover. The fungus was as it was supposed to be, but it was now on a list of banned substance. 

We recommended that the insured contact his supplier to seek a remedy for his loss. The manufacturer of the fungi had erroneously confirmed in writing that the fungus being quarantined was because of a labelling issue, not because it contained the prohibited fungus. We found that his loss was the result of the manufacturer’s error, not any fault by his broker. 

However, although some parts of the insured’s claims had been handled diligently, we considered that, overall, the level of communication was inadequate. The broker had not responded to direct questions and had failed to keep him informed about any developments on his claims. 

Cover under the insured’s statutory liability policy would only be triggered if he was prosecuted. The Ministry never laid charges against him in relation to the product and the policy did not respond to the situation. The broker was aware of this from the outset but did not explain this to the client. The communication fell below an acceptable standard and had caused the client to lose faith in the competency of his broker. 


We found that the client’s financial loss was not his broker’s fault, but the level of service and communication was not satisfactory and caused unnecessary stress and inconvenience. We proposed that his broker pay compensation of $1000. 

The parties accepted our proposed resolution.


CASE TWO: Good written records save the day

The insured believed he had arranged income protection cover for redundancy in 2012 through an insurance adviser who worked for a large company. He did not think too much about it again until 2020 when he was made redundant. He contacted his insurer and discovered that the redundancy income protection cover he thought he had arranged, was in fact disability income protection cover. When he was unable to resolve the complaint directly with the adviser, he referred the complaint to FSCL.


He complained that his adviser had failed to follow his instructions. He would never have asked for disability income protection cover because he already had disability cover through another provider. He also said that English was his second language and he may not have understood the word “redundancy” when he applied for the insurance. However, he said he certainly told the adviser that he wanted insurance to cover him if his employer “got rid of me”.

The adviser’s company replied that the adviser the client spoke to in 2012 no longer worked for the company, but all the records related to disability cover, not redundancy cover. The insurer had sent him both the policy and a summary setting out the cover available. All the information related to disability. The company also said that the client did not tell it about the existing disability cover he had in place. He had only mentioned a life insurance policy through a bank. He had not asked for a comprehensive insurance review and the advice had been limited to disability insurance cover.


It is not unusual for us to have to evaluate events that happened a long time ago. We were fortunate in this instance that the adviser had kept clear records. The written records contained no reference to redundancy cover in either the fact find or the actual insurance application.

The client obviously did not have written records to fall back on. We did give considerable weight to his recollection, given that this would have been an important and unusual event in his life.

However, the written record was overwhelming, particularly the insurer’s letter, which set out clearly and in a straightforward manner the cover he had purchased. We considered that if he had read this letter, as well as the letter from the adviser, he would have been in no doubt that he had purchased disability cover. If he had realised the mistake in 2012, the misunderstanding would have been rectified within the insurer’s “free look” period.

We did take into account that English was his second language, but noted that the adviser had recorded on the form that he was very well qualified and held the equivalent of a tertiary education.


We were unable to uphold the complaint. The client was very disappointed but agreed to discontinue his complaint.

June 2020

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