An insurer may seek indemnification from a broker who sells the insurer’s product, but the broker may not be entitled to indemnification from the insurer

Application by a broker for an order declaring insurer liable to indemnify or make contribution to him for the settlement paid to insured plaintiffs was dismissed. The law of agency precluded the relief the broker sought because the insurer was entitled to indemnity from the agent for his negligence in handling the insured plaintiffs’ policy. As a negligent agent, the broker was not entitled to indemnity from his principal.

Burndred v. Topley and Sanders Investments Ltd., [2009] A.J. No. 1495, September 23, 2009, Alberta Court of Queens Bench, E.A. Hughes J.

Insurance broker brought an application for an order declaring that the insurance company he worked for was liable to indemnify him for a settlement reached with insureds who alleged that the broker negligently handled their policy application.

The broker had an Agency Agreement (the “Agreement”) with the insurer which allowed him to solicit applications and issue binders and policies according with the Agreement and the insurer’s instructions. The agreement also provided that the insurer would indemnify and hold the broker harmless against liability to policy holders caused solely by the insurer’s error in processing the broker’s business. The broker argued that the insurer was vicariously liable for his negligence and, therefore, a joint tortfeasor. The broker further argued that, as a joint tortfeasor, the insurer owed him a right of contribution and indemnity pursuant to s. 3(1)(c) of the Tortfeasors Act.

The court agreed that the insurer was vicariously liable for the actions of the broker, regardless of the fact that the broker acted negligently. However, whether or not the insurer was considered a joint tortfeasor was not material, as s. 3(1)(c) provides that a party may be liable as a joint tortfeasor or otherwise. However, section s. 3(1)(c) also states that “no person is entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability regarding which the contribution is sought.” The court therefore stated that the question was whether the “damage” referred to in the section falls within the meaning of the phrase “the liability regarding which the contribution is sought.” The court went on to answer that question in the affirmative. It stated that an insurer, as principal, has a right of indemnity against its agent. Therefore, the situation between the broker and insured fell within the exclusion in s. 3(1)(c). Further, the court stated that each party cannot have a right of indemnity against the other, and here it was the insurer that had a right of indemnity against its negligent agent, the broker. Therefore, the application was dismissed.

This case was originally summarized by Natasha Morley and originally edited by David Pilley of Harper Grey LLP.

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