Yann operates a natural beauty product business and imports a mixed-fungi product to make his lotions. One fungi became listed as a ‘new organism’ and was prohibited from entering New Zealand. Yann contacted his manufacturer and requested that his mixed-fungi orders exclude the prohibited fungi.
A shipment of Yann’s fungi was caught at the border and quarantined by border security. Yann 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, Yann had to have another batch of fungi flown to New Zealand.
Unfortunately, the air-freighted fungi did not arrive in time and Yann was not able to sell his lotions within the window of demand. Yann 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 Ministry that the ingredient list on the quarantined bottles of Yann’s shipped product included the prohibited fungi. Yann, with the support of the manufacturer, said that the product was incorrectly labelled and did not contain the prohibited fungi. The Ministry tested the shipment. The investigation found the prohibited fungi and the shipment was destroyed. Yann contacted his broker to raise the possibility of claiming under his statutory liability policy for this further loss.
After an extended period, Yann did not receive any updates about his claims. He began to feel increasingly desperate for information and made a complaint to his broker.
When the broker told Yann that he was only covered for his marine cargo claim, Yann alleged that his broker failed to arrange the insurance that would have covered his other loss. Yann also felt that the service and communication from his broker was unsatisfactory. He complained to FSCL.
Yann 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, Yann moved his business to a new insurance broker who said he had identified a policy that would have responded to Yann’s loss. Yann also believed that his previous broker’s service when he was making the claims, was unacceptable. He felt that he had no information about any developments in his claims and that his broker had failed to advocate for him.
The broking firm stated that there is not an insurance policy that would have responded to the loss caused by the Ministry quarantining and destroying the fungi. The firm felt that the broker had been diligent and had apologised for any mistakes that occurred throughout the claims process.
We explained to Yann 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 Yann to provide a copy of the policy that his new insurance broker said would have covered his situation. After considering Yann’s situation, we formed the view that although the policy provided Yann’s 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 Yann’s imported fungi was neither recall or withdrawal. The policy also required the product to be defective in order for there to be cover. The fungi was as it was supposed to be, but it was now on a list of banned substance.
We recommended that Yann contact his supplier to seek a remedy for his loss. The manufacturer of the fungi had erroneously confirmed in writing that the fungi being quarantined was because of a labelling issue, not because it contained the prohibited fungi. We found that Yann’s loss was the result of the manufacturer’s error, not any fault by his broker.
Although some parts of Yann’s claims had been handled diligently, we considered that overall the level of communication was poor. The broker had not responded to Yann’s direct questions and had failed to keep him informed about any developments in his claims.
Cover under Yann’s statutory liability policy would only be triggered if Yann was prosecuted. The Ministry never laid charges against Yann 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 Yann. The communication fell below an acceptable standard and had caused Yann to lose faith in the competency of his broker.
We found that Yann’s financial loss was not his broker’s fault, but the level of service and communication was not satisfactory and caused Yann unnecessary stress and inconvenience. We proposed that his broker pay Yann compensation of $1000. Although this wasn’t the outcome that Yann was looking for, he signed a settlement form and accepted the payment from his broker in full and final settlement of the complaint.
Insights for participants
Good communication is essential to your relationship with your clients, especially when you are delivering bad news. Be up front about policy limitations and keep your clients informed throughout the claims process, even if you do not have much progress to report.