QUESTION: I began a relationship with a broker in April 2008. It started when I purchased my first car. I had had my driver's licence for only one month. I paid $117,000 for comprehensive coverage. After one year, during which I had no accident, I asked them to find a less expensive insurer. They found another company, which quoted $77,369.60. I accepted it and signed an agreement on April 9, 2009.

I paid about $40,000 in cash and financed the balance. In May, the front windshield of the car was broken while it was parked in New Kingston. The brokers told me after I handed in the claim that my premium had not been paid to the insurers and that the claim would not be processed until it was received. I used my credit card to buy a new windshield at a cost of $20,970 and handed the receipt to the brokers. After about a month of making no headway with the claim, I got a letter dated June 12, 2009, from the brokers. It said that my premium had been miscalculated at inception and that I had to pay an additional $19,292.40.

There should have been a 25 per cent loading on my premium since my driver's licence was under two years old. I did not have the money. I was also afraid of losing my insurance coverage, so I asked if the windshield claim could be used to cover the outstanding amount. The brokers said that they would try to solve the problem.

On July 27, I received a registered letter from the insurers. It was dated July 15. It said $19,292.40 had been outstanding over 60 days and that my policy would be cancelled on July 25. When I contacted the brokers, they said that they had received a copy of the letter, were working on it, and that they would be in touch with me. Nothing has happened.

My questions are: 1) Do I have to pay the additional amount? 2) Can the insurer refuse to pay the claim until the outstanding payment is made? 3) Should I deal directly with the insurers, or leave the brokers to handle the situation despite the blatant inefficiencies? 4) Can the brokers be made to pay the outstanding premium since they were at fault? 5) Can I ask for a refund and/or cancel the policy and then reinsure with another company for the remainder of the year? 6) Will I be penalised for early cancellation?

- claudjab@hotmail.com

ANSWER: You have more common sense, know a lot more about how successful businesses operate and more about insurance than the persons who work at your broker.

I concluded this after studying your email and spending some time on Wednesday in conversation with 'your agent' and her supervisor.

Ironically, I believe that these persons are registered as sales representatives of the broker in accordance with Sub-section (2) of Section 72 of The Insurance Act, 2001. Information posted on the website of the Financial Services Commission - the body that regulates the insurance industry - indicates that your broker is listed among those entities that have received licences to operate in compliance with the law.

The aim of my conversations was to persuade your brokers that they had made a mistake in calculating your premium this year. A guilty plea with an explanation was offered. The actual premium loading was 50 per cent and not 25 per cent.

The insurers had agreed to accept the lower loading because of their actions.

I argued that the error was solely of their making and you had made arrangements to pay $77,369.60 weeks before.

They should absorb the additional premium in the interests of good customer relations. The deafening silence at the other end of the line said no way. I learnt afterwards that the insurers had agreed to use the claims proceeds to settle the outstanding premium. They consider the problem resolved.

Question Nos. 1 and 4

This outcome does not satisfy me. The broker's actions are, in my opinion, unjust and indecent. In all probability, they are contrary to contract law and to the letter and intent of the Fair Competition (FC) Act. They are also operating in complete ignorance of the Insurance Act. Section 37 (1) of the FC Act says: "A person shall not, in pursuance of trade ... the supply of goods or services ... (a) make a representation ... that is false or misleading or is likely to be misleading in a material respect."

Given the fact that you are now out of pocket to the tune of $19,242.40 after you made arrangements to pay the premium that you were quoted in April, I would strongly recommend that you file a complaint against your brokers with the Fair Trade Commission.

Question No. 2:

Sub-sections (1) and (2) of the Insurance Act answer your question. They say that "a broker shall, for the purpose of receiving any premium ... be deemed to be the insurer's agent" and that "an insurer on whose behalf a broker ... has received the premium or part thereof, shall accept liability arising under the policy, notwithstanding that the insurer has not received the premium".

Question No 3:

The brokers are a waste of time. Speak with the insurers to find out how they would service your account and then decide.

Question Nos. 5 and 6:

Pose these questions to the insurers.

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. Email: aegis@cwjamaica.com or send SMS text message to 812-7233.