Legal Updates for Insurance Agents & Brokers
Duties Owed To Policyholders In New Jersey
Edited by Timothy G. Ventura, Esq.
Under New Jersey law, insurance producers—including brokers and agents—owe a fiduciary duty of care to their policyholder clients that “gives rise to a duty owed by the broker to the client ‘to exercise good faith and reasonable skill in advising insureds.’” Aden v. Fortsh, 169 N.J. 64, 79 (2001). As set forth in Rider:
One who holds himself out to the public as an insurance broker is required to have the degree of skill and knowledge requisite to the calling. When engaged by a member of the public to obtain the insurance, the law holds him to the skill, care and diligence in the execution of his commission. . . . If he neglects to procure the insurance or if the policy is materially deficient . . . because of his failure to exercise the requisite skill or diligence, he becomes liable.
42 N.J. 465, 476 (1964). This duty requires the producer to: (1) procure the insurance requested by the client; (2) ensure that the policy they obtain, if available, is neither void nor materially deficient; and (3) supply the coverage that he or she undertook to supply.
As broad as the duty has been defined in New Jersey, our courts will hold agents and brokers to an even higher standard where a special relationship is found. When there is a special relationship between the insurance producer and the client which indicates reliance by the client on the producer, the producer has a duty to advise the client of various aspects of insurance coverage. Thus, an insurance agent may assume duties in addition to those normally associated with the agent-insured relationship, and New Jersey courts regularly review the record for evidence of greater responsibilities. Glezerman v. Columbian Mut. Life Ins. Co., 944 F.2d 146 (3d Cir. 1991).
In the recent case of C.S. Osborne & Co. v. The Charter Oak Fire Insurance Co., 2017 N.J. Super. Unpub. LEXIS 1051 (App. Div. 2017), C.S. Osborne’s $1 million limit on its flood coverage was insufficient to cover its loss as a result of Superstorm Sandy. C.S. Osborne claimed the broker had a duty to provide additional quotes for higher flood insurance limits and that the broker breached that duty when it failed to do so throughout the course of their twelve-year relationship. C.S. Osborne argued the broker had a “special relationship” with it and, therefore, a higher level of duty because it been handling their account for eleven years, a broker representative had toured the facility at least twice, and there was correspondence indicating the broker, after assessing C.S. Osborne’s risk profile, had recommended a variety of types of coverage for the company.
The Appellate Division disagreed. The court determined that a special relationship did not exist between C.S. Osborne and its broker because the broker “never told plaintiff anything that would reasonably cause plaintiff to rely on his quotes as recommendations for the proper amount of insurance coverage,” and “[a]n insurance broker is not an insurance consultant; if plaintiff wanted an insurance consultant, it could have retained one.” Moreover, the court noted that the broker had notified the plaintiff of its ability to offer more insurance coverage, that the broker did not have any more information than the plaintiff, and nothing in the record showed the broker acted to cause the plaintiff to rely on it to recommend the proper amount of insurance coverage. Therefore, absent a special relationship, a carrier or its agents has no common law duty to advise an insured concerning the possible need for higher policy limits upon renewal of a policy.
Whether a special relationship exists is a determination to be made by the court. Wang v. Allstate, 125 N.J. 2, 11-12 (1991). In order to determine whether a special relationship exists with a policyholder must be determined based on the specific facts of the relationship. Sobotor v. Prudential Property & Casualty Ins. Co., 200 N.J. Super. 333, 338 (App. Div. 1984). Factors include: (1) whether advice was given on coverage and policy limits previously; (2) whether the producers website promises to provide advice on insurance needs; (3) the length of the relationship; (4) the comprehensiveness of coverage; (5) the extent the producer plays in decision-making; (6) whether a fee is charged above the earning of commissions; (7) any reliance on part of the policyholder; and (8) whether the producer claims to be an expert in a certain type of risk. As these judicial investigations into the parties' relationship indicate, the client must establish "something more" than a broker-client relationship in order to impose a heightened standard of care on a broker. See, Avery v. Arthur E. Armitage Agency, 242 N.J. Super. 293, 300 (App.Div. 1990). Most importantly a broker's liability turns on whether the broker's conduct invited reliance, or the client's conduct exhibited or justified a claim of reliance.
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