When evacuating their homes to flee Hurricane Sandy, many folks in New Jersey felt secure in the fact that purchased insurance for their property and they were covered if damage occurred. When they returned to battered and broken homes, they made their calls to report their claims. Many have now learned they are severely underinsured or perhaps not insured at all for the types of perils that damaged their homes. Some are asking, “Who is going to pay for the damage to my property?” In many instances, the answer could be their insurance broker.
It is well settled law in the Garden State that an insurance broker owes a fiduciary duty of care to the insured.1 “A broker is not an ‘order taker’ who is responsible only for completing forms and accepting commissions.”2 Further, “an insurance broker who agrees to procure a specific insurance policy for another but fails to do so may be liable for damages resulting from such negligence.”3 Accordingly, if someone asked their broker to obtain a policy to protect their property and they are underinsured, the liability will likely be on the broker. The average person is not an expert on policy language and coverage and may not know how to read a policy. “Liability resulting from the negligent procurement of insurance is premised on the theory that a broker ‘ordinarily invites [clients] to rely upon his expertise in procuring insurance that best suits their requirements’.4
Accordingly, the law requires an insurance broker to possess reasonable knowledge of the types of policies, their different terms, and the coverage available in the area in which his principal seeks to be protected.5 The New Jersey Supreme Court has acknowledged that a broker is required to be an expert of sorts. Brokers, as experts in the field, invite the public to rely upon their service. The law clearly requires brokers to do more than simply fill out forms at the client’s request and collect renewal checks. Rather, brokers must investigate the property to be insured and provide the client with options for coverage that will protect against all potential perils. The decision then becomes the clients’, and they must decide how much coverage they want to purchase.
However, as we have been seeing in New Jersey, this does not often happen. We have heard many cases where homes have been covered with the same policy limits for 20 years and are grossly underinsured. We have seen many people who, unbeknownst to them, were not covered for flood or had huge coinsurance penalties, and they don’t know what coinsurance means. I predict there will be a rash of broker negligence claims in the coming months. Let’s just hope these brokers did a better job of getting their own malpractice insurance than they did for Hurricane Sandy victims.