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Recently, I have been working on several cases alleging negligence against an insurance broker or agent. Here in New Jersey, we have some of the strongest laws in the country helping malpractice litigation against insurance brokers for their errors and omissions.

How does broker negligence come about? The most common example is when you switch from one broker to another. You inform your new insurance broker you want the same coverage you had before or better, but nothing less. Your new broker procures a policy and you sign off on it. Then, whether it be days, weeks, months or years later, disaster strikes. You suffer a catastrophic flood, fire, water, wind or hail loss. No worries, you’re covered! Or so you thought.

It turns out the policy procured by your new broker, did not have the same coverage or limits as your old policy. Your insurance carrier is quick to deny your claim and you’re left holding the bag. What does one do in that situation? Well, you hire a seasoned law firm who handles insurance broker malpractice cases to evaluate your potential matter. When the firm believes you have a strong case the matter moves into litigation within the court system.

As the matter progresses, the insurance broker’s attorney asserts a defense that you as the policyholder had an affirmative duty to not only read your policy but to also take corrective action for any mistakes the policy may hold. You ask your lawyer, “Can they do that? Can I be held responsible for not reading that 50-page document full of terms and exclusions that I can’t for the life of me understand?” Well, as all good lawyers will tell you, “it depends.”

In New Jersey, several cases handle an affirmative duty on the insured to read their insurance policy, however all are very factually specific. In Martinez v. John Hancock Mut. Life Ins. Co., 145 N.J. Super 301, 310 (App. Div. 1976) the court noted the general rule in New Jersey has been that an insured is under a duty to examine his insurance policies to make sure the policy is consistent with the coverage he desires. There, the court held that the insured should have read his policy, which was only eight pages to insure he had the right coverage. However, the court distinguished the matter from several other more factually specific cases. In Bauman v. Royal Indem. Co., 36 N.J. 12, 25, 174 A.2d 585 (1961), the court held that where an insured sought renewal of his policy, an insured is permitted to assume the policy issued affords coverage no less restrictive than that given in the policy being replaced. In Gerhardt v. Continental Ins. Cos., 48 N.J. 291, 299, 225 A.2d 328 (1966), the policy was found to be lengthy, impossibly complex and affirmatively misleading which provided the basis of the court’s opinion that the insured could not be held to have an affirmative duty to understand the policy at issue. In Volker v. Conn. Fire Ins. Co., 22 N.J.Super. 314, 323, 91 A.2d 883 (App.Div.1952), the court carved out an exception relating to cases in which the insured, for some reason outside of their control, has been unable to ever actually see the policy. Finally, in Harr v. Allstate Ins. Co., 54 N.J. 287, 309—310, 255 A.2d 208 (1969), the court held that where the insured was entitled to and did rely upon the representations of an agent as to coverage, the insured can assume that the policy conforms to the representations and he is not barred from an action against the agent for negligence (or presumably against the agent’s principal, the insurer) because he failed to read the policy at all.

For any policyholder in New Jersey, it is always the best practice to read your policy, check your coverages, and make sure they are adequate and what you requested. Always put your insurance requests in writing and if you find an issue, be proactive in resolving your issue with your insurance producer while documenting your requests. If you find your policy too convoluted and complex, check with your broker or agent to make sure the coverages you requested are in the policy. In the end, if you are forced into filing a lawsuit for broker malpractice make sure you go with the right team of attorneys who have experience in handling these types of matters and remember, read your policies!

  • shirley heflin

    Dear Sir:

    It’s nice to see that N.J. is an “E&O” friendly state for the Insured. Insurance Agents – as with any other professional – should be held accountable for not doing what they were paid to do. Indeed, that’s why many people hire Insurance Agents/Brokers. They provide a “safety net” of knowledge and the Insured relies upon their advice to ensure appropriate and full coverage. If a claim occurs and coverage is denied because of bad advice, then the Agent/Broker should be financially responsible.

    Respectfully,
    SHIRLEY HEFLIN
    Tampa, FL

  • The issue is how precisely the coverages should or can be matched. If someone is moving from a State Farm homeowners package to a Travelers homeowners package, the Travelers agent has no idea EXACTLY what coverages are provided by the State Farm package. Professional liability hinges on what the agent reasonably could or should have done. If the old package included and NFIP flood policy and the agent doesn’t continue that coverage, that’s probably a valid E&O claim. But if the coverage language for damage arising from a burst water pipe is different, it’s likely unreasonable that an agent could be held responsible for knowing every provision of every policy in the marketplace.

    • Michael Buonocore

      Thanks for the comment and I agree, it is always factually specific and you gave two very good examples of such situations.