In a recent Opinion,1 the New Jersey Appellate Division affirmed a large grocery store cooperative’s $12 million trial award against its insurance broker for coverage advice that allegedly left its stores exposed to millions of dollars in Superstorm Sandy damage.
In this case, one month before Superstorm Sandy the cooperative’s long-time insurance broker—with whom it had a contract to procure the best insurance options—recommended the cooperative purchase a policy from Lexington Insurance Company (“Lexington”) instead of Affiliated Factory Mutual (“Affiliated”). The Lexington policy provided $500 million in coverage and a deductible of $25,000 per-store. However, that policy further provided that in the event of a named storm, a 2% named storm deductible applied instead of its normal deductible. In contrast, the Affiliated policy did not include a named storm deductible and would have treated Superstorm Sandy damage claims subject to the policy’s $100,000 per-store deductible.
After Superstorm Sandy, the cooperative claimed approximately $55 million in losses. Of the $28.4 million that Lexington refused to pay, $24 million was attributable to the named storm deductible. The cooperative sued its insurance broker claiming the broker did not meet the standard of care for its industry. At trial, the jury found the broker liable to the cooperative for breach of contract, breach of fiduciary duty, and professional negligence and awarded the cooperative $12 million in damages.
The appellate court refused to reverse the jury’s verdict. Noting that under New Jersey law, an insurance broker has a fiduciary duty to the client to exercise good faith and reasonable skill in advising insureds, the appellate court ruled sufficient basis existed for the jury’s finding that the insurance broker caused the cooperative’s damages by failing to provide accurate information about the named storm deductible and recommending the cooperative bind the Lexington policy.
Therefore, the broker was liable to the cooperative because it did not supply complete information about the ramifications of the named storm deductible such that it would have explored the availability of a better policy.
This case highlights how, in the State of New Jersey, an insurance broker is not merely an “order taker” responsible only for completing forms and accepting commissions.
1 Wakefern Food Corp., et al. v. BWD Group, LLC, No. A-1662-18T1, 2020 WL 1696658 (N.J. App. Div. April 8, 2020).