As a follow-up to my earlier series on broker negligence in New York and New Jersey, a New Jersey judge, applying New York law, has denied a motion for summary judgment by the broker where the brokerage is alleged to have negligently failed to advise its client it needed a flood policy for a warehouse prior to Superstorm Sandy. The case is Fox Paper Ltd. v. Hanover Insurance Company.1

Fox Paper is a manufacturer of party supplies, with offices and a warehouse in Brooklyn, New York. The broker, Sano Brokerage Company, procured insurance for Fox Paper through co-defendant, Hanover Insurance Company. When Superstorm Sandy hit in October, 2012, Fox Paper’s warehouse was alleged to have been severely damaged as a result of the storm, and the insurance company denied coverage, stating the loss was flood related. Fox Paper filed suit against the broker for failing to advise that flood insurance was needed.

Based on the parties’ “substantial connections” with New York, Judge Natali of the Superior Court of New Jersey, Middlesex County, is applying New York law, where contrary to New Jersey law, a broker is generally not viewed as a fiduciary owing a higher professional standard of care, but rather requiring the broker to be “in a special position of confidence of trust” with a client.

Based on the long standing relationship between Fox Paper and the broker, Judge Natali found there was a genuine question of material fact whether there was a special relationship that gave rise to a fiduciary like obligation on the broker’s part.

As there have been many instances following Superstorm Sandy where insureds have learned that they lacked flood insurance, or were underinsured, it is very important when purchasing insurance to read the policy and understand what you are insured for, and ask your broker or agent if there are policies available that have not been discussed.

1 Fox Paper Ltd. v. Hanover Ins. Co., case number MID-L-2818-16 (Superior Court of New Jersey, Middlesex County Oct. 6, 2016).