By: Richard Trenk, Esq., Franklin Barbosa, Jr., Esq., and Michael Mondelli, III.
Richard Trenk and Franklin Barbosa, Jr., are attorneys at Trenk, DiPasquale, Della Fera & Sodono, P.C. Michael Mondelli, III, is a summer law clerk at Trenk DiPasquale and a third-year law student at Seton Hall University School of Law.
Insurance is one of the most overlooked and misunderstood commodities purchased by nearly all individuals or businesses. Insurance coverage is critical and offers invaluable protection against the many risks and dangers that may befall an individual or business. As per Murphy’s law, anything that can go wrong will go wrong, and thus it is important to have adequate coverage in place when a challenge inevitably arises.
Herein lies the role of the insurance broker. Insurance brokers, once retained, are responsible for procuring insurance coverage that is tailored to meet a client’s particular needs and minimize the client’s risk exposure. For that reason, brokers are required to exercise a duty of care when dealing with clients. Under New Jersey law, insurance brokers owe the following duties to their clients: (i) having the knowledge and skill necessary to carry out their employment responsibilities; (ii) exercising good faith and reasonable care, diligence, and skill in the execution of their employment responsibilities; (iii) possessing “reasonable” knowledge of available policies and terms of coverage in the areas in which the insured seeks coverage; and, (iv) procuring the necessary coverage tailored to meet a client’s needs and wants, or advise the client of their inability to procure the desired coverage. See Rider v. Lynch, 42 N.J. 465, 476-77 (1964).
The average individual or business owner justifiably assumes that the insurance broker has performed his/her duties to the best of his/her abilities. Sometimes, however, brokers fail to adhere to their mandated duties and leave insureds exposed to unnecessary risks and liabilities. In assessing whether a broker failed to meet their duty of care, insureds should look for certain telltale signs, such as the following: (i) failure to procure the insurance coverage requested; (ii) invalid, illusory, or deficient coverage; (iii) coverage that does not cover the risks or liabilities that the broker said it would cover; or, (iv) lack of coverage for certain risk factors that directly affect or apply to the client. The presence of any of these factors could signal a valid cause of action for broker negligence and/or malpractice.
In recent years, brokers have tried to use automation processes to limit their liability for negligence or malpractice. For example, brokers will often send mass mailings to clients vaguely notifying them of possible coverage deficiencies and/or the general availability of greater coverage limits. Unfortunately, courts have occasionally found that even the most perfunctory forms of notice adequately put clients on notice of deficient coverage or the availability of greater coverage limits, and thus satisfy the broker’s duty to its clients. C.S. Osborne & Co. v. Charter Oak Fire Ins. Co., 2017 WL 1548796, (N.J. Super. Ct. App. Div. May 1, 2017). This practice, however, does not completely insulate brokers from the duty to diligently provide adequate coverage to their clients.
For example, the duty of care owed by brokers is largely informed by industry standards. When a broker’s conduct falls below these industry standards, the duty of care owed to the client is breached. Industry standards and customary practices dictate that brokers are responsible for providing the following services: (i) surveying business operations for the purpose of identifying exposures; (ii) analyzing exposures in relation to the available and applicable policy coverages, exclusions, and endorsements; (iii) completing all applications necessary to acquire the desired or selected coverages, limits, and coverage-extending endorsements; and (iv) reviewing policies, especially during renewal periods, to assure that they are maintained accurately and properly, and continue to provide coverage against the client’s exposures without any lapses or gaps in coverage.
Brokers can also be subjected to a more exacting and strict duty of care where a “special relationship” exists between a broker and the insured. A special relationship exists where a broker invites reliance upon their expertise, as evidenced by the broker’s conduct and whether the client clearly exhibited reliance. Where an average, unsophisticated insurance consumer requests the “best” coverage available or otherwise notifies the broker that it is relying upon the broker’s expertise, a special relationship is formed. Asking for the “best” available coverage creates a heightened burden on the broker to adequately explain all relevant, applicable coverage options and limits. The existence or creation of a special relationship is the best way to ensure that your rights as an insurance consumer are preserved and protected.
It may seem as though purchasing insurance coverage is a fairly innocuous transaction, but inadequate coverage can expose an insured to suffocating liabilities potentially amounting to millions of dollars. That is why it is essential that you remain vigilant of the duties owed by a broker, carefully choose your coverage, and consult an attorney if you believe the broker has violated the duty of care owed to you.
Richard D. Trenk and Franklin Barbosa, Jr., of Trenk DiPasquale have vigorously litigated claims against insurance brokers and agents. They are available for consultation to help you determine whether you have a viable claim against your broker.