Since that time, there has been significant push and pull regarding how far the obligations within that standard extend.

In the 1980s, the New Jersey Appellate Division^[2] addressed the question of whether an insurance broker owed a duty to its customer to advise the customer about the availability of higher amounts of underinsured motorist coverage. The Court found that, where an insurance broker holds itself out as having special expertise in the insurance business, an insurance broker does owe a duty to advise an insured regarding the limits of underinsured motorist coverage being purchased, because [r]egardless of the type of coverage sought, a client should be entitled to rely on the special skill and knowledge possessed by the agent in order to best obtain the desired coverage."

Approximately ten years later, the New Jersey legislature reacted by enacting N.J.S.A. 17:28-1.9 which states that:

no person, including, but not limited to, an insurer, [and] an insurance producer ... shall be liable in an action for damages on account of the election of a given level of motor vehicle insurance coverage by a named insured as long as those limits provide at least the minimum coverage required by law or on account of a named insured not electing to purchase underinsured motorist coverage, collision coverage or comprehensive coverage.

In other words, the Legislature removed the potential for liability based upon the limits of motor vehicle coverage purchased, as long as the minimum level of coverage is purchased. That statute also requires that the insurance selection form, which a carrier is required to provide its customer, must contain an acknowledgment by the customer that they are aware the producer will not be held liable regarding the level of coverage selected.

As the case law developed, the New Jersey Supreme Court found that, even in the context of other types of insurance coverage, absent a special relationship, an insurance broker owes no duty to advise insureds concerning the possible need for higher policy limits.^[3]

However, in 2001 in Aden v. Fortsh^[4] the New Jersey Supreme Court expanded the duties owed by insurance agents and brokers, and all but eliminated an insurance broker's defense based upon the insured's receipt of its insurance policy. Aden involved the purchase of insurance coverage for a customer's condominium unit. Although the broker claimed that the customer asked for the minimum policy requirements," the customer claimed he requested a policy that would cover any losses I might have in my condo" the equivalent of a homeowner's policy which happened to be [for] a condo." The policy procured provided $1,000 in dwelling coverage. The broker claimed that he advised the customer to consult with the condominium association to ensure that anything not covered under the dwelling policy would be covered under the association's policy, though the customer denied any such conversation.  

At trial, the judge refused to instruct the jury regarding an insured's obligation to review its insurance policy. The jury returned a unanimous verdict against the broker. The Appellate Division reversed, holding that this instruction should have been given to the jury. The Supreme Court reversed the Appellate Division, finding that an insurance broker may not reduce its liability if the negligence of the client relates to the task for which the broker was hired. In reaching this conclusion, the Court found that an insurance broker owes a fiduciary duty to its customer:

The import of the fiduciary relationship between the professional and the client is no more evident than in the area of insurance coverage. Insurance intermediaries in this State must act in a fiduciary capacity to the client '[b]ecause of the increasing complexity of the insurance industry and the specialized knowledge required to understand all of its intricacies.' (Citations omitted; internal quotation marks omitted). The fiduciary relationship gives rise to a duty owed by the broker to the client 'to exercise good faith and reasonable skill in advising insureds.' (Citation omitted).

* * * 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.' (Citation omitted). The concept is essentially one of professional malpractice.

In a later decision, the New Jersey Supreme Court found that an insurance broker did not have a duty to advise an insured that its policy had been retroactively cancelled, explaining that this Court should not expand agents' and brokers' duty to go beyond the requests of an insured unless there is a special relationship between the insured and the agent or broker."^[5] Since that time, the case law has been softening" somewhat with respect to insurance agents and brokers.^[6]

Most recently, in April 2018, the New Jersey legislature introduced a bill^[7] which, among other things,^[8] makes clear that liability against an insurance broker may not be founded upon a fiduciary duty. 

In this regard, the bill adds a provision to the New Jersey Insurance Producer Licensing Act of 2001 which states:

Although this provision has not yet been interpreted by any court, it would appear to clarify that, in a legal action, the standard of care which will be applied to evaluate claims against insurance agents and brokers in New Jersey will be based upon a standard of ordinary and reasonable care and skill," rather than the higher fiduciary duty imposed in cases such as Aden.

We also believe that this statute will supercede the holding in Aden which prevents insurance agents and brokers from asserting an insured's comparative liability as a defense. Although it remains to be determined by a court, we believe that by stating that [t]he provisions of this section shall not ... limit or prevent an insurance producer from asserting any defenses available at common law," and by removing the fiduciary standard of care, the legislature intended to permit insurance agents and brokers to assert such defense.

It is interesting to note that, because New Jersey does not issue separate licenses to agents and to brokers, but issues only a generic producer" license, the provisions of this section would apply to both insurance agents and brokers alike. In this regard, while the cases discussed above have found that insurance brokers owe fiduciary duties to their customers, there is also case law holding that insurance agents owe fiduciary duties to the insurers.^[9] Since the statute is not limited to claims by customers, it arguably also applies to claims by insurers against their agents. However, it appears the legislature did attempt to carve out an exception for insurance agents, to the extent of any contractual obligations owed to their insurers, as the statute states that it shall not impair or invalidate any of the terms or conditions of a contractual agreement between an insurance producer and an insurer."  

It is also not clear how a court will deal with the apparent conflict between this statute and N.J.A.C. 11:17A-4.10, though we expect a court would likely find that the statute merely limits the situations in which an insurance producer is considered to be a fiduciary under N.J.A.C. 11:17A-4.10.

 We currently wait with bated breath to see this statute in action. We will keep you advised of any further developments in connection with this issue.

Submitted by:

Keidel, Weldon & Cunningham, LLP

[1] Rider v. Lynch, 42 N.J. 465 (1964).

[2] Sobotor v. Prudential Prop. & Cas. Ins. Co., 200 N.J. Super. 333 (App. Div. 1984).

[3] Wang v. Allstate Ins. Co., 125 N.J. 2 (1991) (involving the renewal of a homeowner's insurance policy).

[4] Aden v. Fortsh, 169 N.J. 64 (2001).

[5] President v. Jenkins, 180 N.J. 550, 568 (2004).

[6] See, e.g., Duffy v. Certain Underwriters at Lloyd's of London Subscribing to Policy No. 09ASC185004, 2014 WL 3557861 (App. Div. 2014) (absent a request from the customer, the broker owed no duty to determine full replacement value of the premises to be insured); Triarsi v. BSC Grp. Servs., LLC, 422 N.J. Super. 104 (App. Div. 2011) (holding that it is not obvious that an insurance broker would owe a duty to its insured regarding payment of renewal premiums, avoidance of cancellation and reinstatement in the event of cancellation where the insurer has had direct communications with the insured, and that the only way such duty can be established is through expert testimony); C.S. Osborne & Co. v. Charter Oak Fire Ins. Co., 2017 WL 1548796 (App. Div. 2017) (insurance broker did not have any duty to recommend the proper amount of flood insurance or to obtain additional quotations)

[7] Bill S2475 (previously A2034) was passed by the senate and assembly in February 2019 and has been submitted to the Governor for signature. If the bill is either signed by the Governor by May 16, 2019 or if it is not vetoed by that date, it will become law.

[8] The bill amends three separate statutes. In addition to amending the New Jersey Insurance Producer Licensing Act of 2001, as discussed herein, it also amends the Affidavit of Merit Statute (N.J.S.A. 2A:53A-27) to require specific qualifications for persons providing affidavits of merit in lawsuits against insurance producers. It also amends N.J.S.A. 17:22A-41.1 regarding the compensation disclosures which must be provided to insureds in connection with the procurement of health benefit plans. Under the current statute, insurance producers who sell, solicit or negotiate health insurance policies or contracts to residents within New Jersey must notify the purchaser in writing of the amount of any commission, service fee, brokerage, or other valuable consideration the producer will receive as a result of the sale, solicitation or negotiation of the policy or contract and, if that amount is based upon a percentage of the premium, the notice must provide that information. Under the revised statute, an insurance producer would only need to provide such information to the purchaser upon request.  However, the rule also permits the Department of Banking and Insurance to adopt any rules and regulations necessary to implement this section and it, therefore, remains to be seen whether the Department will implement further requirements.  

[9] See, e.g., Dep't of Ins. v. Universal Brokerage Corp., 303 N.J. Super. 405, 409 (App. Div. 1997). 

Keidel, Weldon & Cunningham, LLP concentrates its practice in the defense of insurance agents and broker's errors and omissions claims and litigation, errors and omissions loss control counsel and education, insurance coverage analysis and litigation and insurance regulatory matters. Please direct any comments or questions to James C. Keidel, Esq. by mail to the main office of Keidel, Weldon & Cunningham, LLP, at 925 Westchester Avenue, Suite 400, White Plains, NY 10604, telephone at (914) 948-7000 or e-mail at jkeidel@kwcllp.com. The law firm also maintains offices in Syracuse, New York; New York City, New York; Wilton, Connecticut; Fair Lawn, New Jersey; Warwick, Rhode Island, Philadelphia, Pennsylvania, Williston, Vermont and Naples, Florida.