For over 100 years, it has been well established under New Jersey law that an insurance broker owes a duty to the insured, its client, to act in good faith and with reasonable skill in performing its services. That duty, however, is not unlimited. For instance, absent a “special relationship,” an insurance broker has no duty to recommend that its client purchase higher limits of coverage or even advise its client that such limits are available. See Wang v. Allstate Ins. Co., 125 N.J. 2, 11-12 (1991). That principle recently was reaffirmed by the New Jersey Appellate Division in C.S. Osborne & Co. v. Charter Oak Fire Insurance Co., 2017 WL 1548796 (App. Div. May 1, 2017).
The insured in that case, a family-owned business that manufactured tools used for leatherwork and upholstery, among other things, had manufacturing facilities in Harrison, New Jersey, and St. Louis, Missouri. The insured had a twelve-year relationship with Bollinger, Inc., its insurance broker. Over that time, the broker would unilaterally review the insured’s coverage and make recommendations. For instance, the broker had made suggestions about purchasing coverage for terrorism, employment practices, earthquake, product recall, pollution liability, directors and officers liability, among other things.
The insured’s property insurance policy, which was in effect on the date that Superstorm Sandy hit New Jersey, contained a “water” exclusion, although it also provided $1 million in flood coverage. In connection with the renewal of the prior year’s policy, the broker informed the insured:
Higher limits or sub-limits may be available so please advise us if you are interested in higher limits options so that we may secure quotations for your consideration.
However, the broker did not specifically recommend that higher limits should be purchased; it left that decision to the insured.
As a result of Superstorm Sandy, the insured’s New Jersey facility sustained significant flood damage in excess of the $1 million flood limit. The insured subsequently sued its broker, arguing that the broker should have recommended a higher flood limit. The insured retained an expert who “opined that because elevations were low with a river nearby, a discussion about flooding should have occurred” between the insured and the broker. Id. at *2.
The trial judge grated summary judgment in favor of the broker, and that decision was affirmed on appeal. Despite the twelve-year relationship between the parties, the court found that there was no “special relationship” that would have given rise to a duty to recommend higher coverage limits. In order for a special relationship to be found, an insured must establish “something more” than a traditional broker-client relationship. See, e.g., Triarsi v. BSC Group Services, LLC, 422 N.J. Super. 104, 116-17 (App. Div. 2011). Reasonable reliance by the insured on the broker’s recommendations may give rise to such a relationship. In Osborne, however, the court found that “Bollinger never told plaintiff anything that would reasonably cause plaintiff to rely on his quotes as recommendations for the proper amount of insurance coverage.” Id. at *6. The court went on to note:
Bollinger’s insurance proposal also clearly informed plaintiff of its ability to offer more insurance coverage. Bollinger did not have any more information than plaintiff, and nothing in the record shows Bollinger acted to cause plaintiff to rely on it to recommend the proper amount of insurance coverage.
Id. at *6.
While insureds may be surprised to learn that their broker has no duty to recommend appropriate levels of insurance coverage, the Osborne decision, in and of itself, is not surprising. As noted, over twenty-five years ago the New Jersey Supreme Court held that a broker does not owe such a duty to its client. One possible way for an insured to get around this is simply for the insured to inform the broker that it is seeking the “best available coverage. See Harrington v. Hartan Brokerage, Inc., 2014 WL 2957756, *8 (N.J. Super. Ct. App. Div. July 2, 2014) (court held that “by asking for the ‘best available’ insurance, the insured put the agent on notice that he was relying on the agent’s expertise to obtain the desired coverage”).
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