This case addresses duties an insurance broker potentially owes under New Jersey law to the broker’s client, the insured, and others who might fall within the penumbra of these duties. In this post, we focus on outlining those duties, rather than the case details.
Duties under a negligence standard, and the zone of harm
When viewed under a negligence standard, District Judge Martini states:
Under New Jersey law, insurance brokers are expected to possess a reasonable “degree of skill and knowledge” and to exercise “good faith and reasonable skill, care and diligence in the execution of the[ir] commission,” and to “provide the coverage he undertook to supply.” … If he fails to do so, “he becomes liable to his principal for the loss sustained thereby.” … “[A]gents and brokers, when acting on behalf of an insured, owe the insured a duty of due care.”), “Lapses in that duty that can give rise to liability include, but are not limited to, either (1) failing completely to arrange for an insurance policy or (2) delivering a policy that is void, materially deficient or otherwise does not provide the coverage the broker agreed to procure.”
Others within the “zone of harm”
Judge Martini further states:
Under New Jersey law, however, the duty of care owed by an insurance broker or agent’s duty of care is not limited to his or her clients. As explained by the New Jersey Supreme Court, “an insurance broker may owe a duty of care not only to the insured who pays the premium and with whom the broker contracts but to other parties found within the zone of harm emanating from the broker’s actions as well.” Carter Lincoln–Mercury, 135 N.J. at 201 (holding that insurance broker and agent owed a duty of care to loss-payee found within zone of harm emanating from broker’s negligent actions). “[T]hat a plaintiff may be found within the ‘range of harm’ emanating from a tortfeasor’s activities is more significant than whether the parties stand in a direct contractual relationship.”
The “two key elements that should guide courts in delineating the boundaries of that zone of harm” are foreseeability and fairness. … Foreseeability includes: “the relationship between the plaintiff and the broker, the nature of the risk and the defendant’s ability and opportunity to exercise care and avert harm….” Once the foreseeability of an injured party is established, the next inquiry is whether “considerations of fairness and policy warrant the imposition of a duty.” … “[T]he potential lack of recompense to a potential injured party is a natural and foreseeable result of an agent’s or broker’s actions if he negligently fails to obtain proper coverage in accordance with his instructions….”
In addressing an insurance broker’s fiduciary duties, Judge Martini recognizes that insurance brokers are in a fiduciary relationship with their clients, and “owe a duty to exercise reasonable skill and good faith.” Brokers can be liable if they breach these duties in failing to procure insurance. However, where the insured has relied on the broker, and the broker is negligent in failing to procure insurance, the claim is “essentially one of professional malpractice.” Thus, “under New Jersey law, negligence and breach of fiduciary duty claims against an insurance broker are not alternative causes of action, but rather, constitute a single cause of action for negligence.”
Thus, Judge Martini dismissed an independent breach of fiduciary duty claim, deeming it subsumed in the negligence claim.
Date of Decision: November 4, 2021
Minnesota Life Insurance Company v. Cooke, U.S. District Court District of New Jersey No. 2:20-CV-14326 (WJM), 2021 WL 5122070 (D.N.J. Nov. 4, 2021) (Martini, J.)