A bill that would prohibit any cause of action by any person or entity against an insurance producer in certain transactions from civil liability or breach of their fiduciary standards has advanced in the Senate. Sponsored by Senate President Stephen Sweeney and Assembly Speaker Craig Coughlin, S-2475/A-2034 would prohibit an insurance policy holder from suing an insurance producer for breach of their fiduciary duty or fiduciary relationship, except in very narrow circumstances. It also restricts the people who may execute an affidavit of merit to pursue such lawsuits to New Jersey licensed brokers. Under the affidavit of merit statute, only insurance producers would enjoy such protections.
The New Jersey State Bar Association (NJSBA) opposes this legislation, believing it is an unnecessary expansion of the affidavit of merit statute and an abrogation of current case law on the issue. The NJSBA urged amendments to curtail the expansion of these protections and remains optimistic the bill will be further amended.
The bill is designed to modify current case law in New Jersey regarding the fiduciary duty owed by insurance brokers, as held by the New Jersey Supreme Court in Aden v. Fortsh, 169 N.J. 64 (2001).
In Aden, the insurance broker admitted to not having read the policy before procuring it for the policyholders. The insurance broker proffered that nevertheless, the policyholders should have read the policy before purchasing the insurance. After a fire damaged the condo owned by the policyholders, and the policyholders learned the insurance they purchased would not cover the entire damage, the policyholders sued the insurance broker for professional malpractice in failing to advise of the limited coverage under the insurance policy. In a majority opinion delivered by Justice James R. Zazzali, the Supreme Court held that “the comparative negligence defense is unavailable to a professional insurance broker who asserts the client failed to read the policy and failed to detect the broker’s own negligence. It is the broker, not the insured, who is the expert, and the client is entitled to rely on the professional’s expertise in faithfully performing the very job he or she was hired to do.”
The Professional Insurance Agents of New Jersey (PIANJ) testified before the Assembly Financial Institutions and Insurance Committee regarding their obligations, which they say remains unclear, to service their clients. This results in higher professional liability premiums, according to a spokesperson from PIANJ.
Amendments have been made to require insurance producers exercise ordinary and reasonable care and skill in issuing property and casualty insurance policies; create an exception from the bill’s protections for insurance producers from civil liability under the standards governing the conduct of a fiduciary in situations in which the conduct upon which the cause of action is based involves the wrongful retention or misappropriation of any money that was received by the insurance producer as a premium deposit or as payment of a claim; clarify that the bill does not limit or prevent an insurance producer from asserting any defenses available at common law; provide that in an action for damages against an insurance broker, the requirements relative to producing an affidavit apply regardless of the damages sought; and clarify that the bill does not limit or prohibit the commissioner of the Department of Banking and Insurance from finding, imposing or enforcing a fiduciary duty upon an insurance broker pursuant to state and federal laws, rules or regulations, or an order of the commissioner.
Concerns expressed by the NJSBA have been conveyed to the sponsors, and the NJSBA continues to monitor the bill.