May 26, 2017

Court: Barring 'special relationship,' no duty exists to provide higher quotes

Insurance producers were awarded a victory this month when the Superior Court of New Jersey, Appellate Division held that, absent a "special relationship," a producer does not have a duty to provide quotes for higher policy limits to their clients.

In the case of C.S. Osborne & Co. Inc. v. Charter Oak Fire Ins. Co., Osborne was suing the insurance broker, Bollinger Inc., for professional negligence alleging that Bollinger failed to procure proper flood insurance coverage for Osborne. Bollinger had served as broker for Osborne from 2001 until 2012, when Superstorm Sandy flooded and damaged one of Osborne’s commercial facilities. Osborne had purchased a flood insurance policy through Bollinger for $1 million worth of coverage. However, the actual damage caused to the facility by the flooding well exceeded the coverage provided under the policy.

In the lawsuit, Osborne alleged that Bollinger had a duty to provide quotes for higher policy limits. The court disagreed. The court held that absent a "special relationship," producers have no common-law duty to advise an insured concerning the possible need for higher policy limits upon renewal of a policy.

Osborne claimed that a "special relationship" did exist as Bollinger was the exclusive broker for over a decade and it would unilaterally review Osborne’s insurance and make recommendations. Additionally, it had obtained additional flood limit quotes for one of plaintiff’s commercial facilities outside of New Jersey. Further, Osborne claimed that Bollinger’s representative had toured the New Jersey facility on multiple occasions, and had a long relationship with Osborne’s president through positions on an outside board.

The court was not convinced that these facts established a "special relationship." In reaching this conclusion, the court emphasized that Bollinger had told Osbourne that higher limits or sub-limits may be available. Bollinger also told Osbourne to advise it if Osbourne was interested in higher limit options. The court found no evidence that Bollinger told the plaintiff anything that would reasonably cause the plaintiff to rely on the flood quotes as recommendations for the proper amount of insurance coverage.

The plaintiff made a final claim that Bollinger had a duty to the public interest to advise Osborne of higher limits based on the National Flood Insurance Act of 1968. Osborne asserted that reasonable skill, judgment and experience dictated that Bollinger should have known the $1 million flood limit was inadequate. Osborne claimed that finding a duty is in keeping with a broker’s responsibility to exercise good faith and reasonable skill. The court again disagreed stating that an insurance broker is not an insurance consultant and if Osborne wanted an insurance consultant; it could have retained one. Bollinger’s policy proposal clearly stated it would receive payment from the insurer or another third party, and Bollinger did nothing to suggest it worked for anyone else.

This case highlights the importance of documentation by producers. The court repeats throughout its decision that Bollinger had provided Osborne with documents stating that higher limits or sub-limits may be available. While it is impossible to say whether the court would have found in favor of Bollinger had this documentation not existed, the fact that the court cites it as evidence on multiple occasions indicates that it considered this evidence to be persuasive in finding in favor of Bollinger.