By Jeffrey T. LaRosa, Esq.

This article was published in the April 14, 2020 edition of The Independent Voice, the newsletter of the Big I New Jersey, a trade organization of independent insurance agents and brokers in New Jersey.

 

A recent New Jersey Appellate Division decision involving a Hurricane Sandy malpractice claim against an insurance broker warrants some attention. The appellate court affirmed a lower court’s decision finding the broker negligent and awarding damages in excess of $11 million.  What is most interesting about that case is what the plaintiff did not have to prove: that a better policy existed.

The plaintiff, Wakefern, is a large cooperative group of supermarkets consisting of 49 members owning hundreds of stores.  Wakefern had two separate insurance brokers working on its accounts. 

In 2011, Wakefern suffered $8 million in product losses during Hurricane Irene and $5 million in losses from an October snowstorm.  As a result, at renewal the incumbent carrier significantly raised the deductible and increased the premium by $1 million, leading Wakefern and its brokers to shop around for a new policy. 

The brokers found a policy with Lexington Insurance Co. that included a Named Storm Deductible (NSD) that raised the deductible to 2% of the total insured value (TIV) of the property for named storms.  The brokers sought coverage from a number of other carriers, most of whom refused to quote the risk.  The brokers also provided Wakefern with spreadsheets showing a side-by-side comparison of the two policies.  Wakefern opted for the Lexington policy.

As a result of Superstorm Sandy, 150 of Wakefern’s stores suffered losses.  The losses totaled $55 million.  Lexington paid $27 million on the claim but asserted that, when applied to this loss, the NSD resulted in a $24 million deductible.  Wakefern sued Lexington and both brokers, settling with Lexington and one broker.

At trial, the jury found the remaining broker, BWD Group, negligent and apportioned liability 70% as to BWD and 30% as to the settling broker.  Damages were awarded in the sum of $15 million.  The judge molded the verdict so that an award of $11 million was entered against BWD.

On appeal, BWD argued that plaintiff never proved proximate cause because it never established that there was a better policy out there that would have provided greater coverage than the Lexington policy.  The appellate court disagreed with BWD, deciding that the jury was entitled to find the broker negligent because it failed to properly explain the effect of the Lexington NSD.  The appellate court concluded that “the jury could reasonably find . . .  that BWD's failure to provide critical information to Wakefern's representatives deprived them of the ability to make a prudent decision, and that BWD's failure constituted a deviation from the standard of care.”   As a result, it was not necessary for Wakefern to prove that a policy superior to the Lexington policy was available.

The Wakefern decision on proximate cause should be of concern to insurance brokers defending malpractice suits.  Relying upon this decision, Plaintiffs will likely  focus on a broker’s failure to properly explain a policy without having to establish that, had a correct explanation been given, a better policy could have been obtained.

The Wakefern decision does, however, have a few silver linings for brokers.  First, Wakefern sought to hold BWD liable for all of its damages even though it had previously sued, then settled with, the other broker.  The court rejected that argument and required the jury to allocate liability between the settling broker and BWD.  Second, Wakefern asked the court to enter an award of counsel fees against the broker.  Currently, New Jersey allows an award of counsel fees in professional malpractice cases against attorneys, but not as to any other professional.  The court denied Wakefern’s effort to expand that ruling to other professionals.

Absent an appeal, or a subsequent appellate division interpreting the Wakefern decision, this case has the potential of lowering the bar for any broker malpractice plaintiff.