When engaged by a member of the public to obtain insurance, an insurance broker is expected to possess reasonable knowledge of the types of policies, their different terms, and the coverage available in the area in which their insured seeks to be protected. If the insurance broker neglects to procure the insurance or if the policy is void or materially deficient or does not provide the coverage they undertook to supply because of their failure to exercise the requisite skill or diligence, the insurance broker may be liable to their insured for the loss sustained.
In a recent case,1 the New Jersey Appellate Division held that the assignment of an insurance broker negligence tort claim was invalid prior to judgment. In that case, after an automotive parts company suffered a fire at one of its locations, it discovered its insurance coverage was inadequate to cover its property losses and the losses from the interruption of its business. It executed an assignment of its potential causes of action “for underinsurance” against its insurance broker in conjunction with a court-ordered liquidation proceeding.
A lawsuit was filed by the assignee against the insurance broker alleging the broker’s negligence constituted professional malpractice by causing the automotive parts company to have inadequate, insufficient, and unsuitable insurance for the fire loss it sustained. After a jury awarded a verdict against the insurance broker, the broker appealed contending the assignee could not prosecute an insurance broker negligence claim because tort claims cannot be validly assigned prior to judgment.
Ultimately, the court held that is was invalid under New Jersey law to assign an insurance broker negligence tort claim prior to judgment. Consequently, the court vacated the jury’s verdict against the insurance broker because the assignee’s complaint only alleged tort causes of action that the insurance broker committed professional malpractice by negligently advising the automotive parts company about its insurance needs and coverage and failing to obtain the appropriate and necessary insurance coverage.
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1AII1, LLC v. Pinnacle Ins. Sols., LLC, No. A-2241-17T4, 2019 WL 3072090 (N.J. Super. Ct. App. Div. July 15, 2019).