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June 2019

New York Team Secures Complete Dismissal of Claims of Insurance Malpractice and Breach of Fiduciary Duty on behalf of Insurance Broker Client

Gordon & Rees Partner Mark Beckman and Associate Christopher Camera obtained a complete dismissal of the third-party complaint filed against their client, an insurance broker, in the United States District Court for the District of New Jersey. The third-party plaintiff, owner of an aircraft, alleged claims of insurance broker malpractice and breach of fiduciary duty.

On April 8, 2018, third-party plaintiff’s aircraft was damaged when it veered off the runway at the Essex County Airport. At the time of the accident, the aircraft was insured under a policy procured by Gordon & Rees' client. The owner filed a claim with the carrier totaling approximately $300,000. The claim was denied by the carrier because the pilot had failed to complete the required ground and flight school training, which was a condition precedent to coverage. Due to this failure, the carrier initiated the underlining declaratory judgment action seeking a determination that the insurance policy was not in effect at the time of the accident. Looking to shift its own liability, the owner filed the third-party complaint alleging that GRSM’s broker client failed to advise the owner of its contractual obligations under the insurance policy. Specifically, the owner claimed that the client never advised of the consequences of failure to complete the required ground and flight school training.

Following extensive research and analysis of the temperamental New Jersey case law on the topic, Gordon & Rees' attorneys filed a pre-answer motion to dismiss for failure to state a claim for insurance broker malpractice. Despite various duties imposed on brokers to procure appropriate and sufficient insurance, the law was silent regarding the actions or inactions of a broker once a policy has been procured. Gordon & Rees' attorneys argued that as an insurance broker, the client did not owe a continuing duty to advise the owner of its policy post-procurement. The client faithfully executed its responsibility by procuring an insurance policy which afforded sufficient property damage coverage for the aircraft. The liability instead lies with the owner who failed to understand its obligation. Moreover, Gordon & Rees' attorneys argued that the owner’s theory, which would create a new duty and extend liability for post-procurement conduct, was contrary to public policy and would unduly burden the insurance broker with ensuring that an insured was compliant with policy terms.

The court agreed with Gordon & Rees' attorneys, holding that the client did not have a post-procurement duty to monitor the owner’s compliance with the policy terms, and had satisfied its obligation to secure an appropriate insurance policy. The court further held that New Jersey does not recognize a separate cause of action for breach of fiduciary duty for insurance brokers.

Mark A. Beckman