New Jersey Finds Broker Has Fiduciary Duty to Insured

Broker’s Failure to Properly Value Property Liable to Insured for Losses

An insurer’s basic duty is to transact insurance with an insurer on behalf of the insured as ordered by the insured. Neither the broker nor the insurer are obligated to advise the insured of the amount of insurance the insured needs unless the broker holds himself out as an expert and gives the advice.

In New Jersey, in Loyle, LLC and Elyol, Inc., t/a Loyle Lanes Bowling Center, v. Greater New York Mutual Insurance Company and Brouwer, Hansen & Izdebski Associates, and John H. Izdebski, Inc. v. Greater New York Mutual Insurance Company, Superior Court Of New Jersey Appellate Division, DOCKET NO. A-2221-15T4 (September 5, 2017) the Appellate Division found the defendant broker to be a fiduciary whose advice was wanting and affirmed the jury’s verdict in favor of the insured.


Following a 2010 arson fire that destroyed the bowling alley they owned and operated, plaintiffs discovered they were underinsured for the property and business interruption losses they sustained. Plaintiffs successfully claimed their insurance broker, defendant Brouwer, Hansen & Izdebski, Inc. (BHI), negligently advised them concerning the insurance coverage limits required to replace the bowling alley building and its contents in the event of a total loss and to reimburse plaintiffs for losses due to business interruption. The matter proceeded to trial and the jury agreed, resulting in the entry of a $1,998,808.77 judgment against BHI.

The bowling center was insured under a policy with Greater New York Mutual Insurance Company (GNY) that became effective on April 1, 2009 (2009 policy). The policy provided replacement cost coverage for the building with a limit of $3,425,000, replacement cost coverage for the building’s contents with a limit of $200,000, and business interruption coverage with a limit of $400,000.

An appraisal conducted after the fire, however, revealed that the building’s actual replacement cost was $6,395,247.32, and the replacement costs of the contents exceeded the policy limits. GNY paid plaintiffs the full payment of the coverage limits under the policy, together with adjustments, for a total of $4,070,000.

While GNY sued those it claimed responsible for the fire the plaintiffs filed a separate complaint alleging insurance broker malpractice against BHI, claiming BHI negligently advised plaintiffs concerning the amount of insurance required to provide replacement cost coverage for a complete loss of the bowling center building and its contents and, as a result, plaintiffs’ 2009 policy had grossly deficient coverage.


A BHI employee, broker David Stanton, sold plaintiffs the 2009 policy. In their complaint, plaintiffs alleged that BHI, through Stanton, negligently provided erroneous advice that the 2009 policy limits were sufficient to cover the full replacement cost of the bowling center building and its contents in the event of a total loss.


Plaintiffs presented the testimony of William C. Stewart, Jr., an expert on insurance producer and broker conduct. Stewart testified during the hearing that based on his review of the 1998 notes, he believed Stanton wrongfully discounted the Loyle-Thompson appraisal valuing the building at “3.6 million” in favor of his personal appraisal of “2.7 million.” He opined: “[I]t was incorrect advice for [] Stanton to recommend [$]2.7 million in coverage because if you accepted the $3.6 million appraisal, [eighty] percent . . . would have been [$]2.88 million. . . . Stanton was, therefore, recommending underinsurance and a coinsurance penalty because the property would have not been insured to [eighty] percent of its value.”

Stewart also testified that Stanton erred in March 2009 by advising Michael that plaintiffs did not require additional insurance coverage as a result of the 2008 renovations. Stewart admitted it was not the job of a licensed insurance broker to determine the replacement value of a building, but testified that if a client asks a broker whether more insurance is needed, the broker “has an obligation to give an accurate answer because . . . he’s inviting reliance on his answer.”


The jury returned a verdict finding BHI negligent, and that BHI’s negligence proximately caused plaintiffs’ damages. The jury found plaintiffs’ total loss from the fire was $6,840,000, representing the sum of its findings as to building loss ($5,600,000), business interruption ($750,000), and contents loss ($490,000). The court molded the verdict by deducting the sums paid by GNY under the policy ($4,070,000), and the amounts recovered by plaintiffs from Safe & Sound and S.S. Sprinkler ($950,000) from the amount of plaintiffs’ total loss ($6,840,000) for a damage award of $1,820,000. The court also awarded $178,808.77 in prejudgment interest and costs for a total judgment of $1,998,808.77.


A trial judge may only grant a motion for a new trial if, having given due regard to the opportunity of the jury to pass upon the credibility of the witnesses, it clearly and convincingly appears that there was a miscarriage of justice under the law. A miscarriage of justice may occur where there is a manifest lack of inherently credible evidence to support the jury’s finding, or where it is obvious the jury overlooked or undervalued crucial evidence.

An insurer and its agents have no common law duty to advise an insured concerning the possible need for higher policy limits upon renewal of the policy. If such a duty would be in the public interest, it is better established by comprehensive legislation, rather than by judicial decision.

However, it has been held that brokers are liable for the negligent procurement of insurance on behalf of an insured where the broker agrees to procure a specific insurance policy for another but fails to do so.

Liability resulting from the negligent procurement of insurance is premised on the theory that the broker ordinarily invites reliance on his expertise in procuring insurance that best suits their requirements. Because of the complexity of the insurance industry and the specialized knowledge required to understand all of its intricacies, the relationship between an insurance agent or broker and a client is often a fiduciary one. The fiduciary duty exists in part because an agent or broker is sophisticated in the field of insurance and the client is not.

The undisputed evidence showed that at all times relevant to the issuance of the 2009 policy, BHI and Stanton acted as independent insurance brokers. Generally, so separate are the broker and the insurer that when the insured recovers against the broker, the broker may not obtain indemnification from the insurer. The insurer, GNY, did nothing to set a value of the property on which the insured or broker relied.


The broker lost because it took on the obligation to value the property – an obligation for which he was not qualified – without sending the insured to a professional who could properly value the property. In so doing the broker made his duty to the insured a fiduciary duty which he clearly and obviously failed to fulfill.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at Mr. Zalma’s three new e-books  were recently added and are available at

Mr. Zalma’s reports can be found on Tumbler at,  on Facebook at and you can follow him on Twitter at

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.



About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
This entry was posted in Zalma on Insurance. Bookmark the permalink.