You Can Lead an Insured to Coverage Needed but you can’t Make it Buy

Agent that Advised Insured it was Underinsured is not Responsible for Coinsurance Penalty

The old saying that you can lead a horse to water but you can’t make him drink applies to insurance agents and brokers who give good advice to their clients who – for financial reasons – refuse to follow the advice and then suffer a loss as a result.  Flood insurance, although necessary, is often expensive. When a condominium association’s insurance agent advised them they were woefully underinsured and, if there was a loss, it would suffer a severe coinsurance penalty, only to have the association ignore the advice, when the penalty was assessed the association sued the agent because his warning came true.

In Bijou Villa Condominium Association, Inc. v. E.A. King, Inc. and Ed King, Docket No. A-4234-17T3, Superior Court of New Jersey Appellate Division (May 1, 2019), after sustaining damage to its property caused by flooding during Superstorm Sandy (Sandy), plaintiff Bijou Villa Condominium Association, Inc. filed a complaint against defendants, alleging they failed to obtain sufficient flood insurance coverage.


Plaintiff manages and maintains the two-building seventy-unit condominium complex located next to the Shark River in Neptune, New Jersey.

Ed is licensed in New Jersey to sell life, health, property, and casualty insurance. In 1986, the plaintiff’s board asked Ed (a resident of the association) to help with their insurance needs. He remained plaintiff’s insurance broker for property and liability insurance until 2008, and handled the flood insurance policies until 2013.

In January 2004, Ed sent the property manager a letter advising that plaintiff’s flood insurance was set to renew the following month. The letter stated the amount of coverage at that time was $250,000 per building and warned “this is not nearly enough coverage should a serious flood do severe damage to the buildings. [Plaintiff] would be facing serious co-insurance penalties. Higher limits are available but they will be costly.” Kathy gave Ed’s letter to the board, explained to them what co-insurance penalties were, and offered to bring Ed to a board meeting to further explain his letter. The board did not ask Kathy any questions about the letter or request Ed’s attendance at a meeting. However, the board did increase the flood insurance coverage to $332,800 per building for the 2004-2005 policy period.

In 2006 Ed advised the board that under the property policy, the buildings are insured for slightly over $6,000,000 while the flood policies only have $250,000 on each of the buildings. He explained that the plaintiff should insure to at least [eighty percent] of the replacement cost which would be $4.8 million or $2.4 million on each building. To insure to the proper value, he explained, the entire flood premium would be approximately $10,300 — which is an increase of $5,900 over the current premium.

Because of the warning, agreed to increase the flood limits, but the Board only agreed to gradually increase the coverage due to financial constraints, as opposed to procuring the suggested $2.4 million for each building. For the 2010-2011 policy period, the board increased its flood coverage to $1.21 million per building, again through the insurer’s flood insurance renewal forms. This was the coverage in place when Sandy occurred in October 2012.

After the storm, the insurer determined both buildings were underinsured, as they were valued around $3.8 million and $3.6 million, but only insured for $1.2 million each. The insurer determined plaintiff should have insured each building for $3 million. As a result, plaintiff was subjected to a large co-insurance penalty, which reduced its claim payout by $450,000.

Consequently, plaintiff sued, alleging defendants failed to obtain full insurance coverage for its property, resulting in plaintiff incurring a co-insurance penalty and lessening the payout on its claim for damages caused by Sandy.

After hearing oral argument, Judge Jamie S. Perri issued a thorough and comprehensive oral opinion, granting defendants’ motion and denying plaintiff’s.


Kathy, although Ed’s wife, was not an employee or officer of the agency. Ed did not appoint her as an agent of the agency. Plaintiff did not present any evidence to contradict Ed’s statement that Kathy did not have any responsibilities, other than check signing authority, with the agency.

All of Kathy’s interactions with the board were in her capacity as plaintiff’s property manager. There was uncontroverted evidence that Kathy conveyed the board’s communications regarding flood coverage to Ed. In turn, she presented the board with Ed’s letters and premium quotes for the coverage. Kathy was not an insurance broker and did not procure insurance for plaintiff.

The record demonstrates Ed informed Kathy by letter in August 2006 that each building was insured for $250,000 in flood insurance, and if the board wanted maximum coverage, it needed to increase its flood policies to $2.4 million per building. Ed’s letter was provided to the board. In January 2007, defendants presented Kathy with a quote for $1 million coverage for each building. The board never increased its flood insurance policies to Ed’s recommended amount.

The material facts are that Kathy requested a quote for $1 million in coverage. In response to the provided quote, Kathy instructed defendants to acquire flood coverage of $1 million per building. Her note advised the increase in coverage was per the board’s instructions.

New Jersey has recognized certain limited circumstances that may create a special relationship between an agent and an insured. Specifically when an insurance broker assumes duties that invite the insured’s detrimental reliance and trust beyond those typically associated with the agent-insured relationship, additional duties may be imposed.

In this case the plaintiff has not demonstrated any additional relationship existed between the parties other than that of a traditional agency-insured dynamic. As to flood insurance, plaintiff disregarded Ed’s warnings that it was underinsured and subject to co-insurance penalties. Plaintiff also failed to heed Ed’s recommendations on the amount of coverage it should obtain. The argument that plaintiff relied on Ed’s advice is unsupported by the record.


Proving that no good deed goes unpunished Ed, and his wife in her capacity as property manager, found the advice to insure to value or suffer a coinsurance penalty was not followed by the Board of Directors who limited the coverage they purchased because of a shortfall of enough money to pay the premium for the needed coverage. They gambled that they would not have a major loss. Super Storm Sandy caused them to lose the gamble and rather than accepting the Board’s error they sued the agent for not forcing them to buy the insurance they needed. The effort, rightfully, failed.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest 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  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 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

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.
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