More than 2,000 years ago, Marcus Tullius Cicero, the Roman statesman, orator, lawyer, and philosopher, wrote in De Officiis (On Moral Duties), “as the guardianship of a minor, so the administration of the State is to be conducted for the benefit, not of those to whom it is entrusted, but of those who are entrusted to their care.” Recent action of the New Jersey Legislature has underscored the enduring truth of Cicero’s point.
On Thursday, Feb. 21, 2019, Senate No. 2475 was passed by a 32-0 roll call vote; on Monday, Feb. 25, 2019, only four days later, that same bill the was passed by the Assembly by a 75-0-1 vote. According to its synopsis, the bill “[p]rohibits application of fiduciary standard to insurance producers; specifies qualifications of persons providing affidavit of merit in lawsuits against insurance producers.” The sole exception to the prohibition is recognized in the rare situation “when the conduct upon which the cause of action is based involves the wrongful retention or misappropriation of any money that was received by the insurance producer, as a premium deposit or as payment of a claim.” Also, those qualified to execute an affidavit of merit are strictly limited to persons “licensed in this State” and with “particular expertise in the general area or specialty involved in the action, as evidenced by a professional designation … and by devotion of the person’s practice substantially to the general area or specialty involved in the action during the five years immediately preceding the date of the occurrence that is the basis for the claim or action.”
The New Jersey State Bar Association (NJSBA) has opposed this legislation. The NJSBA points out that the bill prohibits a policyholder’s claim of breach of fiduciary duty except under very narrow circumstances, unnecessarily extends protections exclusively to insurance producers under the affidavit of merit statute unlike other professionals, and abrogates current case law, Aden v. Fortsh, 169 N.J. 62 (2001). In Aden, the Court held that “the comparative negligence defense is unavailable to a professional insurance broker who asserts that the client failed to read the policy and failed to detect the broker’s own negligence.” In doing so, the court noted that “[i]t is the broker, not the insured, who is the expert and the client is entitled to rely on that professional’s expertise in faithfully performing the very job he or she was hired to do.” Citing “New Jersey’s tradition of holding insurance professionals and other fiduciaries to higher standards,” the court’s motivating concern about subjecting the policyholder to a standard of comparative negligence was that the “the fiduciary relationship between the professional and the client may be undermined and professionals may be allowed to escape liability for their malpractice.”
By statute, N.J.S.A. 17:22A-28, an “insurance producer” is defined as a person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.” To the extent that an insurance producer represents the interests of the policyholder/buyer by whom he is retained, then that relationship is a fiduciary one based on the buyer’s financial trust placed in the broker who is in a position of superior knowledge and expertise. Under those circumstances, that producer’s duties run exclusively to the buyer, and give rise to potential violations actionable in tort as a matter of professional liability, not contract.
We think that the NJSBA is correct. The bill offers no principled, much less any cogent, reason for treating insurance producers differently than other fiduciaries, such as attorneys, accountants, trust officers, and stockbrokers. Yet, for this singular class of professional, viz., insurance producers, the Legislature would virtually eliminate any fiduciary liability, essentially equating a producer representing a buyer, i.e., a broker, with a producer representing a carrier/seller, i.e., and agent. This turns settled law on its head, and is a license for professional mischief, if not open malpractice. Worse, to the extent a policyholder attempted to assert a claim, the bill creates a colossal impediment by restricting affiants of merit to a closed circle of colleagues, who are all local producers and who have little incentive to accuse each other.
It is to say the least puzzling that such a drastic change in the law would be passed unanimously, without a hearing, in the teeth of opposition by the State Bar.
Cicero would not approve such ill-considered action; neither should we. We call on the Governor to veto this bill.
Editorial Board members Lawrence Lustberg and Edwin Stern recused from this editorial.