The plaintiffs are the owners of property in Jersey City, where they began construction of a two-family home in 2005. The foundation and framing of the home were completed at that time, and sewer pipes were installed.

Related: Read the Zalma's previous article “No Foundation.”

On or about Jan. 29, 2007, the plaintiffs met with Beshay, the president of ABL. Gloria testified she scheduled the meeting because they needed a builder's risk insurance policy to obtain a $234,000 mortgage from their bank. Gloria testified that in her presence her daughter informed Beshay that the framing, foundation, and part of the roof were constructed on the property. Gloria certified that she had informed Beshay that although the construction project was unfinished, she intended to complete the project. In contrast, Beshay testified that plaintiffs told him the project had not yet been started and construction would not begin until after they obtained insurance.

Beshay contacted Streetsmart Risk Managers, an independent third-party insurance agent, to place the insurance application over the phone. The completed application, which the plaintiffs did not see, was submitted to Assurance. The application indicated that plaintiffs sought a $235,000 “One-Shot New Construction” policy for one year, the project had not started and the plaintiffs were not seeking existing structure coverage. Assurance issued the plaintiffs a builder's risk insurance policy. The plaintiffs received the declaration page from Beshay and it was accepted by the bank.

There was no further construction. In August 2007, a fire extensively damaged the property. The plaintiffs submitted a claim to Assurance for the damage. Assurance denied coverage under the policy based on damage to a pre-existing structure.

The plaintiffs' complaint against Assurance was dismissed on summary judgment. As a result of the undisputed fact that the damaged structure existed prior to the inception date of the Assurance policy, the court found that the plaintiffs were not entitled to coverage for the damage to the existing foundation and frame under the express language of the policy.

It is undisputed that the damaged structure, for which the plaintiffs sought coverage, was constructed prior to the inception date of the policy and no further construction was completed after the policy went into effect in January 2007. Based on the language of the builder's risk insurance policy, the structure fits the definition of “existing inventory” and was therefore not covered under the terms of the policy. Specifically, the application for coverage, which Beshay prepared, did not request coverage for existing structures. The opportunity for existing structure coverage was available separately, adding further support to the argument that existing structures were not covered under the policy as written, and Assurance properly denied coverage. 

Duty of Agent or Broker

In the context of insurance, one who holds himself out to the public as an insurance broker owes a duty to his or her principal to exercise reasonable skill, care and diligence in effecting the insurance. In New Jersey, there is a fiduciary relationship between the professional and the client that is no more evident than in the area of insurance coverage. Accordingly, an insurance broker who agrees to procure a specific insurance policy for another but fails to do so may be liable for damages resulting from such negligence. 

Related: Read “20/20 Hindsight” by Barry Zalma.

Here, Beshay, as the insurance broker, owed an individual duty to plaintiffs to obtain an insurance policy on their behalf. As a professional insurance broker, Beshay had a duty to act with reasonable knowledge and skill. In rendering its verdict, the jury found, five to one, that plaintiffs were damaged as a result of Beshay's negligence in failing to advise Assurance that a house had been partially constructed on the property. The jury found Beshay breached his individual duty to obtain a proper insurance policy, and a judgment for damages was properly entered against Beshay.

Because a court of appeal will not overturn a trial judge's determination unless it can be shown that the trial court palpably abused its discretion—that is, that its finding was so wide off the mark that a manifest denial of justice resulted. The Court of Appeal could discern no abuse of discretion by the trial judge and affirmed the verdict.

Related: Read another Zalma column “When Lawyers Err.”

No insurance agent or broker should take on the obligation to acquire insurance for a client who has not seen the property or thoroughly interviewed the potential insured about the type and magnitude of the coverage desired. In this case, the agent and the insured testified differently about the request for coverage. The jury believed the Salleys rather than the agent. As a result, a verdict was rendered against him.

The simple dispute between the Salleys and the agent could have, and should have, been avoided by filling out the application with the Salleys in person, either reading each question and answering to the Salleys or making sure they read and understood them—then having the Salleys sign the application before submitting it to the insurer. By submitting an application by telephone outside the presence of the potential insured the agent is acting as if he was the insured and any error that caused an expense to the insured would fall upon his shoulders.

The agent could have avoided litigation and the problem by providing the insurer and the applicant a complete application signed by the applicants. If it had been done the agent would have advised the insurer of the existence of a partial structure on the premises so that the proper insurance could be obtained. If the insured signed the application and it did not disclose the structure then the fault for the misrepresentation would have fallen on the applicants.