New Jersey court rejects creative malpractice claim against reinsurance broker

In litigation over asbestos-related coverage that has been onging for 20 years, a New Jersey trial court has rejected claims for reinsurance broker malpractice or breach of contract, independent of whether the broker in fact procured coverage, when an insurer was able to raise colorable defenses to coverage such that summary judgment on the coverage issue was not possible. The Court found that such a cause of action would “stretch the limits of malpractice claims beyond any reasonable boundry by giving rise to myriad ill-defined and amorphous issues as to the contours of such a cause of action which would result in insurance claim litigation being more never ending than it already is.” The Court required that the claimant prove that coverage had not been obtained in order to establish liability. Owens Insurance, Ltd. v. Reiss Holdings, Ltd., Docket No. L-9575-02, in the Superior Court of New Jersey, Law Division, Middlesex County (June 14, 2006). In earlier proceedings, the reinsured had taken the position that even if coverage had been obtained, if the coverage did not encompass all of the risks that the broker had been instructed to reinsure, the reinsured would seek to hold the broker liable for any unreinsured losses. This might be a particularly interesting claim here, since the broker, and its affiliates, had set up a captive insurance company that was the reinsured under the treaties at issue, and hence were driving forces in the structuring of the risks and the various layers of insurance and reinsurance. It is not clear whether the reinsured will pursue that theory.