Avery v. Arthur E. Armitage Agency

• Decision Date: 27 June 1990
• Citation: 242 N.J.Super. 293,576 A.2d 907
• Parties: , 6 A.L.R.5th 1132 Richard E. AVERY and Donna L. Avery, Plaintiffs-Respondents, v. ARTHUR E. ARMITAGE AGENCY, Defendant-Appellant, and Aetna Casualty & Surety Company, Defendant-Respondent. Joanne NEWELL and Beverly Newell, Plaintiffs-Respondents Cross-Appellants, v. The OHIO CASUALTY INSURANCE CO., Defendant-Respondent, and The Brown Agency, Defendant-Appellant. Dorothy E. BOCK, Plaintiff-Respondent, v. HARTFORD INSURANCE COMPANY, Defendant-Respondent, and Stockwell Knight Company, Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 293

242 N.J.Super. 293

576 A.2d 907, 6 A.L.R.5th 1132

Richard E. AVERY and Donna L. Avery, Plaintiffs-Respondents, v. ARTHUR E. ARMITAGE AGENCY, Defendant-Appellant, and Aetna Casualty & Surety Company, Defendant-Respondent.

Joanne NEWELL and Beverly Newell, Plaintiffs-Respondents Cross-Appellants, v. The OHIO CASUALTY INSURANCE CO., Defendant-Respondent, and The Brown Agency, Defendant-Appellant.

Dorothy E. BOCK, Plaintiff-Respondent, v. HARTFORD INSURANCE COMPANY, Defendant-Respondent, and Stockwell Knight Company, Defendant-Appellant.

Superior Court of New Jersey,

Appellate Division.

Argued March 28, 1990.

Decided June 27, 1990.

Michael O. Kassak for defendants-appellants, Arthur E. Armitage Agency, The Brown Agency and Stockwell Knight Company (White and Williams, attorneys, Michael O. Kassak, and Ralph P. Catalano, Philadelphia, Pa., on the briefs).

Vincent J. Ciecka, for plaintiffs-respondents, Richard E. and Donna L. Avery (Michael Rakoski, Pennsaukeh, on the brief).

William M. Honan, for defendant-respondent Aetna Casualty & Surety Company (Horn, Kaplan, Goldberg, Gorny & Daniels, attorneys, William M. Honan, of counsel; Nicholas L. Paone and William M. Honan, Atlantic City, on the brief).

Salvatore Alessi, for defendant-respondent, The Ohio Cas. Ins. Co. (Fratto, Alessi & Abbott, Barrington, attorneys; John A. Fratto, Camden, on the brief).

John F. Kearney, III, Mount Holly, for plaintiffs-respondents, cross-appellants, Joanne and Beverly Newell.

Michael Rakoski, for the plaintiff-respondent, Dorothy E. Bock (Vincent J. Ciecka, attorney; Michael Rakoski, Philadelphia, Pa., on the brief).

Christine M. Cote, for defendant-respondent, Hartford Ins. Co. (Cooper, Perskie, April, Niedelman, Wagenheim and Levenson, attorneys, Barry D. Cohen, of counsel, Christine M. Cote, Atlantic City, on the brief).

Before Judges SHEBELL, BAIME and KEEFE.

The opinion of the court was delivered by

KEEFE, J.A.D.

Leave to appeal was granted to the defendant insurance brokers in these three unrelated cases involving common questions of law after partial summary judgment was granted in favor of the plaintiffs in each case against the insurance brokers, while at the same time dismissing the brokers' claims for indemnity against the defendant insurance companies. The common questions we now address in all three cases are: (1) What is the scope of an insurance broker's duty to advise a client concerning uninsured motorist (UM) and underinsured motorist (UIM) coverage in light of the passage of N.J.S.A. 39:6A-23 and N.J.S.A. 17:28-1.1? (2) Was the evidence produced on the summary judgment motions sufficient to establish a breach of that duty, i.e., negligence, as a matter of law? (3) If the insurance brokers were negligent, must the insurance companies indemnify the brokers for their negligence?

We answer those questions by holding that the plaintiffs in each case have presented sufficient facts to establish that a duty existed on the part of the defendant brokers. However, each case presents genuine fact issues concerning the breach of that duty which must be resolved at a plenary trial. We also hold that if a defendant broker is found liable at trial, the defendant insurance company has no obligation to indemnify the broker for the broker's negligence. Thus, for the reasons stated herein, we reverse the partial summary judgments entered in favor of the plaintiffs against the defendant brokers but affirm the summary judgment entered in favor of the defendant insurance companies on the brokers' claims for indemnification.

While there are some variations in the facts from case to case, the three cases share common theories of liability and defense. For example, in each case the plaintiff was insured under an automobile policy containing the minimum UM/UIM limits of $15,000/$30,000 for bodily injury, but plaintiffs' liability coverage for bodily injury was $100,000/$300,000. Each plaintiff was involved in an accident which occurred after May 15, 1984 and/or July 1, 1984, the critical dates referred to in N.J.S.A. 39:6A-23. Plaintiffs Bock and Newell contend that the responsible parties for each of their respective automobile accidents had limits of liability in amounts that do not fully cover their injuries. They contend that if they had UIM coverage in the amounts of their liability coverage, such coverage would be sufficient to satisfy their excess claims. However because each plaintiff had UIM limits of only $15,000/$30,000 for bodily injury, the same as the liability coverage carried by the responsible tortfeasors, UIM recovery was unavailable to them. See N.J.S.A. 17:28-1.1(e)(1)(2) (defining UIM coverage). See also Longworth v. Van Houten, 223 N.J.Super. 174, 177-78, 538 A.2d 414 (App.Div.1988).

Plaintiff Avery on the other hand was involved in an accident with an uninsured motorist. He claims that his UM coverage of $15,000/$30,000 for bodily injury was insufficient to compensate him for his injuries but his UM coverage would have been sufficient had his broker sold him UM coverage in the same amount as his liability coverage.

All plaintiffs claim that they would have insured themselves for UM/UIM coverage up to the limits of their liability coverage had they known of its availability and minimal cost. Consequently, they allege that their brokers were negligent in failing to properly advise them about the available coverage. They also claim that the defendant insurance companies failed to inform them of the available coverage as required by statute ( N.J.S.A. 39:6A-23) and regulation ( N.J.A.C. 11:3-15.1 to -15.9).

The defendant brokers deny that they had any duty to the plaintiffs. They argue that the passage of N.J.S.A. 39:6A-23 evidences a legislative decision to place the burden of informing and advising insureds of available UM/UIM coverage on the insurance companies. In the alternative, they argue that, if a duty exists under these facts, there are genuine fact issues relevant to its breach requiring a plenary trial. Finally, they contend that, if liability is established against them, the insurance companies are required to indemnify them by reforming the respective policies to reflect the appropriate coverage.

The defendant insurance companies contend that they are not required to indemnify an independent broker for the broker's negligence occurring in the context of a broker giving advice to a client relative to the availability and cost of optional insurance coverage. Defendants Hartford and Ohio further contend that should liability be established against them at trial for failure to comply with their statutory obligation of notification, they are at best joint tortfeasors and not indemnitors. ¹

I

Our analysis begins by tracing the duty owed by an insurance broker to a client prior to the passage of N.J.S.A. 39:6A-23 and N.J.S.A. 17:28-1.1. We then address the question of whether the Legislature intended, by passing those statutes, to change or modify in any way the broker's common law duty as it evolved to that point. Next, we discuss the differences between an agent and broker in the context of an insurance company's duty to indemnify an agent/broker for his wrongdoing. Finally, we resolve those issues which are peculiar only to the cross-appeal by plaintiffs Newell.

Although the distinction between an insurance broker and an insurance agent is important in determining the appropriate remedy resulting from a breach of that duty, as will be seen later, the distinction is irrelevant when discussing the duty owed to a client. Sobotor v. Prudential Property & Cas. Ins. Co., 200 N.J.Super. 333, 491 A.2d 737 (App.Div.1984).

We see no reason why the duty owed by a broker to a client should differ from the duty owed by an agent. The difference between a broker and an agent lies in the duties and responsibilities owed to the insurance carrier, not to the insured. [Id. at 337, n. 1, 491 A.2d 737].

In these three cases it is undisputed that defendants Armitage (Avery's broker), Stockwell-Knight (Bock's broker) and Brown (Newell's broker) were insurance brokers because they had "no special employment from the [insurance companies] but [rather] solicit[ ] business from the public generally and when obtained, offer[ ] it on behalf of [their] client, either directly to the carrier[s] or to one of [their] agents." John Roach, Jr., Inc. v. Pingpank, 39 N.J.Super. 336, 339, 121 A.2d 32 (App.Div.1956). See also N.J.S.A. 17:22-6.2.

In Rider v. Lynch, 42 N.J. 465, 201 A.2d 561 (1964), the seminal case on the subject, the Supreme Court defined the duty of a broker as follows:

One who holds himself out to the public as an insurance broker is required to have the degree of skill and knowledge requisite to the calling. When engaged by a member of the public to obtain insurance, the law holds him to the exercise of good faith and reasonable skill, care and diligence in the execution of the commission. He is expected to possess reasonable knowledge of the types of policies, their different terms, and the coverage available in the area in which his principal seeks to be protected. [Id. at 476, 201 A.2d 561].

Liability for breach of that duty can occur if the broker (1) "neglects to procure the insurance," (2) "if the policy is void," (3) if the policy is "materially deficient," or (4) the policy "does not provide the coverage he undertook to supply." Id.

The listing of the circumstances in Rider under which liability can be imposed clearly suggests that proof of something more than the mere existence of a broker-customer relationship is required to trigger the broker's legal duty. In every case but one since Rider was decided, the customer has initiated some contact with the broker concerning either the procurement or renewal of coverage. Bates v. Gambino, 72 N.J. 219, 370 A.2d 10 (1977) (request for fire insurance coverage); Harr v. Allstate Ins. Co., 54 N.J. 287, 255 A.2d 208 (1969) (request by...