Sobotor v. Prudential Property & Cas. Ins. Co.

• Decision Date: 20 November 1984
• Citation: 200 N.J.Super. 333,491 A.2d 737
• Parties: Bernard SOBOTOR, Plaintiff-Respondent, v. PRUDENTIAL PROPERTY & CASUALTY INSURANCE COMPANY and Charles Redmond, Defendants-Appellants.
• Court: New Jersey Superior Court — Appellate Division

Page 333

200 N.J.Super. 333

491 A.2d 737

Bernard SOBOTOR, Plaintiff-Respondent, v. PRUDENTIAL PROPERTY & CASUALTY INSURANCE COMPANY and Charles

Redmond, Defendants-Appellants.

Superior Court of New Jersey,

Appellate Division.

Argued Oct. 24, 1984.

Decided Nov. 20, 1984.

Thomas Lenney, Bloomfield, for defendants-appellants (Enright, Porter, Lenney & McGrath, Bloomfield, attorneys; William L. Bracaglia, on the brief).

Richard Wildstein, Passaic, for plaintiff-respondent (Goldstein, Ballen, O'Rourke & Wildstein, Passaic, attorneys; David Joshua Michelson, Passaic, on the brief).

Before Judges MATTHEWS, FURMAN and COHEN.

PER CURIAM.

In October 1980, plaintiff, who had recently moved to New Jersey from New York, contacted defendant Prudential Insurance Company in order to obtain automobile insurance. He was referred to insurance agent defendant Charles Redmond, with whom he subsequently met to discuss coverage. In response to Redmond's inquiry, plaintiff informed Redmond of the coverage and monetary limits provided by his policy in New York. Redmond advised plaintiff that he was required to carry Personal Injury Protection (PIP) and Uninsured-Underinsured Motorist Insurance (UMI).

Plaintiff requested $100,000/$300,000 liability coverage. Regarding additional coverage, it is not clear whether plaintiff told Redmond that he wanted to be "fully covered with whatever coverage was available" or to obtain "the New Jersey package that is the best available." In their brief, defendants acknowledge that plaintiff deposed that he requested the "best available" package regarding the rest of the insurance. Judge Alterman, however, made no finding as to which of the above two requests were made.

Without advising plaintiff that there were options available under PIP and UMI, Redmond provided plaintiff with a policy that contained a UMI liability limit of $15,000 on account of injury to or death of any one person and $30,000 on account of injury to or death of more than one person in any one accident. This satisfied the statutory minimum required under N.J.S.A. 17:28-1.1. At the time, Prudential offered UMI coverage in amounts of $100,000 and $300,000 for an additional $5 premium. Redmond was authorized to issue such coverage.

Plaintiff sustained serious injuries and permanent disabilities in a motor vehicle accident. The driver of the other vehicle who was allegedly at fault, maintained only the minimum $15,000/$30,000 insurance. Plaintiff instituted an action in the Law Division alleging negligence on the part of defendant Redmond in failing to advise him of the availability of the higher amounts of UMI coverage. Plaintiff sought to amend defendant Prudential's insurance policy to include UMI coverage to an amount of $100,000.

In a written opinion the Law Division judge denied cross-motions for summary judgment. Addressing the question of whether "an insurance agent has an affirmative duty to advise his client of the availability of higher monetary limits for the coverage requested," he found that such a duty exists and that defendant Redmond breached that duty owed to the plaintiff. He also identified certain unresolved issues of fact: whether defendant Redmond's breach was the proximate cause of the damages plaintiff sustained; the exact language used by plaintiff when requesting insurance from defendant Redmond, and the meaning to be given to said language.

At trial, Judge Rumana decided the proximate cause issue in favor of plaintiff and ordered the Prudential policy reformed. He found, as a fact, plaintiff would have purchased additional UMI coverage if it had been offered to him and found as a matter of law that it was not necessary for the plaintiff to show that he would have exercised the option.

The duty of care owed by an insurance broker ¹ to a client has been set forth in Rider v. Lynch, 42 N.J. 465, 201 A.2d 561 (1964):

One who holds himself out to the public as an insurance broker is required to have a 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 principle seeks to be protected. If he neglects to procure the insurance, or if the policy is void or materially deficient, or does not provide the coverage he undertook to supply, because of his failure to exercise the requisite skill of diligence, he becomes liable to his principal for the loss sustained thereby. [42 N.J. at 476, 201 A.2d 561]

Defendants and plaintiff disagree on how this standard applies to this case. Defendants claim that the standard does not impose on an agent or a broker a duty to inform a client of "all coverage which the particular company writes." Conversely, plaintiff argues that the Rider standard encompasses the duty to inform the client of additional protection available under UMI. In ruling for the plaintiff, Judge Alterman said that "... the standard must be flexible enough to govern a myriad of unanticipated circumstances."

Judge Alterman reached his decision by relying on four cases which recognize a duty, in certain circumstances, to advise a client of various aspects of insurance coverage. These cases all recognize that such a duty arises when there is a special relationship between the insurance agent and the client which indicates reliance by the client on the agent.

In the seminal case, Hardt v. Brink, 192 F.Supp. 879 (W.D.Wash.1961), broker's failure to advise his client of eight years of the need for additional insurance coverage for newly leased premises constituted negligence. In deciding upon the appropriate standards of care owed to the client, the court stated:

Whether or not an additional duty is assumed will depend upon the particular relationship between the parties. Each case must be decided on its own peculiar facts. The law here involved is not particularly startling nor is it necessarily an extension over previous cases. This is an age of specialists and as more occupations divide into various specialties and strive towards 'professional' status, the law requires an even higher standard of care in the performance of their duties.

The court concluded that the broker was "under a duty to advise the plaintiff as to his potential liability (for loss as a result of fire) under the lease and to recommend insurance protection therefor." Id. at 882.

Defendants rely on Hardt, claiming that the following language supports their position Clearly, the ordinary insurance solicitor only assumes those duties normally found in any agency relationship. In general this includes the obligation to deal with his principal in good faith and to carry out his instructions. No affirmative duty to advise is assumed by the mere creation of an agency relationship. [Id. at 880]

Following this quote, however, the opinion uses language which places serious limitations on the lack of duty to advise:

However, this does not mean that the agent cannot assume additional duties either by express contract or a holding out. [Id. at 881]

The record does not indicate that defendant Redmond expressly contracted to assume additional duties. It does, however, depict a "holding out" by Redmond of a special expertise in the insurance business. Plaintiff, who knew nothing about the technical aspects of insurance policies, placed faith in Redmond and relied upon his expertise. We think Redmond had a duty to advise respondent.

Defendants attempt to distinguish Hardt by asserting that it involves an agreement which necessitated insurance coverage whereas this case involves optional coverage. Regardless of the type of coverage sought, a client should be entitled to rely on the special skill and knowledge posessed by the agent in order to best obtain the desired coverage. It does not seem reasonable to permit an agent to withhold information which might prove useful to one seeking coverage simply because the insurance sought is not mandatory.

Aetna Cas. & Sur. Co. v. Ogus, Inc., 396 F.2d 667 (D.C.Cir.1967) also recognized that an insurance agent may have affirmative duties of full explanation. In Aetna, a general contractor was charged with negligent excavation, which resulted in damage to property adjacent to the work site. The general contractor's subrogee sued the contractor's insurance agent for failure to inform the contractor of the lack of excavation insurance. The court declined to find a breach of duty, relying on the fact that the general contractor had a history of deliberately obtaining less than full coverage.

In Nowell v. Dawn-Leavitt Agency, Inc., 127 Ariz. 48, 617 P.2d 1164 (Ct.App.1980), the court also recognized that certain circumstances may give rise to an affirmative duty on the part of an insurance agent to inform a client of the availability of various coverage. In Nowell, after her home was damaged by a torrential rainstorm, plaintiff sued her insurance agent for failure to inform her of the...