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Mount Vernon Fire Insurance Co. v. Gillian

Decided: June 8, 1967.


Conford, Foley and Leonard. The opinion of the court was delivered by Foley, J.A.D.


This is an action by an insurance carrier and its agent to recover unpaid premiums from an insured.

In the spring of 1961 defendants, New Jersey residents, advised Frederick M. Hudson (Hudson), a broker in Philadelphia licensed to do business in New Jersey, of their desire to obtain a comprehensive liability insurance policy. Unable to place this risk himself, Hudson contacted Excess Underwriters, Inc. (Excess), a Pennsylvania corporation licensed as a broker in New Jersey. Excess placed the insurance with the Mt. Vernon Fire Insurance Company (Mt. Vernon), a Pennsylvania corporation, through its New Jersey agent, Quaker Agency, Inc. (Quaker), a New Jersey corporation.

The policy was mailed to Excess by Quaker, accompanied by a bill for the gross amount less the commission Quaker agreed to pay Excess. Evidently the policy was transmitted to defendants through Hudson, along with the latter's bill for the premium. The total amount of the premium due was $5,470.66. At trial, full payment from defendants to Hudson was proven, and likewise full payment from Hudson to Excess was demonstrated. However, Quaker received only $3,000

from Excess. Plaintiffs bring this action on the theory that Excess, as a broker, was the agent of the insured and therefore any default by Excess would be chargeable to the insured.

The trial court perceived a choice of law problem between Pennsylvania and New Jersey and resolved it under the "most significant contacts" approach. Cf. Auten v. Auten, 308 N.Y. 155, 160, 124 N.E. 2 d 99, 101-102, 50 A.L.R. 2 d 246 (Ct. App. 1954). Taking this approach the court ruled that Pennsylvania law controlled. Accordingly, it held that where a broker is entrusted by the insurer with the delivery of the policy, the insured in making payment may safely rely upon the implied authority of the broker to collect the premium as an agent of the insurer, citing Transcontinental Oil Co. v. Atlas Assur. Co., Ltd., 278 Pa. 558, 123 A. 497 (Sup. Ct. 1924); Pearl Assur. Co., Ltd. v. National Ins. Agency, Inc., 150 Pa. Super. 265, 28 A. 2 d 334 (Super. Ct. 1942).

The "most significant contacts," or "center of gravity," test has not been adopted in this State by an appellate court in a contract action, although it was recently resorted to in a tort action. See Mellk v. Sarahson, 49 N.J. 226 (1967). However, the test has been discussed with approval by our Supreme Court in a contract situation. See Kievit v. Loyal Protect. Life Ins. Co., 34 N.J. 475, 492-493 (1961). There, the court decided that the conflicts problem did not require resolution because there was no difference in the Massachusetts and New Jersey law on the question in issue. In view of our holding infra that New Jersey law concerning the authorization of a broker to receive premiums does not differ in substance from the law of Pennsylvania we, likewise, find it unnecessary to pass on the merits of the conflicts question.

There is no doubt that since the passage of N.J.S.A. 17:22-6.2a the broker to whom the insurer delivers the policy is authorized by the insurer to receive payment of the premium. However, the effective date of that statute is subsequent to the incidents giving rise to this action. There are no reported cases in New Jersey definitive of the common law on this precise question prior to the date of the statute.

Plaintiffs rely on N.J.S.A. 17:22-6.1 and 17:22-6.2, defining insurance agent and insurance broker, respectively. The latter statute defines an insurance broker as one "who shall act or aid in any manner in negotiating contracts of insurance or soliciting or effecting insurance as agent for an insured or prospective insured." (Emphasis added.) Plaintiffs argue that under this statute Excess must be deemed defendants' agent, not their own. But we think such a statute is not necessarily determinative of the instant problems in the factual context here presented.

Other jurisdictions, when confronted with similar statutes, have construed them so as not to apply to characterize the agency of the broker in the collection of premiums when the insurer has entrusted the broker with the delivery of the policy. For example, in Midwest Transfer Co. v. Preferred Acc. Ins. Co., 342 Ill. App. 231, 96 N.E. 2 d 228 (App. Ct. 1951), the court said:

"One of the points made by defendant related to Sec. 588, Ch. 73 of the Insurance Act as it existed in 1946, which defines a broker as one who acts on behalf of the insured. This does not mean that one who is a broker or holds himself out to be a broker cannot be the agent of the insurance company for the purpose of collecting premiums. Roy Iverson Co. v. United States Lloyds, Inc., 251 Ill. App. 150; Hartford Accident & Indemnity Co. v. Mutual Trucking Co., 342 Ill. App. 174, 96 N.E. 2d 105. Nor does it mean that defendant could issue policies requiring deposits of $25,000, arrange for their delivery to the insured, make no inquiry thereafter as to whether the deposits had been paid by the insured to the man who delivered the ...

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