This is an action brought by a surplus lines insurance agent for declaratory relief. On these cross-motions for summary judgment the principal question presented is whether certain premiums for surplus lines insurance paid by defendant insured to its own broker, but never transmitted to the surplus lines insurer or the surplus lines agent, are to be deemed legally received by the insurer where the actual policy was never delivered to the broker. A further question is whether the circumstances are controlled by the New Jersey Surplus Lines Law or whether agency principles of wider application obtain.
On August 12, 1975 Donnelly Bros., a licensed insurance broker, was adjudged insolvent and the liquidation of its
business placed in the hands of a statutory receiver. Around April 1971 defendant, a financial institution, began its relationship with Donnelly, seeking high risk crime insurance. After unsuccessful efforts to obtain coverage with domestic insurers, Donnelly opened negotiations with plaintiff, which placed policies during April 1972 and for the years thereafter with Lloyds of London and Companies (Lloyds). Lloyds is a surplus lines insurer -- one not authorized to transact business in New Jersey. Because Donnelly's license did not permit it to deal directly with such a company, it was necessary to employ the office of a licensed surplus lines agent. N.J.S.A. 17:22-6.37.
The issue of payment turns on the broker's apparent authority to receive these on behalf of the insurer, and this depends in part upon whether payments were made by the insured after delivery to the broker of a "contract of insurance," N.J.S.A. 17:22-6.2a, a determination involving the interpretation of myriad facts. We must therefore detail the procedures followed among the parties in placing and paying for insurance over the years, and with the sequence of events during the period April through June 1975.
Applications for coverage were made by Donnelly to plaintiff which either specified the proposed effective date or contained instructions to bind immediately without waiting for a premium quote. Plaintiff mailed these applications to Halford, Shead & Co., Ltd. (Halford), its London correspondent broker, and Halford responded whether it could place the risk and, if so, gave the premium quote. This data was relayed to Donnelly which would then reply that the insurance should be ordered. Plaintiff informed Halford accordingly and requested confirmation of the insurance from that office. Although the confirmation, when received, is referred to in one of the plaintiff's affidavits as a "binder," a document which is evidence of a contract of insurance, 12 Appleman, Insurance Law and Practice , § 7221 at 306-307 (1943); 1 Couch on Insurance 2d, § 14.26 at 605 (1959) the term is not used here in its technical sense of providing merely temporary
insurance. What is meant is that the coverage was actually "placed." The written notification of confirmation received from London, according to Mr. Feldmesser, plaintiff's vice-president, was a "placement slip" which gave notice of that fact, and Donnelly was notified of its receipt.
A "debit note" later arrived from Halford containing the policy number assigned to the insurance, the premium, the coverage, and the particular London companies insuring the risk. Using this information, plaintiff prepared its "cover note," certifying to the placement of insurance. This was sent on to Donnelly, together with its bill and certain affidavits which had to be executed under the New Jersey Surplus Lines Law, N.J.S.A. 17:22-6.40 et seq. Donnelly returned the executed affidavits and, except for 1975, the year on which this dispute centers, paid plaintiff's bill within 30 to 60 days.
Policies of insurance were never issued by the insuring companies. The primary evidence of insurance issued by the surplus lines agent, i.e. , plaintiff, was the cover note, supported, of course, by the confirmation and the debit note which plaintiff received from London. The cover note was delivered to the insured by Donnelly after payment of premium by the insured.
It is important to note that following notification of confirmation, and before receiving the cover note, Donnelly mailed to defendant under its own letterhead its "binder of insurance." The first of these, in 1972, notified defendant that "Insurance is hereby bound from April 25, 1972 at 12:01 A.M. for days in favor of Perera & Company, Inc.," etc. The second notified that "Insurance is hereby bound from April 25, 1973 at 12:01 A.M. until policy issued days [sic] in favor of: -- Perera Company, Inc. et al," etc. The third binder was that "Insurance is hereby bound from April 25, 1974 at 12:01 A.M. for 1 yr in favor of Perera Company, Inc.," etc. The last of these read, "Insurance is hereby bound from April 25, 1975 at 12:01 A.M. for 1 yr. days [sic] in favor of Perera Company, Inc," etc. The
binders of 1972 and 1973 contained no reference to premium charges. Those of 1974 and 1975 showed the premium charges for the coverage provided in the upper right hand corner of the paper. Each of the binder forms advised that "Subject to standard policy conditions this binder in Lloyds of London provides insurance of the kind hereinafter described." There then followed a description of the coverage provided. On each of the forms the following printed legend appeared:
Acceptance by the Insured of a policy (or policies) as ordered in place hereof shall render this Binder null and void. This Binder may be cancelled by the Insured by notice to the Company or by the surrender of this Binder. This Binder may be cancelled by the Company by written notice to the Insured stating when such cancellation shall be effective. A premium charge shall be made for the time this Binder is in effect if no policy of insurance in place hereof is issued and accepted by the Insured.
A dispute appears in the affidavits of Doris Smith, the plaintiff's solicitor who handled the account, and Richard Allocca, who worked for Donnelly Bros. It deals with whether issuance of the binders was authorized by plaintiff. Allocca swears that not only were they authorized, but that in issuing them he acted at Smith's instructions. She denies having given either the authority or the instructions. She explains, however:
At most, upon our receipt of the confirmation of binding of requested insurance from London, in informing Mr. Allocca thereof, I might have said the coverage is bound and he could so advise his client, or words to similar effect.
Actually, on the Perera account the insurance having been already placed with the London Companies, there was no need to issue a "binder," but merely advise of the placement.
Regardless of the fact question as to express authority thus projected, there is no challenge to ...