On appeal from the Superior Court, Law Division, Sussex County.
Pressler, O'Brien and Stern. The opinion of the court was delivered by Pressler, P.J.A.D.
Plaintiffs Carl and Mildred Johnson sustained serious injuries on November 6, 1983, when their car, which Mr. Johnson was driving and in which Mrs. Johnson was a passenger, collided with an automobile owned and operated by defendant Thomas Mac Millan, later determined in a bifurcated jury trial to have been 100% negligent. Mac Millan, however, had only minimum $15,000/30,000 coverage. The Johnson policy did not have an underinsured motorist (UIM) endorsement. The issues raised by this appeal involve the questions of whether either defendant The Puffer Agency, Inc. (Puffer), plaintiff's insurance broker, or defendant Selective Risks Insurance Company (Selective), plaintiff's insurer, is responsible for the omission of that coverage in their policy and, if so, the amount of damages to which plaintiffs are entitled from either or both of them and the rights of defendants inter se.
The facts respecting coverage are basically undisputed. Plaintiffs had been clients of Puffer since the 1950's, Puffer having attended to all their homeowners, commercial and automobile insurance needs. The automobile liability policy here in question was issued by Selective with whom Puffer had a broker/agency agreement as it did with other insurers whom it represented. There was no exclusivity on either side. The policy was a renewal policy issued in January 1983 for a one-year term commencing February 1, 1983. It covered four vehicles, providing liability coverage in the amount of $200,000
and the minimum uninsured motorist (UM) coverage of $15,000/30,000. Because the policy was written prior to the January 1, 1984 effective date of the amendment of N.J.S.A. 17:28-1.1, there was no obligation on the carrier either to provide minimum UIM insurance or to offer a UIM option directly to the insured. Nevertheless, UIM coverage was then available at minimal rates in the maximum amount of $100,000/200,000, which would have been available to plaintiffs because of their $200,000 liability limit. The president of Puffer, Guy Puffer, testified at his deposition that while it was he who personally attended to plaintiffs' insurance needs and while they almost invariably followed his recommendations, he did not recommend UIM coverage to them because he did not know about its existence until after the accident. It nevertheless appears undisputed that Selective sent all of its broker-agents a notice respecting the availability of that coverage in 1973 and again in May 1983, prior to this accident. It is also undisputed that by express agreement, both Puffer and Selective relied on the periodic mailings of an organization known as ISO (Insurance Services Office) to keep brokers apprised of current coverage and rating information.
In a series of orders entered between October 1986 and August 1988,*fn1 the trial judge made the following determinations and dispositions. He held that Puffer was negligent in failing to recommend UIM coverage to plaintiffs. He held that that negligence warranted reformation of Selective's policy to include maximum UIM coverage but that Selective was entitled to full indemnification from Puffer. He directed arbitration of plaintiffs' damages under the arbitration provision of the policy, a proceeding which took place and resulted in an award of
$250,000 to plaintiff Carl Johnson and $500,000 to plaintiff Mildred Johnson. He refused to "stack" the coverages. He deducted from the $100,000 UIM coverage available to each the $10,000 each had received from Mac Millan's carrier, and from plaintiff Mildred Johnson's UIM recovery, the additional sum of $62,500 paid her by Selective in settlement of her negligence claim against her husband, apparently made prior to the jury's determination that he was not negligent in causing the accident. The judge also denied plaintiffs' application for prejudgment interest.
By appeal and cross-appeals, Puffer challenges the holding that it is obliged to indemnify Selective for its losses resulting from the reformation. It does not challenge the conclusion that it was negligent. Selective challenges the holding reforming its policy to include UIM coverage, complaining as well, as does Puffer, of the judge's conclusion that plaintiffs were entitled to maximum UIM coverage. Plaintiffs appeal from the holding denying their application for stacking, for prejudgment interest, and for deduction of their other recoveries from their respective total damages rather than from the total UIM coverage respectively available.
We deal first with the issues in controversy between Puffer and Selective. With respect to Puffer's negligence, it is first clear that Puffer is a licensed insurance broker acting as the agent of the insured in placing its client's liability insurance. The relationship between broker and client in this context and the resultant duty owed by broker to client were defined by Rider v. Lynch, 42 N.J. 465, 476-477 (1964), in which Justice Francis made clear that
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. ...