On appeal from the Superior Court of New Jersey, Chancery Division, Burlington County.
Shebell, Baime and Keefe. The opinion of the court was delivered by Keefe, J.A.D. Shebell, J.A.D., concurring in part and dissenting in part.
[242 NJSuper Page 296] 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.*fn1
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 insured to cover business merchandise stored in insured's basement); Fenwick Machinery, Inc. v. A. Tomae & Sons, Inc., 159 N.J. Super. 373, 388 A.2d 250 (App.Div.1978), rev'd adopting dissent of J. Michels, 79 N.J. 590, 401 A.2d 1087 (1979) (request for coverage of construction equipment); Winans-Carter Corp. v. Jay & Benisch, 107 N.J. Super. 268, 258 A.2d 131 (App.Div.1969) (request for fire insurance coverage); Pearson v. Selected Risks Ins. Co., 154 N.J. Super. 240, 381 A.2d 91 (Law.Div.1977) (request for automobile coverage). Even cases addressing UM/UIM coverage have followed this same principle. Mazur v. Selected Risks Ins. Co., 233 N.J. Super. 219, 558 A.2d 508
(App.Div.1989) (customer requested "full coverage" on his pick-up truck used part-time delivering fire wood similar to the coverage on his automobile); Johnson v. Mac Millan, 233 N.J. Super. 56, 558 A.2d 24 (App.Div.1989) (broker in making coverage recommendations to customer failed to advise about existence of UIM insurance); Dancy v. Popp, 232 N.J. Super. 1, 556 A.2d 331 (App.Div.1988), aff'd 114 N.J. 570, 556 A.2d 312 (1989) (verbal discussions with broker regarding coverage selections); Walker v. Atl. Chrysler Plymouth, 216 N.J. Super. 255, 523 A.2d 665 (App.Div.1987) (request by customer to "cover us"); Sobotor, 200 N.J. Super. at 336-37, 491 A.2d 737; (request for automobile coverage).
The only case we have located which suggests that a broker has an affirmative duty to initiate contact with his customer regarding coverage matters is Wasserman v. Wharton, Lyon & Lyon, 223 N.J. Super. 394, 538 A.2d 1270 (App.Div.1988). However, in that case the client and broker had received notice from the insurer that the insurer was unilaterally withdrawing UIM coverage. (This occurred prior to the 1983 amendment to N.J.S.A. 17:28-1.1.) The duty was predicated upon the broker's failure to advise plaintiff, a long-term client, of the availability of the coverage through another insurer at a nominal charge. Id. at 407, 538 A.2d 1270. There may be other instances, now unknown to us, which may fairly require the duty announced in Rider to be imposed on a broker to act affirmatively without the customer initiating contact with the broker. For example, the duty may expand based upon developing trade customs as established through expert testimony on the subject. See Bates, 72 N.J. at 225-26, 370 A.2d 10; DiMarino v. Wishkin, 195 N.J. Super. 390, 393-94, 479 A.2d 444 (App.Div.1984) (The standards announced in Bates, applicable to a broker, are "minimums."). However, in the absence of expert testimony, we have recently held, specifically in the field of UM/UIM coverage, that where there has been no initiating inquiry from the client/insured, the broker has no duty to initiate contact with the insured concerning the existence of additional
In each of the cases now under consideration it can fairly be said that some contact with the broker was initiated by the plaintiff-client concerning the renewal of automobile coverage. The nature of the contact will be hereinafter discussed in the context of whether the brokers' breached their duty as a matter of law. Suffice it to say that we are satisfied, as was the motion judge, that the facts of each case are sufficient to invoke the brokers' duty set forth in Rider. "It is not necessary for the client in order to establish the existence of the duty to prove that he laid out for the broker the elements of a contract of insurance." Rider, 42 N.J. at 477, 201 A.2d 561. Even "vague" requests for coverage as in Sobotor, 200 N.J. Super. at 342, 491 A.2d 737, may invoke the broker's duty to advise the client. See also Walker, 216 N.J. Super. at 260, 523 A.2d 665.
Liability resulting from the breach of duty is justified on the theory that a broker "ordinarily invites [his clients] to rely upon his expertise in procuring insurance that best suits their requirements." Rider, 42 N.J. at 477, 201 A.2d 561. Thus, a broker's liability has turned on whether the broker's conduct invited reliance, or the client's conduct exhibited or justified a claim of reliance. See, e.g., Dancy, 232 N.J. Super. at 4-5, 556 A.2d 331. (Question of fact as to degree of reliance insured placed on agent's representations even in light of his execution of coverage selection form for UM/UIM coverage lower than his liability limits.); Wasserman, 232 N.J. Super. at 406, 538 A.2d 1270. (Fact issue presented as to whether insured was obligated to seek further explanation from broker as to the meaning of a notice sent by the insurer as well as the obligation of the broker, who received the same notice, to recommend purchase of coverage deleted by notice.); Citta v. Camden Fire Insurance Assoc., Inc., 152 N.J. Super. 76, 78, 377 A.2d 779
(App.Div.1977) (Agent not liable for failing to advise insured of expiration date of policy "on the cogent ground that the insured is charged with knowledge of the expiration date stated in the policy."); Cox v. Santoro, 98 N.J. Super. 360, 365-66, 237 A.2d 491 (App.Div.1967) (Broker breached no duty to insured for failure to inform insured that son would not be covered driving a relative's car where insured had 40 years experience in the insurance business and the policy was unambiguous.). As can be seen from the forgoing cases the question of whether the duty has been breached cannot always be decided as a matter of law.
Therefore, once having established the existence of a duty under the facts in these cases, the question then becomes whether reasonable minds could differ on the facts presented to the motion judge as to whether the duty owed was breached. If reasonable minds could differ on the answer, a plenary trial is necessary and summary judgment cannot be entered.
We have found only a few instances in which the broker's liability has been established as a matter of law. Those occasions are limited to fact situations where the evidence permits no conclusion other than that the broker was ignorant of available coverage, failed to obtain requested coverage, or failed to advise the customer of the unavailability of requested coverage. Bates, 72 N.J. at 223, 370 A.2d 10; Johnson, 233 N.J. Super. at 61, 558 A.2d 24; Auger v. Gionti Agency, 218 N.J. Super. 360, 527 A.2d 928 (App.Div.1987), certif. granted 109 N.J. 504, 537 A.2d 1293 (1987), app. dism. 113 N.J. 348, 550 A.2d 459 (1988); Sobotor, 200 N.J. Super. at 341-42, 491 A.2d 737. None of those circumstances exist here.
Whether the defendant brokers acted reasonably in discharging their duty to the plaintiffs herein must also be analyzed in the context of the statutory and regulatory law at the relevant time period. UIM coverage came into the statutory law of New Jersey with the passage of L.1983, c. 65, § 5 and L.1983, c. 362, § 1 which amended N.J.S.A. 17:28-1.1. As a
result of that legislation, UM coverage was mandated for every New Jersey driver at a minimum of $15,000/$30,000 for bodily injury. N.J.S.A. 17:28-1.1(a). In addition, insurers were required to offer UIM as optional coverage up to $250,000/$500,000 for bodily injury. Id. at (b). However, neither UM nor UIM coverage could be written in amounts greater than the liability limits selected by the insured. Prior to those amendments, insurance companies were only required to provide optional UM coverage in the amount of $15,000/$30,000 for bodily injury.
However, the amendment to N.J.S.A. 17:28-1.1 was only a part of the broader insurance reform legislation known as The New Jersey Automobile Insurance Freedom of Choice and Cost Containment Act of 1984 (L.1983, c. 362). As pertains to this case, that legislation required that a written notice, buyers guide and coverage selection form be sent by May 15, 1984 to all insureds whose policies were in force on July 1, 1984 and, thereafter, accompany any notice of renewal for policies "with an effective date subsequent to July 1, 1984." N.J.S.A. 39:6A-23(b)(c). The written notice was required to contain "a brief description of all available policy coverages and benefit limits, and identifying which coverages are mandatory and which are optional under State law, . . . ." Id. at (a).
The statute also required the Commissioner of Insurance to promulgate regulations for the written notice and buyer's guide. Id. at (c). The Commissioner complied with the legislative directive and promulgated regulations that became effective on April 2, 1984. N.J.A.C. 11:3-15.1 to -15.9. Those regulations, in part, provided that the insured's "current policy coverage" would remain in effect unless the insurer received a ...