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Wang v. Allstate Insurance Co.

Decided: June 26, 1991.

MARY CHENG LIN WANG, AS ASSIGNEE OF RONALD FIORI, AND THERESA FIORI, HIS WIFE, RICHARD FIORI, AND WILLIAM D. FRANKS, PLAINTIFFS-RESPONDENTS,
v.
THE ALLSTATE INSURANCE CO., AN INSURANCE COMPANY LICENSED TO DO BUSINESS IN THE STATE OF NEW JERSEY, FRANK METZGER, AND NEW JERSEY MANUFACTURERS INSURANCE CO., AN INSURANCE COMPANY LICENSED TO DO BUSINESS IN THE STATE OF NEW JERSEY, DEFENDANTS-APPELLANTS, AND THE ABC AGENCY (FICTITIOUS NAME), A CORPORATION OR PROPRIETORSHIP PROVIDING INSURANCE SERVICE TO THE PUBLIC, JOHN DOE (FICTITIOUS NAME), AND RICHARD ROE (FICTITIOUS NAME), DEFENDANTS



On certification to the Superior Court, Appellate Division.

For reversal and remandment -- Chief Justice Wilentz, Justices Handler, O'Hern and Garibaldi, and Judges O'Brien, Havey and Shebell. For affirmance -- None. The opinion of the Court was delivered by O'Brien, J.A.D. (temporarily assigned).

O'brien

This appeal concerns the duty of insurance companies and their agents to advise their insureds, on renewal of a homeowner's policy, of the potential inadequacy of their personal liability coverage.

I

On February 3, 1983, Mary Cheng Lin Wang sustained substantial personal injuries when her car collided with a tree

allegedly because two dogs ran into the roadway in front of her. One of the dogs was owned by Ronald, Theresa, and Richard Fiori, and the other by William and Dorothy Franks. In January 1985, Wang instituted suit for damages for her personal injuries against the Fioris and the Frankses because of their failure properly to control their dogs.

Both the Fioris and the Frankses had homeowner policies containing liability coverage for bodily injury and property damage. The Fioris had purchased their home for $17,500 in 1963, at which time they obtained their homeowner's policy from defendant The Allstate Insurance Co. (Allstate) through its agent, defendant Frank Metzger. The policy contained "family" liability coverage in the amount of $25,000. The Frankses purchased their home for $49,000 in 1977, at which time they obtained their homeowner's policy from defendant New Jersey Manufacturers Insurance Co. (NJM), a direct provider. Their policy too contained personal liability coverage in the amount of $25,000. Both policies had been renewed over the years, with the $25,000 limit in each for personal liability coverage remaining unchanged and were in effect when Wang suffered her injuries.

The Fioris and Frankses notified their respective insurance carriers, Allstate and NJM, of the Wang suit. Each carrier conceded coverage, assigned counsel, and provided a defense for its insured. Because of the substantial injuries claimed by Wang, the potential liability of the Fioris and the Frankses exceeded the liability coverage in their homeowners' policies and they retained personal counsel. Both insurance carriers agreed to deposit their policy limits with the Clerk of the Superior Court. Hence, by separate orders dated April 12, 1985, $25,000 was deposited with the Clerk on behalf of the Fioris and $25,000 was deposited on behalf of the Frankses, creating a fund in the total amount of $50,000.

Because Wang's counsel considered the deposited sum inadequate to compensate for her injuries, settlement negotiations were begun with personal counsel for the Fioris and Frankses.

Counsel for Wang met with the Fioris and their personal attorney on March 25, 1986. According to a certification of Wang's counsel, the Fioris informed him they had "never received any information regarding increasing their liability coverage from either Allstate or Mr. Metzger," and they had "relied on Metzger's expertise and knowledge regarding available insurance coverages and the limits of coverage appropriate in determining their insurance needs." On November 25, 1985, Wang's counsel had met with the Frankses and their personal attorney, at which time Mr. Franks told him he had received no information or advice from NJM suggesting that he increase his liability coverage, characterized in the certification as "unusually low." Franks further said he "had no expertise in the area of insurance and [NJM] had been recommended to him as a carrier which could adequately meet his insurance needs." Based on that information, Wang's counsel concluded that the Fioris and Frankses had viable causes of action against their respective insurance carriers under the standards set forth in Rider v. Lynch, 42 N.J. 465, 201 A.2d 561 (1964), and other cases establishing the duty owed by brokers and insurance companies to their insureds.

Negotiations continued, culminating in a settlement agreement in March 1987. Under the terms of that agreement, judgments were to be entered in favor of Wang and against the Fioris and Mr. Franks in the sum of $600,000 plus prejudgment interest. Mrs. Franks chose not to be a party to the proposed settlement agreement and thus negotiations concerning the Frankses were with Mr. Franks only. For their part, the Fioris and Mr. Franks would assign to Wang any claim or cause of action they had against their insurance carriers, Allstate and NJM, and any agents of those carriers. In consideration for the assignments, Wang agreed to forbear from execution on the consent judgment and, upon conclusion or settlement of her suit as assignee against the insurance carriers, she would provide the Fioris and Mr. Franks with a warrant for satisfaction of the judgment.

In March 1987, Ronald Fiori, his wife, Theresa, and their son, Richard (an additional insured under the Allstate homeowner's policy), executed separate assignments to Wang, for all claims, demands and causes of action against Allstate and its agent. Each assignment describes the acts of Allstate and its agent as

includ[ing] their willful, wanton and intentional violation of my rights under a policy issued for protection from personal liability for damages arising from an occurrence, including a failure to provide appropriate, adequate and professional advice and counsel relating to the terms of renewal of the insurance policy issued to me for coverage on my home, including liability for negligent acts of me and my family, and for the failure to properly counsel and advise regarding the need or advisability to increase liability coverage limits and the failure to put my interest, as the policyholder and client, ahead of their own self-interest; which actions were unreasonable, wrongful, negligent, a breach of duty, a violation of the implied covenant of good faith and fair dealing, and a breach of fiduciary duty, and resulted unnecessarily in uninsured exposure, and underinsured status, and potential personal liability to me[.]

Each assignment incorporates the terms of the settlement. In addition, each of the Fioris agreed to cooperate

as reasonably may be required of me in any case which may be brought by Ms. Wang involving said insurance coverage; said cooperation includes testifying at deposition and/or trial, but is not limited solely to those facets of cooperation.

On April 8, 1987, Mr. Franks signed an identical assignment.

All the settlement negotiations culminating in the execution of the assignments in March and April 1987 were conducted without the knowledge of Allstate and NJM or the lawyers who had been assigned by the carriers to represent the insureds. However, Wang's counsel and personal counsel for the Fioris and the Frankses decided that the terms of the settlement should be discussed in a conference before the court. Thus, on June 9, 1987, the attorney for Wang, private counsel for the Fioris and Mr. Franks, as well as counsel assigned by Allstate and NJM, who were of record in the Wang suit against the Fioris and the Frankses, appeared before the assignment judge to discuss the terms of the settlement. At that conference, the Fioris and Mr. Franks agreed to provide their respective carriers with a release of the covenant to defend and investigate. In return, counsel assigned by the insurance companies agreed

to provide substitutions of attorney in favor of the insureds' personal counsel, who would in turn affix their consents to the proposed consent judgments.

On November 19, 1987, Mr. Franks executed a release and indemnification agreement to NJM. Mr. Franks acknowledged in the release that NJM had fully and properly performed its obligations under the policy, and had retained competent legal counsel to defend him against those claims. He further acknowledged that NJM and assigned counsel had properly and fully investigated and defended the lawsuit and prepared his defense in time for the trial which had been scheduled for June 15, 1987. The release contained a further acknowledgment that NJM and the assigned counsel had not been informed of the negotiations leading to the settlement or execution of the assignment until one week prior to the status conference on June 8, 1987. In consideration of the release, the NJM designated counsel executed a substitution of attorney in favor of Franks' personal attorney. Allstate did not obtain a similar release from the Fioris; nonetheless counsel assigned by Allstate to represent them apparently gave their personal counsel a similar substitution of attorney.

Pursuant to the settlement, the court entered separate consent orders for judgment on March 4, 1988, against the Fioris and Mr. Franks, each in the amount of $600,000 plus prejudgment interest in the amount of $194,983.87, for a total of $794,983.87 plus costs. The orders provide that both judgments represent joint and several liability for the entire amount of the judgment for all defendants except Dorothy Franks. The record does not disclose the disposition of the case as to her. By separate order ...


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