On appeal from the Superior Court of New Jersey, Law Division, Gloucester County.
Bilder, Baime and Wallace. The opinion of the court was delivered by Bilder, J.A.D.
This is an appeal by the owner-lessor of a motor vehicle from an order of the Law Division granting an insurance broker a summary judgment dismissing the owner's complaint for losses suffered because of the failure of the broker to furnish the lessee with an insurance policy adequate to furnish appropriate indemnity to the owner as loss payee when the vehicle suffered collision damage. We are confronted with two issues, novel to our state: first, whether the well-established duties owing by a broker to an insured, see Rider v. Lynch, 42 N.J. 465, 476, 201 A.2d 561 (1964), are also owed to a named loss payee under the policy; and second, if such a duty exists, whether the broker is liable to the loss payee for failing to use reasonable care, skill, and judgment in selecting a financially stable insurer.
The relevant facts as presented in cross-motions for summary judgment are relatively simple. In February 1986, plaintiff Carter Lincoln-Mercury, Inc., Leasing Division, rented a 1985 White Diesel Tractor to defendant Goldstar Express, an over-the-road trucking company. Under the lease, Goldstar was to provide collision insurance which would protect plaintiff's interest.
On December 16, 1988, Goldstar appointed defendant Emar Group, Inc. as its exclusive broker of record for all lines of insurance and received an appropriate policy, effective December 17, 1988 to December 17 1989, which Emar had obtained from American Lloyds of Metairie, Louisiana. On December 27, 1988, Goldstar furnished Emar with a list of the finance companies who were loss payees on the policy and thereafter a policy endorsement was issued which, effective December 17, 1988, inter alia, named plaintiff as a loss payee with respect to the 1986 White tractor. On February 16, 1989, an appropriate certificate of insurance was issued to plaintiff. On February 17, 1989, plaintiff's tractor was substantially damaged in a motor vehicle accident. Its indemnity claim against American Lloyds for the approximately $22,000 loss was not paid because the insurance company was insolvent. On June 21, 1989, a Louisiana District Court placed the company in liquidation under the direction of the Louisiana Commissioner of Insurance. The undisputed facts also show that on September 19, 1988 the same Louisiana District Court had placed American Lloyds in conservation under the direction and control of the Louisiana Commissioner of Insurance and that this situation had continued to exist when Emar obtained the insurance policy which ultimately failed to indemnify plaintiff for its collision loss. It is also undisputed that American Lloyds had not been authorized to do business in this State, thus depriving plaintiff of assurances as to the financial stability of the insurer, see N.J.S.A. 17:32-2, and the benefits of the New Jersey Property - Liability Insurance Guaranty Association, particularly a claim against the guaranty fund, see N.J.S.A. 17:30A-5(e).
I. The Duty to the Loss Payee
Although novel to New Jersey courts, the very issue before us was carefully examined and decided in a well-reasoned opinion by Judge Debevoise in our federal district court. Impex Agricultural v. Parness Trucking, 576 F. Supp. 587 (D.N.J.1983).
Here, the court must determine whether insurance brokers who owe a duty of care to those persons engaging their services also owe a duty to third persons who are potential beneficiaries of the insurance policies procured by the brokers. Id. at 589.
In Impex, the plaintiff was a customer of a common carrier whose insurance broker had failed to follow the carrier's instructions to obtain a policy which would have covered the customer's losses. Claiming a status as a third-party beneficiary, Impex sought recovery against the broker on grounds of negligence, breach of contract and fraud. The broker moved for a dismissal of the complaint for failure to state a claim upon which relief may be granted. The motion was granted as to the fraud claim but denied as to the claims based on negligence and breach of contact. Id. at 592.
In upholding the plaintiff's claim, Judge Debevoise refused to be diverted by issues of privity or distinctions between contract and negligence claims, cogently noting that the essential question of law is whether plaintiff's interest as a named loss payee under the insurance policy obtained by the broker for the named insured is entitled to legal protection against the broker's deficient conduct. Id. at 590.*fn1 Applying New Jersey law, he concluded the broker has "a duty to exercise due care in ...