On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-10065-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lintner, Sabatino and Alvarez.
This appeal concerns a professional liability claim against an insurance broker. Appellant, Wholesale Outlet, Inc. ("Wholesale Outlet"), is a used car dealership that conducts business in Waterford and in several other New Jersey locations. From at least 1997 through 2003, Wholesale Outlet procured insurance coverage for its dealership through the efforts of an insurance broker, respondent O'Neill & Associates, Inc. ("O'Neill").
Each year when the coverages with the dealership's insurance carriers were renewed, O'Neill invoiced Wholesale Outlet for most of the associated premiums that the carriers assessed. O'Neill also charged Wholesale Outlet at times*fn1 what is variously described in the record as a "service fee" or a "risk management fee." According to a written agreement between those two parties dated March 16, 1999, O'Neill promised Wholesale Outlet, in exchange for the service fee, that it would:
1) Obtain competitive insurance pricing quotes on [Wholesale Outlet's] behalf through financially stable insurance companies.
2) Prepare specifications for the renewal of [Wholesale Outlet's] insurance program.
3) Prepare underwriting specifications for insurance coverages.
4) Assist [Wholesale Outlet] with it's [sic] risk management responsibilities relating to their [sic] Property and Casualty Insurance Program.
a. Identify property/casualty risks of loss;
b. Assist in claim handling; suggest techniques for controlling property/casualty risks;
c. Provide inspection service of all domestic locations and operations, and suggest techniques for controlling property/casualty risks.
This service fee charged by O'Neill was in addition to policy commissions that it received.
In 2001-02, O'Neill arranged for Wholesale Outlet's business to be insured by Lloyd's of London, for a premium of $12,000. Among other things, the Lloyd's policy*fn2 contained an exclusion for losses arising out of certain fraudulent acts.
According to Wholesale Outlet's pleadings, that exclusion read, in relevant part:
This insurance does not cover . . . a loss resulting from or occurring after the Assured's [Wholesale Outlet's] voluntary parting with title to or possession of any unit if induced to do so by a fraudulent scheme, tricks, device or false pretense or from embezzlement, conversion, secretion, theft, larceny, robbery or pilferage committed by any person entrusted by the Assured [Wholesale Outlet] with custody or possession of the unit.
Wholesale Outlet contends that during the 2001-02 policy period, it sold nine vehicles to customers who used false identities in connection with those purchases. The identities were allegedly "stolen" by the dishonest customers from other persons. In those transactions, the dishonest customer apparently forged the signature of the actual person, and took possession of the vehicle. The transactions were financed by outside lenders, who had recourse on the loans against both the customers and Wholesale Outlet. After taking possession of the vehicles, the customers failed to pay on the loans.
One of those fraudulent transactions occurred on April 24, 2002, when a Wholesale Outlet customer purporting to be "Christopher Loveland" bought a 1999 Lincoln Navigator. To purchase the Lincoln, the buyer agreed to borrow $30,330.51, payable over sixty months, with annual interest of 13.49%. The financing was extended through plaintiff, Lakeland Bank ("the Bank"), which took an assignment of the customer's loan from Wholesale Outlet.
Subsequently, the Bank discovered that Loveland's identity had been stolen and that his signature on the purchase documents was not genuine. Upon learning this, the Bank sued Wholesale Outlet in the Law Division on various theories, seeking to have Wholesale Outlet repurchase the loan agreement and assume responsibility for the customer's non-payment.*fn3
Wholesale Outlet, meanwhile, was unable to obtain indemnity from Lloyd's of London, due to the false pretense exclusion in its insurance policy. Consequently, Wholesale Outlet brought a third-party complaint against O'Neill for broker malpractice. Among other things, Wholesale Outlet claimed that O'Neill acted improperly, in procuring an insurance policy with an exclusion that eliminated the dealership's protection against losses arising out of a customer's fraudulent acts.
O'Neill, while admitting that it placed coverage for Wholesale Outlet, contends that it did not breach any obligations to Wholesale Outlet, and that it adhered to all standards of care within its profession. O'Neill maintains that any losses sustained by Wholesale Outlet were its own fault.
Eventually, the Bank and Wholesale Outlet settled their differences.*fn4 Wholesale Outlet continued to press its claims for reimbursement from O'Neill. Toward that end, Wholesale Outlet retained an insurance expert, Robert Sears, to establish that O'Neill deviated from the applicable standards of care.
Sears issued an initial expert report in November 2005, opining that O'Neill breached its professional duties to Wholesale Outlet in several respects, including failures to (1) "accurately identify all the exposures to which Wholesale Outlet, Inc.[,] was exposed," (2) "diligently research the availability of coverages among the [insurers] . . . to the dealership marketplace," (3) "fulfill their promise to provide written reports of all exposures to financial loss," and (4) "identify the limitations of coverages that were sold to Wholesale Outlet." Sears also criticized O'Neill for withholding "promised services and expertise for which a substantial fee was charged."
Citing to the deposition testimony of Brian O'Neill, the owner of the O'Neill firm, Sears further noted in his report that "Mr. O'Neill admitted to a substantial lack of knowledge with respect to the daily operations of his former client, Wholesale Outlet . . . and of the operations of used car dealerships in general and of the very coverage form that he had sold, the Lloyds Open Lot Policy." Sears maintained that rather than analyzing Wholesale Outlet's risks and procuring suitable coverage to guard against these risks, O'Neill "instead replicated coverage that was already in force [and] put in place by [O'Neill's] predecessor." Thus, contended Sears, O'Neill breached a duty to apply its insurance expertise and see to it that Wholesale Outlet obtained appropriate coverage.
With respect to the losses involved here, arising from customer identity thefts, Sears noted that the so-called "false pretense" exclusion in the Lloyd's policy can be nullified with additional policy terms. According to Sears, policy endorsements with such nullifying language have been available since the mid to late 1990s, and have been marketed "aggressively" to used car dealerships by several insurance carriers.
O'Neill retained its own standard of care expert, Michael F. Boures of Total Automotive Solutions, LLC. In his initial expert report of August 2006, Boures opined that "the motor vehicle sales by Wholesale Outlet to individuals using false identification which were financed by [a lending institution] would not be covered under any policy of insurance issued to a used car dealership." Boures contended that false pretense coverage, as suggested by Sears, would not cover Wholesale Outlet. That is so because the dealership "did not have the ...