March 10, 2010
CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL, LLC, AND CRESCENT ON CANAL, LLC, PLAINTIFFS-APPELLANTS,
PHILIP LEHMAN COMPANY, LTD., DEFENDANT/THIRD PARTY PLAINTIFF-RESPONDENT,
NATIONAL SPECIALTY UNDERWRITERS, INC., THIRD PARTY DEFENDANT-RESPONDENT, AND CERTUS CLAIMS ADMINISTRATION, LLC, THIRD PARTY DEFENDANT.
On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-1704-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 13, 2010
Before Judges Axelrad, Fisher and Espinosa.
Plaintiffs, the holders of interests in a New Orleans hotel, were targets of two personal injury class action suits commenced in Louisiana by employees and guests of the hotel. Believing an insurer had correctly declined to provide coverage, plaintiffs contributed $3,850,000 to a settlement of the Louisiana suits, released the insurer, and then commenced this action against defendants -- an insurance brokerage firm and an underwriting firm -- for allegedly failing to procure coverage. At the conclusion of a trial, during which defendants took the position that plaintiffs were actually covered by the insurance policies procured, the jury rendered a verdict, which resulted in a judgment in defendants' favor. Plaintiffs appealed, arguing the insufficiency of the judge's charge. Finding no error, we affirm.
In October 1997, Pallas Ventures, LLC, purchased the Crescent on Canal Hotel in New Orleans through financing provided by plaintiff Credit Suisse First Boston Mortgage Capital, LLP (Credit Suisse). Pallas later defaulted and, in March 2000, Credit Suisse became the owner of the hotel through foreclosure. Credit Suisse then attempted to transfer its interest in the hotel to plaintiff Crescent on Canal, LLC (Crescent), an entity it formed for that purpose. However, due to an error in the deed, Credit Suisse remained on the title as an owner.
Crescent hired Tishman Hotel Corporation (Tishman) to manage the hotel, and Tishman created THC of New Orleans, LLC (THC) for that purpose. Crescent entered into a management agreement with THC, and Credit Suisse both funded Crescent and guaranteed its obligations.
In early 2000, Larry Goland,*fn1 a Credit Suisse representative, contacted defendant Philip Lehman Company, Ltd. (Lehman), an insurance brokerage firm in Butler, New Jersey, to procure property liability and excess liability insurance coverage for Crescent. Lehman's principal, Jeffrey Lehman, testified at trial that Goland requested that Crescent be listed on those policies as the named insured, and that Credit Suisse, THC, and Tishman be named as additional insureds. Lehman contacted defendant National Security Underwriters, Inc. (NSU), a specialty insurance wholesaler for hotels and the hospitality industry.
Pursuant to its customs and practices, NSU had no direct contact with plaintiffs, acting on the basis of the information provided, in this case, by Lehman. NSU requested that Lehman complete an application, which required among other things that Lehman attach "a list of all named insureds including a description of each entity." Lehman's response did not indicate that Credit Suisse, THC, or Tishman should have been specifically named as additional insureds.
Based on the insurance application, NSU sent Lehman a quote listing Crescent as the named insured on the proposed policy, and Lehman directed NSU to bind the coverage pursuant to the quote. As a result, NSU procured insurance for Crescent with primary, excess, and umbrella coverage. On May 4, 2000, NSU delivered the policies to Lehman; Credit Suisse, THC and Tishman were not listed as named insureds or additional insureds in the insurance application, quote, binder, order to bind, or the insurance policies.
By a fax cover-sheet dated March 15, 2000, Pam Brauner, an NSU representative, advised Lehman that it was authorized to issue any certificates of insurance needed to confirm the insurance obtained for Crescent. However, she requested that Lehman bring to NSU's attention "any special wording needed by the insured prior to issuing [the certificate of insurance]," so that NSU could seek approval from the insurers, if necessary. The next day, Barry Hansen of Lehman sent NSU a certificate of liability insurance that listed Credit Suisse, THC, and Tishman as additional insureds. A few days later, Lehman forwarded to Goland a certificate of liability insurance, which listed Credit Suisse, THC, and Tishman as additional insureds. And, on March 31, 2000, Jeffrey Lehman forwarded to Goland certain certificates of liability insurance that purported to be "final certificates," which listed Credit Suisse, THC, and Tishman as additional insureds.
Pursuant to NSU's procedures, however, insurance brokers were required to make written requests for specific endorsements naming entities as insureds or additional insureds; those written requests would then be forwarded to the insurers to decide whether a specific endorsement would be issued. In that regard, both Jeffrey Lehman and Hansen testified that it was Lehman's normal practice to send a written binder request to NSU when seeking a specific endorsement. Lehman made no written request for a specific endorsement listing Credit Suisse, THC, or Tishman as additional insureds. As a result, the only documents specifically listing those entities as additional insureds were the certificates of liability insurance prepared by Lehman. And even those certificates were somewhat equivocal since they expressly stated: "this certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below."
Brauner testified that NSU did not consider the certificate as a written request to have those three entities specifically named as additional insureds because "[t]hat's not normal practice." According to Brauner, NSU never "accept[ed] Certificates of Insurance as requests from brokers to name additional insureds on any particular policy." Moreover, Brauner could not recall receiving from Lehman a completed certificate of liability insurance. She testified that if there were revisions to the certificate of liability insurance, she would wait until it was in "acceptable form" before she would forward it to the insurers. As a result, NSU did not submit to the insurers the certificate naming Credit Suisse, THC, and Tishman as additional insureds, and Lehman never sought to verify that NSU had done so.
Under the insurance coverage secured by defendants for Crescent, St. Paul Fire & Marine Insurance Company provided the primary layer of insurance coverage with a general liability limit of $1,000,000 per event, subject to a $2,000,000 general aggregate limit. The primary layer was followed by up to $30,000,000 in excess coverage, which was issued by Westchester Fire & Marine Insurance Company and Indemnity Insurance Company.
The policies did not contain an additional insured endorsement, nor did they name Credit Suisse, THC, or Tishman as additional insureds. However, the policies provided coverage to Crescent, as well as other persons or entities that qualify as "protected persons." Protected persons under the policies included Crescent's real estate and property managers, as well as those entities for which Crescent had a written contract that required it to provide coverage.
The policies also provided coverage for any entity for which Crescent was required to indemnify. In that regard, Crescent and THC entered into a written management agreement, wherein THC was the property manager of the hotel. Pursuant to the terms of that agreement, Crescent agreed to indemnify THC for any losses arising out of THC's management of the hotel. The agreement required Crescent to provide insurance coverage for THC, as well as its "affiliates," and defined the word "affiliate" in such broad terms as to encompass Credit Suisse. Additionally, Credit Suisse was the guarantor of Crescent's obligations under the management agreement, and the guarantee listed Credit Suisse as Crescent's affiliate.
Although Credit Suisse was not specifically named as an additional insured, the St. Paul policies contained a "Described Person or Organization Endorsement" (DPOE), a "blanket endorsement" providing coverage to any organization falling within its description. Due to its affiliation with Crescent and the scope of the property management agreement, there appears to be little question that St. Paul was obligated to defend and indemnify Credit Suisse.
In August 2002, a class action lawsuit entitled Brown, et al. v. Credit Suisse First Boston Corporation, et al., which was commenced by employees of the hotel and alleged personal injuries as a result of exposure to mold contamination, was filed in Louisiana state court. Crescent was named as a defendant; an amended complaint filed in January 2003 joined Credit Suisse as a defendant. St. Paul agreed to defend Crescent, but refused coverage to Credit Suisse because it was not listed as an insured. In August 2004, another class action lawsuit entitled Powell, et al. v. Credit Suisse First Boston Credit Suisse LLC, et al., which was commenced by former guests of the hotel and alleged personal injuries as a result of exposure to mold contamination, was filed in Louisiana state court; both Crescent and Credit Suisse were named as defendants. St. Paul agreed to defend Crescent but denied coverage to Credit Suisse.
In November 2004, during their review of the file, plaintiffs' litigation counsel "came across" a certificate of liability insurance provided by Lehman listing Credit Suisse as an additional insured. On December 8, 2004, Andrew Weinberg, an in-house attorney at Credit Suisse, forwarded the certificate to St. Paul, which responded to Credit Suisse on January 10, 2005, by reiterating that it was not covered by the policy because it was not specifically named by an endorsement to the policy:
Notwithstanding the Certificate of Insurance, which lists [Credit Suisse] as a named insured, the policy contains no corresponding endorsement naming [Credit Suisse] as an additional insured. Under the circumstances, St. Paul continues to deny coverage to [Credit Suisse], and we will not pay for any loss, cost or expense incurred on its behalf in connection with this matter.
On January 11, 2005, Weinberg forwarded St. Paul's letter to Jeffrey Lehman, and, seeking an explanation, asked: "Jeff, based on our previous conversations, it was my understanding that an endorsement was not necessary. Please advise." Weinberg testified that he did not recall Jeffrey Lehman ever responding.
On February 2, 2005, Weinberg again e-mailed Jeffrey Lehman, requesting advice regarding St. Paul's declination. Again, Weinberg received no response. In Weinberg's words, Jeffrey Lehman "disappeared off the face of the earth."
While the Brown and Powell matters were pending, a dispute developed between St. Paul and Westchester, the excess insurer. St. Paul took the position that its liability was limited to $3,000,000 before the $30,000,000 in excess coverage was implicated. Westchester took the position that St. Paul's obligation was as high as $6,000,000 before excess coverage was implicated.
Without resolving that dispute, on February 14, 2005, Credit Suisse and Crescent settled Brown and Powell for $7,700,000, with St. Paul and Credit Suisse paying $3,850,000 each. The parties executed two separate Settlement and Non-Waiver Agreements wherein plaintiffs released St. Paul from "all future actions, claims, rights, counts, suits, causes of action, obligations, debts, demands or liabilities of any kind or nature, known or unknown," which were derivative of the Brown or Powell lawsuits.
On June 13, 2005, plaintiffs Credit Suisse and Crescent (hereafter sometimes referred to collectively as "plaintiffs") filed this suit against Lehman, alleging professional negligence, breach of fiduciary duty, and breach of contract. Lehman filed a third-party complaint against NSU, prompting plaintiffs to file an amended complaint, which added a direct claim for negligence against NSU.
A lengthy jury trial commenced on October 7, 2008. On November 6, 2008, the jury found that Lehman had been negligent, but that its negligence was not a proximate cause of plaintiffs' alleged injuries; the jury also found that NSU had not been negligent.
Judgment was entered in favor of Lehman and NSU on November 21, 2008. Plaintiffs appealed.
In Point I of their brief, plaintiffs argue that the jury charge was inadequate because the judge failed to properly set forth defendants' legal obligations. Having carefully reviewed the judge's charge in light of the parties' arguments, we are satisfied that the instructions were accurate and sufficient.
"Appropriate and proper charges to a jury are essential for a fair trial." State v. Green, 86 N.J. 281, 287 (1981). A trial court's instructions to the jury must correctly "state the applicable law in clear and understandable language," Boryszewski v. Burke, 380 N.J. Super. 361, 374 (App. Div. 2005), certif. denied, 186 N.J. 242 (2006), and should indicate how the jury should apply the facts it finds. Jurman v. Samuel Braen, Inc., 47 N.J. 586, 591-92 (1966).
In reviewing jury instructions, an appellate court must read the charge in its entirety and "should not reverse . . . when the charge adequately conveys the law and does not confuse the jury." Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 418 (1997). Indeed, "[c]courts uphold even erroneous jury instructions when those instructions are incapable of producing an unjust result or prejudicing substantial rights." Fisch v. Bellshot, 135 N.J. 374, 392 (1994).
At trial, plaintiffs attempted to prove that defendants failed to procure an insurance policy that named Credit Suisse as an additional insured, and that, once St. Paul denied coverage, defendants failed to advise Credit Suisse that it might nevertheless be covered by way of the DPOE. Plaintiffs argue that the judge's charge failed to properly or accurately so instruct the jury on these points.
Plaintiffs, however, do not allude to any specific portion of the jury charge that was incorrect, incomplete or confusing. Rather, they largely refer to portions of the charge conference, including a particular comment then made by the judge,*fn2 to support their argument that defendants' duties were incorrectly defined for the jury. The content of the charge conference, however, is irrelevant in light of the fact that the charge itself adequately conveyed the law's requirements.
The actual charge instructed the jury that defendants could be liable if they secured coverage inferior to that requested by Credit Suisse, and could be liable if they failed to advise Credit Suisse regarding the availability of coverage upon an insurer's declination:
If the broker neglects to procure the insurance, if the policy is void or materially deficient, or if the broker does not provide the coverage he undertook to supply, the broker become liable to that party for any loss sustained, thereby, because of the broker's failure to exercise the requisite skill or diligence.
If the broker has failed or is unable to procure such insurance, the broker has a duty to so notify the party requesting the coverage. In addition, the broker is responsible for advising the party for which insurance coverage was obtained, as to the rights -- as to its rights to coverage under the policy if a claim for coverage is denied. [Emphasis added.]
At the conclusion of the charge, Lehman's counsel inquired about the judge's failure to charge -- as he indicated in his comments during the charge conference -- that if the jury found coverage under the DPOE, there could be no finding of negligence on defendants' part. The trial judge responded that he "decided to delete that entire charge." In short, the comments made by the judge outside the jury's presence -- that if the DPOE provided coverage, there could be no liability -- were never charged. Thus, despite plaintiffs' forceful arguments that the judge's comments were erroneous, the charge actually delivered was entirely consistent with and gave plaintiffs the full benefit of the standards applicable to insurance brokers described in Aden v. Fortsch, 169 N.J. 64, 79 (2001) and Rider v. Lynch, 42 N.J. 465, 476 (1964).
Plaintiffs also contend that the trial judge failed to properly instruct the jury on the "litigation catastrophe doctrine," which plaintiffs urged as a response to the defense that they did not act reasonably in connection with the Brown and Powell suits once St. Paul refused to provide coverage. This theory rested on the established proposition that a plaintiff's inadequate settlement of an underlying claim may represent a reasonable mitigation of damages in a subsequent professional negligence suit when the plaintiff was faced with a "litigation catastrophe" caused by the professional's negligence. See Prospect Rehab. Servs., Inc. v. Squitieri, 392 N.J. Super. 157, 164 (App. Div.), certif. denied, 192 N.J. 293 (2007); Covino v. Peck, 233 N.J. Super. 612, 619 (App. Div. 1989); Spaulding v. Hussain, 229 N.J. Super. 430, 444 (App. Div. 1988).
Considerable argument has been devoted to the legal sufficiency of plaintiffs' litigation catastrophe theory. Indeed, the record reveals that plaintiffs are not uninformed laypersons but sophisticated commercial entities with more than adequate means to ascertain their rights and liabilities before surrendering millions of dollars when faced with litigation. As a result, plaintiffs' decision to settle without suing St. Paul -- because of the allegedly inadequate response provided by defendants about the scope of the policies -- is highly questionable. Plaintiffs acknowledge that they did not even examine the terms of the insurance policy before settling the underlying suits. Equally curious is plaintiffs' decision to release St. Paul from liability, apparently without receiving any consideration, when the Powell and Brown settlements were consummated.
Despite legitimate questions about the reasonableness of plaintiffs' action when presented with this so-called "litigation catastrophe," we need not determine its legal sufficiency because the judge charged the jury on this theory. In his jury instructions, the judge explained:
Now, with respect to mitigation of damages, and I say this among other things, Lehman and NSU, have argued that the plaintiffs could have reduced their damages by filing a lawsuit against the insurance companies to force them, by Court Order, to pay more towards the settlement of the underlying Class Action lawsuits. Lehman and NSU now bear the burden of proving that the plaintiffs, in fact, would have reduced their damages by starting a coverage lawsuit and considering any related cost, risk, or inconvenience, acted unreasonably in not starting such a coverage lawsuit.
The plaintiffs were only required to take reasonable steps, from their point of view, to resolve in the insurance coverage dispute before seeking to recover from Lehman and NSU in this action. If you find that the defendants were negligent, you must decide if the . . . plaintiffs took all reasonable steps to avoid their loss. If you find that the plaintiffs did not take all reasonable steps to avoid their loss, you must subtract the amount of damages that could have been avoided by the loss you believe they suffered. [Emphasis added.]
The judge not only charged plaintiffs' litigation catastrophe theory but also informed the jurors that they need only consider whether plaintiffs acted reasonably "from their point of view." As a result, the jury was told that it should consider plaintiffs' actions when faced with the consequences of defendants' alleged professional negligence not through the application of an objective standard of reasonableness, but by a subjective standard. Therefore, plaintiffs were permitted to pursue their litigation catastrophe theory and received a beneficial charge on that question.*fn3
Plaintiffs asserted both a professional negligence claim and a breach of a fiduciary duty claim against Lehman. In Point II of their brief, plaintiffs argue that the judge erred in charging the jury only on plaintiffs' professional negligence claim.
Viewing the claims as overlapping or redundant, the judge dismissed the fiduciary duty claim, explaining:
I don't think there's a need to have breach of fiduciary duty. We have [professional negligence] in the case and that is adequate, and as far as I'm concerned, the damages would be the same anyway. So that having been said, breach of [fiduciary] duty and breach of contract are out of the case. . . .
I think [the fiduciary standard is all encompassed in the professional negligence charge]. I think it is and if we start getting into two different levels of duty, . . . I just think we're going to confuse the jury . . . .
Whether the judge correctly dismissed the fiduciary duty claim is of no moment because that alleged error was not capable of producing an unjust result in light of the jury's finding that Lehman was negligent.
In resolving this question, there may be merit in the judge's view that there is little distinction between a claim of a broker's professional negligence and a claim of a broker's breach of its fiduciary duty to its client. In Rider, the Court explained:
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. If he neglects to procure the insurance or if the policy is void or materially deficient or does not provide the coverage he undertook to supply, because of his failure to exercise the requisite skill or diligence, he becomes liable to his principal for the loss sustained thereby.
[42 N.J. at 476.]
See also Aden, supra, 169 N.J. at 79 (holding that the duty of care owed by an insurance broker "is essentially one of professional malpractice").
Assuming that the jury would have appreciated any distinction between a fiduciary standard and a professional negligence standard in this context, the fact that the jury found Lehman negligent renders that question irrelevant. That is, the jury found Lehman breached a duty owed to plaintiffs; once that breach was established, the jury was next required to determine whether Lehman's wrongful conduct proximately caused an injury. The charge on proximate cause -- regardless of whether Lehman was found negligent or found to have breached its fiduciary duty or both -- would have been the same. As a result, any error the judge may have committed in refusing to provide jury instructions regarding Lehman's fiduciary duty was inconsequential.
For the reasons set forth above, we reject the arguments contained in Points I and II of plaintiffs' brief. Plaintiffs also presented the following arguments for our consideration:
III. THE TRIAL COURT ERRONEOUSLY EXCLUDED THE "CLAIM NOTE" FROM EVIDENCE.
IV. THE CUMULATIVE IMPACT OF THE TRIAL COURT'S ERRORS, CONSIDERED IN THEIR AGGREGATE, DEPRIVED PLAINTIFFS OF A FAIR TRIAL AND CONSTITUTES REVERSIBLE OR PLAIN ERROR.
We find insufficient merit in those arguments, or any others not specifically identified in this opinion, to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).