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NJ Supreme Court
refuses to expand
insurance
broker/agent E&O
liability,
but
declines to
exonerate insurer.
In a closely-watched
and
highly-anticipated
case -
which even rallied
the Professional
Insurance Agents of
New Jersey, Inc.
(PIANJ) -
the New Jersey
Supreme Court has
affirmed the grant
of summary judgment
in favor of an
insurance agency,
and in the process
refused to expand
the standard of care
owed by insurance
producers to their
clients. However,
the court also found
an insurer's policy
ambiguous and thus
remanded the case
for further
proceedings.
President v. Jenkins3
involved a doctor
(Reginald Jenkins)
who obtained an
occurrence-based
medical malpractice
insurance policy
through Princeton
Insurance Company in
February 1987 that
was renewed for
successive one-year
periods through
February 1998. In
the Fall of 1997,
Princeton notified
Jenkins it would
cancel the policy
unless the overdue
premium was paid.
When Jenkins failed
to pay, Princeton
notified him in a
letter dated January
9, 1998 the policy
was cancelled
retroactive to
October 26, 1997.
In August 1997
Jenkins had
discussed obtaining
replacement
insurance with
Patrick O'Brien, a
sales representative
for C&R Insurance
Agency, who was an
agent for Zurich
Insurance Company.
Jenkins completed a
quote form and
indicated he would
require new coverage
effective February
1998. He
subsequently met
with O'Brien on
January 8, 1998 and
completed and signed
an insurance
application, never
answering specific
questions concerning
his requested
effective date of
coverage, insurance
history for the
previous three
years, or whether
the Princeton
coverage was "claims
made." He also
never notified
O'Brien the
Princeton policy was
cancelled prior to
February 1, 1998.
Sometime thereafter
Zurich, through C&R,
issued Dr. Jenkins a
binder, certificate
of insurance,
declaration page,
additional insured
physician?s
endorsement, and the
policy itself. The
binder and
endorsement
identified the
policy period as
January 1, 1998 to
January 1, 1999 with
February 1, 1998 as
the "retroactive
date" (undefined by
the policy); the
certificate
identified the
policy's "effective
date" as February 1,
1998 with an
"expiration date" of
January 1, 1999; the
declaration page
identified the
retroactive date as
January 1, 1997.
The policy language
identified it as a
claims made policy
that would provide
coverage for a claim
first made "during
the policy period
arising out of a
medical incident
which occurred on or
after the
retroactive date."
On September 20,
1999 plaintiffs
filed a medical
malpractice action
against Dr. Jenkins
based upon alleged
negligence that
occurred January
3-4, 1998. Jenkins
forwarded the
complaint to Zurich,
who declined
coverage because the
incident occurred
prior to the
policy's retroactive
date. Zurich and
C&R were both joined
as defendants by
plaintiffs, Jenkins
asserted
cross-claims against
both and ultimately
cross-motions for
summary judgment
were filed. Jenkins
asserted C&R
(O'Brien) should
have questioned him
further regarding
the date he needed
coverage to
commence, should
have advised him
about the
possibility of "gap"
insurance to cover
him between the
Princeton and Zurich
policies and
generally should
have ensured he
received insurance
coverage adequate to
meet his needs. He
further alleged he
believed the Zurich
policy became
effective January 1,
1998 and did not
understand the
significance of a
retroactive date.
The trial court
granted the motions
of Zurich and C&R,
finding the policy
did not provide
coverage prior to
February 1, 1998
and, based upon
Jenkins' failure to
provide C&R with
adequate
information, no
reasonable jury
could conclude the
agency committed
malpractice. The
Appellate Division
of the New Jersey
Superior Court
affirmed the
rulings.
On appeal to the
New Jersey Supreme
Court, PIANJ
weighed in with an
amicus curiae
brief urging the
court to maintain -
not expand - the
existing duty of
care owed by
insurance producers
to their clients.
The court listened,
and affirmed
existing law that
holds a broker?s
obligations are to
(1) procure the
insurance, (2)
secure a policy that
is neither void nor
materially
deficient, and (3)
provide coverage the
broker undertook to
supply. Based upon
the "one-sided"
evidence presented,
the court found
summary judgment in
C&R's favor entirely
appropriate.
Zurich was not so
fortunate. The
court found the
policy ambiguous -
with its apparently
conflicting dates
and lack of clear
definition of the
term "retroactive
date" - and
determined a remand
to the trial court
for a fact
determination of
Jenkins' reasonable
expectations
concerning the
coverage was
necessary since,
although he
acknowledged he
requested coverage
starting February 1,
1998, he argued he
believed he would
receive the benefit
of retroactive
coverage commonly
associated with
claims made
policies.
Not only is the
President
decision clearly a
victory for
insurance producers
in New Jersey, it
also represents the
advanced development
of New Jersey's
broker/agent law
relative to other
jurisdictions,
including
Pennsylvania.
Moreover, the
decision should not
necessarily be
viewed as a defeat
for the insurer. In
light of Dr.
Jenkins' apparent
credibility problems
(both lower courts
found Dr. Jenkins
got ?exactly what he
bargained for' - a
policy with coverage
beginning February
1, 1998), he will
likely have a
difficult time
proving he
reasonably expected
coverage to begin
January 1, 1998.
Indeed, two of the
Supreme Court
justices dissented
from the majority on
this very issue,
finding "Dr.
Jenkins' own words
and deeds
surrounding the
issuance of the
policy lead to only
one conclusion as a
matter of law,
namely, the insured
did not expect what
he now seeks as
coverage from the
insurer."
3 853
A.2d 247 (N.J.,
Decided August 4,
2004) |
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