SPANISH TRANSPORTATION SERVICE CORP., et al. v. HURD INSURANCE AGENCY, INC., THOMAS HURD and THOMAS McCUSKER

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1924-04T21924-04T2

SPANISH TRANSPORTATION SERVICE

CORP., DISCOVERLINE CORP., AIRPORT

SERVICE CORP., and NJ & NY TRANSIT,

LLC.,

Plaintiffs-Respondents,

v.

HURD INSURANCE AGENCY, INC.,

THOMAS HURD and THOMAS McCUSKER,

Defendants-Appellants,

and

UNIVERSAL INSURANCE EXCHANGE,

Defendant-Respondent,

and

AMERICAN PACIFIC AGENCY, AMGRO INC.,

AMGRO PREMIUM FINANCING INC.,

Defendants.

_________________________________________________

 

Submitted October 4, 2006 - Decided November 30, 2006

Before Judges Payne, Graves and Lihotz.

On appeal from Superior Court of New

Jersey, Law Division, Passaic County,

L-3672-02.

Wilson, Elser, Moskowitz, Edelman &

Dicker, attorneys for appellants

(Michael J. Cawley and Erin M. Siciliano,

on the brief).

Jerry A. Casser, attorney for respondents

Spanish Transportation Service Corp.,

Discoverline Corp., Airport Service Corp.,

and NJ & NY Transit, LLC.

Lustbader & Lustbader, attorneys for

respondent Universal Insurance Exchange

(David Lustbader, on the brief).

PER CURIAM

After learning of the cancellation of their $5 million in purported liability insurance and after failing to obtain a return of premiums paid, plaintiff bus companies (Spanish Transportation Service Corp., Discoverline Corp., Airport Service Corp. and NJ & NY Transit, LLC) sued the alleged insurer, Universal Insurance Exchange, as well as plaintiffs' insurance broker, the Hurd Insurance Agency, its owner, Thomas Hurd, and the employee handling plaintiffs' account, Thomas McCusker (collectively, the "Hurd defendants" or "Hurd"), receiving an award of damages from each following a bench trial before Judge Burrell I. Humphreys. A separate appeal was filed by each defendant, and those appeals were scheduled to be heard by us together. However, the appeal of Universal Insurance Exchange has been dismissed. As a consequence, our focus is solely upon the appeal of the Hurd defendants.

Universal is a reciprocal liability insurance company licensed solely to write policies in Texas up to limits of $55,000. Nonetheless, Hurd, without conducting any meaningful investigation, placed the coverage with Universal through its agent, Program Resource Management, Inc. (PRM), to satisfy plaintiffs' request to obtain liability insurance to meet statutory requirements of $5 million for plaintiff's interstate bus lines. As a result, a policy of insurance number BAP2001 was issued on a form bearing the name Universal Insurance Exchange with a face amount of $55,000, with a premium of "157019.8.00," effective from November 30, 2001 until cancelled. Universal, a vastly undercapitalized insurer that is not authorized to conduct business in New Jersey, has denied issuing the policy, which it states is not on its form.

Thereafter, Hurd issued certificates of insurance indicating coverage in the amount of $5,000,000. Premiums were remitted, as directed, to an entity other than Universal, acting as its purported agent. Universal has denied receipt of any premium payments.

In December 2001, plaintiffs were informed by the New Jersey Department of Transportation that Universal was not authorized to write insurance in this State and that plaintiffs' operations would be closed down if alternate coverage were not obtained. Plaintiffs then demanded return of their premium payments, and when their demand remained unmet, instituted suit against the Hurd defendants and Universal.

Following trial, at which defendant Thomas Hurd testified but Thomas McCusker did not, Judge Humphries issued a written opinion dated October 15, 2004, in which he held:

1) PRM had apparent authority from Universal to sell insurance to plaintiffs and did so. Universal is, therefore, liable to plaintiffs for breach of contract; 2) Plaintiffs paid premiums to PRM, an agent of Universal. Such payments are as a matter of law payments to Universal regardless of whether Universal received them. Universal is, therefore, liable to plaintiffs for those payments; 3) Universal by its conduct enabled Corless [its managing general agent] and PRM [its agent] to defraud plaintiff. Hence, the loss caused by the fraud falls on Universal; 4) Plaintiffs were defrauded; however, the evidence falls short of a clear and convincing showing that any of the defendants committed the fraud; 5) The Hurd defendants and McCusker were negligent, and their negligence proximately damaged plaintiffs; 6) Plaintiffs are entitled to an award of damages against Universal, the Hurd defendants and McCusker in the amount proven at trial.

With respect to the Hurd defendants, Judge Humphreys held:

The evidence of the negligence of the Hurd defendants is overwhelming. They placed plaintiffs' insurance with a company not authorized to do business in New Jersey and not able to insure for the large amount of coverage required by plaintiffs. In so doing, the Hurd defendants plainly failed to act with the reasonable skill and diligence which an insurance broker must display in performing the services of a broker.

On appeal, the Hurd defendants do not directly address their negligence, which was manifestly established under the standards articulated in President v. Jenkins, 180 N.J. 550 (2004), Carter Lincoln-Mercury, Inc. v. Emar Group, Inc., 135 N.J. 182 (1994), and Rider v. Lynch, 42 N.J. 465 (1964). They argue, however, that their liability was premised by Judge Humphreys upon their failure to place insurance, a finding that was fatally inconsistent with what they characterize as the judge's additional conclusion that coverage was issued and the contract of insurance was breached.

We reject the argument of the Hurd defendants. While recognizing that Universal lacked the ability to write coverage in New Jersey and to afford coverage in any state in the amount allegedly procured, Judge Humphreys deemed a policy of insurance to exist as the result of conduct by Universal that conveyed apparent authority to PRM to issue coverage and to accept premiums. However, the judge specifically held that his conclusion did not absolve the Hurd defendants of liability, because their negligence "in failing to inquire as to Universal's ability to meet plaintiff's insurance requirements" permitted the conduct that later occurred to take place. As such, the conduct of the Hurd defendants and Universal concurrently caused the damages that plaintiffs sustained. Davis v. Brooks, 280 N.J. Super. 406, 412 (App. Div. 1993). We agree with that conclusion.

The obligations of an insurance broker have been defined to include procuring insurance, securing a policy that is neither void nor materially deficient, and providing the coverage that the broker undertook to obtain. Rider, supra, 42 N.J. at 476. "If an agent or broker fails to exercise the requisite skill and diligence when fulfilling those obligations, then there is a breach of the duty of care, and liability arises." President, supra, 180 N.J. at 569. Where, as here, a breach by the broker of its duty of care, as it has been defined, is evident, liability cannot be avoided simply because the insurer conducted itself in a manner that resulted in its liability, as well.

 
We do not address the issue of apportionment of liability, which has not been raised in connection with this appeal.

Affirmed.

A second policy bearing the same number with the same limits but a different premium of "256190.00" also exists.

The Hurd Agency and Thomas Hurd had their licenses revoked in Pennsylvania as the result of other conduct, and Thomas Hurd surrendered his New Jersey license.

(continued)

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A-1924-04T2

November 30, 2006