Legal Updates for Insurance Agents & Brokers
Legal Updates for Insurance Agents & Brokers - June 2019
Edited by Timothy Ventura, Esq.
Failure to Obtain a Judgment Against the Insured-Tortfeasor Precludes a Subsequent Action Against the Broker for Negligent Procurement of Insurance
By Dante C. Rohr, Esq.
In Estate of Atanasoski v. Arcuri Agency, Inc., 2019 N.J. Super. Unpub. LEXIS 1024 (App. Div. May 6, 2019), the decedent was struck and killed by a truck owned and operated by Schripps European Bread, and his estate sued the business. The Arcuri Agency had procured a commercial vehicle liability policy for Schripps with a $1 million limit, and Archer A. Associates, Inc. had procured a commercial excess and umbrella liability policy that did not provide commercial vehicle liability coverage. The underlying action settled for $940,000, paid by the commercial vehicle insurer. In the settlement, Schripps did not admit liability, and the suit was dismissed without being reduced to a judgment.
The trial court dismissed a later broker malpractice complaint against Arcuri and Archer because the underlying case settled within the commercial vehicle primary policy. The court noted that there must be judgment against the underlying tortfeasors in order to establish damages against the brokers, citing Manukas v. Am. Ins. Co., 98 N.J. Super. 522 (App. Div. 1968) (absent a judgment against the insured, the plaintiff could not maintain a direct action against the insurance company) and Eschle v. Eastern Freight Ways, Inc., 128 N.J.Super. 299 (Law Div. 1974) (holding that the "defendant insurance agent will not be liable unless it is first shown that the claim has been proven against the [underlying tortfeasor] and also that the policy obtained did not afford the requested coverage").
The plaintiffs argued the trial court erred because the brokers owed a duty to third parties. The court found the plaintiffs’ reliance on Werrmann v. Aratusa, Ltd., 266 N.J. Super 471 (App. Div. 1993) and Deblon v. Beaton, 103 N.J. Super. 345 (Law Div. 1968) was misplaced.
In Werrmann, the Appellate Division held that an injured party has standing to make a claim for malpractice against a broker who negligently allows the policy of its insured, the tortfeasor, to lapse, leaving the injured party without a source of recovery. The court reasoned the broker owes a duty to the public because, in addition to the reasonable foreseeability of harm flowing from the broker’s negligence in failing to provide coverage for its insured, an innocent party injured by the insured might well be left without recovery if the insured’s liability policy is not procured or is allowed to lapse. The court further held that an injured party is a third-party beneficiary because members of the general public are deemed intended beneficiaries under a contract between an insured and his/her broker. Providing a source of recovery for an innocent injured party who, because of the insolvency of the insured, would otherwise have no means of redress is of equal importance to protecting the assets of the insured.
In Deblon, the widow of a man killed in an auto accident brought a direct action against the driver’s insurance carrier notwithstanding a settlement between the plaintiff, driver, vehicle owner and the owner’s carrier. The settlement did not release the owner and driver from all liability. It released them only to the extent of their assets and coverage, expressly reserving the plaintiff’s right to sue the driver’s carrier, the owner, and driver as named insureds and naming them in the lawsuit against the carrier, thus exposing them to a judgment beyond the coverage. The court determined that a judgment against the underlying tortfeasors and damages in excess of the primary coverage was required in order to proceed.
In Estate of Atanasoski, the underlying tortfeasors never admitted liability and there was no judgment against them. Therefore, the plaintiffs failed to establish the tortfeasor’s negligence or quantum of damages. Thus, while an injured party may bring an action against the tortfeasor’s broker for professional negligence, she may only do so if the broker is joined in the same action, or in a separate action on a judgment, or the right to do so is properly preserved. In this case, the plaintiff could have proceeded against the brokers in a distinct action had she not settled the claims against the underlying tortfeasors in the manner that she did.
Best Practices Regarding Stacking Waivers in Pennsylvania
By Danielle M. Vugrinovich, Esq.
Pennsylvania law is currently in flux with respect to uninsured/underinsured stacking waivers. An insured with an auto policy insuring one or more vehicles with stacking waived may acquire an additional vehicle during the policy period. The insured may not have been asked to again waive stacking, with the agent or insurer believing that the new vehicle is subject to the same terms and conditions of the policy pursuant to the after-acquired vehicle clause. If an insured who was not asked to waive stacking when the new vehicle was added then has an accident, stacked coverage may be sought.
In January of this year in Kuhns v. Travelers Home & Marine Insurance Company, the Court of Appeals for the Third Circuit spoke on this issue, applying Pennsylvania law. Decisions from a federal court on state law are not binding, though they are persuasive. The Third Circuit’s decision in Kuhns is favorable to insurers, but care should be taken with respect to waivers when an additional vehicle is added during the policy period. The reason for such caution is because Kuhns is contrary to recent Pennsylvania Superior Court decisions, and the Pennsylvania Supreme Court has not yet spoken on this exact issue.
The Kuhns initially waived stacked uninsured and underinsured benefits under their policy, which covered three vehicles. Several months later, they purchased another vehicle and added it to the existing policy. The question presented to the Third Circuit was whether the waiver of stacked insurance coverage applied to the fourth vehicle.
The Third Circuit cited the recent Pennsylvania Supreme Court Sackett line of cases in holding that:
[W]hen an insured adds a new vehicle to an existing multi-vehicle policy, the insurer, under Sackett I, must provide that insured with a new opportunity to waive stacked UIM coverage . . . unless, under Sackett II, the insured has already signed a valid stacking waiver . . . and coverage for the newly-added vehicle is extended under a continuous after-acquired-vehicle clause.
The court analyzed the specific language of the Travelers policy with regard to coverage for newly acquired automobiles, holding that it applied and was “continuous.” The court rejected the argument that the vehicle was not added to the policy pursuant to the newly acquired vehicle clause but, rather, by Travelers’ addition of a new declaration sheet. The court held that the initial waiver was still in place, explaining that Travelers’ contractual duty was triggered by the policy’s after acquired vehicle clause, not the adding of the vehicle to the declarations sheet or issuance of the declarations sheet. As such, Travelers had no duty to to issue another waiver when the fourth vehicle was added.
Despite this favorable ruling from the Third Circuit Court of Appeals, Pennsylvania state law regarding the requirement of waivers for stacking of underinsured/uninsured motorist coverage is uncertain and unpredictable. It is considered best practice to inquire whether the insured who adds a new vehicle to a policy seeks to continue to waive stacking and, if so, to obtain the required waiver of stacking form(s) and ensure the forms are on record.
The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. To be removed from our list of subscribers who receive this complimentary Legal Update for Insurance Agents & Brokers,
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