Presented by the Insurance Agents & Brokers Liability Practice Group

Failure to Obtain a Judgment Against the Insured-Tortfeasor Precludes a Subsequent Action Against the Broker for Negligent Procurement of Insurance

June 1, 2019

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.

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