New Jersey Supreme Court finds insurance broker has duty to provide notice to LLC members of workers’ compensation coverage options.

The New Jersey Supreme Court held that an insurance broker has a non-waivable duty to an LLC to provide notice that workers’ compensation coverage is available to members of the LLC who can actively perform services on behalf of the LLC but only if the coverage is elected when the policy is purchased or renewed. This decision is impactful in that it requires additional clarity and steps between the broker and the insured in the creation of a workers’ compensation policy.

Members of an LLC are covered under workers’ compensation policies only if the LLC elected to obtain coverage for its members. In Holm, the LLC, Holmdel Nurseries LLC, consisted of two members, Robert and Walter Friedauer. Later, Robert’s sons, Michael and Christopher, became full-time employees. Initially, LLC members Robert and Walter elected to be covered under the company’s workers’ compensation policy. The company worked with insurance broker Daniel Purdy for their insurance needs. 

The LLC later elected to forego coverage for Robert and Walter for cost reasons. In 2012, Michael and Christopher Friedauer purchased a 50% interest in Holmdel Nurseries and became themselves members of the LLC. In July 2012, Mr. Purdy became aware that Michael and Christopher had become LLC members but failed to inform them that their new status as members no longer afforded them workers’ compensation coverage. He also failed to inform them they could elect to obtain coverage for themselves. 

In February 2015, Christopher Friedauer died as a result of a work-related incident. His widow filed a dependency claim petition in the New Jersey workers’ compensation court. Her claim was denied by the carrier, who argued the LLC had not elected coverage for its members. 

Christopher’s widow then filed a civil suit against Daniel Purdy, the insurance broker, alleging professional negligence. The plaintiff argued that they were unaware they were not covered by workers’ compensation insurance and that, had they been aware, they would have elected to be covered. The trial court found the broker did not have a duty to inform the LLC members regarding their right to elect coverage. The Appellate Division reversed that decision.

The New Jersey Supreme Court considered the case under the N.J.S.A. 34:15-36, which provides that no insurer or insurer producer shall be liable for damages on account of an LLC’s failure to elect coverage for its members under a workers’ compensation policy unless that insurer or insurance producer caused damage by a willful, wanton, or grossly negligent act of commission or omission. The Supreme Court upheld the Appellate Court’s decision, that this section of the statute created a non-waivable duty for the insurance broker to provide notice to LLC members that workers’ compensation coverage is available to them only if they elect the coverage when the policy is created or renewed. The Supreme Court then remanded the case back to the trial court for a determination on whether Mr. Purdy’s actions caused damage by a willful, wanton, or grossly negligent act of commission or omission. 

_{What’s Hot in Workers’ Comp, Vol. 27, No. 2, February 2023 is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We would be pleased to provide such legal assistance as you require on these and other subjects when called upon. ATTORNEY ADVERTISING pursuant to New York RPC 7.1 Copyright © 2023 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. No part of this publication may be reprinted without the express written permission of our firm. For reprints or inquiries, or if you wish to be removed from this mailing list, contact tamontemuro@mdwcg.com.}