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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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