Opinion
DOCKET NO. A-2973-13T2
10-23-2015
MICHAEL THOMAS, Plaintiff-Appellant, v. MICHAEL DION and FETTERMAN, MILLINGHAUSEN & MCNUTT, INC., Defendants-Respondents.
S. Robert Freidel, Jr., attorney for appellant. L'Abbate, Balkan, Colavita & Contini, attorneys for respondent (Gary Strong, of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Messano and Carroll. On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-8791-11. S. Robert Freidel, Jr., attorney for appellant. L'Abbate, Balkan, Colavita & Contini, attorneys for respondent (Gary Strong, of counsel and on the brief). PER CURIAM
Plaintiff, Michael Thomas, was injured when he fell off a scaffold while employed by a subcontractor retained by the general contractor, Prestigious Homes, Inc. (Prestigious). Plaintiff subsequently obtained a $750,000 default judgment against Prestigious. When plaintiff was unable to collect on that judgment, he commenced the present action against defendant Fetterman, Millinghausen, & McNutt, Inc. (FMM), the agency that procured Prestigious's general liability insurance policy, and defendant Michael Dion, an insurance producer employed by FMM. Plaintiff alleged that defendants "were negligent in failing to make Prestigious [] aware that it needed to have certain insurance terms and requirements in the contracts it had with its subcontractors." He sought damages from defendants based on his claim that he was a third party beneficiary of the professional contractual relationship between defendants and Prestigious. Plaintiff now appeals from the November 7, 2013 summary judgment in favor of defendants, and the January 31, 2014 denial of his motion for reconsideration. We affirm.
I.
A. The Insurance Policies.
In 2003, Neil Lansman contacted FMM to procure general liability insurance on behalf of Prestigious, which he wholly owned. On December 23, 2003, Prestigious executed a Contractors General Liability Application for Insurance. In this application, Prestigious answered questions affirming that it (1) obtained certificates of insurance from any subcontractors used; (2) required minimum limits of $1,000,000 from subcontractors; (3) did not use uninsured subcontractors; (4) obtained written contracts from all its subcontractors that included a hold harmless clause in Prestigious's favor; and (5) would be listed as an additional insured under any subcontractors' policies.
On January 13, 2004, Joel Green of Prestigious wrote to Dion: "As per our [conversation] please be advised that the answer to question M in the application for insurance should have read $1,000,000.00 as that is the minimum amount of liability insurance carried by all our contractors. Each has named Prestigious Homes as additionally insured." Green also stated that "Lansman has been building homes for the past [thirty-five] years."
FMM submitted Prestigious's application to the Delaware Valley Underwriting Agency, which in turn sent Prestigious a quote for general liability insurance through National Indemnity Insurance Company (National). On February 12, 2004, National issued Prestigious a general liability insurance policy covering the period from January 28, 2004, to January 28, 2005. The policy contained an endorsement entitled "Independent Contractors and Subcontractors Coverage Requirement — Exclusion" (Subcontractor Endorsement), which states in capital letters at the top of the page that "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY." The Subcontractor Endorsement provides:
[t]his insurance does not apply to "bodily injury," "property damage," or "personal or advertising injury" arising out of operations performed for you by independent contractors or sub-contractors unless:
(1) Such independent contractors or sub-contractors agree in writing to defend, indemnify, and hold harmless you and your affiliates, subsidiaries, directors, officers, employees, agents, and their representatives from and against all claims, damages, losses, and expenses attributable to, resulting from, or arising out of the independent contractor's or sub-contractors's operations performed for you, caused in whole or in part by any act or omission of the independent contractor or sub-contractor or any one directly or indirectly employed by any of them or anyone for whose acts any of them may be liable, regardless of whether or not it is caused in part by you; and
(2) Such independent contractors or sub-contractors carry insurance with coverage and limits of liability equal to or greater than those carried by you, including commercial general liability, workers' compensation and employers' liability insurance; and
(3) Such commercial general liability insurance provides coverage for the independent
contractors' or sub-contractors' indemnity obligations set forth in paragraph (1) above; and
(4) Such commercial general liability insurance names you as an additional insured with coverage consistent with the coverage provided in the ISO CG 2009 endorsement.
All other terms, conditions and agreements remain unchanged.
Sue Roberts of FMM forwarded the policy to Green on February 20, 2004. In her letter, Roberts specifically instructed Green, "Please read all exclusions and limitation forms. Please make special note for subcontractors to have Prestigious Homes of PA, Inc. named as additional insured on their policy and sign a hold harmless agreement (see form M-5095 which is part of your policy)." Roberts further informed Green that if he had any questions he should contact the FMM office.
On February 2, 2005, Prestigious renewed the policy for an additional one-year period. The policy was again made subject to the Subcontractor Endorsement. In connection with that renewal, Prestigious executed a "Contractor's Supplemental Application" on January 18, 2005, in which it represented that it obtained certificates of insurance from each subcontractor and that it was named as an additional insured on all subcontractor policies. Prestigious further represented that it obtained written contracts from all subcontractors, and that all contained a hold harmless clause in Prestigious's favor.
Additionally, Prestigious answered specific questions on the renewal application affirming that it required subcontractors to (1) provide workers compensation and liability insurance before they or their employees worked on the job site; (2) maintain liability insurance with limits at least equal to Prestigious's limits; (3) sign a written contract containing a hold harmless agreement in Prestigious's favor; and (4) provide an endorsement on their insurance policy naming Prestigious as an additional insured. Prestigious represented that it maintained records of these subcontractor documents for three years. The application also stated, in bold print: "[y]ou warrant, with respect to operations performed on your behalf by . . . sub-contractors, that you will require such . . . subcontractors, who undertake a job for you or on your behalf, to sign a written agreement, prior to the commencement of such job," including that they (1) maintain general liability insurance; (2) provide a hold harmless agreement indemnifying and holding Prestigious harmless before beginning work; (3) provide an endorsement on their insurance policy naming Prestigious an additional insured; and (4) keep records indefinitely. Additionally, the application states in bold: "If the above information provided is found to be incorrect, the policy will not provide coverage for any damages for which the insured is legally liable, or costs or expenses, arising out of, caused or contributed to by operations performed on your behalf by . . . subcontractors."
B. The Accident and Underlying Litigation.
On August 6, 2006, Prestigious entered into a contract with Golden Hands Inc. to perform work at a residential housing project in Atlantic City. Golden Hands was one of approximately fifteen subcontractors retained by Prestigious to work on the project. On September 23, 2005, while employed by Golden Hands, plaintiff fell from a scaffold when working as a plasterer at the construction site. As a result, he sustained a concussion along with injuries to his neck, back, right hand, legs, pelvis, and nose.
Plaintiff received workers compensation benefits, and also brought a negligence action against Prestigious. National received notice of plaintiff's initial claim on December 8, 2006. Following its investigation, National disclaimed coverage on May 30, 2007, because of Prestigious's failure to comply with the requirements of the Subcontractor Endorsement. Specifically, Prestigious failed to procure a written indemnification agreement from Golden Hands, and was not named as an additional insured on Golden Hands's policy.
On September 5, 2008, a $750,000 default judgment was entered against Prestigious after it failed to appear in plaintiff's underlying personal injury lawsuit. On September 20, 2011, plaintiff commenced the present action, asserting third party beneficiary rights based on the relationship between FMM and Prestigious. He sought recovery of the underlying $750,000 judgment from defendants, claiming that they committed insurance broker malpractice in failing to make Prestigious aware of the subcontractor requirements.
C. The Depositions.
In a supplemental proceeding in the underlying litigation on April 5, 2011, Lansman testified that he believed the liability insurance carrier was defending plaintiff's lawsuit. However, he could not recall actually forwarding plaintiff's complaint to the carrier, and stated that "I had not been active in the company in a couple of years, and I'm ready for bankruptcy now, and the corporation was gone." He also recounted that Dion was the insurance agent he dealt with on behalf of Prestigious in this matter.
In Dion's deposition on August 21, 2012, he explained his understanding of the nature of Lansman's business. He stated that Lansman was "a general contractor, paper contractor, as we would call it, and most all of his work would be subcontracted out. He did have one employee, he was just a general laborer. Everything else was subbed out." Thus, he testified that if there was an accident, it likely would involve the subcontractors' conduct.
When asked about the types of insurance available, Dion testified that carriers in the voluntary market were not interested in insuring Prestigious. He explained that because of the marketplace at the time, "any of the carriers who would write [Lansman's] business were brokerage-type companies, surplus lines companies," which are generally less preferred than a standard carrier.
Dion testified that he
had a discussion with [] Lansman that he had to have insured subcontractors. The insured contractors had to have the same limits of liability insurance that he had, so if he was buying a million, they have to have a million. He has to be named as an additional insured by all of his subcontractors.Dion elaborated that it is "a general requirement that all contractors who use subcontractors, who want to be insured, have to be named as an additional insured by their subcontractors."
Dion testified that Lansman was told about the "policy regarding the contractors and the additional insured and the hold harmless agreements ... during the quotation process." He also stated that Lansman "was made aware of the warranty in the policy" that "he had to have certificates of insurance from his subcontractors and he had to have contracts and hold harmless agreements, which he said he had in the applications." Dion averred that he "sent [Lansman] a letter reminding him to read his policies and to especially read these warranties, because that would affect his coverage."
Dion and Lansman did not discuss the insurance certificates Lansman obtained from subcontractors during the 2004-2005 policy period. Thus, Dion did not know whether the certificates contained the proper indemnity required by the insurance policy. He testified that some clients at times asked him to review their certificates for compliance, but that Lansman had never done so.
When the accident occurred on September 23, 2005, the second policy period had begun. The renewal application had been prepared by Dion and sent to Lansman to review and sign. Dion checked off the box that Prestigious agreed to obtain additional insured status and indemnity contracts from subcontractors. However, Dion never saw any certificates or contracts with the subcontractors. When asked why he "did not feel it necessary to take any steps to review such documents," Dion responded that
[t]he man was in business for over [thirty] years, he bought insurance for over [thirty] years, he signed applications and contracts for over [thirty] years, so he knew what he was doing and what he was buying. He reviewed the applications, he signed them. He told me he was doing all these things.
D. Expert Opinions.
Plaintiff retained Armando Castellini as his insurance practices expert. In his report and deposition, Castellini opined that (1) the broker and agency should have provided specific information to Prestigious about the nature of the coverage and the exclusionary endorsement requiring the insured to obtained named insured status and indemnification from subcontractors; (2) the warning about the limited nature of the coverage should have been in writing and should have been repeated at every renewal; (3) there should have been a survey of risks facing Prestigious completed to ensure that coverage was proper for its particular needs; and (4) a broker must evaluate a client's needs on an ongoing basis to ensure appropriate coverage for its particular needs.
Castellini concluded that defendants failed to conform to generally-accepted insurance brokerage industry practices and standards. Regarding the source of his opinion, Castellini stated in his certification that most duties owed by a New Jersey insurance producer derive from custom and practice in the industry, although some are set forth in writing. He further claimed that his opinions represented the consensus of insurance brokers, and were not simply his personal opinions. He also referenced publications by the American Institute for Chartered Property and Casualty Underwriters and the Insurance Institute of America, as well as "[a]dditional authoritative texts or treatises," which he alleged supported his opinions.
In contrast, Thomas Ahart, defendants' liability expert, opined in his expert report that defendants "did not fail in any professional obligation to its client, Prestigious, or to [plaintiff] as a [t]hird-[p]arty [b]eneficiary." He also stated that because plaintiff was not FMM's client, FMM "owed no professional obligation" to plaintiff.
E. The Trial Court Decision.
On November 6, 2013, the court heard oral argument and granted defendants' summary judgment motion. The following day, the judge supplemented his oral decision with a written memorandum of decision. The court found that, "[v]iewing the facts in a light most favorable to [] [p]laintiff, it is readily apparent that the denial of insurance coverage arises from Prestigious'[s] failure to abide by the conditions of the policy by making representations that were inaccurate." The judge determined that Prestigious breached the contract by failing to abide by the policy's conditions, and that "[t]here can be no third party beneficiary to a contract which is null and void as [a] result of a breach." Accordingly, the court found "no genuine issue of fact" even when viewing all facts in a light most favorable to plaintiff, and granted summary judgment. The court further concluded that plaintiff's expert report was an inadmissible net opinion.
The motion judge denied reconsideration on January 31, 2014. Plaintiff now appeals the grant of summary judgment and the denial of his motion for reconsideration.
II.
We review summary judgment decisions de novo and apply the same standard utilized by the trial court, namely, whether the evidence, when viewed in a light most favorable to the non-moving party, raises genuinely disputed issues of fact sufficient to warrant resolution by the trier of fact or whether the evidence is so one-sided that one party must prevail as a matter of law. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Because "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference," the trial court's legal conclusions are reviewed de novo on appeal. Manalapan Realty, L.P. v. Twp. Comm. Of Manalapan, 140 N.J. 366, 378 (1995); State v. Gamble, 218 N.J. 412, 425 (2014).
The decision whether to deny a motion for reconsideration is a matter within the judge's discretion. Fusco v. Bd. of Educ. of City of Newark, 349 N.J. Super. 455, 462 (App. Div.), certif. denied, 174 N.J. 544 (2002); Marinelli v. Mitts & Merrill, 303 N.J. Super. 61, 77 (App. Div. 1997); Cummmings v. Bahr, 295 N.J. Super. 374, 389 (App. Div. 1996). The appellate court evaluates discretionary decisions, such as the decision to deny a motion for reconsideration, using an abuse of discretion standard. Fusco, supra, 349 N.J. Super. at 462; Marinelli, supra, 303 N.J. Super. at 77.
On appeal, plaintiff argues that Prestigious's breach of contract with the insurer should not bar his claim against defendants, because defendants had failed to properly advise Prestigious of the requirements of the exclusionary endorsement and the ramifications of its failure to do so. Plaintiff contends that it adequately demonstrated defendants' negligence, which proximately caused plaintiff's damages. Having reviewed the record in light of plaintiff's contentions, we disagree.
A "negligence cause of action has four elements: (1) duty of care, (2) breach of duty, (3) proximate cause, and (4) actual damages[]." Weinberg v. Dinger, 106 N.J. 469, 484 (1987); Strachan v. John F. Kennedy Mem'l Hosp., 109 N.J. 523, 529 (1988). To identify whether a duty of care exists "involves identifying, weighing, and balancing several factors -- the relationship of the parties, the nature of the attendant risk, the opportunity and ability to exercise care, and the public interest in the proposed solution." Alloway v. Bradlees, Inc., 157 N.J. 221, 230 (1999) (quoting Hopkins v. Fox & Lazo Realtors, 132 N.J. 426, 439 (1993)) (internal quotation marks omitted).
"[A]n insurance broker owes a duty to his principal to exercise diligence in obtaining coverage in the area his principal seeks to be protected." Werrmann v. Aratusa, Ltd., 266 N.J. Super. 471, 474 (App. Div. 1993) (citing Rider v. Lynch, 42 N.J. 465, 476 (1964)). "An insurance producer acts in a fiduciary capacity in the conduct of his or her insurance business." N.J.A.C. 11:17A-4.10. "[I]nsurance professionals, '[b]ecause of the increasing complexity of the insurance industry and the specialized knowledge required to understand all of its intricacies . . .,' often stand in a fiduciary capacity to the client and 'should be required to use their expertise with every client.'" Walker v. Atl. Chrysler Plymouth, Inc., 216 N.J. Super. 255, 260 (App. Div. 1987) (quoting Sobotor v. Prudential Prop. & Cas. Ins. Co., 200 N.J. Super. 333, 341 (App. Div. 1984)). "Both agents and brokers are obliged to inform insureds of available coverage. Agents, like brokers, are obligated to exercise good faith and reasonable skill in advising insureds." Weinisch v. Sawyer, 123 N.J. 333, 340 (1991).
As insurance brokers, defendants were required "(1) to procure the insurance; (2) to secure a policy that is neither void nor materially deficient; and (3) to provide the coverage he or she undertook to supply." President v. Jenkins, 180 N.J. 550, 569 (2004) (citing Rider, supra, 42 N.J. at 476). Defendants fulfilled this duty by procuring the insurance from National through Delaware Valley Underwriting Agency, which was the only quote tendered due to the lack of a domestic market interested in Prestigious's risk. That policy was neither void nor materially deficient. Moreover, the exclusion set forth in the Subcontractor Endorsement was clear and unambiguous.
Defendants provided additional explanations of the policy to Lansman and Prestigious beyond the plain language of the endorsement, further fulfilling their fiduciary duties. Dion's unrebutted testimony was that he explained "the exclusion and warranty in the policy regarding the contractors and the additional insured and the hold harmless agreements ... during the quotation process" and that Lansman "was made aware of the warranty in the policy" that "he had to have certificates of insurance from his subcontractors and he had to have contracts and hold harmless agreements, which he said he had in the applications." Dion also testified that he "sent [Lansman] a letter reminding him to read his policies and to especially read these warranties, because that would affect his coverage."
Further, the applications filled out by Prestigious for the 2004 and 2005 policies contained questions that explicitly brought to Prestigious's attention the need for it to obtain certificates of insurance from each subcontractor with minimum limits of $1,000,000, obtain written contracts from all contractors, secure hold harmless agreements, and ensure that Prestigious was named as an additional insured on all subcontractor policies. Prestigious sent a letter to FMM, reiterating the requirement of a $1,000,000 minimum limit from its subcontractors, and that every subcontractor must name Prestigious as an additional insured. FMM also sent a letter on February 20, 2004, advising Prestigious that it must "read all exclusions and limitation forms . . . [and] make a special note for the subcontractors to have Prestigious . . . named as additional insured on their policy and sign a hold harmless agreement."
All of these measures clearly demonstrate defendants' adherence to their insurance broker fiduciary duties. The uncontradicted evidence establishes that defendants "exercise[d] good faith and reasonable skill in advising [Lansman and Prestigious]" about the policy coverage and the subcontractor requirements. Weinisch, supra, 123 N.J. at 340. Defendants breached no duty to Prestigious, and hence they were not negligent. Since Prestigious could have no claim against defendants, plaintiff's third-party beneficiary claim based on breach of that relationship similarly fails.
We reject plaintiff's attempted use of Lansman's testimony during the supplemental proceeding in the underlying action to establish Lansman's belief that National defended Prestigious in that lawsuit. Clearly that was not the case, and in any event Lansman could not even recall forwarding plaintiff's complaint to the carrier. Importantly also, because defendants were not parties to that litigation, nor were they present or represented at the deposition, Lansman's testimony is inadmissible in the present action. R. 4:16-1(c). Moreover, "there must be substantial identity of issues, parties and interests in order for such deposition testimony to be admissible in a subsequent action." Starch v. Joseph Zohn, 211 N.J. Super. 75, 79 (Law Div. 1985). We do not find that to be the case here.
Finally, we need not decide the issue of whether Castellini's expert opinion was a net opinion because, even if admitted, it would not alter our conclusion that defendants violated no duty to Prestigious and, by extension, to plaintiff. The undisputed documentation, accompanied by Dion's unrefuted deposition testimony, clearly establishes Prestigious's recognition and awareness of the requirements necessary to ensure coverage under the Subcontractor Endorsement, and Prestigious's material breach of those requirements.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION