The New Jersey Superior Court, Appellate Division, wascalled upon to resolve a dispute between Andres Espinoza and GRMEnterprises, U-Save Auto Rental  aka Almost New Rentals(collectively GRM), and Lincoln General Insurance Co. (LGI)(collectively, “defendants”) in Andres Espinoza v. Darnell R. Thompson, DarnellM. Thompson, American Transports, No. A-1427-10T3(N.J.Super.App.Div. 01/10/2012). 

The plaintiff was injured when the bicycle he was riding struckthe passenger door of a vehicle operated by defendant, Darnell R.Thompson, and owned by GRM. Thompson had rented the car from GRM.Thompson was a passenger in the car at the time, although it isunclear from the record whether he opened the door that struckplaintiff. Plaintiff filed a negligence complaint against DarnellR. Thompson and GRM.

Related: Read a previous column “Who's anEmployee?” by Barry Zalma.

Discovery revealed that when he rented the vehicle, Thompsonpurchased a supplemental liability insurance (SLI) policy. Thevehicle also was covered by a mandatory minimum liability policyissued to GRM by LGI. Plaintiff's unsuccessful attempts to obtaindiscovery, including information from GRM regarding the SLI policyand any premium payments GRM may have made to the policy's issuer,led to an order striking GRM's answer and defenses.

Plaintiff filed an amended complaint naming both Darnell M. andDarnell R. Thompson, GRM, LGI, American Transports Insurance Corp.(ATIC) and Short Term Auto Rental Incorporated (Short Term) asdefendants. In addition to the negligence count, plaintiffalleged: 

• He was a third-party beneficiary of the SLI policy purchased byThompson
• GRM violated the Consumer Fraud Act, N.J.S.A. 56:8-1 to -184(the CFA), by “falsely represent[ing] that … plaintiff … would beindemnified for losses and damages arising from the use andoperation of the rental vehicle” by Thompson 
• Common law fraud against GRM 
• All defendants violated the Racketeer Influenced and CorruptOrganizations statute, N.J.S.A. 2C:41-1 to -6.2(RICO). 

Defendants answered the amended complaint. Noanswer was filed on behalf of either Thompson, ATIC or Short Term.Defendants were granted leave to deposit $15,000, the policy limitsunder the LGI policy, with the court. Defendants eventually movedfor summary judgment on their own behalf and on behalf of DarnellM. Thompson, claiming the amended complaint was filed beyond thestatute of limitations.

The motion judge, noting discovery had ended, concluded thatplaintiff “ha[d] to present something more” regarding defendants'potential liability. He observed that GRM had produced a policyprocured from ATIC, and, despite plaintiff's assertion that thepolicy was “a sham,” the judge concluded plaintiff failed to“present facts” permitting an inference that the policy “[wa]s nota real policy” and granted summary judgment.

Plaintiff first contends that it was error to grant summaryjudgment on his third-party beneficiary claim because GRM procured“an insurance policy with a nonexistent carrier that [wa]s notauthorized to do business in the State of New Jersey.” Intrinsic tothis argument was plaintiff's claim that GRM acted as an insurancebroker or agent in procuring the SLI policy.

Related:Read an article by Richard Mintzer “History's Lesson.”

The record reveals that Thompson purchased the SLI policy whenhe rented the vehicle from GRM. He was charged an additional $8.95per day for the coverage. Pursuant to the rental agreement, thevehicle was to be returned on June 11, 2007, the day before theaccident.

It is undisputed that the LGI policy only provided liabilitycoverage in the amount of $15,000 per person and $30,000 peraccident. The SLI policy was furnished by ATIC, and was procuredthrough an insurance broker, Paul Sweeney, who represented Cars.comand Cars Inc. A declaration page issued to GRM revealed that ATICwas headquartered in Pago Pago, American Samoa, and the limit ofliability coverage under the SLI policy was $1 million.

Kathryn E. Coon, the owner of GRM, testified that she remittedpremium payments for the SLI policy, although she could not producedocuments to support the assertion at the deposition. There were noclaims ever presented to GRM implicating the ATIC policy or anyother SLI policy GRM had purchased. Coon was distressed over theproblems that arose during this litigation regarding ATIC's policy,noting, “when I buy insurance, if I sign for something, I expectthe insurance company to provide that coverage in a time ofneed.”

 It is universally accepted that an insured has aviable claim for professional negligence against an insurancebroker or agent who fails to procure the policy requested. The dutyimposed on a broker or agent includes an obligation to investigatethe financial viability of the insurer. The duty of a broker oragent extends beyond the insured to those who “are within the zoneof harm emanating from a broker's negligence.” However, every caseis premised upon the professional duty owed by an insurance brokeror agent. Therefore, in this case, plaintiff's claim against GRMrests upon a showing that it acted as an insurance broker oragent. 

GRM was in the business of renting cars, notselling insurance. GRM was itself the named insured on the ATICpolicy. By choosing the optional coverage, Thompson became anadditional insured under the ATIC policy. Plaintiff has secured ajudgment against ATIC. If indeed the policy was a sham, plaintiffmay have a cause of action against Sweeney, the broker whorepresented Cars.com. The undisputed testimony is that the policywas acquired on GRM's behalf through Sweeney, a broker whosolicited her business. Arguably, Sweeney did not perform hisduties in a professional manner but he only represented GRM and itsagent. 

In this case, plaintiff asserted only that GRM affirmativelymisrepresented the existence of SLI coverage. Plaintiff had nocontact with GRM. His theory of liability is premised upon theattenuated claim that GRM made its misrepresentation to Thompson.GRM produced the ATIC policy. Coon testified that she remittedpolicy premium payments to Sweeney. 

LESSON

Although failure to produce a policy can expose an insuranceagent or broker to a claim for professional negligence, a claimantwho is injured cannot create an agency that does notexist. 

The duties and obligations of an agent or broker is usuallyestablished by statute or case law. In New Jersey, by statute, aninsurance agent is defined to be an individual, a resident of NewJersey or whose principal office for the conduct of his insurancebusiness is in New Jersey, authorized in writing by any insurancecompany lawfully authorized to transact business in New Jersey, toact as its agent, with authority to solicit, negotiate and effectcontracts of insurance in its behalf, to collect the premiumsthereon, and who has a bona fide office in New Jersey in which iskept a record of the contracts of insurance countersigned or issuedby him. 

Related: Read another Zalma column “Just theFacts.”

Clearly, GRM was not an insurance agent and, regardless of theneed of the plaintiff, could not be made an insurance agent and socould not be held liable for insurance agentmalpractice. 

GRM could have avoided the suit and the cost of defending itselfhad it exercised diligence in learning about the assets andliabilities of the insurer situated in Pago Pago, American Samoa.An insured should never rely on the unsupported representation ofan agent of a foreign insurance and an insurance agent should nevertake on the representation of a foreign insurer without firstchecking its assets and liabilities and its ability to respond toclaims. As the New Jersey Court noted, GRM might have a caseagainst the agent that sold it the policy but the claimant, who hadno relationship with the insurer or the agent, had no case.