A bankrupt ferry operation, barred from collecting on a boat damage claim after it misrepresented the vessel's value, is not entitled to damages from its brokers for failing to inform them about other aspects of coverage, a New Jersey appeals court ruled.

The decision last week by the New Jersey Superior Court, Appellate Division, was hailed as key win by insurance trade organizations.

Both the Professional Insurance Agents of New Jersey Inc. and the Independent Insurance Agents and Brokers of New Jersey applauded the decision by a three judge panel as "a clear victory for the agent and broker community"

The ruling, which overturned a lower court finding, upholds "the principle that one should not be rewarded for his or her own improper actions," and sends, "a clear message that the courts are not willing to impose an unreasonable, expanded duty of care on insurance brokers and agents."

Titled Harbor Commuter vs. Frenkel & Co., the case began on Dec. 1, 1996, when the ferry service filed a "constructive total loss" insurance claim for a boat it had purchased that was damaged when it ran aground as it was being delivered from Louisiana.

Coverage was denied, after it was discovered that Harbor had misrepresented that the boat had a market value of $5.1 million when the purchase price of the boat, was $650,000, according to the decision.

Harbor then sued three separate insurance brokers for lost potential profits, claiming they had breached their duties by failing to inform the company that they were not covered by their lender's breach of warranty insurance, and by not obtaining breach of warranty coverage for the ferry firm.

In 2006, Harbor, in a verdict that was reversed by the appeals court, was awarded $9.1 million against the brokers, implying that the brokers somehow breached their duty of care. Previously the firm lost in federal court on attempts to collect on its immediate claim for damage.

The Appellate Division after examining the case wrote that the ferry firm in arguments had tried to "minimize the implications of their misrepresentation, appearing to assert that their activities with regard to the hull insurance are irrelevant to their claims against the insurance brokers."

But the judges said they agreed with brokers' expert witness testimony "that an insured cannot be allowed to obtain insurance that would protect him if a loss is caused by, or results from, the insured's own breach of a material warranty, thus rewarding him for his own improper actions."

The plaintiff's improper conduct they said in their decision "would preclude coverage under a breach of warranty policy, regardless of what the insurance brokers told plaintiffs about the availability of the coverage."

PIANJ and the IIABNJ said they had submitted an amicus curiae, or "friend of the court" brief, to the Superior Court of New Jersey on behalf of the brokers.

The associations argued that the lower court decision effectively sanctioned Harbor's deceit, rewarding Harbor for its misconduct.

The Appellate Court reversed the lower court's verdict and dismissed Harbor's complaint on July 2.

Special Reports /

Agents, Brokers Applaud Decision In Damaged Ferry Case

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