2004 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-24-2004

Highlands Ins Co v. Hobbs Grp LLC

Precedential or Non-Precedential: Precedential

Docket No. 03-1760

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Recommended Citation

"Highlands Ins Co v. Hobbs Grp LLC" (2004). 2004 Decisions. Paper 538.

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PRECEDENTIAL

UNITED STATES COURT OF

APPEALS FOR THE THIRD CIRCUIT

 

No. 03-1760

 

HIGHLANDS INSURANCE

COMPANY f/k/a HIGHLANDS

INSURANCE GROUP, INC.,

Appellant

v.

HOBBS GROUP, LLC; ROBERT

MARKEL; NISSAN PERLA;

FRONTIER INSURANCE COMPANY

and GLOBAL RISK

MANAGEMENT SERVICES, INC.,

 

Appeal from the United States District

Court for the District of New Jersey

(D.C. Civil Action No. 00-cv-00686)

District Judge: Honorable Garrett E.

Brown, Jr.

 

Argued March 12, 2004

Before: SLOVITER and NYGAARD,

Circuit Judges, and SHADUR1, District

Judge

(Opinion filed June 24, 2004 )

 

Louis R. Moffa, Jr. (Argued)

Ballard Spahr Andrews & Ingersoll, LLP

Plaza 1000, Suite 500

Main Street

Voorhees, NJ 08043-4636

Attorney for Appellant

Michael O. Kassak (Argued)

Stephen Trzcinski

White and Williams LLP

222 Haddon Avenue, Suite 300

Westmont, NJ 08108

Attorneys for Appellee,

Hobbs Group, LLC

Stephen G. Rhoads (Argued)

Kristen E. Polovoy

Montgomery McCracken Walker &

Rhoads, LLP

Liberty View, Suite 600

457 Haddonfield Road

Cherry Hill, NJ 08002

Attorneys for Appellee, Global

Risk Management Services, Inc.

 

OPINION OF THE COURT

 

SHADUR, District Judge.

In February 1999 Highlands

Insurance Company, Inc. (“Highlands”)

issued a policy to Olympic Limousine, Inc.

(“Olympic”) that provided Olympic with

 

1 Honorable Milton I. Shadur,

United States District Court Judge for the

Northern District of Illinois, sitting by

designation.
2

commercial automobile insurance

coverage, subject to a $2.5 million

aggregate annual deductible (as to which

Olympic was effectively self-insured).

Before the policy was cancelled by

Highlands just seven months later,

Highlands found itself responsible for

handling in excess of $3 million in claims

against Olympic. Unfortunately for

Highlands, Olympic never paid the $2.5

million deductible on those claims. Even

more unfortunately for Highlands,

Olympic had also failed to pay the $62,500

premium required to button up a surety

arrangement that would have protected

Highlands against such nonpayment.

In response to those events,

Highlands filed a federal court diversity

action against a slew of defendants,

including (1) Hobbs Group, LLC

(“Hobbs”), the insurance broker that had

arranged for the underlying liability

insurance policy between Highlands and

Olympic and had also dealt with Highlands

in the course of the surety bond

procurement process and (2) Global Risk

Management Services, Inc. (“Global”), the

surety bond broker that had worked with

Hobbs and with proposed surety Frontier

Insurance Co. (“Frontier”). Eventually

Highlands’ action was whittled down to

three counts–claims of negligent

misrepresentation and negligence against

Hobbs and a claim of negligence against

Global. Both Hobbs and Global then

moved for summary judgment pursuant to

Fed. R. Civ. P. 56 (“Rule 56”). After full

briefing, the district court concluded that

under New Jersey law neither Hobbs nor

Global owed any duty to Highlands, and it

therefore granted summary judgment

dismissing all three claims.

Highlands now appeals those

rulings, and we have jurisdiction under 28

U.S.C. §1291. We hold that under New

Jersey law Hobbs did owe a duty to

Highlands that rendered the latter’s

negligence claims viable, so we reverse

and remand for a trial on those claims.

But we find that the district court was

correct in holding that no such duty ran

from Global to Highlands, and we

therefore affirm the district court’s

dismissal of Global as a defendant.

Facts

Olympic was a limousine and livery

service that operated in and around

Manhattan. It sought out Hobbs in late

1998 to act as its insurance broker in

securing a new commercial automobile

insurance policy to take over when

Olympic’s old policy expired in early

1999. Hobbs in turn got in touch with

Highlands,2 and the parties began to

 

2 Because of a fronting agreement

between Highlands and Virginia Surety

Company, Inc. (“Virginia Surety”),

Olympic’s insurance coverage was

technically a contract between Olympic

and Virginia Surety. But because

Highlands was completely responsible

for all financial and administrative

aspects of the policy, we refer to

Highlands as Olympic’s insurance
3

discuss terms for potential coverage. After

much negotiation Highlands and Olympic

(through Hobbs) agreed on a policy that

included the following relevant provisions:

1. Highlands would initially

process and pay for claims against

Olympic. Each month Highlands would

then invoice Olympic for the claims it had

paid and Olympic would reimburse

Highlands, subject to a $250,000 loss

deductible per vehicle/$1 million coverage

per vehicle rate. But under no

circumstances would Olympic’s annual

reimbursement obligation to Highlands

exceed $2.5 million.

2. Olympic would secure a surety

bond (with Highlands as the obligee) in the

amount of Olympic’s $2.5 million

aggregate annual deductible.3

With the expiration date of

Olympic’s existing policy approaching

rapidly, Hobbs communicated with Global

to see if it would be interested in procuring

the surety bond that Highlands required

under its policy with Olympic. Global was

indeed interested. Working as an agent for

Frontier, Global locked in Frontier as the

expected surety for Olympic’s deductible

and relayed that commitment back to

Hobbs. Although it had already agreed to

be Olympic’s surety, Frontier expressly

conditioned the issuance of the actual

surety bond on two events: Several parties

were required to sign indemnification

agreements, and Olympic had to pay the

first year’s premium of $62,500.

On February 28, 1999 the insurance

policy between Olympic and Highlands

took effect, and Highlands dutifully began

to pay out on Olympic’s claims as they

accrued. But although Highlands then

invoiced Olympic for the reimbursements

that Olympic owed Highlands under the

terms of the policy, Olympic did not honor

its reimbursement obligation.

For a variety of reasons (including

Highlands’ realization that it had exposed

itself to a far greater risk than it had

originally anticipated, as well as other

legal compliance issues with its policy),

Highlands began efforts to cancel the

policy with Olympic as early as April

1999. It nonetheless remained responsible

for claims against Olympic until

September 1999, when the cancellation

took effect.

But neither Hobbs nor Global ever

informed Highlands that even though

Global had prepared the surety bond (on

Frontier’s behalf), the bond was never

executed and was ultimately “cancelled

carrier.

 

3 Although Olympic never actually

signed all the documents that would have

legally bound it to obtain the surety bond,

at all times both Hobbs and Global (not

to mention Highlands) appeared to be

working under the basic assumption that

the surety bond requirement was integral

to the final policy to which Olympic and

Highlands agreed.
4

flat”4 because of Olympic’s failure to pay

the premium on the bond. Highlands was

completely unaware until well after it

began the cancellation process with

Olympic that it was not protected, as the

obligee under the surety bond, from the

huge loss that resulted from Olympic’s

nonpayment. And it is that failure to

inform that Highlands asserts gives rise to

Hobbs’ and Global’s liability.

Rule 56 Standard and Standard of

Review

We review de novo the decision to

grant summary judgment and use the same

Rule 56 standards as did the district court

(Petruzzi’s IGA Supermkts., Inc. v.

Darling-Del. Co., 998 F.2d 1224, 1230 (3d

Cir. 1993)). Those standards establish that

the Rule 56 movant bears the burden of

showing the absence of any “genuine issue

of material fact” (Celotex Corp. v. Catrett,

477 U.S. 317, 322-23 (1986)): that is, the

failure to provide “evidence such that a

reasonable jury could return a verdict for

the nonmoving party” (Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248

(1986)), even while “accepting its

evidence as true and drawing all justifiable

inferences from the evidence in its favor”

(Sameric Corp. of Del. v. City of

Philadelphia, 142 F.3d 582, 590 (3d Cir.

1998)).

New Jersey’s Rules of Decision

As always in diversity cases, a

federal court must apply the substantive

law of the forum state–and where the

state’s highest court has not spoken

definitively on a particular issue, the

federal court must make an informed

prediction as to how the highest state court

would decide the issue (Erie R.R. v.

Tompkins, 304 U.S. 64, 78 (1938); Clark

v. Modern Group Ltd., 9 F.3d 321, 326 (3d

Cir. 1993)). To that end the federal court

may consider a wide range of reliable

sources, including relevant state

precedents, analogous decisions and

reasoned dicta, as well as the policies and

doctrinal trends informing and emerging

from those decisions (Scotts African

United Methodist Protestant Church v.

Conference of African Union First

Colored Methodist Protestant Church, 98

F.3d 78, 92 (3d Cir. 1996)). But the court

must also be mindful not “to expand state

law in ways not foreshadowed by state

precedent” (City of Philadelphia v. Beretta

U.S.A. Corp., 277 F.3d 415, 421 (3d Cir.

2002)).

In New Jersey (as in all other

jurisdictions) any tort of negligence

requires the plaintiff to prove that the

putative tortfeasor breached a duty of care

owed to plaintiff and that plaintiff suffered

damages proximately caused by that

breach (Weinberg v. Dinger, 524 A.2d

366, 373 (N.J. 1987)). In particular, under

N e w Je rse y l aw negligen t

misrepresentation requires a showing that

defendant negligently provided false

 

4 That locution denotes a

cancellation ab initio, as though the bond

had never been in force.
5

information and that plaintiff incurred

damages proximately caused by its

reliance on that information (Karu v.

Feldman, 574 A.2d 420, 425 (N.J. 1990)).

In that respect a defendant may be liable

(because it owes a duty) to any reasonably

foreseeable recipient who relies on the

information (id.).

For Highlands to prevail on any of

its claims, then, it must first show that the

defendant being considered owed it a

relevant duty of care. That determination

is quintessentially a question of law for the

court (City Check Cashing, Inc. v. Mfrs.

Hanover Tr. Co., 764 A.2d 411, 416 (N.J.

2001)).

Because the New Jersey Supreme

Court has not squarely addressed whether

a surety bond broker owes a duty to the

obligee of that bond, under Erie principles

we must predict whether that court would

recognize such a duty under the

circumstances presented here. In that

respect the district court determined as a

matter of law that Highlands’ claims of

negligent misrepresentation against Hobbs

and of negligence against Hobbs and

Global could never succeed because New

Jersey does not impose a duty of care on

either party with respect to Highlands. We

review that prediction and application of

New Jersey tort law de novo (Clark, 9 F.3d

at 327).

Highlandsrelies primarily on Carter

Lincoln-Mercury, Inc. v. EMAR Group,

Inc., 638 A.2d 1288 (N.J. 1994) to argue

that both Hobbs and Global owed a duty to

Highlands. It is conventional wisdom that

an insurance broker must “act with

reasonable skill and diligence in

performing the services of a broker” with

respect to its insured (id. at 1291). Lapses

in that duty that can give rise to liability

include, but are not limited to, either (1)

failing completely to arrange for an

insurance policy or (2) delivering a policy

that is void, materially deficient or

otherwise does not provide the coverage

the broker agreed to procure (id.;

Glezerman v. Columbian Mut. Life Ins.

Co., 944 F.2d 146, 150 (3d Cir. 1991)).

Carter Lincoln-Mercury, 628 A.2d at

1291-92 emphasizes that although the

relationship between an insured and its

broker is most often contractual in nature,

claims by an insured against its broker are

not based on a privity relationship but are

premised on the tort concept of negligence

in failing to procure the appropriate

coverage. That concept is fundamental to

one of Carter Lincoln-Mercury’s central

holdings: the principle that the broker's

duty owed to insured parties is also owed

to other loss payees who (although not in

privity with the broker) are within the zone

of harm emanating from its activities (id.

at 1294-95, 1297).

Carter Lincoln-Mercury, id. at

1294-95 identifies two key elements that

should guide courts in delineating the

boundaries of that zone of harm:

foreseeability and fairness. Foreseeability

takes into account the relationship between

the plaintiff and the broker, the nature of

the risk and the defendant’s ability and

opportunity to exercise care and avert
6

harm (id. at 1294). And the fairness aspect

requires a court to make a value judgment

as to whether establishing a broker’s duty

in relationship to a particular plaintiff is

fair based on policy considerations and the

public interest (id.). After analyzing those

two aspects under the circumstances at

issue there, Carter Lincoln-Mercury, id. at

1298 ultimately held that the insurance

broker in that case did owe a duty to the

loss payee of the insurance policy that the

broker had negligently procured for its

insured.

Whether the broker’s duty in the

insurance context translates to the surety

context before us requires that we consider

in the first instance whether surety

relationships are equivalent to insurance

relationships under New Jersey law. There

are certainly many similarities between the

two. Like insurance relationships, surety

relationships have three central players–the

principal obligor, the insured (or obligee of

the surety bond) and the insurer (or surety)

(In re Liquidation of Integrity Ins. Co., 657

A.2d 902, 907 (N.J. Super. Ct. App. Div.

1995), aff’d 685 A.2d 1286 (N.J. 1996)).

Indeed, in many contexts New

Jersey explicitly equates surety bonds with

insurance polices. For example, a New

Jersey insurance rates statute expressly

defines “policy of insurance” to include

surety bonds (N.J. St. Ann. §17:29A-1(e)

(2004)). And in the liquidation of an

insurance corporation, the claims of surety

bondholders are accorded priority together

with insurance policyholders’ claims (In re

Liquidation of Integrity Ins. Co., 598 A.2d

940, 943-44 (N.J. Super. Ct. Ch. Div.

1991)). New Jersey courts have also stated

more generally that because it is long

settled in New Jersey that surety is

insurance, surety bondholders are

equivalent to insurance policyholders (id.;

Aetna Cas. & Sur. Co. v. Int’l Re-Ins.

Corp., 175 A. 114, 120 (N.J. Ch. 1934)).

To be sure, in the case at bar Hobbs

was an insurance broker for Olympic and

procured a policy from Highlands. As

between those two companies Olympic

was the insured and Highlands was the

insurer. But the critical coverage for

purposes of the current lawsuit is that

provided (or, more accurately, not

provided) by the surety bond–and that

coverage was intended to serve Highlands’

benefit. From that perspective Olympic

was to be the principal obligor, Frontier

was to be the surety (the insurer in the

surety context) and Highlands was to be

the obligee of the surety bond (the insured

in the surety context).

Hobbs and Global staunchly

maintain that even if a surety relationship

equates to an insurance relationship, the

Carter Lincoln-Mercury-defined duty was

never intended to protect insurers such as

Highlands. But that mistakes mere form

(the “insurance company” label) for

substance: In the context at issue in this

case, Highlands is not an insurer qua

insurer. Instead what is relevant is that

Highlands is an obligee on a surety bond,

even though it also happens to be in the

insurance business generally.
7

As Highlands would have it, our

inquiry should end with the conclusion that

the Carter Lincoln-Mercury-prescribed

duty extends to all surety bond brokers and

issuers, so that Hobbs and Global

necessarily owed a duty to Highlands as

the third-party obligee on the surety bond.

But we must of course proceed with

caution when wading into the predictive

Erie waters, and the New Jersey courts

avoid treating questions of duty in a

conclusory fashion. Both of those things

being true, we proceed beyond our

determinations (1) that New Jersey law

draws strong parallels between insurance

policies generally and surety bonds

specifically and (2) that Highlands is

exactly the type of insured/obligee that is

entitled to look to the Carter LincolnMercury analysis as a basis for

determining the existence of a duty

(Weinberg, 524 A.2d at 374). Instead we

must proceed with the same type of

foreseeability-plus-fairness analysis that

the New Jersey Supreme Court carried out

in Carter Lincoln-Mercury in evaluating

the existence or nonexistence of a duty to

third parties such as Highlands. And for

that purpose, of course, we consider Hobbs

and Global separately.

Hobbs

In terms of foreseeability, the

propriety of recognizing a duty of care

owed by Hobbs to Highlands is obvious.

For one thing, the technical agent-principal

relationship between Hobbs and Olympic

in no way vitiates the impact of the close

working relationship between Hobbs and

Highlands in the transaction at issue, as

evidenced by the nature and volume of the

communications between them (Weinisch

v. Sawyer, 587 A.2d 615, 618 (N.J. 1991)).

Next as to the nature of the risk, by

definition the absence of protection for

Highlands in the event of Olympic’s

default is precisely the peril that would

necessarily follow from the failure to have

obtained the surety bond on which

Highlands was to be the obligee. And

finally, our determination that Highlands

was within Hobbs’ zone of harm is

significantly influenced by the fact that

Hobbs had both abundant opportunities

and ample ability to advise Highlands that

it was mistaken in its belief (an entirely

reasonable one) that it was protected by a

surety bond with Frontier, a lack of

protection that stemmed from Olympic's

nonpayment of the premium on the bond

(Carter Lincoln-Mercury, 638 A.2d at

1294).

Much of H i g h lands ’

correspondence with Hobbs clearly shows

that it was under the impression that the

process of securing the surety bond was

progressing without a hitch. Most notably,

an April 1, 1999 e-mail from Highlands to

Hobbs reporting on the transaction said in

part “we have the bond in place,” an

explicit communication to Hobbs of

Highlands' belief that Olympic’s surety

bond was in effect. Hobbs had numerous

communications with Highlands after that

April 1 e-mail about a variety of other

matters, but not once did Hobbs mention to

Highlands that Olympic had not paid the

premium needed to cement Frontier’s
8

surety bond obligation.5

Indeed, the multiple requests for

payment running from Hobbs to Olympic

show unequivocally that throughout the

course of its communications with

Highlands Hobbs was fully aware that

Olympic had not paid the premium on the

surety bond and that Frontier would not

issue the bond until that premium was

paid. Yet Hobbs did not even make the

cost-free effort to notify Highlands of

Olympic’s delay in paying the premium by

copying Highlands on any of those

communications.

At every step of the way Hobbs had

both the opportunity and the ability to

advise Highlands that it was not protected

by any surety bond because Olympic had

not paid the premium. And its ongoing

total silence invited Highlands to rely on

Hobbs’ conduct that otherwise suggested

the surety bond placement process had

been completed as planned. Without doubt

Highlands fell squarely within the

foreseeable zone of harm from Hobbs’

conduct (President v. Jenkins, 814 A.2d

1173, 1185 (N.J. Super. Ct. App. Div.

2003)).

With foreseeability thus firmly

established, we turn to the fairness branch

of the Carter Lincoln-Mercury analysis. In

that regard we next look to New Jersey

public policy to forecast whether the New

Jersey Supreme Court would find it in the

public interest to create that duty (639

A.2d at 1294-95). We conclude that it

would.

That court’s tradition of holding

insurance professionals to high standards

of care confirms its strong public policy

focus on protecting parties who deal with

such professionals (Aden v. Fortsh, 776

A.2d 792, 805 (N.J. 2001)). True enough,

Highlands’ own involvement in the

insurance industry, rather than its being a

general member of the public as was

involved in Carter Lincoln-Mercury, may

cut against the imposition of an actual

fiduciary responsibility on Hobbs’ part visa-vis Highlands (see Aden, 776 A.2d at

800-01). But that does not at all control

the fairness concerns at issue here, as

Hobbs suggests–it merely calls for the

examination of other important public

interest considerations (Glezerman, 944

F.2d at 150).

In the case of an unsophisticated

insured, we are primarily concerned that

the individual will suffer harm while adrift

in the insurance world and at the mercy of

a professional with far greater expertise.

Although that spectre is obviously not

 

5 That silence on Hobbs’ part under

the circumstances just mentioned, and in

the face of the other factors mentioned

hereafter, is especially egregious because

even a whisper to that effect would have

eliminated the problem and the

disastrous consequence that has

prompted this litigation–Highlands could

promptly have paid the $62,500 premium

itself (as it had the right to do), thus

shifting the risk to Frontier.
9

universally present as to an entity such as

Highlands, the public policy value that

uniformly requires brokers to carry out the

instructions given to them to the best of

their abilities applies with equal force

whether a broker is dealing with an

individual unschooled in insurance

complexities or is conducting business

with a savvy entity such as Highlands

(Aden, 776 A.2d at 805-06). And finally,

to shift from the general to the particular,

the imposition of a broker’s duty in the

surety context hones in on the primary

purpose that underscores the entire surety

relationship: protecting the obligee of the

surety bond in the case of a default by the

principal (United States ex rel. Don Siegel

Constr. Co. v. Atul Constr. Co., 85

F.Supp.2d 414, 418 (D. N.J. 2000)).

In sum, our analysis in the terms

taught by Carte r L incoln -

Mercury–consideration of the elements of

both foreseeability and fairness–has led us

to conclude that the New Jersey Supreme

Court would find, as to both torts asserted

by Highlands against Hobbs, that the latter

owed a duty to Highlands as the obligee of

Olympic’s surety bond.6 We go on to

address (and to dispatch) Hobbs’ several

fallback arguments.

First, Hobbs asserts that Highlands

has not created a genuine issue of material

fact as to the other elements of either of its

tort claims against Hobbs. To deal with

that contention, we need to identify those

other elements.

A s for th e negli g e n t

misrepresentation claim, the New Jersey

caselaw that allows such a claim to be

based on the defendant’s silence or

suppression of truth rather than on some

affirmative misrepresentation (Strawn v.

Canuso, 657 A.2d 420, 429 (N.J. 1995)) is

not limited to special relationship

situations such as those involving

transactions within explicit fiduciary

relationships, transactions where a quasifiduciary relationship develops either

through the express conduct of the parties

or other circumstances particular to that

individual transaction or transactions (such

as insurance) whose nature inherently

requires such a duty regardless of the

parties’ intentions (Berman v. Gurwicz,

458 A.2d 1311, 1313-14 (N.J. Super. Ct.

Ch. Div. 1981)). In addition, the required

duty of disclosure may also arise in any

situation called for by good faith and

common decency (Maertin v. Armstrong

World Indus., Inc., 241 F.Supp.2d 434,

461 (D. N.J. 2002), conforming to the

holding in City Check Cashing, 764 A.2d

at 417).

Evaluation of the existence or

nonexistence of a duty of disclosure in the

present situation calls for the weighing of

factors essentially identical to those

already drawn from Carter Lincoln-

 

6 We find no reason to differentiate,

in Carter Lincoln-Mercury terms, as

between negligence actions generally and

negligent misrepresentation actions

specifically (see H. Rosenblum, Inc. v.

Adler, 461 A.2d 138, 145, 153 (N.J.

1983)).
10

Mercury: foreseeability and fairness. We

need not then repeat the analysis–what has

been said before also supports the

grounding of Highlands’ negligent

misrepresentation claim in breach-byomission. And more briefly as to

Highlands’ general negligence claim

against Hobbs, it is hornbook law that a

broker’s failure to obtain adequate

coverage can support a claim that the

broker has breached its duty (Weinisch,

587 A.2d at 618).

Against that backdrop it is plain

that Highlands has adduced enough

evidence to raise genuine issues of

material fact as to both breach and

causation for each tort. Several of Hobbs’

commun icati ons– includ i n g

communications to Highlands that referred

to the surety bond in ways that made it

appear the bond had already been secured,

communications to Highlands that omitted

any reference to the problems with the

surety bond that Hobbs knew about, and

communications to Olympic that could

have been but were not shared with

Highlands–could reasonably support a

finding that Hobbs breached its duty to

Highlands (see Glezerman, 944 F.2d at

151). And Highlands’ totally plausible

statement that if Hobbs had only said the

surety bond was not in place because of

the nonpayment of the premium,

Highlands would itself have paid the

premium, raises at least a genuine issue of

material fact about causation.

Hobbs tries to escape the impact of

all that evidence via several arguments, all

sharing the common theme that some

factor other than Hobbs’ failure to inform

Highlands of Olympic’s nonpayment of its

premium (including perhaps Highlands’

own asserted negligence) was assertedly

an intervening or superseding cause of

Highlands’ loss. But all those efforts fail,

because questions of negligence (including

comparative negligence) and causation are

within the jury’s province in all but the

most exceptional situations (Fleuhr v. City

of Cape May, 732 A.2d 1035, 1041 (N.J.

1999); Vega v. Piedilato, 713 A.2d 442,

459 (N.J. 1998)). And for Rule 56

purposes it is not our function to make

credibility determinations or otherwise to

weigh the evidence (Petruzzi’s IGA

Supermkts., 998 F.2d at 1230).

In short, there are at least genuine

issues of material fact precluding summary

judgment on the negligence and causation

aspects of Highlands’ claims against

Hobbs. And finally, because Highlands has

paid over $3 million in claims against

Olympic during the coverage period (all of

which were under the policy’s loss-peroccurrence limit and would therefore have

been covered by the Olympic deductible

had the surety bond been in place), it has at

a minimum raised a genuine issue of

material fact as to damages.

Next Hobbs asserts that Highlands’

tort claims are precluded under Saltiel v.

GSI Consultants, Inc., 788 A.2d 268 (N.J.

2002), which dictates that conduct within

a relationship defined solely by contract

cannot give rise to a tort claim against the

allegedly breaching party or its agent
11

unless that party has some independent

duty to the aggrieved party outside the

scope of the contract (id. at 279-80).

Hobbs seeks to support that argument by

pointing out that although Highlands never

had any formal contractual relationship

with Hobbs, it did have a contractual

relationship with Olympic. And Hobbs as

an insurance broker was unequivocally

Olympic’s agent (Weinisch, 587 A.2d at

618).

But that contention by Hobbs

misses the mark completely in all events,

in light of our determination that the duty

Hobbs owed Highlands is wholly

independent of any contractual obligations

it might have had to Highlands as a

function of Hobbs’ status as an agent of

Olympic. In that respect Saltiel, 788 A.2d

at 280-81 itself explicitly lists the Carter

Lincoln-Mercury duty as an example of an

independent duty that would negate the

Saltiel-announced limitation.

Nothing daunted, Hobbs also

advances the suggestion that once

Highlands had sufficient notice that the

surety bond was not in place, its decision

to retain Olympic’s premiums and to

continue processing Olympic’s claims

amounted to a ratification that effectively

waived Highlands’ right to rescind the

contract based on the absence of the bond

(Ajamian v. Schlanger, 89 A.2d 702 (N.J.

Super. Ct. App. Div. 1952)). Hobbs

maintains that its March 3, 1999 fax to

Highlands that did not contain any

information indicating that the bond had

been executed and completed gave

Highlands sufficient notice to trigger the

ratification scenario.7

While ratification may sometimes

be determined as a question of law (see,

e.g., Garden State Bldgs., L.P. v. First Fid.

Bank, N.A., 702 A.2d 1315, 1324 (N.J.

Super. Ct. App. Div. 1995)), that is not the

case here. Highlands’ April 1

communication reflecting its belief that the

surety bond had already been placed puts

into dispute, for resolution by a jury, any

contention that the March 3 fax

sequence–which reflected that Hobbs was

sending a specimen surety form to

Highlands simply to approve the wording

and which plainly evidenced Highlands’

clear intention to be designated as the

obligee on the final documents–somehow

placed Highlands on notice that the surety

bond was not being arranged as expected.

Absent a finding of notice to Highlands

that there was a potential problem with the

surety agreement, its continued

performance under its insurance policy

with Olympic could not be viewed as a

 

7 Even though the text discussion

assumes purely arguendo that ratification

in New Jersey forecloses a party from

bringing all tort and contract claims, as

compared with just precluding the party

from seeking the equitable remedy of

rescission (as in Ajamian), such cases as

Bilotti v. Accurate Forming Corp., 188

A.2d 24, 33, 34 (N.J. 1963) and

Merchants Indem. Corp. v. Eggleston,

170 A.2d 505, 513 (N.J. 1962) suggest

otherwise.
12

ratification (Merchants Indem., 179 A.2d

at 514; Martin Glennon, Inc. v. First Fid.

Bank, N.A., 652 A.2d 199, 205 (N.J.

Super. Ct. App. Div. 1995)). Again the

existence of a genuine issue of material

fact defeats a summary judgment in

Hobbs’ favor.

Finally, Hobbs urges that

Highlands’ claims are not really

independent tort claims directly against

Hobbs, but rather seek indemnification

from Hobbs for insurance claims that

Highlands had paid on behalf of Olympic.

On that premise Hobbs asserts that

Highlands cannot prevail, because once it

cancelled Olympic’s insurance policy it

became partially responsible for Olympic’s

failure to live up to its obligation to pay

the premium on the surety bond, so as to

be precluded under New Jersey law from

recovering its losses in indemnity (Ramos

v. Browning Ferris Indus. of S. Jersey,

Inc., 510 A.2d 1152, 1158-59 (N.J. 1986)).

That attempted reclassification of

Highlands’ tort actions is unpersuasive.

After all, Highlands fronted the payment

for the claims against Olympic as it was

required to do by its insurance policy.

That being so, the recovery Highlands

seeks from Hobbs consists of plain oldfashioned damages in tort, flowing directly

from Highlands’ performance without the

benefit of the protection that should have

been provided by the surety bond–a

deprivation that a factfinder can determine

shou ld be attributed to Hobbs’

malfeasance.

We have thus rejected each of

Hobbs’ alternative grounds for summary

judgment. We therefore reverse the district

court’s grant of judgment in Hobbs’ favor

and remand for the resolution at trial of

Highlands’ claims against Hobbs.

Global

In Global’s case theCarter LincolnMercury analysis cuts in the opposite

direction. Far less discussion is needed to

explain why that is so.

Throughout the entire process of

arranging for Frontier to act as the surety

on Olympic’s deductible, Global’s line of

communication ran only between Frontier

and Hobbs: At no point did Global ever

interact directly with Highlands. By

contrast, Hobbs’ line of communication

stretched from Global to Highlands.

It is plain that communication with

Highlands was wholly outside the scope of

Global’s professional role, which was to

help Hobbs secure Frontier as the surety

on Olympic’s deductible (see Zielinski v.

Professional Appraisal Assocs., 740 A.2d

1131, 1135 (N.J. Super. Ct. App. Div.

1999)). Hence it would be an

impermissible stretch to hold that Global

“had particular knowledge or reason to

know” that Highlands was at risk of being

harmed from its conduct, a key factor that

Carter Lincoln-Mercury employed in

finding the existence of a duty based on a

zone of harm theory.

Absent any communication or other

relationship between Highlands and
13

Global, it would do violence to any

reasonable notion of foreseeability to

saddle Global with liability because it did

not go outside the scope of its undertaking

by informing Highlands directly about the

problems with securing the surety bond

(City Check Cashing, 411 A.2d at 416-17;

Carter Lincoln-Mercury, 638 A.2d at

1298). And because foreseeability is a

necessary (though not a sufficient)

precondition to the imposition of a duty

flowing from an insurance or surety broker

to a third party, we need not address the

other–the fairness–precondition (Carvalho

v. Toll Bros. & Developers, 675 A.2d 209,

213 (N.J. 1996)). Highlands’ negligence

claim against Global therefore fails as a

matter of law.

Conclusion

We have followed the teaching of

Carter Lincoln-Mercury in identifying the

existence or nonexistence of a duty

running to Highlands as the expected

obligee of a surety bond–the subject of its

defeated expectations. In those terms we

REVERSE the district court’s grant of

summary judgment in Hobbs’ favor and

REMAND for the resolution of Highlands’

claims at trial, and we AFFIRM the district

court’s grant of summary judgment in

favor of Global, which is dismissed as a

defendant in this action.