Case Name: CHERYL WERRMANN AND GEORGE WERRMANN, PLAINTIFFS-APPELLANTS, v. ARATUSA, LTD., A NEW JERSEY CORPORATION, DEFENDANT/THIRD-PARTY PLAINTIFF, AND R. BRUCE HILL AGENCY, THIRD-PARTY DEFENDANT/RESPONDENT
Court: New Jersey Superior Court, Appellate Division
Jurisdiction: New Jersey
Decision Date: 1993-07-27
Citations: 266 N.J. Super. 471
Docket Number: 
Parties: CHERYL WERRMANN AND GEORGE WERRMANN, PLAINTIFFS-APPELLANTS, v. ARATUSA, LTD., A NEW JERSEY CORPORATION, DEFENDANT/THIRD-PARTY PLAINTIFF, AND R. BRUCE HILL AGENCY, THIRD-PARTY DEFENDANT/RESPONDENT.
Judges: 
Reporter: New Jersey Superior Court Reports
Volume: 266
Pages: 471–481

Head Matter:
630 A.2d 302
CHERYL WERRMANN AND GEORGE WERRMANN, PLAINTIFFS-APPELLANTS, v. ARATUSA, LTD., A NEW JERSEY CORPORATION, DEFENDANT/THIRD-PARTY PLAINTIFF, AND R. BRUCE HILL AGENCY, THIRD-PARTY DEFENDANT/RESPONDENT.
Superior Court of New Jersey Appellate Division
Argued May 12, 993
Decided July 27, 1993.
Stern, J.A.D., concurred and filed opinion.
Before Judges HAVEY, STERN and BROCHIN.
William M. Feinberg argued the cause for appellants (Feinberg, Dee & Feinberg, attorneys; Mr. Feinberg on the brief).
Mary L. Cole argued the cause for respondent (O’Meara & Hight, P.C., attorneys; Ms. Cole on the brief).

Opinion:
The opinion of the court was delivered by
HAVEY, J.A.D.
On December 31, 1987, plaintiff Cheryl Werrmann sustained personal injuries while a patron of the Aratusa Supper Club, a boat-restaurant moored in Secaucus. Plaintiff attempted to sit on a bar stool which slid out from under her. She instituted suit against defendant Aratusa, Ltd. (Aratusa) seeking to recover damages for her personal injuries. Aratusa, in turn, filed a third-party complaint against R. Bruce Hill Agency (Hill), Aratusa's insurance broker, claiming that Hill negligently failed to renew a general liability policy covering Aratusa's premises. Aratusa's policy had lapsed approximately two months before plaintiffs accident. Plaintiff thereupon amended her complaint naming Hill a direct defendant, claiming she was a third-party beneficiary of Hill's agreement with Aratusa to procure insurance. She also advanced a negligence theory, asserting Hill owed her a duty, and breached that duty by not maintaining liability coverage on Aratusa's behalf.
Aratusa's claim against Hill was dismissed for Aratusa's failure to answer interrogatories. Hill then moved to dismiss plaintiffs claim on the ground that plaintiff failed to state a claim upon which relief could be granted. The trial court granted the motion, concluding that Hill owed no duty to plaintiff, and that she was not an intended third-party beneficiary of the contract between Aratusa and Hill. Thereafter, Aratusa defaulted on plaintiffs claim against it. At a proof hearing plaintiff was awarded $85,000 in damages against Aratusa. We are advised that the award is uncollectible because Aratusa is judgment proof. Plaintiff now appeals the order dismissing her complaint against Hill. We reverse.
To recover under a negligence theory, the defendant must owe a duty to the plaintiff. Strachan v. John F. Kennedy Mem. Hosp., 109 N.J. 523, 529, 538 A.2d 346 (1988). It is of course settled that an insurance broker owes a duty to his principal to exercise diligence in obtaining coverage in the area his principal seeks to be protected. Rider v. Lynch, 42 N.J. 465, 476, 201 A.2d 561 (1964). The question here is whether that duty is also owed to a member of the general public who is injured as a result of the negligence of the principal.
Reasonable foreseeability of harm is essential to the creation of a duty. Hill v. Yaskin, 75 N.J. 139,143-44, 380 A.2d 1107 (1977). The inquiry is whether it is foreseeable to a reasonable person that his conduct will create an enhanced risk to those coming within the range of such a hazard. Ibid. See also Johnson v. Usdin Louis Co., 248 N.J.Super. 525, 529, 591 A.2d 959 (App.Div.) (discussing the elements of a legal duty), certif. denied, 126 N.J. 386, 599 A.2d 163 (1991). However, duty is not established solely by recourse to "foreseeability." Goldberg v. Housing Auth. of Newark, 38 N.J. 578, 583, 186 A.2d 291 (1962). "The question of whethér a duty exists is a matter of law . and is largely a question of fairness or policy." Wang v. Allstate Ins. Co., 125 N.J. 2, 15, 592 A.2d 527 (1991); accord Hopkins v. Fox & Lazo Realtors, 132 N.J. 426, 439, 625 A.2d 1110, 1116 (1993); Strachan, 109 N.J. at 529, 538 A.2d 346. The question "involves a weighing of the relationship of the parties, the nature of the risk, . the public interest in the proposed solution," Kelly v. Gwinnell, 96 N.J. 538, 544, 476 A.2d 1219 (1984), and any other surrounding circumstances. Johnson, 248 N.J.Super. at 529, 591 A.2d 959.
The only New Jersey reported case on point is Eschle v. Eastern Freight Ways, Inc., 128 N.J.Super. 299, 319 A.2d 786 (Law Div.1974). There, a passenger injured in a motor vehicle accident sued the driver's insurance agent because the driver's liability policy had lapsed. The Law Division found that the passenger, as a member of the general public, had both a third- party beneficiary-breach of contract and negligence claim against the agent. Id. at 305-06, 319 A.2d 786. The court based its holding in part on the public policy underlying mandatory automobile liability insurance: "to see that drivers are insured" and to create a fund from which the public may expect a source of payment beyond the means of the tortfeasors. Id. at 302, 319 A.2d 786. In finding the agent owed a duty to the general public, the court stated that "the potential lack of recompense to a potential injured party is a natural and foreseeable result of an agent's or broker's actions if he negligently fails to obtain proper coverage in accordance with his instructions." Id. at 304, 319 A.2d 786 (emphasis added). It added:
This case does little more than synthesize two established rules in New Jersey law. First, that an insurance agent is liable to the potential insured for the failure to obtain such coverage, and second, that an injured party acquires an interest in an insurance policy which may be available to cover the accident. If the agent stands in the shoes of the company which would have issued the policy (had he not been negligent or breached his contract), there is no reason to deny the direct action against him, combining these two lines of cases. To hold to the contrary would be to insulate the agent from the consequences of his acts, and leave the public without adequate protection.
[Id. at 306, 319 A.2d 786 (citations omitted).]
We find Eschle's reasoning compelling and persuasive. It is true that the court bottomed its analysis in part on the agent's failure to procure mandatory automobile insurance. Nonetheless, the essence of its holding is that it is reasonably foreseeable, from the viewpoint of an insurance agent or broker, that an innocent party who is injured by the tortious conduct of the insured may be left without a means of redress if the insured's liability policy is allowed to lapse. That reasonable foreseeability exists whether the insurance is mandatory or optional. In our view, it is patently unfair to forfeit the injured party's unquestioned interest in the insured's liability policy, see In re Gardinier, 40 N.J. 261, 265,191 A.2d 294 (1963), and his or her right to be made whole simply because of the fortuitous circumstance of the broker's negligence which results in the lapsing of the liability policy.
Moreover, after obtaining judgment against Aratusa, plaintiff could have obtained an assignment from it of its broker's-negligence claim against Hill, and pursued that claim as an assignee. See N.J.S.A. 2A:25-1. In our view, it is nonsensical, unfair and contrary to the public interest, see Kelly, 96 N.J. at 544, 476 A.2d 1219, to recognize plaintiffs cause of action as an assignee, but not her right to sue as a member of the general public whose right to recover has been compromised or entirely foreclosed by the very conduct that would have formed the basis of Aratusa's assigned claim against the broker.
We also believe that plaintiff has a claim as a third-party beneficiary of the agreement between Aratusa and Hill. To determine whether a person qualifies as a third-party beneficiary, the test is " 'whether the contracting parties intended that a third party should receive a benefit which might be enforced in the courts...."' Rieder Communities, Inc. v. North Brunswick Tp., 227 N.J.Super. 214, 222, 546 A.2d 563 (App.Div.) (quoting Brooklawn v. Brooklawn Housing Corp., 124 N.J.L. 73, 77, 11 A.2d 83 (E. & A. 1940)), certif. denied, 113 N.J. 638, 552 A.2d 164 (1988); see also N.J.S.A 2A:15-2 (a person for whose benefit a contract is made may sue on it in a court of law). It is not necessary that an intended beneficiary be identified when the contract containing the promise is made, Restatement (Second) of Contracts § 308 (1981), and the promisee's obligation to pay the beneficiary need not be in existence at the formation of the contract. Id. § 302 illus. 3.
As stated, Eschle held that a member of the general public was deemed an intended beneficiary under a contract between an insured and his insurance agent, in part because the public expects that a source of payment will be provided by mandatory automobile insurance. 128 N.J.Super. at 302, 319 A.2d 786. However, in other jurisdictions, courts have held that it is of no significance whether the coverage is mandatory or optional. For example, in Flattery v. Gregory, 397 Mass. 143, 489 N.E.2d 1257, 1260-62 (1986), the Massachusetts Supreme Court held that the plaintiff, who was injured in a car accident, had a cognizable breach of contract claim against the insurance agent. In reaching that conclusion, the court noted that plaintiff would have benefitted from the agent's agreement to procure insurance since, if the policy was in effect, he would have received payment from the carrier for his injuries. Id., 489 N.E.2d at 1261. Next, the court reasoned that plaintiff was an intended beneficiary of the agreement, stating:
Although the owner of a motor vehicle may be motivated to obtain optional liability insurance coverage solely by a selfish interest to protect his assets, rather than by concern for the needs of parties negligently injured by him, the fact is that a motor vehicle owner achieves that protection by entering into a contract the very object of which is the payment . of judgments against him. The parties to the insurance policy, or, as in this case, to a contract to procure such a policy, intend the injured third-party judgment holder to benefit from their contract. It makes no difference, therefore, whether the insurance is compulsory or optional
[Id. at 1262 (emphasis added).]
See also Baldwin v. Mortimer, 403 Mass. 142, 526 N.E.2d 776, 777 (1988) (foreseeable reliance on the promised services being performed by someone is required before a promisor of services may be held liable "in tort not only to the promisee but also to potential beneficiaries of the promise"); Mercado v. Mitchell, 83 Wis.2d 17, 264 N.W.2d 532, 534 (1978) (because city ordinance required carnival owners to carry liability insurance, member of public could sue insurance agents for alleged failure to procure sufficient insurance); cf. Walker v. Atlantic Chrysler Plymouth, Inc., 216 N.J.Super. 255, 523 A.2d 665 (App.Div.1987) (employee of car dealership was intended beneficiary of agreement between employer and insurance broker to procure UM/UIM insurance coverage, and thus could sue the broker for breach of contract). But see Oathout v. Johnson, 88 A.D.2d 1010, 451 N.Y.S.2d 932, 933 (1982) (agreement to procure insurance was intended only to benefit the owner, not the general public under New York law).
We agree with the analysis of the Massachusetts Supreme Court in Flattery. Because of the importance of liability insurance, whether it be mandatory or optional, members of the general public are third-party beneficiaries of an agreement between a business proprietor and its insurance broker to procure coverage. It can be said that the policy protects the assets of the insured; of equal importance, it is intended to provide a source of recovery for an innocent injured party who, because of the insolvency of the insured, would otherwise have no means of redress. For the foregoing reasons, we reverse and remand for further proceedings.
Reversed and remanded.
In addition, plaintiff George Werrmann asserted a per quod claim.