Court Opinion

ID: 9700320
Source: CourtListenerOpinion
Date Created: 2023-08-25 21:20:22.18269+00
Date Added: 2024-06-11T18:21:07.141809
License: Public Domain

O’HERN, J.,
concurring in part and dissenting in part.
I agree that the plaintiffs complaint states a cause of action but I would not base the cause of action on so broad a duty as the majority imposes. Our Legislature has established a comprehensive system of regulations to deal with the issues that are present ed in this case. We should consider whether violation of those statutory duties will resolve the issues before imposing a separate and independent duty that is realistically beyond the capacity of an insurance department, much less the capacity of an insurance broker in a small town, to fulfill.
The duty created by the majority requires the broker of insurance in Millburn, Perth Amboy or Haddonfield to undertake an independent investigation of the financial solvency of authorized, admitted or eligible insurance companies before purchasing clients’ insurance from those firms. The majority minimizes the breadth of the duty imposed by pointing out that a broker may *205readily investigate the status of an insurance company through Best’s Insurance Reports. In few instances will that aid in resolving the matter. For example, the A.M. Best Company, an insurance-company rating agency, awarded an A+ rating to the Ambassador Insurance Company of Vermont in 1982. Ambassador went into receivership the following year and was adjudged insolvent and ordered to be liquidated the year after that. Roger F. Cox, Protecting Against Insurer Insolvency, 13-May Pa.Law 29 (1991).
The majority also emphasizes the fact that American Lloyds, the company that wrote the insurance policy, was operating under the protection of the Louisiana Department of Insurance at the time that it issued this policy. Ante at 187, 638 A.2d at 1290. I am not sure what inferences should be drawn from that fact. Mutual Benefit Life Insurance Company, one of the largest insurance companies in the United States, has been operating under a plan of rehabilitation administered by the New Jersey Department of Insurance since July 16, 1991. See In re Rehabilitation of Mutual Benefit Life Ins. Co., 258 N.J.Super. 356, 359, 609 A.2d 768 (App.Div.1992). Not even our Insurance Department was able to forestall or foresee the financial instability of that institution. Is it realistic that individual brokers will be able to make better assessments of the net worth or solvency of such companies?
Why might one seek to impose so broad a duty? Some believe that only the imposition of such liability on parties other than state regulators will energize an ineffective insurance industry. Proponents call this the “social engineering aspect. The possibility of being held liable provides a needed incentive to the collateral parties and the states to improve the present insurer insolvency prevention mechanism such that, in the future, insureds would receive improved protection from the incidence of insolvency.” Grace M. Giesel, A Proposal for a Tort Remedy for Insureds of Insolvent Insurers Against Brokers, Excess Insurers, Reinsurers, and the State, 52 Ohio St.L.J. 1075, 1075 (1991).
*206California sees no benefit in imposing an independent duty on brokers. It reasons that if a broker places insurance with an insurer conducting business pursuant to a certificate of authority, the broker has fulfilled its duty under that state’s regulatory system and it is ineffective and inefficient to require brokers to make an independent investigation of an insurance company’s financial condition. Wilson v. All Service Ins. Corp., 91 Cal.App.3d 793, 153 Cal.Rptr. 121 (1979). After all, is that not the reason why an insurance department exists at all? We have hesitated to impose the simplest duty on an agent to tell an insured what kind or how much coverage to purchase, Wang v. Allstate Insurance Co., 125 N.J. 2, 592 A.2d 527 (1991), and yet would impose a duty on a broker to make an independent investigation of the financial condition of an insurance company.
Insurance is one of the most highly-regulated of all industries. I would not venture to essay a comprehensive description of our regulatory system. I will attempt to set forth only what I understand to be the necessary background for this case.
The case involves the sale of what are called surplus lines of insurance. Our Court has previously summarized the essence of that industry:
Surplus lines insurance involves New Jersey risks which insurance companies authorized or admitted to do business in this State have refused to cover by reason of the nature of the risk. In such cases, coverage may be obtained through a surplus lines agent, licensed under “the surplus lines law” of New Jersey, N.J.S.A. 17:22-6.40 et seq., to “export” the insurance coverage—place it with an “unauthorized” insurer. The surplus lines law essentially regulates the surplus lines agents who are licensed thereunder. It also imposes limited requirements on unauthorized insurers who wish to become “eligible” to have surplus lines coverage placed with them. N.J.S.A 17:22-6.43(b) & (c), -6.45, -6.46. If the surplus lines agent is unable to place the insurance with an “eligible” surplus lines insurer, however, he may then place the coverage with a surplus lines insurer who has not been granted eligibility, provided such insurer satisfies the requirements of N.J.S.A 17:22-6.45(h). In short, under the surplus lines law surplus lines insurers are not authorized or admitted to transact business in this State. Rather, the insurance is “exported” and placed with them only by a licensed surplus lines agent.
[Railroad Roofing & Building Supply Co., Inc. v. Financial Fire & Casualty Co., 85 N.J. 384, 389, 427 A.2d 66 (1981) (footnote omitted) (emphasis added).]
*207The critical feature of such regulation is the identification of the “licensed surplus lines agent.” The statute imposes very strict duties upon the licensed surplus lines agent. EMAR is not, I believe, the “licensed surplus lines agent”; that party is not before the Court. Presumably, if this case goes forward, that party may be obliged to indemnify EMAR.
Either the surplus lines agent or the surplus lines insurer must furnish the Commissioner of Insurance with copies of current financial statements, N.J.S.A 17:22—6.45(c), and pay into the New Jersey Surplus Lines Insurance Guaranty Fund, N.J.S.A 17:22-6.75. That guaranty fund, seemingly unique to New Jersey, provides protection for those policyholders unable to obtain insurance from regular market sources for recognized or admitted insureds. See Richard R. Spencer, Jr., Surplus Lines Insurers and Guaranty Funds, 10 Seton Hall Legis.J. 93 (1986). N.J.S.A. 17:22-6.45(h) provides that in those circumstances in which insurance coverage is not procurable from the “eligible” surplus lines insurers, the surplus lines agent may file a supplemental affidavit stating such facts and advising the Commissioner that such part of the risk as shall be unprocurable is being placed with named unauthorized insurers in stated sums. However, that section requires the named unauthorized insurer to deposit with the Commissioner, before accepting any risk in this State, an acceptable amount of United States Government bonds to be held for the benefit of New Jersey policyholders. In addition, the surplus lines agent must procure and file with the Commissioner a certified copy of the current financial statement of the unauthorized insurer. Ibid. Finally, whenever any risk or part thereof is placed with such an insurer, the policy, binder or cover note shall bear conspicuously on its face in boldface the following notation:
All or some of the insurers participating in this risk have not been admitted to transact business in the State of New Jersey, nor have they been approved as a surplus lines insurer by the insurance commissioner of this State. The placing of such insurance by a duly licensed surplus lines agent in this State shall not be construed as approval of such insurer by the insurance commissioner of the State of New Jersey.

[Ibid.]

*208The record does not tell us whether the surplus lines agent complied with any of these requirements. The policy documents that are in the appendix do not contain the disclaimers. At one time, our State required the surplus lines agent to maintain a bond as do many other jurisdictions; however, that is no longer the case. Presumably the Legislature concluded that the Surplus Lines Law, N.J.S.A. 17:22-6.40 to -6.69, and the Surplus Lines Insurance Guaranty Fund Act, N.J.S.A 17:22-6.70 to -6.83, are sufficient guarantees of solvency.
As I view this case, either American Lloyds was an eligible surplus lines insurer,1 thus making the risk eligible for insurance under the Surplus Lines Insurance Guaranty Fund Act, or American Lloyds was not an eligible surplus lines carrier, thus requiring it to post government bonds in an amount acceptable to the Commissioner before the surplus lines agent could consummate the contract of insurance under the Surplus Lines Law.' If those safeguards were not followed, we have a simple case of the surplus lines agent committing. an illegal act. We need not impose a broad duty on brokers of insurance everywhere to make independent financial investigations of insurance companies. Rather, we need only hold that the broker should be responsible to its customer for its breach of its statutory duty. See Farmers & Merchants State Bank of Pierz v. Bosshart, 400 N.W.2d 739 (Minn.1987). EMAR had a statutory duty to place the insurance through a licensed surplus lines agent. That agent had a duty to comply with the statutory framework. For the breach of those duties, both parties may be held liable. The time may come when this Court will have to engage in “social engineering.” Giesel, supra, 52 Ohio St.L.J. at 1075. However, I do not believe that this case requires that response.
*209Justice GARIBALDI joins in this opinion.
For affirmance—Chief Justice WILENTZ, and Justices CLIFFORD, HANDLER, POLLOCK and STEIN—5.
Concurring in part; dissenting in part—Justices O’HERN and GARIBALDI—2.

 One of the briefs refers to a letter from the Commissioner contending that American Lloyds was not eligible.