Court: New Jersey Superior Court Appellate Division; January 23, 1998; New Jersey; State Appellate Court
Plaintiffs Harold Raymond Mann and Regional Trucking Company, Inc. are appealing the summary judgment granted to defendant Interstate Fire Casualty Company in a declaratory judgment action regarding indemnification and defense in a wrongful death case. The court found that the motion judge did not adequately address issues of dual agency and apparent authority, which raised significant factual disputes that should be resolved through a plenary hearing.
The case stems from a February 10, 1992 incident where Guy Kisal was killed by a tractor/trailer owned by Regional and driven by Mann. Following this, Dorothy Kisal filed a wrongful death suit against both plaintiffs. Regional sought insurance coverage from Interstate, claiming it was obligated to cover damages exceeding primary coverage, but Interstate denied this coverage, leading to the current action.
Regional is an ICC certified carrier in interstate commerce and was previously affiliated with two other carriers that used the Sciarra Agency for insurance. Interstate provided excess coverage to one of these carriers, R.G. Truck Leasing, through a policy issued in Pennsylvania, which required compliance with the Pennsylvania Surplus Lines Law due to Interstate not being an admitted insurer in that state. The policy was obtained via Sciarra Agency working through McConaghy Special Risk, Inc., but Sciarra was not an approved surplus lines agent for Interstate, necessitating that they route their requests through an authorized broker.
After R.G. Truck Leasing’s operations were taken over by Regional, Regional requested an amendment to the policy to name itself as the insured. However, McConaghy had not acted on this request by the time of Kisal's death. Consequently, when Regional sought indemnification for the wrongful death claim, Interstate denied coverage. In the lower court, Regional asserted that McConaghy operated as a dual agent with a responsibility to procure the necessary insurance coverage, which adds to the basis for their appeal.
McConaghy was alleged to be acting as Interstate's agent in processing insurance applications and providing risk information about potential customers. The claim asserted that McConaghy's failure to communicate with Interstate after being contacted by the Sciarra Agency constituted a breach of duty to both Regional and Interstate. Consequently, it was argued that Interstate had an obligation to indemnify and defend Regional in Kisal’s wrongful death claim, had Regional been entitled to coverage. However, the Law Division ruled that McConaghy was not Interstate's agent for transmitting Regional’s request for excess coverage, absolving Interstate of vicarious liability for McConaghy’s negligence.
The determination hinged on the special relationship between the parties and their responsibilities in securing an excess insurance policy for Regional. Regional supported its position with deposition excerpts, including testimony from Justin Sciarra, who stated that his agency needed to contact McConaghy to discuss risks and provide necessary information about the customer, which McConaghy would then forward to Interstate. Once Interstate evaluated the application, it would quote a rate to McConaghy, who would relay this to Sciarra Agency. If accepted, Interstate would bill McConaghy, who would remit payment and pay a commission to Sciarra Agency.
In July 1991, Regional acquired R.G. Truck Leasing's operations and customers, leasing all trucks to Regional. Sciarra Agency obtained primary insurance for Regional from New Hampshire Insurance Company and subsequently contacted McConaghy on September 17, 1991, to amend the Interstate excess insurance policy or submit a new application. Although McConaghy did not recall the conversation, he received a facsimile confirming the request for a policy amendment or new application. Interstate's underwriter, James Pye, acknowledged that Interstate only worked with approved brokers like McConaghy. When Interstate denied coverage, it cited McConaghy's failure to inform them of Regional's acquisition of R.G. Truck Leasing and changes in primary insurance coverage.
The analysis draws heavily from the New Jersey Supreme Court's ruling in Sears Mortgage Corp. v. Rose, which established that a closing attorney for a land purchaser may act as an agent for a title-insurance company when applying funds to satisfy a mortgage and securing title. The Court emphasized that the actual conduct of the parties, rather than their stated intentions or agreements, determines their relationship. Consequently, the written agreement between Interstate and McConaghy, which identifies McConaghy as a broker without authority to act as an agent, does not definitively resolve the issues at hand.
In evaluating whether the defendant was entitled to summary judgment, the judge was required to consider all evidence, including pleadings, certifications, and depositions, to determine if McConaghy had apparent or implied authority based on the principal's conduct. The law acknowledges that an agent can represent both the insured and the insurer in a transaction. Citing American Well Works, it was noted that a principal is bound by an agent's actions within the realm of apparent authority that the principal has allowed.
The critical question revolves around whether the principal has placed the agent in a position that would lead a reasonable person to believe the agent has the authority to act. If the evidence supports such a presumption, the matter should be presented to a jury. It is common for an insurance agency to act for both parties, as discussed in Rodriguez v. Hudson County Collision Co., which addressed the implications of apparent authority. The facts indicate that the public cannot directly interact with Interstate to obtain excess insurance policies, which can only be accessed through approved independent contractor brokers, underscoring the significance of the relationship and authority established between the parties.
Under Pennsylvania Surplus Lines Law (40 Pa. Stat. 991.1604 and 991.1615), Interstate must appoint a surplus lines agent in Pennsylvania for issuing insurance. McConaghy, designated by Interstate, has the responsibility to receive and process applications for excess insurance on behalf of Interstate, as well as to communicate the rates for potential customers. McConaghy acted in a dual capacity: as an agent for both the prospective customer and Interstate. If McConaghy negligently handled the Sciarra Agency's request to amend the insurance policy for R.G. Truck Leasing, this negligence could be attributed to Interstate under respondeat superior, particularly since the Sciarra Agency relied on McConaghy's authority to achieve one of three goals: amending the policy, obtaining a new application for insurance, or getting a timely response from Interstate about underwriting a new policy. The motion judge did not consider this reliance issue, but the record indicates that the Sciarra Agency was required to work through McConaghy. Although the ultimate question of whether Regional was damaged by McConaghy's actions remains unresolved, the court found that there were genuine issues of material fact regarding the agency relationship that warranted further examination by a trier of fact. Thus, the grant of summary judgment was reversed and the case remanded for further proceedings. Additionally, the Pennsylvania Surplus Lines Law mandates that only licensed agents or brokers may transact surplus lines insurance, and a surplus lines agent's license is issued to qualified residents with a current property and casualty broker's license.
The requirements for obtaining and maintaining a surplus lines license include the payment of a license fee, submission of a completed application, passing a qualifying examination (with existing license holders automatically deemed compliant), and the filing of a bond of at least $50,000 in favor of the Commonwealth of Pennsylvania. This bond must remain active and cannot be terminated without a 30-day notice, except for nonpayment of premiums. Corporations and partnerships can qualify as resident surplus lines licensees if they list employees who meet the licensing requirements, and only those employees with a certificate of eligibility may transact business. Licenses expire annually on February 28 and must be renewed by March 1, with late renewals incurring a penalty.
Interstate and McConaghy are parties to a Broker Agreement from July 26, 1988, designating McConaghy as a broker with limited authority, requiring prior written approval from Interstate for various actions, including binding coverage or making representations. Regional's appeal notes that both the Sciarra Agency and McConaghy are no longer operational and lacked errors and omissions insurance. In the context of R.G. Truck Leasing, Travelers Insurance Company is the primary carrier under Interstate's excess insurance policy, while New Hampshire Insurance Company was rated A (superior) in 1991, although it is unclear if Interstate had an excess policy over it. This matter is expected to be addressed in a plenary hearing.
