Indus. Dev. Assoc. v. Commercial Union Surplus Lines Ins. Co.
222 N.J. Super. 281, 536 A.2d 787 (1988)
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Rule of Law:
Whether an intermediary insurance broker in a surplus lines transaction is an agent of the insured or the insurer is a question of fact to be determined by the jury based on the totality of the circumstances and the intention of the parties.
Facts:
- Industrial Development Associates (Industrial), owned by the Pugliese family, was conducting extensive renovations on a 22-building industrial complex.
- Anthony Pugliese, III, acting for Industrial, hired insurance broker Antonio Suarez to obtain insurance coverage for six of the buildings under renovation.
- Unable to secure conventional coverage, Suarez engaged Thomas Guthrie of F.T.P., Inc. (FTP), another broker, to obtain a surplus lines policy.
- During a site visit, Pugliese alleges he informed Guthrie that the buildings' sprinkler system was disconnected due to the renovations; Guthrie, in a deposition, denied being told this.
- Guthrie contacted another broker, Executive Excess (Executive), who in turn contacted the surplus lines insurer, Commercial Union (Commercial).
- Executive informed Commercial that the sprinkler system was operational, allegedly based on information from Guthrie.
- FTP issued an insurance binder to Industrial, identifying Commercial as the insurer and listing FTP's own surplus lines agent identification number.
- A fire broke out during renovations when an acetylene torch being used to remove piping came in contact with chemical residue in the pipes.
Procedural Posture:
- Industrial Development Associates sued Commercial Union, Executive Excess, F.T.P., Inc., and others in the Superior Court of New Jersey, Law Division (trial court).
- The trial court granted summary judgment in favor of defendants Commercial Union and Executive Excess, finding as a matter of law that F.T.P. was not their agent.
- The case proceeded to trial against the remaining defendants, including F.T.P. and PPG Industries.
- At the close of Industrial's case, the trial court granted motions to dismiss the claims against F.T.P. and PPG.
- Industrial (plaintiff-appellant) appealed the summary judgments and the dismissals to the Superior Court of New Jersey, Appellate Division.
- F.T.P. (defendant-respondent) cross-appealed from the summary judgments granted in favor of Commercial and Executive.
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Issue:
Does a genuine issue of material fact exist as to whether an intermediary insurance broker was acting as an agent of the surplus lines insurer when placing a policy, thereby precluding summary judgment for the insurer on its defense that the insured breached a policy warranty?
Opinions:
Majority - Skillman, J.A.D.
Yes. A genuine issue of material fact exists because the determination of an agency relationship is a question of fact for the jury. Summary judgment for the insurer, Commercial, and its agent, Executive, was improper because there was sufficient evidence from which a jury could infer that the intermediary broker, FTP, was acting as their agent. The court reasoned that the status of an insurance agent depends on the intention of the parties. Evidence supporting an agency relationship between FTP and the insurer included testimony from Industrial's representatives that they believed FTP's employee, Guthrie, represented the insurer. More significantly, FTP, a licensed surplus lines agent, issued the insurance binder to Industrial, an act which, under New Jersey's Surplus Lines Law, is a responsibility of the insurer's agent. This act creates a factual question as to whether FTP was acting with the express or implied authority of Commercial and Executive, which precludes summary judgment.
Analysis:
This decision reinforces the principle that agency status in complex, multi-party insurance transactions is a fact-intensive inquiry ill-suited for summary judgment. By holding that an intermediary broker's actions, such as issuing a binder under its own surplus lines license, can create a jury question about its agency for the insurer, the court protects insureds. This precedent prevents insurers from easily disavowing the knowledge and actions of intermediaries in the surplus lines market, thereby holding them accountable for the representations and information funneled through the chain of brokers they utilize to conduct business.
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