(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
CARTER LINCOLN-MERCURY, INC., LEASING DIVISION, V. EMAR GROUP, INC., ET AL. (A-35-93)
Argued October 25, 1993 -- Decided April 12, 1994
STEIN, J., writing for a majority of the Court.
The issue on appeal is whether an insurance broker engaged to obtain insurance on behalf of a
prospective insured owes a duty to a loss-payee subsequently named on the acquired insurance policy to
place the insurance with a financially stable insurance carrier.
EMAR Group, Inc. (EMAR), an insurance broker and agent, placed a collision policy with
American Lloyds Insurance Company (American Lloyds) on behalf of EMAR's client, All Points, Inc., also
known as Goldstar Express (All Points), a commercial trucking company. The insurance policy provided
physical-damage insurance for all vehicles operated by All Points. Carter Lincoln-Mercury, Inc. (Carter
Lincoln) was the owner-lessor of one of the vehicles insured under the policy and was named on a certificate
of insurance as a loss-payee. During the policy period, one of the trucks owned by Carter Lincoln was
damaged in an accident. Carter Lincoln, who had paid for the repairs to the truck, filed a claim with
American Lloyds demanding payment. Carter Lincoln was notified that the carrier had become insolvent,
was ordered to be liquidated, and that there was no funds to pay the claim.
Carter Lincoln sued EMAR, alleging that Emar had breached a duty owed it by failing to exercise
due care in selecting an insurance carrier, by selecting a carrier that had not been authorized to issue policies
in New Jersey, and that was financially unstable and had become insolvent. EMAR moved for summary
judgment, claiming that it owed no duty to Carter Lincoln. The trial court granted EMAR's motion,
concluding that, as a matter of law, no duty existed. On appeal, the Appellate Division reversed, holding that
EMAR owed a duty to Carter Lincoln, as a foreseeable potential beneficiary of the policy, to select a
financially secure insurer.
The Supreme Court granted certification.
HELD: EMAR Group, Inc., an insurance broker engaged to obtain insurance on behalf of a prospective
insured, owes a duty to a loss-payee, Carter Lincoln Mercury, subsequently named on the acquired
policy to place the insurance with a financially stable insurance carrier.
1. An insurance broker owes a duty to the insured to act with reasonable skill and diligence in
performing the services of a broker. Whether a broker's duty includes placing the insurance with a
financially secure carrier is a question of first impression in New Jersey. Courts in other states and
commentators have recognized that an insurance broker has an obligation to investigate the financial
soundness of the insurance carrier with which the broker places insurance. In addition, several statutory
provisions address the financial soundness of insurance companies. (pp. 6-14)
2. Whether a duty exists is a question to be decided by the court as a matter of law. The ability to foresee injury to a potential plaintiff is crucial to the determination of whether a duty should be imposed on an alleged tortfeasor. Once the foreseeability of an injured party is established, it must be decided whether considerations of fairness and policy warrant the imposition of a duty. When imposing a duty based on principles of foreseeability, the injured party may be found within the "range of harm" emanating from a tortfeasor's activity. The parties need not stand in a direct contractual relationship. Thus, an insurance
broker or agent owes a duty of care not only to the insured with whom the broker contracts but also to other
foreseeable parties injured by the broker's or agent's negligence. (pp. 14-20)
3. A broker has a duty to use reasonable skill, care and diligence in selecting a financially secure
insurer. Based on the relationship of reliance between brokers and their insureds, the foreseeable harm that
may result if a carrier proves to be insolvent, and a broker's ability to protect against that harm, leads to the
conclusion that brokers should perform a reasonable investigation of the carrier with which they intend to
place an insured's policy. If a broker discovers that a prospective insurer's financial condition is
questionable, the broker should either find another carrier or, at the very least, disclose the information to
the client. Difficulty of insuring a specific risk may be a factor affecting the available options, but such
difficulty does not obviate the broker's duty to perform a reasonable investigation of the insurer's financial
stability. Failure to comply with that duty may render the insurance broker liable to an insured who is
unable to satisfy a claim due to the insolvency of the insurer. (pp. 20-24)
4. The fact that EMAR was acting as All Points' contractual agent does not foreclose the possibility
that EMAR owed a duty to a third party found within the zone of harm emanating from the broker's actions.
It is reasonably forseeable that the failure to inquire into the financial stability of a carrier with which the
insurance is placed may result in the issuance of a policy by an insolvent company that may be unable to pay
claims. It is also foreseeable that claimants entitled to collect under the policy will be injured should the
carrier prove to be insolvent and unable to pay on those claims. Therefore, loss-payees, like other claimants,
are within the zone of harm emanating from a broker's negligence in failing to investigate the financial
soundness of a carrier. (pp. 24-26)
5. EMAR, as part of its obligation to exercise diligence and due care, had a duty to investigate the
financial stability of American Lloyds and to disclose its findings to the insured, All Points. The range of
harm that Carter Lincoln sustained was well within the range of risk that a reasonable broker should have
foreseen as a consequence of the failure to exercise due care and diligence in selecting a carrier. (pp. 27-28)
The judgment of the Appellate Division is AFFIRMED.
O'HERN, J., concurring in part and dissenting in part, in which JUSTICE GARIBALDI joins, is of
the view that the Court need not impose a broad duty on brokers and insurance agents to make independent
financial investigations of insurance companies. Rather, it need only hold that the broker should be
responsible to its customers for a breach of its statutory duty. EMAR has a statutory duty to place insurance
through a licensed surplus-lines agent. That agent had a duty to comply with the statutory framework. For
any breach of those duties, both parties may be held liable.
CHIEF JUSTICE WILENTZ and JUSTICES CLIFFORD, HANDLER, and POLLOCK join in
JUSTICE STEIN'S opinion. JUSTICE O'HERN has filed a separate opinion concurring in part and
dissenting in part, in which JUSTICE GARIBALDI joins.
SUPREME COURT OF NEW JERSEY
A-
35 September Term 1993
CARTER LINCOLN-MERCURY, INC.,
LEASING DIVISION,
Plaintiff-Respondent,
v.
EMAR GROUP, INC.,
Defendant-Appellant,
and
ALL POINTS, INC., a/k/a GOLDSTAR
EXPRESS AND ELLIOTT H. GOLDSTEIN,
Defendants.
Argued October 25, 1993 -- Decided April 12, 1994
On certification to the Superior Court,
Appellate Division, whose opinion is reported
at
261 N.J. Super. 245 (1993).
Jeffrey M. Garrod argued the cause for
appellant (Orloff, Lowenbach, Stifelman &
Siegel, attorneys; Mr. Garrod and David B.
Katz, of counsel and on the brief).
William G. Wright argued the cause for
respondent (Farr, Lyons, Burke, Gambacorta &
Wright, attorneys).
The opinion of the Court was delivered by
STEIN, J.
The question presented is whether an insurance broker
engaged to obtain insurance on behalf of a prospective insured
owes a duty to a loss-payee subsequently named on the acquired
policy to place the insurance with a financially stable insurance
carrier.
EMAR Group, Inc. ("EMAR"), an insurance broker and agent,
placed a collision policy with American Lloyds Insurance Company
("American Lloyds") on behalf of EMAR's client, All Points, Inc.,
also known as Goldstar Express ("All Points"), a commercial
trucking company. The policy provided physical-damage insurance
for all vehicles operated by All Points. Carter Lincoln-Mercury,
Inc. ("Carter Lincoln") was the owner-lessor of one of the
vehicles insured under the policy and was named on a certificate
of insurance as a loss-payee. The truck owned by Carter Lincoln
was subsequently damaged in an accident. Carter Lincoln filed a
claim with American Lloyds and discovered that the carrier was
being liquidated and the claim would not be paid.
Carter Lincoln brought this action against EMAR, alleging
that the broker had breached a duty to it by failing to exercise
due care in placing the insurance policy, resulting in the
selection of a financially unstable carrier that had not been
authorized to issue policies in New Jersey and that subsequently
became insolvent. EMAR moved for summary judgment, claiming it
owed no duty to Carter Lincoln. The trial court determined that
no duty existed as a matter of law and granted the motion. The
Appellate Division reversed, holding that EMAR owed a duty to
Carter Lincoln, as a foreseeable potential beneficiary of the
policy, to "select[] a financially secure insurer."
261 N.J.
Super. 245, 250 (1993).
We granted EMAR's petition for certification,
133 N.J. 443
(1993), and now affirm the judgment of the Appellate Division.
The facts are essentially undisputed. The vehicle owned by plaintiff, Carter Lincoln, a 1985 diesel tractor, had been leased to All Points in February 1986 for a term of thirty-six months. The lease agreement required All Points to maintain collision insurance on the vehicle in an amount sufficient to protect Carter Lincoln's interest, and also obligated All Points to pay for accident-related repairs not covered by insurance. The agreement further required that the insurance be placed with a company approved by both Carter Lincoln and All Points.
All Points engaged defendant EMAR, a licensed insurance broker and agent, to obtain physical-damage insurance for its fleet of trucks. On December 16, 1988, EMAR placed a collision policy with American Lloyds of Metairie, Louisiana, through the insurance carrier's New Jersey agent, Marketing Insurance Agency, to protect All Points' vehicles for the period from December 17, 1988, to December 17, 1989. All Points' previous policy had been canceled on two occasions for nonpayment of premiums, but each time had been reinstated when payment was made. That policy was again canceled, effective December 17, 1988, "for underwriting
reasons." After EMAR placed the new policy with American Lloyds,
All Points directed EMAR to list as loss-payees under the policy
a number of finance companies and lessors, including Carter
Lincoln. In January 1989, All Points sent a follow-up letter to
EMAR, along with a chart listing the lessors and finance
companies that were to be designated loss-payees and the vehicles
in which they had an interest.
In February 1989, EMAR sent to All Points an insurance
policy issued by American Lloyds, which included an endorsement,
effective December 17, 1988, listing Carter Lincoln and other
interested parties as loss-payees. EMAR also forwarded to Carter
Lincoln a certificate of insurance dated February 16, 1989,
designating All Points as the insured party for the truck and
specifying Carter Lincoln as the certificate holder and loss-payee.
On February 17, 1989, the Carter Lincoln truck was damaged
in a traffic accident in New Mexico. Carter Lincoln filed a
claim with American Lloyds and made repeated demands for payment,
but never received compensation. Carter Lincoln paid $22,919.21
to Quality Trucks of El Paso, Texas for repairs to the truck. In
June 1989, American Lloyds was determined to be insolvent by a
Louisiana state court and ordered to be liquidated under the
supervision of the Louisiana Commissioner of Insurance. The
deputy liquidator of American Lloyds subsequently notified Carter
Lincoln that no funds were available to pay its claim.
Carter Lincoln instituted this action in May 1989 against
All Points and its president, Elliot H. Goldstein, seeking
recovery for damage to the truck not covered by insurance and for
missed lease payments. Carter Lincoln later amended its
complaint to assert a claim against All Points and Goldstein for
failure to secure adequate insurance coverage and to add EMAR as
a defendant. Carter Lincoln claimed that EMAR had breached a
duty owed to it by failing to exercise diligence and reasonable
care in selecting an insurance carrier. The complaint alleged
that at the time EMAR had placed the insurance policy, American
Lloyds was not authorized to conduct business in New Jersey; was
not rated by A.M. Best Company or listed in Best's Insurance
Reports, an industry source of information on insurance
companies; and had been under the conservatorship of the
Louisiana Commissioner of Insurance since August 1988.
The trial court struck All Points' and Goldstein's answers
to the complaint for failure to respond to interrogatories and
subsequently entered a default judgment against both parties.
EMAR answered the complaint and, after discovery, moved for
summary judgment on the grounds that it owed no duty to Carter
Lincoln as a matter of law and that no evidence established that
it had acted negligently. Carter Lincoln cross-moved for summary
judgment. The trial court found that EMAR had owed no duty to
Carter Lincoln, citing the lack of privity between the parties
and relying on this Court's decision in Wang v. Allstate
Insurance Co.,
125 N.J. 2 (1991). The court granted EMAR's
motion for summary judgment, denying Carter Lincoln's motion.
The Appellate Division reversed, relying substantially on
Impex Agricultural Commodities Division v. Parness Trucking
Corp.,
576 F. Supp. 587 (D.N.J. 1983), to support its conclusion
that defendant EMAR had owed a duty to Carter Lincoln to select a
financially secure insurance company when it placed the policy.
We consider two related issues: (1) does an insurance
broker have a duty to select a financially secure insurer when
acting on behalf of an insured, and (2) if so, to whom is that
duty owed?
An insurance broker acts on behalf of a prospective insured to procure insurance coverage. The common law has long recognized that an insurance broker owes a duty to the insured to act with reasonable skill and diligence in performing the services of a broker. Rider v. Lynch, 42 N.J. 465, 476 (1964); Milliken v. Woodard, 64 N.J.L. 444, 448 (Sup. Ct. 1900). In Rider, supra, we observed:
One who holds himself out to the public as an insurance broker is required to have the degree of skill and knowledge requisite to the calling. When engaged by a member of the public to obtain insurance, the law holds him to the exercise of good faith and reasonable skill, care and diligence in the execution of the commission. * * * If he neglects to procure the insurance or if the
policy is void or materially deficient or does not
provide the coverage he undertook to supply, because of
his failure to exercise the requisite skill or
diligence, he becomes liable to his principal for the
loss sustained thereby.
At common law both agents and brokers, when acting on behalf of an insured, owe the insured a duty of due care. Weinisch v. Sawyer, 123 N.J. 333, 340 (1991); Avery v. Arthur E. Armitage Agency, 242 N.J. Super. 293, 299 (App. Div. 1990); Sobotor v. Prudential Property & Casualty Ins. Co., 200 N.J. Super. 333, 337 n.1 (App. Div. 1984). Courts addressing the existence and scope of the duty owed by one acting on behalf of an insured or prospective insured have determined that that duty encompasses claims alleging that the agent or broker failed to obtain coverage after the client's policy had been canceled and that the agent failed to inform the client that coverage could not be obtained, DiMarino v. Wishkin, 195 N.J. Super. 390, 393 (App. Div. 1984); failed to advise a client of insurance options, Weinisch, supra, 123 N.J. at 340, and Sobotor, supra, 200 N.J. Super. at 339; obtained insurance that failed to meet the insured's needs, Rider, supra, 42 N.J. at 481-82; failed to place the requested insurance, Eschle v. Eastern Freight Ways, Inc., 128 N.J. Super. 299 (Law Div. 1974); misrepresented to the insurance company information supplied by the insured, Milliken, supra, 64 N.J.L. at 448-49; failed to take action after discovering during an inspection that the insured's sprinkler
system was inoperative, Industrial Dev. Assocs. v. F.T.P., Inc.,
248 N.J. Super. 468 (App. Div.), certif. denied,
127 N.J. 547
(1991); failed to inform the insured that she was without
insurance, Auger v. Gionti Agency,
218 N.J. Super. 360, 366-67
(App. Div.), certif. granted,
109 N.J. 504 (1987), appeal
dismissed,
113 N.J. 348 (1988); and failed to inform the insured
of the availability of immediate insurance coverage through a
temporary binder, Bates v. Gambino,
72 N.J. 219, 222-25 (1977).
Although the relationship of broker to insured may be described
as contractual, our cases have recognized that the insured "does
not sue on a contract of insurance." Rider, supra, 42 N.J. at
477. The claim asserted is based on the broker's negligent
failure to procure the appropriate coverage. Ibid.
The duty of a broker or agent, however, is not unlimited.
In Wang, supra, 125 N.J. at 11-12, we held that an insurance
agent had no duty to advise an insured to consider higher amounts
of homeowner's insurance. We found significant the absence of
evidence of a relationship of reliance between the insureds and
the agent in that case, noting that the facts suggested "that the
policies had been routinely renewed, probably without any contact
between the parties * * * ." Id. at 16. In addition, we noted
the absence of a statutory mandate to inform homeowners of the
availability of greater coverage and the difficulty of fixing the
limits of the asserted duty. Thus, we determined that the
obligation to inform homeowners renewing their policies to
consider higher liability limits was not encompassed by the
recognized duty of care owed by agents to their insureds and,
therefore, should be imposed, if at all, by the Legislature. Id.
at 18-19. In Cox v. Santoro,
98 N.J. Super. 360, 365-66 (1967),
the Appellate Division declined to impose on an insurance broker
a duty to inform an insured who had worked in the insurance
business for forty years that the policy he had received did not
cover his son while driving a relative's car. See also Bruce v.
James P. MacLean Firm,
238 N.J. Super. 501, 508-09 (Law Div.)
(holding agent has no affirmative duty to explain notice of
availability of additional uninsured-motorist coverage that
statute required insurer to mail), aff'd,
238 N.J. Super. 408
(App. Div. 1989); Citta v. Camden Fire Ins. Ass'n,
152 N.J.
Super. 76 (App. Div. 1977) (holding that agent had no duty to
give notice to insured of expiration of policy, although broker
may have such duty).
Whether a broker's duty includes placing the insurance with
a financially secure carrier is a question of first impression in
this state. Courts in other states have recognized, however,
that an insurance broker has an obligation to investigate the
financial soundness of the insurance carrier with which the
broker places insurance and to refrain from placing insurance
with a carrier that the broker knows to be insolvent. See, e.g.,
Williams-Berryman, Ins. Co. v. Morphis,
461 S.W.2d 577, 580 (Ark.
1971) (holding that insurance broker must use "reasonable care,
skill, and judgment with a view to the security or indemnity for
which the insurance was sought"); Nidiffer v. Clinchfield R.R.,
600 S.W.2d 242, 246 (Tenn. Ct. App. 1980) (holding that employer
who undertakes to procure insurance for employees must use
reasonable care to select solvent carrier); Higginbotham &
Assocs. v. Greer,
738 S.W.2d 45, 47 (Tex. Ct. App. 1987) (holding
that agent may be liable for insured's lost claim due to
carrier's insolvency if at time of procurement or at later time
when insured could be protected agent knows or by exercise of
reasonable diligence should know insurer presents unreasonable
risk); Sternoff Metals Corp. v. Vertecs Corp.,
693 P.2d 175, 180
(Wash. Ct. App. 1984) (stating that "insurance broker has a
common law duty to his insured not to negligently place insurance
in a company [that] he knows or should know is presently
insolvent"). But see Wilson v. All Serv. Ins. Corp.,
153 Cal.
Rptr. 121 (Ct. App. 1979) (holding that broker has no duty to
investigate financial condition of insurer authorized to do
business in state because duty already imposed on Insurance
Commissioner).
Various commentators have also recognized the obligation of
an insurance broker to investigate the financial security of an
insurance carrier. See, e.g., 16A John A. Appleman & Jean
Appleman, Insurance Law and Practice § 8842, at 220-21 (rev. ed.
1981) (hereinafter Appleman) (stating that agent or broker is
required to use reasonable care, skill, and judgment with view to
security or indemnity for which policy is sought, and failure to
do so may result in liability to insured for losses due to
insolvency of insurer); 3 Mark S. Rhodes, Couch on Insurance 2d §
25:32, at 328 (stating that broker must exercise reasonable skill
and diligence in selecting insurer and ascertaining that insurer
is "of good credit and standing"), § 25.48 at 375 (stating,
"Ordinarily, an agent to procure a policy is liable where he
places a risk in a company which is insolvent if the use of
proper diligence would have revealed that fact before the
insurance was procured * * * .") (rev. ed. 1984); 2 J.D. Lee &
Barry A. Lindahl, Modern Tort Law § 26.34, at 529 (rev. ed. 1989)
(stating, "The agent [or broker] must obtain the requested
coverage * * * from a functioning company that the agent
reasonably believes to be solvent." (footnotes omitted)).
The general rule is that an insurance agent or broker
is not a guarantor of the financial condition or
solvency of the company from which he obtains the
insurance. However, he is required to use reasonable
care, skill, and judgment with a view to the security
or indemnity for which the insurance is sought, and a
failure in such respect may render him liable to the
insured for resulting losses due to the insolvency of
the insurer. Consequently, where a policy is procured
in a company which is known by the agent to be
insolvent, the agent is liable for a loss suffered
thereby, while on the other hand, where the company was
solvent when the policy was procured, the subsequent
insolvency of the company does not impose liability on
the agent or broker.
[43 Am. Jur. 2d, Insurance § 143, at 228
(1982)(footnotes omitted).]
See Carter Lincoln, supra, 261 N.J. Super. at 250 (relying on
"well-recognized general rule" and quoting
43 Am. Jur. 2d, supra,
Insurance § 143, at 228); Williams-Berryman, supra, 461 S.W.
2d at
580 (same).
Several statutory provisions address the financial soundness
of insurance companies. To be authorized to do business in New
Jersey, insurers incorporated in New Jersey must have set amounts
of unimpaired capital and surplus, N.J.S.A. 17:17-6, and must
deposit securities, such as government bonds or certificates of
deposit, with the Commissioner of Insurance, N.J.S.A. 17:20-1c.
"The deposits shall be held for the benefit and security of all
the policyholders of the company depositing them." Ibid.; see
also N.J.S.A. 17B:18-35 to -40 (requiring life and health
insurers to have set amounts of capital stock and to deposit
securities with Commissioner of Insurance). Foreign insurers are
also subject to capital and deposit requirements before they may
be admitted to do business in New Jersey. N.J.S.A. 17:32-1, -5.
N.J.S.A. 17:17-12 makes unlawful the conducting of insurance
business in the state by unauthorized carriers, and N.J.S.A.
17:22-6.37 makes unlawful the aiding in the procurement of a
contract of insurance for any unauthorized insurer by brokers and
agents. Coverage, however, may be placed with unauthorized
insurers if it is not procurable, after a diligent effort has
been made, from authorized insurers. N.J.S.A. 17:22-6.42. But
those unauthorized insurers must first be declared eligible
surplus-lines insurers by the Commissioner of Insurance after an
examination of the insurer's financial statements, management,
and history in the business. See N.J.S.A. 17:22-6.45. (The
record before us is silent concerning whether the coverage in
question could not have been procured from authorized insurers,
whether American Lloyds had been declared an eligible surplus-lines insurer and, if so, whether the policy had been placed by
EMAR through an authorized surplus-lines agent. See N.J.S.A.
17:22-6.42 to -6.43, 17:22-6.45, 17:22-6.41.) Further concern
for insureds who rely on the financial stability of insurance
companies is reflected by the existence of the Property-Liability
Insurance Guaranty Association, which provides protection to
insureds whose risks are covered by authorized insurers that
later become insolvent. See N.J.S.A. 17:30A-1 to -20. In
addition, the New Jersey Surplus Lines Insurance Guaranty Fund
Act provides protection to insureds that have policies with
eligible, nonadmitted surplus-lines insurers that become
insolvent. See N.J.S.A. 17:22-6.70 to -6.83.
Although our cases have not heretofore addressed a broker's
liability for placement of a policy with an insolvent carrier,
the Appellate Division has held that a broker who negligently
places a policy with an insurance carrier not authorized to issue
policies in New Jersey may be liable for damages suffered by the
claimant. In Gerald v. Universal Agency, Inc.,
56 N.J. Super. 362 (1959), the court held that an insurance broker who places
insurance with an unauthorized carrier that subsequently refuses
to pay a legitimate claim may be liable for the plaintiff's
damages unless the broker can demonstrate its unsuccessful but
diligent effort to procure insurance from authorized insurers and
has informed the insured that the policy obtained is written by a
carrier not authorized to do business in New Jersey. Id. at 371.
"The question of whether a duty exists is a matter of law properly decided by the court, not the jury * * * ." Wang, supra, 125 N.J. at 15. The question is one of fairness and policy that "involves identifying, weighing, and balancing several factors -- the relationship of the parties, the nature of the attendant risk, the opportunity and ability to exercise care, and the public interest in the proposed solution." Hopkins v. Fox & Lazo Realtors, 132 N.J. 426, 439 (1993) (citing Goldberg v. Housing Auth., 38 N.J. 578, 583 (1962)).
Ability to foresee injury to a potential plaintiff does not in itself establish the existence of a duty, see Goldberg, supra, 38 N.J. at 583, but it is a crucial element in determining whether imposition of a duty on an alleged tortfeasor is appropriate. See Hill v. Yaskin, 75 N.J. 139, 143-44 (1977) (discussing "foreseeability as a 'duty' determinant"). Subsumed in the concept of foreseeability are many of the concerns we acknowledge as relevant to the imposition of a duty: the
relationship between the plaintiff and the tortfeasor, the nature
of the risk, and the ability and opportunity to exercise care.
Once the foreseeability of an injured party is established, we
must decide whether considerations of fairness and policy warrant
the imposition of a duty. See Weinberg v. Dinger,
106 N.J. 469,
485 (1987) (stating, "Whereas the magnitude and likelihood of
potential harm are objectively determinable, the propriety of
imposing a duty of care is not."); Kelly v. Gwinnell,
96 N.J. 538, 544 (1984) (stating that action creating unreasonable risk
of foreseeable harm resulting in injury is not enough to sustain
negligence cause of action; court must also make value judgment
based on analysis of public policy that actor owed injured party
duty of reasonable care (citing Palsgraf v. Long Island R.R.,
248 N.Y. 339 (1928))).
In People Express Airlines v. Consolidated Rail,
100 N.J. 246 (1985), we held that a plaintiff could bring an action for
purely economic losses, regardless of any accompanying physical
harm or property damage, if the plaintiff was a member of an
identifiable class that the defendant should have reasonably
foreseen was likely to be injured by the defendant's conduct and
the plaintiff's injuries had been proximately caused by the
defendant's negligence. Id. at 263. We found it appropriate to
impose a duty on tortfeasors who by virtue of their activities,
training, or preparation for their work had particular knowledge
or reason to know that others would be harmed by their negligent
conduct, id. at 258, and we stated that "the more particular is the foreseeability that economic loss will be suffered by the plaintiff as a result of defendant's negligence, the more just is it that liability be imposed and recovery allowed." Id. at 263. In addressing the imposition of a duty based on principles of foreseeability, that a plaintiff may be found within the "range of harm" emanating from a tortfeasor's activities is more significant than whether the parties stand in a direct contractual relationship. See W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 92, at 655 (5th ed. 1984) (stating, "The obligations [that] give rise to tort actions * * * are created primarily on the basis of policy reasons of one kind or another apart from enforcing a commitment of an intention to do or not to do something in the future."). A number of our cases have recognized that lack of privity between the plaintiff and the alleged tortfeasor is no bar to recovery based on negligence. See, e.g., Aronsohn v. Mandara, 98 N.J. 92, 105 (1984) (stating that contractor has duty to carry out work in careful and prudent manner and may be liable to third persons for injuries and property damages caused by negligence irrespective of privity); H. Rosenblum, Inc. v. Adler, 93 N.J. 324, 338-399 (1983) (holding auditor may be liable to plaintiff stockholders for negligent misrepresentation and observing that privity should not be condition of recovery but that reasonable foreseeable consequences of negligent act define duty); Essex v. New Jersey
Bell Tel. Co.,
166 N.J. Super. 124, 129 (App. Div. 1979) (holding
that defendant utility owed duty to exercise reasonable care in
installation of telephones to avoid injury to all within zone of
hazard created by its activity).
The principle that duty is defined not by the contractual
relationship between the parties but by considerations of
foreseeability and fairness is equally applicable in the
insurance context. Thus, our cases have held that an insurance
broker or agent owes a duty of care not only to the insured with
whom the broker contracts but also to other foreseeable parties
injured by the broker's or agent's negligence. For example, in
Rider, supra,
42 N.J. 465, a young woman with a learner's permit
who could drive only if accompanied by a licensed driver retained
an insurance broker to procure insurance. The broker informed
her that he would obtain insurance for the car, which was owned
by her fiance but had been furnished for her use. Id. at 471.
Subsequently, the woman's father, while driving the car alone,
was involved in an accident in which the other driver was killed.
He sued the broker for negligence after discovering that the
broker had procured insurance that did not provide him or his
daughter with any liability coverage while he was driving the
vehicle. We found that the facts suggested "that a broker
exercising due care would have understood he was committing
himself to obtain coverage for the daughter which would cover the
father when he was using the car." Id. at 482. Thus, we held
that the father had presented enough evidence to survive a motion
to dismiss and could proceed with an action in negligence against
the broker. Id. at 483.
In Eschle, supra, 128 N.J. Super. 299, the trial court
declined to dismiss an action brought by a passenger of an
uninsured driver against an insurance agent who had been engaged
to obtain liability coverage on the automobile but had failed to
do so. The passenger claimed that the agent was liable to her
for negligently failing to procure the insurance requested by the
insured. The court framed the question as whether a "duty [was]
owed by the insurance agent to members of the public, which duty
is breached by the failure to obtain requested coverage." Id. at
302. The court concluded that the lack of coverage for an
injured passenger is a foreseeable consequence of an agent's
negligent failure to obtain coverage, for which the agent can be
held liable. Id. at 304; see also Werrmann v. Aratusa, Ltd.,
266 N.J. Super. 471, 475 (App. Div. 1993) (holding that agent may be
liable to restaurant patron as "foreseeable" injured party left
without means of redress due to negligence of agent in failing to
renew restaurant's liability policy); Walker v. Atlantic Chrysler
Plymouth, Inc.,
216 N.J. Super. 255, 262 (App. Div. 1987)
(holding that employee could maintain action against broker for
broker's failure to recommend that employer obtain additional
uninsured-motorist coverage for car furnished for employee's use
as "[i]t was clearly foreseeable that the employee would be
damaged in the event the broker did not carry out his duty to
inform the insured").
In Impex, supra,
576 F. Supp. 587, on which the Appellate
Division relied, 261 N.J. Super. at 247-48, a customer of a
trucking company brought an action against the company's
insurance broker, alleging that the broker's negligence in
procuring liability insurance that failed to cover the customer's
loss rendered the broker liable to the customer for damages. The
District Court, applying New Jersey law, found that the lack of
privity between the parties was not controlling and denied the
defendant broker's motion to dismiss. 576 F. Supp. at 590-91.
The court suggested that the determinative factor was whether the
defendant broker could reasonably have foreseen that a failure to
exercise care in placing the insurance would result in damage to
parties such as the plaintiff. Id. at 591. Concluding that the
customer was "within the zone of a foreseeable injured party,"
the court held that the broker owed a duty to the customer "to
exercise due care in its undertakings." Ibid.
We note also that commentators have recognized that
[w]hile it has been stated as a general rule that an
action [against a broker or agent for failure to
procure requested insurance] cannot be maintained by
anyone not having an interest in the contract, * * *
rights may exist in many persons other than the
designated insured or applicant, and the courts
ordinarily will protect such rights.
See also 8 Appleman, supra, § 4838, at 477 (observing that
because injured party stands in shoes of the insured, injured
party may have cause of action against agent or broker (citing
Eschle, supra,
128 N.J. Super. 299)); Gothberg v. Nemerovski,
208 N.E.2d 12, 20 (Ill. App. Ct. 1965) (noting that insurer's
objective that insured "be directly benefited by the insurance
coverage does not preclude the fact that others were also
intended to be directly benefited" and that "plaintiffs' identity
may not have been known at the time the contract to procure
insurance was made does not prevent them from assuming the status
of third party beneficiaries").
We reject EMAR's contention that an insurance broker has no duty to investigate the financial security of a carrier with which it places insurance. "[A]n insurance broker, in dealing with his clients, ordinarily invites them to rely upon his expertise in procuring insurance that best suits their requirements." Rider, supra, 42 N.J. at 477. The selection of a carrier is central to the procurement of insurance, and that selection is customarily left to the broker. Indeed, prospective insureds ordinarily retain brokers, as opposed to dealing directly with the carrier, because of the brokers' superior knowledge of those carriers best suited to the insured's needs. See First Bank & Trust v. Kraehnke, 732 S.W.2d 69, 77 (Tex. Ct.
App. 1987) (stating, "Frankly, most people do not know which
company carries their insurance. The insured must look to the
agent he deals with to get the coverage he seeks. That carrier
must be one who can, and will, properly and promptly pay claims
when they are due." (citing Cateora v. British Atl. Assurance,
Ltd.,
282 F. Supp. 167, 174 (S.D. Tex. 1968))).
The Appellate Division stated that "the logic of Rider v.
Lynch, supra, necessarily requires recognition" of a broker's
duty "to use reasonable skill, care and diligence in selecting a
financially secure insurer." 261 N.J. Super. at 250. The court
also noted that such a duty has been "a well-recognized general
rule." Ibid. That general rule has been noted as well in out-of-state cases finding brokers liable for placing insurance with
insolvent carriers. See, e.g., Bordelon v. Herculean Risks,
Inc.,
241 So.2d 766, 769-71 (La. Ct. App. 1970) (finding broker
liable based on failure to abide by state statute requiring
surplus-lines brokers to investigate financial condition of
unauthorized insurer and on general rule requiring broker to use
reasonable diligence in placing insurance); Higginbotham, supra,
738 S.W.
2d at 46 (stating general rule that broker required to
use reasonable skill and judgment with view to security or
indemnity for which insurance is sought); see also MacGillivary
v. W. Dana Bartlett Ins. Agency,
436 N.E.2d 964, 967 (Mass. App.
Ct. 1982) (stating broker may be liable for placing insurance
policy with carrier unauthorized to do business in state in
violation of Massachusetts statute if plaintiff could also show
that carrier was insolvent).
That the financial health of a carrier is a primary concern
of insureds and, therefore, of brokers is self-evident. Indeed,
Carter Lincoln exhibited its interest in having its truck insured
by a stable carrier by including in the lease agreement a
provision authorizing it to approve the carrier selected. (The
record does not suggest that Carter Lincoln was afforded an
opportunity to exercise that authority.) That concern is
reflected as well in the statutes requiring financial stability
for authorized insurers and in the provision of guaranty funds.
See discussion supra at ___ (slip op. at 12-13).
Based on the relationship of reliance between brokers and
their insureds, the foreseeable harm that may result if a carrier
proves to be insolvent, and a broker's ability to protect against
that harm, we conclude that brokers should perform a reasonable
investigation of the carrier with which they intend to place an
insured's policy. Without such an investigation, the skill or
care with which all other services are performed by a broker may
be rendered immaterial. If a broker discovers a prospective
insurer's financial condition to be questionable, the broker
should either find another carrier or at the very least disclose
the information to the client so that the insured may make an
informed assessment.
Although the difficulty of insuring a specific risk because
of the hazard presented or because of the insured's history may
be a factor affecting the options available to the broker, that
difficulty does not obviate the broker's duty to perform a
reasonable investigation of the insurer's financial stability.
By imposing that duty, we do not transform the broker into the
"guarantor of the financial condition or solvency of the company
from which he obtains the insurance."
43 Am. Jur. 2d, supra,
Insurance § 143, at 228. We hold simply that the broker's
recognized duty to act with reasonable care, skill, and judgment
extends to the selection of an insurance carrier and includes an
evaluation of the financial stability of insurance companies with
which the broker intends to place insurance. Failure to comply
with that duty may render the insurance broker liable to an
insured who is unable to satisfy a claim due to the insolvency of
the insurer.
Our dissenting colleague agrees that if EMAR failed to place
the insurance through a licensed surplus-lines agent, of if the
agent failed to carry out the statutory duty to obtain security
before placing the policy, both EMAR and the agent could be held
liable, post at ___ (slip op. at 7), but he questions the
necessity for the imposition of liability on a broker who fails
to make any inquiry about an insurer's solvency. We agree that
the regulatory process constitutes the first line of defense
against the risk of loss from insolvent carriers, and that
brokers cannot be expected to undertake a sophisticated analysis
of an insurer's financial statements. We also acknowledge that
at trial EMAR will be free to offer proof in its defense that the
policy had been placed in compliance with the statutes regulating
the placement of surplus-lines insurance. Nevertheless, in the
exceptional case in which the regulatory process fails but a
reasonable inquiry by the broker addressed to standard industry
sources would have revealed the carrier's instability, we adhere
to the general rule and hold that the broker's failure to make
reasonable inquiry into a carrier's financial condition could
result in liability if the broker's omission is a proximate cause
of the insured's loss.
Our inquiry does not end with the recognition of the
broker's duty to investigate through reasonable inquiry the
financial soundness of a carrier and to disclose relevant
information to the insured. The insured, All Points, has chosen
not to pursue a claim against EMAR. Carter Lincoln, the loss-payee on All Points' policy, seeks recovery based on EMAR's
negligence in placing the policy with a financially unstable
carrier. We therefore must determine whether the broker's duty
is owed to loss-payees as well.
EMAR argues that general agency principles preclude its
liability to a third party such as Carter Lincoln for economic
damages arising out of its performance of duties owed to its
principal, All Points. That EMAR was acting as All Points'
contractual agent, however, does not foreclose the possibility
that EMAR owed duties to third parties as well. See Keeton et
al., supra, § 93, at 667-68 (stating that "by entering into a
contract with A, the defendant may place himself in such a
relation toward B that the law will impose upon him an
obligation, sounding in tort and not in contract, to act in such
a way that B will not be injured").
Our cases clearly recognize that an insurance broker may owe
a duty of care not only to the insured who pays the premium and
with whom the broker contracts but to other parties found within
the zone of harm emanating from the broker's actions as well.
See Rider, supra,
42 N.J. 465 (allowing action by insured's
father against broker); Werrmann, supra,
266 N.J. Super. 471
(allowing action by patron against restaurant's broker); Walker,
supra,
216 N.J. Super. 255 (allowing action by employee against
employer's insurance broker); Eschle, supra,
128 N.J. Super. 299
(allowing action by passenger against driver's insurance agent).
The holdings in those cases proceed from a finding that the
plaintiff was a foreseeable injured party and that considerations
of fairness, including the broker's ability to prevent the harm,
made appropriate recognition that the broker owed a duty of care
to a third party. For example, in Impex, supra, the District
Court specifically considered whether under New Jersey law
"insurance brokers who owe a duty of care to those persons
engaging their services also owe a duty to third persons who are
potential beneficiaries of the insurance policies procured by the
brokers." 576 F. Supp. at 589. The court determined that the
broker could have foreseen that its negligent performance in
obtaining liability insurance would adversely affect the
insured's customers and, therefore, that Impex as a customer was
well within the zone of harm. Id. at 591. Noting the policy
behind liability insurance, "'that all persons wrongfully injured
have financially responsible persons to look to for damages,'"
the court held that the broker owed a duty of care to Impex.
Ibid. (quoting Odolecki v. Hartford Accident & Indem. Co.,
55 N.J. 542, 549 (1970)).
A reasonable broker should foresee that the failure to
inquire into the financial stability of a carrier with which the
insurance is placed may result in the issuance of a policy by an
insolvent or marginally solvent company that may be unable to pay
claims should they arise. That claimants entitled to collect
under the policy will be injured should the carrier prove to be
insolvent and unable to pay claims is also foreseeable. The
exact identity of those claimants may be unknown at the time the
broker places the insurance, but the existence of a class of
claimants is predictable and indeed the insurance is procured for
their protection. Although in many cases the claimant will be
the insured, the increase in the use of vehicular lease-financing
suggests that damage to vehicles may frequently result in claims
for reimbursement by loss-payees. Loss-payees, like other
claimants, are within the zone of harm emanating from a broker's
negligence in failing to investigate the financial soundness of a
carrier.
EMAR, as part of its obligation to exercise diligence and
due care, had a duty to investigate the financial stability of
American Lloyds and to disclose its findings to the insured, All
Points. Because the insured alone must decide whether to place
insurance with a financially questionable carrier, the broker's
duty ordinarily will be satisfied by disclosure only to its
insured. EMAR concedes that when it placed the policy it did not
know that the carrier was not authorized to issue policies in New
Jersey or that it was under conservatorship, and acknowledges
that the carrier was not listed in Best's Insurance Reports. Nor
does the record contain evidence that EMAR disclosed any
information regarding the status of American Lloyds to All
Points. American Lloyds proved to be insolvent when Carter
Lincoln made its claim, and because the carrier was also
unauthorized to issue policies in New Jersey, Carter Lincoln had
no protection from the Property-Liability Insurance Guaranty
Association. See N.J.S.A. 17:30A-5f. The harm that Carter
Lincoln sustained was well within the range of risk that a
reasonable broker should have foreseen as a consequence of the
failure to exercise due care and diligence in selecting a
carrier.
We hold that EMAR owed a duty not only to the insured but to
other claimants for whose protection the insurance was procured,
including loss-payees such as Carter Lincoln. The duty owed to a
loss-payee derives from the duty owed to an insured. The broker
is obliged to perform an investigation through reasonable inquiry
of the general financial soundness of the carrier with which the
broker proposes to place insurance. If that investigation
reveals evidence of financial infirmity and the broker
nevertheless intends to place the policy with that carrier, the
broker must inform the insured of the broker's findings. In
imposing that minimal duty on EMAR, we of course intimate no view
on whether Carter Lincoln will sustain its burden on remand of
adducing evidence sufficient to enable a jury to conclude that
the duty owed by EMAR had been breached and that that breach of
duty had proximately caused harm to Carter Lincoln.
The judgment of the Appellate Division is affirmed.
Chief Justice Wilentz and Justices Clifford, Handler, and
Pollock join in this opinion. Justice O'Hern has filed a
separate opinion dissenting in part and concurring in part in
which Justice Garibaldi joins.
SUPREME COURT OF NEW JERSEY
A-
35 September Term 1993
CARTER LINCOLN-MERCURY, INC.,
LEASING DIVISION,
Plaintiff-Respondent,
v.
EMAR GROUP, INC.,
Defendant-Appellant,
and
ALL POINTS, INC., a/k/a GOLDSTAR
EXPRESS AND ELLIOTT H. GOLDSTEIN,
Defendants.
O'HERN, J., concurring in part and dissenting in part.
I agree that the plaintiff's 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 presented 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 readily 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 ___, slip op. at 5. 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 (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).
California 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.,
153 Cal. Rptr. 121 (Cal. App. 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 (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 (1981)
(footnote omitted) (emphasis added).]
The 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.]
The 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,See footnote 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. a