APPELLATE DIVISION
A-1790-01T5
A-1824-01T5
DEBORAH PRESIDENT AND PERRY
PRESIDENT,
Plaintiffs-Appellants,
v.
DR. REGINALD JENKINS,
Defendant-Appellant,
and
ST. BARNABAS MEDICAL CENTER,
PRINCETON INSURANCE COMPANY, C&R
INSURANCE AGENCY and ZURICH INSURANCE
COMPANY,
Defendants-Respondents,
and
DR. LAMBERTO FLORES and DR. FRANCINE
HUGHES,
Defendants.
_______________________________________
Argued January 8, 2003 - Decided February 6, 2003
Before Judges Newman, Parrillo and Landau.
On appeal from the Superior Court of New
Jersey, Law Division, Union County,
UNN-L-4828-99.
Larry L. Leifer argued the cause for
appellants, Deborah and Perry President.
Hugh P. Francis argued the cause for
defendant-appellant, Dr. Reginald Jenkins
(Francis & O'Farrell, attorneys; Mr.
Francis, of counsel; Peter A. Olsen, on
the brief).
James P. Rhatican argued the cause for
defendant-respondent, St. Barnabas Medical
Center (Connell Foley, attorneys;
Mr. Rhatican, of counsel; Mr. Rhatican and
Jennifer Leigh Barnes, on the brief).
William E. McGrath, Jr. argued the cause for
defendant-respondent, Princeton Insurance
Company (Smith, Stratton, Wise, Heher &
Brennan, attorneys; Mr. McGrath, of counsel
and on the brief).
Eric L. Harrison argued the cause for
defendant-respondent, C&R Insurance Agency
(Methfessel & Werbel, attorneys; Mr.
Harrison, of counsel and on the brief).
Kevin T. Coughlin argued the cause for
defendant-respondent, Zurich American
Insurance Company (McElroy, Deutsch &
Mulvaney, attorneys; Mr. Coughlin, of
counsel; David D. Hess, on the brief).
Williams, Cuker & Berezofsky, attorneys for
amicus curiae The Association of Trial Lawyers
of America-New Jersey (Kevin Haverty, on the
brief).
The opinion of the court was delivered by
PARRILLO, J.A.D.
In these consolidated appeals from an underlying medical
malpractice action, we consider primarily whether the physician
alleged to be negligent is covered under a "claims made"
professional liability insurance policy issued by a successor
insurer and, if not, whether the hospital where he enjoys
admitting privileges has a duty to third parties to ensure that
he is insured. We also consider whether the predecessor insurer
has a duty to advise the hospital of the cancellation of the
physician's insurance, the event that caused the gap in insurance
coverage, and whether the insurance broker breached a
professional duty of care in failing to bridge the gap. As did
the trial judge, we answer these questions in the negative.
Accordingly, we affirm the grant of summary judgment in favor of
both insurers and the broker, as well as the denial of
plaintiff's motion to amend her complaint to assert a claim
against the hospital on the basis of such a perceived duty.
The material facts are not in dispute. Plaintiff Deborah
President (plaintiff) experienced undiagnosed eclampsia during
labor and delivery of her child, and as a result, sustained brain
damage, partial paralysis and seizure disorder. She and her
husbandSee footnote 11 sued her attending obstetrician, Dr. Reginald Jenkins,
the hospital where he had admitting privileges, St. Barnabas
Medical Center (St. Barnabas), and two of its resident
physicians, Drs. Lamberto Flores and Francine Hughes, alleging
professional negligence in plaintiff's care and treatment on
January 3 and 4, 1998. Eventually, the malpractice claims were
dismissed against all defendants except Jenkins.
At the time of the incident giving rise to the medical
malpractice claim, Jenkins was in the process of securing new
insurance coverage, changing from "occurrence" to "claims made"
protection.See footnote 22 He had been insured by Princeton Insurance Company
(Princeton) since 1987 under an "occurrence plus" malpractice
insurance policy that was renewed for successive one-year periods
through February 1998. However, Princeton canceled the most
recent renewal policy, effective October 26, 1997, because
Jenkins repeatedly failed to make his premium payment. In fact,
throughout the fall of 1997, Jenkins received notices from
Princeton advising that unless he paid his premium, the insurance
policy would be canceled. Eventually, in a letter dated January
9, 1998, Princeton canceled Jenkins' insurance policy retroactive
to October 26, 1997.
Despite these notices, Jenkins never advised St. Barnabas,
whose by-laws require all admitting physicians to maintain
professional liability coverage, of the cancellation of his
insurance policy. Back in January 1996, he had advised the
hospital's Risk Management department that he had medical
malpractice insurance coverage with Princeton, and later in
November 1996 provided St. Barnabas with the renewal certificate
indicating coverage running from February 1, 1997 to February 1,
1998. However, Jenkins failed to notify the hospital of this
latest development. Apparently, he was of the opinion that if he
eventually paid the late premium, his insurance would be
reinstated. Yet, despite this belief, Jenkins never paid the
delinquent premium.
Instead, he negotiated with an insurance broker, C&R
Insurance Agency (C&R), to obtain medical malpractice coverage
under a "claims made" policy underwritten by the Zurich Insurance
Company (Zurich). Jenkins advised C&R, both orally and in
writing, that his policy with Princeton would expire on February
1, 1998 and, therefore, he needed coverage with Zurich commencing
February 1, 1998. Accordingly, his premium was calculated based
on a policy period of February 1, 1998 through January 1, 1999.
Zurich, through C&R, issued Jenkins a binder, a certificate of
insurance and an "additional insured physician's endorsement"
naming him as an additional insured to the master policy of the
Garden State Physicians' Alliance (GSPA) effective as of February
1, 1998.
Zurich does not issue medical malpractice insurance directly
to individual physicians. Accordingly, C&R created GSPA for the
express purpose of procuring liability insurance for its member
health care professionals on a group basis. GSPA is registered
and licensed with the New Jersey Department of Banking &
Insurance as a recognized "Risk Purchasing Group" as defined in
Section 3901 of the Liability Risk Retention Act,
15 U.S.C.A.
§§3901 to 3906. GSPA had a "master policy" with Zurich under
policy No. GPC-2727906-01. When a new physician would be added
to the policy, an endorsement would be issued containing a
"retroactive date", identical to the effective date of the
endorsement, on which the additional insured physician would be
entitled to insurance under the master policy as an additional
insured. In other words, the effective date of coverage for the
"additional insured" is the "retroactive" date applicable to each
insured physician. On the other hand, a physician who joins the
policy on a date after the effective date of the GSPA policy is
charged a prorated premium to account for the fact that the
physician is not receiving the benefit of coverage for "errors
and omissions" that occur prior to the "retroactive" date. The
effective date and the expiration date of the master policy are
previously established, as the policy was purchased by the GSPA
Purchasing Group prior to the addition of the "additional insured
physicians."
The policy under which Jenkins was insured was denominated a
"claims made" policy. The cover page of the insuring agreement
bore the following notice:
THIS POLICY PROVIDES CLAIMS MADE COVERAGE.
CLAIMS MUST FIRST BE MADE AGAINST THE INSURED
DURING THE POLICY PERIOD AND MUST BE REPORTED
IN WRITING TO THE COMPANY DURING THE POLICY
PERIOD, OR WITHIN 60 DAYS AFTER EXPIRATION OF
THE POLICY OR IF ENDORSED, DURING THE EXTENDED
REPORTING PERIOD. PLEASE READ THE ENTIRE
POLICY CAREFULLY.
As the binder, certificate of insurance, and each of the
four policy endorsements issued to Jenkins plainly indicate, the
effective date of coverage applicable to the individual
"additional insured" was February 1, 1998, which was also
designated the "retroactive" date in those same documents. And
as made equally clear in the "coverage" section of the insuring
agreement, the "retroactive" date of February 1, 1998 was the
inception date on and after which acts of negligence committed by
Jenkins, as the additional insured, would be covered provided
they were reported during the policy period. Thus, the insuring
agreement of the Zurich policy provides in pertinent part:
A. Coverage Provided
. . . .
Coverage B - Physicians Professional
Liability: We will pay on behalf of a
physician, damages that the physician shall
become legally obligated to pay because of a
claim first made during the policy period
arising out of a medical incident which
occurred on or after the retroactive date and
which is reported to us during the policy
period.
[(emphasis added).]
Therefore, unlike the standard "claims made" policy,
Zurich's policy provided Jenkins no retroactive coverage during
its first year. In that year, the coverage provided by the
policy applied only to errors and omissions that occurred during
the policy year commencing February 1, 1998 and reported to the
company within the policy year. Of course, during the renewal
years, the policy afforded "retroactive" coverage for negligence
that occurred subsequent to February 1, 1998.
Jenkins remained an "additional insured" under the GSPA
group policy for the renewal year under policy No. GPC 2727906-02
for the policy period January 1, 1999 through January 1, 2000,
with the same "retroactive" date of February 1, 1998. It was
during this renewal period that Jenkins made his claim for
coverage for the January 3 and 4, 1998 incident involving
plaintiff. Zurich denied coverage after Jenkins reported the
claim because the acts of professional negligence alleged against
him occurred prior to the February 1, 1998 "retroactive" date
applicable to him.
Because of the gap in Jenkins' coverage created by the
cancellation of the Princeton policy effective October 26, 1997
and the commencement of the Zurich policy on February 1, 1998,
plaintiff, through amendments to her original complaint, added
Princeton, Zurich and C&R as defendants, seeking direct recovery
against them as a third-party beneficiary of the insurance
coverage alleged to be available through those insurers to
Jenkins. As to Princeton, plaintiff alleged negligence because,
among other things, Princeton failed to notify St. Barnabas of
the cancellation of Jenkins' policy. Plaintiff also moved for
leave to amend her complaint to add an additional count against
St. Barnabas for negligently permitting Jenkins admitting
privileges without liability insurance coverage, but this effort
was rejected by the trial judge who recognized no such cause of
action.
In her fourth amended complaint, plaintiff also sought a
declaratory judgment, pursuant to N.J.S.A. 2A:16-53, that the
professional liability insurance policy issued by Zurich through
C&R covered plaintiff's medical malpractice claim against him.
Similarly, Jenkins was granted leave to amend his answer to
plaintiff's fourth amended complaint to add cross-claims against
Zurich and C&R, seeking a declaration of rights and coverage that
he is entitled to defense and indemnity for plaintiff's claims
against him.
Motions and cross-motions for summary judgment were filed by
all parties save plaintiff. Judge Lawrence Weiss granted
Princeton's motion for summary judgment and dismissed all claims
against the insurer. Judge Weiss denied Jenkins' cross-motion
for summary judgment and granted those of Zurich and C&R
dismissing all claims against them by both plaintiff and Jenkins.
On October 30, 2001, Jenkins, the only remaining defendant, and
plaintiff entered into a settlement agreement memorialized in a
consent order, resolving all issues between the two parties, thus
rendering the prior orders of the trial court final.
Appeals were filed by plaintiff and Jenkins and
consolidated. Plaintiff challenges both the dismissal of her
complaint as to Princeton and the denial of her motion to amend
the pleading to claim negligence by St. Barnabas in its failure
to ensure that its admitting physicians have professional
liability insurance coverage. Jenkins challenges the dismissal
of its cross-claims against Zurich and C&R. We now address each
of these claims individually.
In support of his first contention, Jenkins relies exclusively on Sparks v. St. Paul Ins. Co., 100 N.J. 325 (1985), wherein the Court held that provisions of a policy limiting coverage to claims brought for negligence committed during the policy term and providing only limited retroactive coverage were unenforceable as violating public policy absent factual circumstances that would render such limited retroactive coverage both reasonable and expected. In Sparks, the insurer, St. Paul, had issued consecutive "claims made" policies to its insured, which only covered claims arising from the performance of professional services subsequent to the retroactive date and then only to claims first made during the policy year. Unlike the standard "claims made" policies that provide unlimited retroactive coverage for all errors and omissions occurring prior to the policy's inception, provided the claim is reported during the policy period, St. Paul's policy provided no retroactive coverage whatsoever in its first year, and only limited retroactive coverage during the renewal years, i.e., to the retroactive or effective date of the original policy. Although the legal malpractice incident in Sparks occurred during the policy period, it was not reported until after the policy had been canceled and, due to the cancellation, there was no "extended reporting" protection. Therefore, St. Paul denied coverage. The Court, however, refused to enforce the policy's coverage limitations as failing to conform to the objectively reasonable expectations of the insured that, in "claims made" policies, are to extend coverage for negligence occurring prior to the policy's inception, and as violative of public policy. 100 N.J. at 339. The Court reasoned:
[I]ndeed, St. Paul's policy combines the worst features of "occurrence" and "claims made" policies and the best of neither. It provides neither the prospective coverage typical of an "occurrence" policy, nor the "retroactive" coverage typical of a "claims made" policy. During the first year that the policy was in force, it provided no retroactive coverage for occurrences prior to the effective date of the policy. Thus, it afforded the insured only minimal protection against professional liability claims. Only claims asserted during the policy year, based on negligence that occurred during the policy year, and that were subsequently communicated to the company during the policy year were under the umbrella of coverage.
[Ibid.]
Sparks, however, did not set a precise standard by which the reasonableness of retroactive coverage is to be measured in every instance where coverage is claimed to be unreasonably narrow. On the contrary, it expressly recognized certain factual circumstances and contexts that would render such limited retroactive coverage both reasonable and expected. Id. at 340. Thus, for instance, "claims made" policies with no retroactive coverage "might be appropriate" where "offered at a reduced premium to the professional in his very first year of practice, or to the professional who changes from 'occurrence' to 'claims made' protection." Id. at 340 n.4.
Such is the case here. Zurich's policy immediately followed a prior period of "occurrence" coverage, thus obviating the need for any greater retroactive coverage than was bargained for and obtained by Jenkins. Based on both the oral and written representations of the insured, Zurich insured Jenkins as an additional insured on its group policy as of February 1, 1998. The predecessor policies issued by Princeton to Jenkins since 1987 were "occurrence plus" policies, the most recent of which was scheduled to terminate on February 1, 1998, coincident with the effective date of the inception of the Zurich policy. Such "occurrence" policies typically provide unlimited prospective coverage, that is for acts occurring during the period of the policy whatever the date of discovery and whenever reported. Thus, had the Princeton policy been in effect, as represented by Jenkins and reasonably understood by Zurich and C&R, there would have been seamless, uninterrupted coverage provided by both Princeton and Zurich covering, respectively, acts of negligence occurring prior to the inception of the Zurich policy, and claims made and reported after termination of the Princeton policy. Also, unlike Sparks, the Zurich policy offered Jenkins unlimited "extended reporting" coverage.
To be sure, Zurich's coverage diverges from customary "claims made" coverage in terms of retroactive protection. However, although the Zurich policy afforded no retroactive coverage for acts prior to the effective date of the policy, Jenkins was protected against professional liability claims for those incidents under his "occurrence plus" policy with Princeton. Thus, unlike the situation in Sparks, here there would have been no gap in coverage in the transition from "occurrence" to "claims made" protection but for the premature cancellation of the Princeton policy due to Jenkins' failure to pay premiums due.
It is solely this lapse on the part of the insured, due exclusively to his own actions, that has created the break in protection and, therefore, Jenkins should not now be heard to complain that Zurich's limited retroactive coverage was neither reasonable nor expected. Indeed, nothing in the record suggests other than that good faith bargaining took place between the parties, that the terms of the policy were specifically bargained for and understood by Jenkins, and that the insured specifically elected to purchase this policy with limited retroactive coverage. We therefore reject Jenkins' argument because the unambiguous provisions of the policy clearly restricted retroactive coverage, the premiums were presumably reduced to reflect this limited protection, and such protection was adequate given the facts known and available to Zurich and C&R at the time the policy was issued. Under these circumstances, we hold that the limited retroactive coverage afforded by Zurich was both reasonable and expected, and not violative of public policy. Thus, the coverage limitations of the policy are enforceable and preclude coverage of Jenkins' claim in this instance, arising as it does from alleged negligence occurring before the policy's effective date.
Jenkins argues, alternatively, that even if the policy's coverage restrictions are enforceable, his claim is nevertheless covered since it arises from an alleged act of negligence occurring after the effective date of the policy, which, because of an ambiguity, he construes to be January 1, 1998. The motion judge found no such ambiguity, and "[t]hat the document couldn't be clearer." Judge Weiss reasoned:
It is clear, unequivocal, effective date of policy for incident, 2/1/98, insurance company, Zurich Insurance Company.
Subsequent thereto, Exhibit D, shows that Zurich issued a binder to Dr. Jenkins. Binder period from 2/1/98 to 4/1/98; policy periods.
Thereafter, there's a certificate of insurance, . . . in which it says: "Professional liability insurance, effective date, 2/1/98."
We agree.
It is a well established principle that courts will not
engage in creating ambiguity in construing insurance contracts
where none exists, or in fashioning a better contract for either
party than they themselves have made. Universal Underwriters v.
CNA Ins. Co.,
308 N.J. Super. 415, 420 (App. Div. 1998); Royal
Ins. Co. v. Rutgers Cas. Ins. Co.,
271 N.J. Super. 409, 416 (App.
Div. 1994) (quoting Flynn v. Hartford Fire Ins. Co.,
146 N.J.
Super. 484, 488 (App. Div.), certif. denied,
75 N.J. 5 (1977),
and citing Kampf v. Franklin Life Ins. Co.,
33 N.J. 36 (1960);
Kook v. American Surety Co.,
88 N.J. Super. 43 (1965)). In the
absence of ambiguity, courts are constrained to adhere to the
specific language of the policies, which will be given its
ordinary meaning. Universal Underwriters, supra, 308 N.J. Super.
at 419-420; Longobardi v. Chubb Ins. Co.,
121 N.J. 530, 537
(1990). As our Supreme Court noted:
[W]hen the terms of an insurance contract are
clear, it is the function of a court to
enforce it as written and not to make a better
contract for either of the parties.
(citations omitted). The parties are entitled
to make their own contracts. (citations
omitted). Absent statutory prohibitions, an
insurance company has the right to impose
whatever conditions it desires prior to
assuming its obligations and such provisions
should be construed in accordance with the
language used. (citation omitted).
[Kampf, supra, 33 N.J. at 43.]
Here the policy language is clear and unambiguous. As
previously noted, it plainly indicates that Zurich is "legally
obligated to pay because of a claim first made during the policy
period arising out of a medical incident which occurred on or
after the retroactive date and which is reported to [Zurich]
during the policy period." (emphasis added.) The policy equally
makes clear that the "retroactive date" is February 1, 1998.
Item No. 1b of the declarations page addresses "additional
insured physicians" and refers the insured to the "additional
insured physician's endorsement." The "additional insured
endorsements" applicable to Jenkins under both the original 1998
and renewal 1999 Zurich policies state in bold letters "THIS
ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY." The
endorsement under the original 1998 policy shows a retroactive
date of "2/1/98" and an effective date of "2/1/98". Moreover,
Jenkins was issued a binder and a certificate of insurance which,
similar to the "additional insured physician's endorsement,"
named Jenkins as an additional insured with an effective policy
date of February 1, 1998. Similarly, the endorsement under the
1999 renewal policy repeats the "retroactive date of "2/1/98" and
lists the effective date of renewal as "1/1/99". Furthermore, it
is undisputed that a C&R representative explained to Jenkins that
the retroactive date of February 1, 1998 was the effective date
of coverage.
Admittedly, the "declarations" page of the 1998 Zurich group
policy refers to a January 1, 1998 inception date, however, this
policy was issued to GSPA and GSPA is the only insured mentioned
in the declarations page. Jenkins' name does not appear anywhere
on the declarations page of either the 1998 or 1999 group policy
and therefore the January 1, 1998 inception date governing GSPA
simply does not apply to Jenkins as an additional insured. See
Lehrhoff v. Aetna Cas. & Sur. Co.,
271 N.J. Super. 340, 346-47
(App. Div. 1994) (noting that the declarations page is tailored
to a particular insured and defines coverage available to the
insured named therein). See also Martinez v. John Hancock Mut.
Life Ins. Co.,
145 N.J. Super. 301, 310 (1976), certif. denied,
74 N.J. 253 (1977) (finding that an insured is under the minimal
duty to read his policies and to advise his insurance agent if
the coverage is inconsistent with his desires). Rather, a simple
reading of the declarations page directs the insured's attention
to the individual endorsement that clearly reflects both a
"retroactive date" and effective date of February 1, 1998. The
clarity of this provision belies any contrary claim of ambiguity
or confusion.
Of course, we enforce unambiguous insurance contracts in
accordance with the reasonable expectations of the insured.
Sparks, supra, 100 N.J. at 336. In this case, the insured
specifically understood the terms of the policy and got exactly
what he bargained for. In fact, the "retroactive date" of
February 1, 1998 was set because of representations made by
Jenkins both orally and in writing.
In August 1997, Jenkins told the C&R representative that he
was presently insured with Princeton and that his coverage with
Princeton would expire on February 1, 1998. Shortly after their
conversation, on August 18, 1997, Jenkins faxed a completed "Non-
Binding Information Quote Form," which represented that his
present insurer was Princeton under an "occurrence plus" policy.
On this form Jenkins also requested an effective date of "2/98".
Along with this form, Jenkins forwarded, among other things, a
claims and coverage history form from Princeton dated April 19,
1996, documenting policy periods beginning and ending February
1st of every year from 1987 through 1997. After meeting next
with the C&R agent on January 8, 1998, the following day Jenkins
prepared, signed and dated an "Individual Physicians Application"
for insurance, which represented that his current policy would
expire on February 1, 1998. In response to a specific inquiry on
the application, Jenkins represented that his professional
liability insurance had never been denied, canceled or non-
renewed.See footnote 33 The application also contained the following language
above Jenkins' signature:
I understand that the coverage offered is
provided by a claims-made policy and that
incidents that occurred prior to the prior
acts or retroactive date are not covered and
claims reported after the expiration date are
not covered unless I purchase or otherwise
obtain an extended reporting endorsement
provided by Zurich. (emphasis added.)
And on January 12, 1998, in his application for financing of the
premium, Jenkins again represented a policy effective date of
February 1, 1998.
In sum, we think it plain that the policy as it pertains to
Jenkins provides for an effective date of February 1, 1998 that
was specifically understood, indeed requested, by the insured as
the date on or after which his acts of negligence would be
covered if reported during the policy period. The record is
devoid of any evidence that the insured expected, bargained, or
for that matter, paid for anything more in the way of coverage.
We therefore affirm the motion judge's grant of summary judgment
dismissing Jenkins' cross-claims against Zurich.
Without question, insurance brokers and agents owe a fiduciary duty of care to insureds. Avery v. Arthur E. Armitage Agency, 242 N.J. Super. 293, 299 (App. Div. 1990); Sobotor v. Prudential Property & Cas. Ins. Co., 200 N.J. Super. 333 (App. Div. 1984). In Carter Lincoln-Mercury, Inc. v. EMAR Group, Inc., 135 N.J. 182 (1994), the Supreme Court articulated that duty as follows:
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.
[Id. at 189, citing Rider v. Lynch, 42 N.J. 465, 476 (1964) (emphasis added).]
Thus, liability for breach of that duty can occur (1) if the broker "neglects to procure the insurance," (2) "if the policy is void," (3) if the policy is "materially deficient," or (4) the policy "does not provide the coverage he undertook to supply." Rider v. Lynch, supra, 42 N.J. at 476. See also Cox v. Santuro, 98 N.J. Super. 360, 365 (App. Div. 1967).
Although these standards applicable to a broker are "minimums," Bates v. Gambino, 72 N.J. 219, 225-26 (1977); Dimarino v. Wishkin, 195 N.J. Super. 390, 393-94 (App. Div. 1994), proof of something more than the mere existence of a broker-customer relationship is required to trigger the broker's legal duty. Avery, supra, 242 N.J. Super. at 300. For instance, in Dimarino, supra, we upheld a finding of liability against a broker who failed to secure coverage for a client after the client expressly advised him that his previous policy had been canceled. By the same token, absent notice or a specific initiating inquiry from the client, it has been held that an insurance broker has no affirmative duty to advise an insured of gaps in his insurance coverage. Hartford Fire Ins. Co. v. N.W. Metal Fabricators, Inc., 793 F. Supp. 954, 957 (D.Or. 1992). Cf. Avery, supra, 242 N.J. Super. at 300-02. The key in determining a broker's liability is whether the broker's conduct invited reliance, or the client's conduct exhibited or justified a claim of reliance. Avery, supra, 242 N.J. Super. at 302. See also Dancy v. Popp, 232 N.J. Super. 1, 4-5 (App. Div. 1988), aff'd, 114 N.J. 570 (1989); Cox v. Santoro, supra, 98 N.J. Super. at 365-66.
The motion judge in this case found no liability as a matter of law:
It seems more than reasonable that an -- that a broker and insurer rely on the customer's assertion that its professional malpractice insurance would expire on 2/98; and, therefore, [C&R] could not be negligent.
In applying these general principles here, we are constrained to consider and weigh the facts most favorably in support of the movant Jenkins' contentions, which were rejected on the basis of C&R's motion for summary judgment. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). Viewed from that perspective, we conclude that reasonable minds could not differ that there was no breach of any legal duty owed by C&R to Jenkins and therefore summary judgment in favor of C&R was properly granted.
Here, there was no evidence that C&R misled Jenkins, incorrectly explained the policy, knew the insured misunderstood the coverage requested and provided, or failed to procure insurance in accordance with the client's needs after being informed about them. In other words, there was no evidence from which a jury could reasonably conclude that the gap in Jenkins' insurance coverage for claims arising from the events of January 3 and 4, 1998 was attributable to C&R's failure to exercise the requisite skill and diligence. On the contrary, the insurance coverage gap was created solely by the intentional actions of the insured of which C&R was not notified.
From the time of Jenkins' first contact with C&R in August of 1997, through January 9, 1998 when he signed the application for insurance, Jenkins consistently advised that his coverage with Princeton would not lapse until February 1, 1998 and that he therefore did not require insurance from Zurich prior to that date. Jenkins even confirmed in writing the existence of coverage with Princeton and requested coverage with Zurich "effective 2/98." Although aware of the notices of pending cancellation issued by Princeton and the insurer's eventual termination of coverage, Jenkins never advised C&R of these events, affirmatively representing exactly the opposite in his application for insurance with Zurich. Singularly aware of Princeton's threatened cancellation, Jenkins failed to make the necessary arrangements to continue the Princeton policy in effect or to secure another policy with retroactive coverage to bridge the gap created by Jenkins' own willful non-payment of insurance premiums. Under these circumstances, in the absence of any expert proofs establishing an industry norm or customary practice, Avery, supra, 242 N.J. Super. at 301, we hold that a broker breaches no duty to an insured to affirmatively ascertain the existence of any gaps in the insured's coverage and to advise him accordingly. Without proof establishing C&R's liability, the motion judge's grant of summary judgment in its favor was proper.
Our dissenting colleague faults both C&R and Zurich for failing to explain to Jenkins that the Zurich policy would not cover claims made after the effective date of February 1, 1998 that arose from acts prior to the effective date. However, there is absolutely no evidence that Jenkins was unaware of this qualification on coverage. In fact, all the proof is to the contrary. The application signed by Jenkins on January 9, 1998 expressly advised him of the policy's limited retroactivity and in fact offered "prior acts coverage" that, in any event, typically excludes coverage for prior acts if the insured, as here, reasonably should have foreseen the claim. Holmes' Appleman on Insurance, § 111.2 at 116-17 (Holmes and Rhodes ed., 2d ed. 1996). And, as previously noted, the policy itself unambiguously repeats the qualification. For some reason, the dissent finds this unpersuasive, finding more significant the fact that the actual policy may not have been received until April 1998. However, the claim was not reported by Jenkins to Zurich until eighteen months later, in October 1999 when the renewal policy, issued on January 1, 1999, was in effect for over nine months.
Although properly recognizing that the extent of the duty owed a plaintiff is a matter of law to be determined by a court, the dissent goes on to expand that duty beyond any heretofore recognized in the law to effectively make insurers and their agents guarantors against any gaps in coverage. Even under this expansive view, however, the dissent is forced to acknowledge that Jenkins may have come up far short by virtue of his own actions or negligence. Rosenblum v. Adler, 93 N.J. 324, 350-51 (1983); Martinez v. John Hancock Mut. Life Ins. Co., supra, 145 N.J. Super. at 310; Schustrin v. Globe Indem. Co., 44 N.J. Super. 462, 466-67 (App. Div. 1957); see also 16 Appleman, Insurance Law & Practices, § 8834 at 307 (John Alan Appleman and Jean Appleman 1941). Under these circumstances, for reasons stated, we reject the imposition of such a duty on either C&R or Zurich.
As to plaintiff's negligence claim against Princeton, it is well recognized that an injured person possesses no direct cause of action against the insurer of the tortfeasor prior to recovery of judgment against the latter. Cruz-Mendez v. ISU/Ins. Servs., 156 N.J. 556, 566-67 (1999); Manukas v. American Ins. Co., 98 N.J. Super. 522, 524-25 (App. Div. 1968); see also Tuckey v. Harleysville Ins. Co., 236 N.J. Super. 221, 226 (App. Div. 1989). Thus, plaintiff's direct action against Princeton fails to state a claim on which relief could be granted and was therefore properly dismissed.
Even if such a cause of action were recognized, however, the existence of a duty is a question of law to be determined by the court and may appropriately be resolved on a motion for summary judgment, as was done here. See Wang v. Allstate Ins. Co., 125 N.J. 2, 15 (1991); Strawn by Strawn v. Canuso, 271 N.J. Super. 88, 100 (App. Div. 1994), aff'd, 140 N.J. 43 (1995). See also, Huddell v. Levin, 537 F.2d 726 (3rd Cir. 1976) (holding that in a negligence case under laws of New Jersey, the preliminary determination of whether a duty exists is for the court); Meistich v. Casino Arena Attractions, Inc., 54 N.J. Super. 25 (App. Div.), modified on other grounds, 31 N.J. 44 (1959).
We have previously held that in the absence of an explicit statutory, regulatory or contract provision that otherwise requires, "neither the insurer nor its agent has a legal duty to give notice of the expiration of a policy . . . ." Howard Savs. Bank v. Liberty Mut. Ins. Co., 285 N.J. Super. 491, 495 (App. Div. 1995) (citing Citta v. Camden Fire Ins. Assoc., Inc., 152 N.J. Super. 76, 78 (App. Div. 1977)). See e.g., N.J.S.A. 17:29C- 1 (requiring insurer to notify mortgage holder of the cancellation of an insurance policy). We know of no authority in this State imposing on medical malpractice liability carriers the duty to notify hospitals of cancellation of insurance coverage for physicians with admitting privileges therein. In our view, neither notions of basic fairness, nor public policy considerations, nor the factual circumstances of this case dictate the judicial creation of such a legal duty, a decision best left to the legislative or executive branches of government. In the absence of any duty on the part of Princeton as a matter of law, the grant of summary judgment in its favor was proper.
Although New Jersey allows for liberal amendment of pleadings, R. 4:9-1, "courts are free to refuse leave to amend when the newly asserted claim is not sustainable as a matter of law." Interchange State Bank v. Rinaldi, 303 N.J. Super. 239, 256-57 (App. Div. 1997) (quoting Mustilli v. Mustilli, 287 N.J. Super. 605, 607 (Ch. Div. 1995)). This is because "there is no point to permitting the filing of an amended pleading when a subsequent motion to dismiss must be granted." Ibid. Such is the case here.
It is, of course, the responsibility of the courts to determine the scope of tort liability. See Hopkins v. Fox & Lazo Realtors, 132 N.J. 426, 439 (1993). Before recovery will be allowed under a negligence theory, a defendant must first owe a duty to plaintiff. See Maussner v. Atlantic City County Club, Inc., 299 N.J. Super. 535, 548 (App. Div. 1997). Here, plaintiff seeks to impose a duty on the hospital on the dual basis that (1) St. Barnabas voluntarily assumed a duty by adopting by-laws requiring physicians with admitting privileges to maintain adequate insurance coverage, cf. Walck v. Johns-Manville Prods. Corp., 56 N.J. 533 (1970), and (2) as a matter of fairness and policy given the foreseeability of harm from physicians practicing without malpractice insurance, cf. Pfenninger v. Hunterdon Cent. Reg'l High Sch., 167 N.J. 230 (2001). Neither basis, however, supports the imposition of a duty as formulated by plaintiff.
In the first place, at the time of the incident, individual physicians were not required to carry medical malpractice insurance in New Jersey.See footnote 44 Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 87 (1997). See generally N.J.S.A. 17:30D-1 to -17 (stating provisions related to medical malpractice liability insurance). Nevertheless, courts have upheld the right of a hospital to require members of its medical staff to be covered. Courtney v. Shore Mem'l Hosp., 245 N.J. Super. 138 (App. Div. 1990). See generally Wanda Ellen Wakefield, Annotation, Propriety of Hospital's Conditioning Physician's Staff Privileges on His Carrying Professional Liability or Malpractice Insurance, 7 A.L.R. 4th 1238 (1981). As we stated in Courtney, supra: [H]ospitals cannot function without rules governing the conduct of the health care providers. Many of the rules are required by law. Others may be dictated by hospital review organizations or generally recognized standards for proper medical care. Whatever their source, if they are reasonable, they are entitled to judicial recognition. (citation omitted) A necessary corollary of this is a recognition of the right of the institution to enforce its rules.
Here we have a by-law requiring that members of the medical staff carry medical malpractice insurance. The reasonableness of this requirement to protect the patient as well as the institution needs no discussion.
[Id. at 142.]
See also Nanavati v. Burdette Tomlin Mem'l Hosp.,
107 N.J. 240,
249-50 (1987). In recognizing this right, courts rely heavily on
the fact that liability insurance coverage is necessary to
protect the institution from bearing the financial burden of
negligent acts committed by members of its medical staff, or that
the hospital was compelled to institute such a requirement at the
insistence of its own liability insurance carrier. See, e.g.,
Pollack v. Methodist Hosp.,
392 F. Supp. 393 (E.D. La. 1975);
Holmes v. Hoemako Hosp.,
573 P.2d 477 (Ariz. 1977); Renforth v.
Fayette Mem'l Hosp. Assoc.,
383 N.E.2d 368 (Ind. Ct. App. 1978),
cert. denied,
444 U.S. 930,
100 S. Ct. 273,
62 L. Ed.2d 187
(1979).
It is one thing to say that hospitals should have the right
to determine the qualifications of its staff members and to
impose conditions on physicians with admitting privileges. It is
quite another thing to say, as plaintiff argues here, that such a
right, which inures to the hospital's benefit, gives rise to a
corresponding duty on the part of hospitals to monitor and
enforce the physician's compliance with such requirements for the
benefit of patients that the physician admits to the institution.
The by-laws of St. Barnabas impose no such duty on the
hospital. Rather, they require physicians with medical staff
appointment to furnish proof of professional liability insurance
coverage not less than $1,000,000/$3,000,000, and further to
notify the hospital if such insurance is canceled or otherwise
allowed to lapse. As noted, although Jenkins provided St.
Barnabas with proof of insurance on January 31, 1997 for a
coverage period indicated through January 1998, he admittedly
never advised the hospital that his policy had been canceled for
non-payment of premium effective October 26, 1997.
The point is that St. Barnabas' by-laws clearly placed the
burden of compliance on the shoulders on those uniquely situated
and in a superior position _ the physicians _ as a rightful
condition for initial appointment and continuing privileges. For
obvious reasons, the hospital assumed no concomitant affirmative
responsibility for monitoring the level of physician compliance,
confirming the insurance coverage as represented, verifying that
no cancellation or lapse has occurred, or ensuring that its staff
and admitting physicians continue to make timely premium payments
on an ongoing basis.
Indeed, the record is devoid of proof of any proactive steps
taken by St. Barnabas on behalf of its patients from which it can
be inferred that the hospital owes a duty of reasonable care to
patrons to implement its by-laws properly, much less to protect
them from physicians without malpractice insurance who admit them
through its doors. Cf. Maussner v. Atlantic City Country Club,
Inc.,
299 N.J. Super. 535, 553 (App. Div. 1997). Simply put, in
the absence of an obligation to act, investigate, or "check-up"
on its physicians, there is no voluntarily-assumed duty.
Nor does such a duty arise from the common law. While a
hospital may be liable vicariously for the negligence of a staff
physician, Corleto v. Shore Mem'l Hosp.,
138 N.J. Super. 302, 306
(Law Div. 1975), and directly for its selection and appointment
of an unqualified, unskilled or incompetent physician, id. at
308-09; Darling v. Charleston Cmty. Mem'l Hosp.,
211 N.E.2d 253
(Ill. 1965), cert. denied,
383 U.S. 946,
86 S. Ct. 1204,
16 L.
Ed.2d 209 (1966); Jack W. Shaw, Jr., Annotation, Hospital's
Liability for Negligence in Selection or Appointment of Staff
Physician or Surgeon,
51 A.L.R.3d 981 (1973), tort liability has
never been extended to encompass a duty running from hospital to
patient as formulated by plaintiff here, namely to ensure that
physicians with mere admitting privileges have malpractice
insurance. The only two cases we have discovered that relied on
such a theory of liability involved a situation where the
hospital granted staff privileges to a doctor knowing he had no
medical malpractice insurance and was otherwise not financially
responsible under a state law mandating financial responsibility
as a condition of a physician's ability to maintain staff
privileges at a hospital. Robert v. Paschall,
767 So.2d 1227
(Fla. Dist. Ct. App. 2000), review denied,
785 So.2d 1187 (Fla.
2001); Baker v. Tenet Healthsys. Hosps., Inc.,
780 So.2d 170
(Fla. Dist. Ct. App. 2001); accord, Benjamin J. Vernia,
Annotation,
98 A.L.R.5th 533 (2002). Here, however, Jenkins is
not a hospital employee but merely a physician with admitting
privileges. Moreover, there is no claim that St. Barnabas knew
his insurance had been canceled and, to the contrary, was assured
otherwise by the doctor. Most significant, however, unlike
Florida, New Jersey imposes no statutory duty on the hospital to
assure its physicians, much less those only with admitting
privileges, have malpractice insurance.
Recognizing that no such duty exists under the common law
either, plaintiff nevertheless seeks to come under the umbrella
of those cases finding corporate negligence in the selection or
retention of unqualified physicians, arguing that physicians
without insurance are "incompetent." This argument is
unpersuasive. We discern no reasonable correlation between a
physician who does not carry malpractice insurance and his or her
professional competency. Although some doctors may be unable to
obtain coverage because of past malpractice, for purposes of
determining the existence of a duty, a major consideration of
which is the foreseeability of harm, Alloway v. Bradlees, Inc.,
157 N.J. 221, 230 (1999), we see no greater risk of injury to the
patient created by a physician who, as here, has allowed a short-
term gap in his insurance coverage and, because of that lapse,
has become non-compliant with the hospital's internal rules.
In determining whether such a duty exists, we have also
considered (1) the attenuated relationship between the hospital
and physicians with mere admitting privileges; (2) the nature of
the attendant risk which, as noted, seems minimal inasmuch as a
deficiency in professional liability insurance has little, if
anything, to do with professional competence; (3) the opportunity
and ability of St. Barnabas to patrol enforcement of its
regulations, which presumably would be both burdensome and cost-
prohibitive; and (4) "the public interest in the proposed
solution." Hopkins v. Fox & Lazo Realtors, supra, 132 N.J. at
439. After weighing and balancing these several factors, we
soundly reject the invitation to extend the common law to
encompass a duty as formulated by plaintiff. Neither fairness
nor policy dictates judicial imposition of such a duty. Rather,
we leave such a determination to the legislative or executive
branches of government.
Therefore, we affirm the denial of plaintiff's motion for
leave to amend her pleadings to include a count of negligence
against St. Barnabas on this novel theory of liability. We also
affirm the grant of summary judgment in favor of Zurich declaring
no coverage, and in favor of C&R and Princeton, finding no
liability as a matter of law.
Affirmed.
_______________________________________
LANDAU, J.A.D., retired and temporarily assigned on recall,
dissenting and concurring.
Respectfully, I write to dissent in part from the majority
opinion and to enter a concurrence with a portion of that opinion.
Except for the differences noted below, I am in agreement with my
colleagues.
I concur with the majority's affirmance of the grant of
summary judgment in favor of Princeton Insurance Company
(Princeton) against Deborah and Perry President. In granting that
judgment, the motion judge pointed out that the Presidents did not
avail themselves of his previously tendered opportunity to amend
their complaint against Princeton to include a count for
declaratory relief respecting the effectiveness of its cancellation
of Dr. Jenkins' policy by a notice dated after the alleged
malpractice incident, but retroactive to a date preceding the
incident.See footnote 55 My concurrence is based on that reason stated by the
motion judge. However, given the strong public policy expressed by
the legislature favoring medical malpractice insurance, see
Princeton Ins. Co. v. Chunmuang,
151 N.J. 80, 87 n.1 (1997), and in
light of the views expressed below respecting the award of summary
judgment to Princeton against Dr. Jenkins, I question the
majority's dispositive reliance upon the applicability of cases
such as Cruz-Mendez v. ISU/Ins. Servs. of San Francisco and
Fireworks by Girone, Inc.,
156 N.J. 556, 566-67 (1999), in a case
where the question of efficacy of a retroactive policy cancellation
would be critical to the injured third party. I agree with the
majority's affirmance as to the issue of Princeton's asserted duty
to notify St. Barnabas, inasmuch as the legislature had not yet
seen fit to enact a provision mandating malpractice insurance
coverage for physicians. See Princeton Ins. Co. v. Chunmuang,
supra, 151 N.J. at 87 and footnote #4 of the majority opinion.
My partial dissent is directed to the judgments afforded to
both C&R Insurance Agency and Zurich Insurance Company on the
claims of Dr. Jenkins and the Presidents, and to the summary
judgment afforded to Princeton on Dr. Jenkins' claim. Some
additional factual issues disclosed by the record are pertinent.
As the majority notes, C&R itself created the Garden State
Physicians Alliance (GSPA) to establish a "Risk Group." There was
one master policy with Zurich for the group. C&R was the agent for
Zurich, which the record indicates, is now C&R's controlling
shareholder, although apparently not controlling during 1997 and
1998. The person who signed the formal binder given to Dr. Jenkins
on behalf of Zurich as its authorized representative was both a C&R
principal and the President of GSPA.
Dr. Jenkins was solicited by a C&R representative named
O'Brien while his insurance with Princeton was in full force and
effect. Portions of the record, if believed, establish that on
January 8, 1998, during a final pre-application meeting, Dr.
Jenkins informed O'Brien that he owed money to Princeton on the
occurrence policy. O'Brien merely told Jenkins to pay the money
due to Princeton. There is nothing in the record to show that
O'Brien ever explained that, despite its "claims made" designation,
the Zurich policy would not cover claims made after the effective
date that arose from events prior to a "retroactive date."
I believe that C&R, Zurich's agent, must be charged with
knowledge on January 8, 1998, that Jenkins' occurrence policy with
Princeton was then in jeopardy.
It is also not at all clear that Dr. Jenkins knew on January
8, 1998, that the Princeton policy would be canceled or the date
which would ultimately be selected by Princeton as the date of
cancellation. Had Jenkins then known that the effective date of
cancellation by Princeton would be retroactive to October 26, 1997,
that knowledge, and knowledge of the meaning of the phrase
"retroactive date," would have been critical to decisions made
respecting utilization of the February 1, 1998 date selected for
inception of the Zurich coverage.
Although the malpractice alleged by the Presidents occurred on
January 3 and 4, 1998, no claims were made until over a year later
when Zurich's second policy period with Dr. Jenkins was in effect.
On the date that O'Brien and Jenkins met, Jenkins probably would
not yet have received notice of the Princeton cancellation
effective October 26, 1997. That notice was dated January 9, 1998,
presumably received several days later. However, the record
discloses existence of a prior Princeton notice dated January 8,
1998, date of receipt unknown, that stated a policy cancellation
effective February 1, 1998. In fact, notwithstanding the October
26, 1997, retroactive cancellation date in the final notice dated
January 9, 1998, it appears that Princeton had issued a renewal
certificate as of December 30, 1997, and issued a bill for a policy
beginning February 1, 1998. The January 8 and January 9 notices
followed.
I do not believe the motion judge or the majority have
adequately considered the import of these facts. While Princeton
may indeed have been entitled to cancel the Jenkins' policy for
nonpayment, its authority for effecting a retroactive cancellation
is not clear to me, and particularly so where the notice of such
cancellation does not appear to have been provided until after the
incident of January 3-4.
Since Rider v. Lynch,
42 N.J. 465, 476 (1964), our common law
has provided increased guidance for fixing the standard of care
owed by an insurance broker or agent to an insured as well as a
corresponding duty to third parties foreseeably harmed by the
absence of coverage for a tortfeasor.
In a negligence case, establishment of the existence and
extent of duty owed to a plaintiff is a matter of law to be
determined by a court. Burroughs v. City of Atlantic City,
234 N.J. Super. 208, 221 (App. Div.), certif. denied,
117 N.J. 647
(1989). New Jersey courts have recognized that the peculiar
circumstances of a case will govern whether liability of an
insurance broker or agent can be established without requiring an
expert. Bates v. Gambino,
72 N.J. 219, 224-25 (1977); Rider v.
Lynch, supra, 421 N.J. at 476; Indus. Dev. Assoc. v. F.T.P., Inc.,
248 N.J. Super. 468, 470-71 (App. Div. 1991), aff'd, sub. nom.
Indus. Dev. Assoc., Inc. v. Commercial Union Surplus Lines Ins.
Co.,
127 N.J. 94, 95 (1992). I do not believe an expert is
necessary in the circumstances disclosed by the record.
O'Brien, the C&R representative, admittedly solicited and
later convinced Dr. Jenkins to switch to the Zurich claims made
policy. There is no indication of a timely oral or written
explanation of the effect of the words "retroactive date," which
qualify the Zurich policy.
On January 8, 1998, both O'Brien and Dr. Jenkins each knew of
the premium payment problem with Princeton. The proofs tend to
show, however, that Jenkins did not yet know the Princeton policy
would be canceled or terminated earlier than February 1, 1998.
However, even if Jenkins was aware of an earlier cancellation date,
the record does not establish that he was informed of the meaning
and effect of the "retroactive date" qualification. "Retroactive
date" is surely not synonymous with "effective date." When asked
in his deposition whether he explained to Dr. Jenkins what a
retroactive date meant, O'Brien responded: "Yes . . . I told him,
'this is the effective date of coverage,' which is February 1,
1998, the date he requested for coverage."
I do not believe that an expert report is required for a trier
of fact to understand that, absent a