NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5530-05T25530-05T2

A-5600-05T2

A-5628-05T2

HARBOR COMMUTER SERVICE, INC.,

HARBOR SHUTTLE INC., WALTER

MIHM and STANIS B. MIHM,

Plaintiffs-Respondents,

v.

FRENKEL & CO., INC., McCUE

CAPTAINS AGENCY, INC., and

AON RISK SERVICES, INC.

OF OHIO,

Defendants-Appellants.
______________________________

Argued June 3, 2008 - Decided

Before Judges Skillman, Winkelstein and Yannotti.

On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-5758-01.

Constantine L. Trela, Jr. (Sidley Austin) of the Illinois bar, admitted pro hac vice, argued the cause for appellant, AON Risk Services, Inc. of Ohio (Evans, Osborne & Kreizman and Mr. Trela, attorneys; Mr. Trela and Harry V. Osborne, II, of counsel; Mr. Osborne, on the brief).

James W. Carbin argued the cause for appellant, Frenkel & Co. Inc. (Duane Morris and Caryn L. Lilling (Mauro Goldberg & Lilling), attorneys; Ms. Lilling and Mr. Carbin, of counsel and on the brief).

Christopher P. Leise argued the cause for appellant, McCue Captains Agency, Inc. (White and Williams, attorneys; Mr. Leise and Edward M. Koch, on the brief).

Melvin Greenberg argued the cause for respondents (Greenberg Dauber Epstein & Tucker, attorneys; Mr. Greenberg and Sumeeta A. Gawande, on the brief).

Gilbert S. Leeds argued the cause for amicus curiae, Independent Insurance Agents & Brokers of New Jersey and Professional Insurance Agents of New Jersey (Schenck, Price, Smith & King, attorneys; Mr. Leeds and Jeffrey T. LaRosa, of counsel; Michael G. Serafino, on the brief).

The opinion of the court was delivered by

WINKELSTEIN, J.A.D.

Plaintiffs operated commuter ferry routes across New York Harbor. Intending to commence service from Great Kills, Staten Island, to Manhattan, they purchased a high speed ship from a Louisiana shipyard for $650,000. They financed the purchase with a $4.2 million loan secured by a mortgage on their entire fleet of vessels. Plaintiffs subsequently defaulted under the terms of the mortgage.

This lawsuit involves plaintiffs' claim against three insurance brokers, defendants Frankel & Co., McCue Captains Agency, and AON Risk Services (previously known as Alexander & Alexander). Plaintiffs claim that defendants breached their fiduciary duties by failing to inform plaintiffs that they were not covered by the lender's breach of warranty insurance, and by not otherwise obtaining breach of warranty coverage for plaintiffs.

The trial court denied defendants' motions for summary judgment, and concluded that defendants owed a duty to plaintiffs, breached that duty, and the breach of duty proximately caused plaintiffs' damages. Following a damages trial, the jury returned a $6.45 million verdict for plaintiffs. After increasing the damages award based on the offer of judgment rule, Rule 4:58, the court entered a judgment against defendants, jointly and severally, in the sum of $9,111,705.74.

Defendants have appealed from that judgment and we reverse. Because we conclude that defendants were entitled to summary judgment, we do not address the issues defendants have raised related to the trial.

I.

Plaintiffs Harbor Commuter Service and Harbor Shuttle (collectively, Harbor), New Jersey corporations, were engaged in commuter ferry operations. Plaintiff Walter Mihm was the principal and sole shareholder of each company.

Harbor Commuter was incorporated in 1986, and Harbor Shuttle was incorporated in 1990. By 1994, Harbor's fleet consisted of five 150-passenger vessels. In 1996, Mihm planned to initiate a new ferry route between Great Kills, Staten Island and Pier 11 in Manhattan, using a 109-foot high-speed "surface effective ship," known as the SES 109, which had a 350-passenger capacity. Harbor intended to purchase the vessel from Avondale Industries in Louisiana for $650,000 on an "as is where is" basis. Harbor sought to finance the purchase through Debis Financial Service. In 1995, Debis had provided financing for two of Harbor's 150-passenger ferries. In acquiring the new vessel, Harbor sought to refinance its existing $479,931 debt with Debis and increase it to $4.2 million. Harbor used its entire fleet, valued at $7,470,000, as collateral.

In connection with Harbor's refinancing application, it presented Debis with a $4.5 million sales invoice for the SES 109. According to Pamela Ivey, a Debis employee, Harbor represented the purchase price to be $4.5 million, not $650,000. Mihm claimed, however, that in a letter dated September 6, 1996, he advised Debis that he had been negotiating the purchase price of the SES 109, and "the purchase price for the vessel will drop to $650,000."

The loan apparently closed on October 16, 1996. Mihm, on behalf of Harbor, executed a $4.2 million mortgage in favor of Debis. The provisions of the mortgage that are pertinent to plaintiffs' claims here are sections II.4 and II.5, "WARRANTIES; AGREEMENTS." Those sections include an insurance provision, which, as pertains to this lawsuit, required Harbor to obtain hull insurance and breach of warranty insurance. Hull insurance insures both the mortgagor and the mortgagee against the specific risks enumerated in the policy. In re Atcorp I, Inc., 25 B.R. 340, 342 (B.A.P. 1st Cir. 1982). Breach of warranty insurance "is a separate contract between the insurer and the mortgagee. . . . The breach of warranty coverage protects the interests of the [mortgagee] from policy defenses that the insurance company may have against the mortgagor." Ibid. (citing 5A Appleman, Insurance Law & Practice