                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-24-2004

Highlands Ins Co v. Hobbs Grp LLC
Precedential or Non-Precedential: Precedential

Docket No. 03-1760




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Recommended Citation
"Highlands Ins Co v. Hobbs Grp LLC" (2004). 2004 Decisions. Paper 538.
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                     PRECEDENTIAL                 (Opinion filed June 24, 2004 )

   UNITED STATES COURT OF
APPEALS FOR THE THIRD CIRCUIT                Louis R. Moffa, Jr. (Argued)
                                             Ballard Spahr Andrews & Ingersoll, LLP
                                             Plaza 1000, Suite 500
              No. 03-1760                    Main Street
                                             Voorhees, NJ 08043-4636

        HIGHLANDS INSURANCE                         Attorney for Appellant
       COMPANY f/k/a HIGHLANDS
        INSURANCE GROUP, INC.,               Michael O. Kassak (Argued)
                                             Stephen Trzcinski
                            Appellant        White and Williams LLP
                                             222 Haddon Avenue, Suite 300
                    v.                       Westmont, NJ 08108

  HOBBS GROUP, LLC; ROBERT                          Attorneys for Appellee,
   MARKEL; NISSAN PERLA;                            Hobbs Group, LLC
FRONTIER INSURANCE COMPANY
      and GLOBAL RISK                        Stephen G. Rhoads (Argued)
 MANAGEMENT SERVICES, INC.,                  Kristen E. Polovoy
                                             Montgomery McCracken Walker             &
                                             Rhoads, LLP
 Appeal from the United States District      Liberty View, Suite 600
  Court for the District of New Jersey       457 Haddonfield Road
 (D.C. Civil Action No. 00-cv-00686)         Cherry Hill, NJ 08002
  District Judge: Honorable Garrett E.
               Brown, Jr.                           Attorneys for Appellee, Global
                                                    Risk Management Services, Inc.

          Argued March 12, 2004

 Before: SLOVITER and NYGAARD,                     OPINION OF THE COURT
 Circuit Judges, and SHADUR 1 , District
                  Judge
                                             SHADUR, District Judge.

   1
      Honorable Milton I. Shadur,                   In February 1999 Highlands
United States District Court Judge for the   Insurance Company, Inc. (“Highlands”)
Northern District of Illinois, sitting by    issued a policy to Olympic Limousine, Inc.
designation.                                 (“Olympic”) that provided Olympic with
c o m m e r c ial automobile insurance            Global owed any duty to Highlands, and it
coverage, subject to a $2.5 million               therefore granted summary judgment
aggregate annual deductible (as to which          dismissing all three claims.
Olympic was effectively self-insured).
Before the policy was cancelled by                       Highlands now appeals those
Highlands just seven months later,                rulings, and we have jurisdiction under 28
Highlands found itself responsible for            U.S.C. §1291. We hold that under New
handling in excess of $3 million in claims        Jersey law Hobbs did owe a duty to
against Olympic.       Unfortunately for          Highlands that rendered the latter’s
Highlands, Olympic never paid the $2.5            negligence claims viable, so we reverse
million deductible on those claims. Even          and remand for a trial on those claims.
more unfortunately for Highlands,                 But we find that the district court was
Olympic had also failed to pay the $62,500        correct in holding that no such duty ran
premium required to button up a surety            from Global to Highlands, and we
arrangement that would have protected             therefore affirm the district court’s
Highlands against such nonpayment.                dismissal of Global as a defendant.

       In response to those events,                                 Facts
Highlands filed a federal court diversity
action against a slew of defendants,                     Olympic was a limousine and livery
including (1) Hobbs Group, LLC                    service that operated in and around
(“Hobbs”), the insurance broker that had          Manhattan. It sought out Hobbs in late
arranged for the underlying liability             1998 to act as its insurance broker in
insurance policy between Highlands and            securing a new commercial automobile
Olympic and had also dealt with Highlands         insurance policy to take over when
in the course of the surety bond                  Olympic’s old policy expired in early
procurement process and (2) Global Risk           1999. Hobbs in turn got in touch with
Management Services, Inc. (“Global”), the         Highlands, 2 and the parties began to
surety bond broker that had worked with
Hobbs and with proposed surety Frontier
Insurance Co. (“Frontier”). Eventually               2
                                                          Because of a fronting agreement
Highlands’ action was whittled down to
                                                  between Highlands and Virginia Surety
three counts–claims of negligent
                                                  Company, Inc. (“Virginia Surety”),
misrepresentation and negligence against
                                                  Olympic’s insurance coverage was
Hobbs and a claim of negligence against
                                                  technically a contract between Olympic
Global. Both Hobbs and Global then
                                                  and Virginia Surety. But because
moved for summary judgment pursuant to
                                                  Highlands was completely responsible
Fed. R. Civ. P. 56 (“Rule 56”). After full
                                                  for all financial and administrative
briefing, the district court concluded that
                                                  aspects of the policy, we refer to
under New Jersey law neither Hobbs nor
                                                  Highlands as Olympic’s insurance

                                              2
discuss terms for potential coverage. After         indeed interested. Working as an agent for
much negotiation Highlands and Olympic              Frontier, Global locked in Frontier as the
(through Hobbs) agreed on a policy that             expected surety for Olympic’s deductible
included the following relevant provisions:         and relayed that commitment back to
                                                    Hobbs. Although it had already agreed to
       1.    Highlands would initially              be Olympic’s surety, Frontier expressly
process and pay for claims against                  conditioned the issuance of the actual
Olympic. Each month Highlands would                 surety bond on two events: Several parties
then invoice Olympic for the claims it had          were required to sign indemnification
paid and Olympic would reimburse                    agreements, and Olympic had to pay the
Highlands, subject to a $250,000 loss               first year’s premium of $62,500.
deductible per vehicle/$1 million coverage
per vehicle rate. But un der no                             On February 28, 1999 the insurance
circumstances would Olympic’s annual                policy between Olympic and Highlands
reimbursement obligation to Highlands               took effect, and Highlands dutifully began
exceed $2.5 million.                                to pay out on Olympic’s claims as they
                                                    accrued. But although Highlands then
      2. Olympic would secure a surety              invoiced Olympic for the reimbursements
bond (with Highlands as the obligee) in the         that Olympic owed Highlands under the
amount of Olympic’s $2.5 million                    terms of the policy, Olympic did not honor
aggregate annual deductible.3                       its reimbursement obligation.

        With the expiration date of                         For a variety of reasons (including
Olympic’s existing policy approaching               Highlands’ realization that it had exposed
rapidly, Hobbs communicated with Global             itself to a far greater risk than it had
to see if it would be interested in procuring       originally anticipated, as well as other
the surety bond that Highlands required             legal compliance issues with its policy),
under its policy with Olympic. Global was           Highlands began efforts to cancel the
                                                    policy with Olympic as early as April
                                                    1999. It nonetheless remained responsible
carrier.                                            for claims against Olympic until
   3                                                September 1999, when the cancellation
         Although Olympic never actually
                                                    took effect.
signed all the documents that would have
legally bound it to obtain the surety bond,
                                                           But neither Hobbs nor Global ever
at all times both Hobbs and Global (not
                                                    informed Highlands that even though
to mention Highlands) appeared to be
                                                    Global had prepared the surety bond (on
working under the basic assumption that
                                                    Frontier’s behalf), the bond was never
the surety bond requirement was integral
                                                    executed and was ultimately “cancelled
to the final policy to which Olympic and
Highlands agreed.

                                                3
flat” 4 because of Olympic’s failure to pay             New Jersey’s Rules of Decision
the premium on the bond. Highlands was
completely unaware until well after it                     As always in diversity cases, a
began the cancellation process with                federal court must apply the substantive
Olympic that it was not protected, as the          law of the forum state–and where the
obligee under the surety bond, from the            state’s highest court has not spoken
huge loss that resulted from Olympic’s             definitively on a particular issue, the
nonpayment. And it is that failure to              federal court must make an informed
inform that Highlands asserts gives rise to        prediction as to how the highest state court
Hobbs’ and Global’s liability.                     would decide the issue (Erie R.R. v.
                                                   Tompkins, 304 U.S. 64, 78 (1938); Clark
       Rule 56 Standard and Standard of            v. Modern Group Ltd., 9 F.3d 321, 326 (3d
                   Review                          Cir. 1993)). To that end the federal court
                                                   may consider a wide range of reliable
       We review de novo the decision to           sources, including r e le vant state
grant summary judgment and use the same            precedents, analogous decisions and
Rule 56 standards as did the district court        reasoned dicta, as well as the policies and
(Petruzzi’s IGA Supermkts., Inc. v.                doctrinal trends informing and emerging
Darling-Del. Co., 998 F.2d 1224, 1230 (3d          from those decisions (Scotts African
Cir. 1993)). Those standards establish that        United Methodist Protestant Church v.
the Rule 56 movant bears the burden of             Conference of African Union First
showing the absence of any “genuine issue          Colored Methodist Protestant Church, 98
of material fact” (Celotex Corp. v. Catrett,       F.3d 78, 92 (3d Cir. 1996)). But the court
477 U.S. 317, 322-23 (1986)): that is, the         must also be mindful not “to expand state
failure to provide “evidence such that a           law in ways not foreshadowed by state
reasonable jury could return a verdict for         precedent” (City of Philadelphia v. Beretta
the nonmoving party” (Anderson v.                  U.S.A. Corp., 277 F.3d 415, 421 (3d Cir.
Liberty Lobby, Inc., 477 U.S. 242, 248             2002)).
(1986)), even       while “accepting its
evidence as true and drawing all justifiable              In New Jersey (as in all other
inferences from the evidence in its favor”         jurisdictions) any tort of negligence
(Sameric Corp. of Del. v. City of                  requires the plaintiff to prove that the
Philadelphia, 142 F.3d 582, 590 (3d Cir.           putative tortfeasor breached a duty of care
1998)).                                            owed to plaintiff and that plaintiff suffered
                                                   damages proximately caused by that
                                                   breach (Weinberg v. Dinger, 524 A.2d
                                                   366, 373 (N.J. 1987)). In particular, under
   4                                               New       Jerse y law          negligent
       That locution denotes a
                                                   misrepresentation requires a showing that
cancellation ab initio, as though the bond
                                                   defendant negligently provided false
had never been in force.

                                               4
information and that plaintiff incurred             Highlands. It is conventional wisdom that
damages proximately caused by its                   an insurance broker must “act with
reliance on that information (Karu v.               reaso nable skill and diligence in
Feldman, 574 A.2d 420, 425 (N.J. 1990)).            performing the services of a broker” with
In that respect a defendant may be liable           respect to its insured (id. at 1291). Lapses
(because it owes a duty) to any reasonably          in that duty that can give rise to liability
foreseeable recipient who relies on the             include, but are not limited to, either (1)
information (id.).                                  failing completely to arrange for an
                                                    insurance policy or (2) delivering a policy
        For Highlands to prevail on any of          that is void, materially deficient or
its claims, then, it must first show that the       otherwise does not provide the coverage
defendant being considered owed it a                the broker agreed to procure (id.;
relevant duty of care. That determination           Glezerman v. Columbian Mut. Life Ins.
is quintessentially a question of law for the       Co., 944 F.2d 146, 150 (3d Cir. 1991)).
court (City Check Cashing, Inc. v. Mfrs.            Carter Lincoln-Mercury, 628 A.2d at
Hanover Tr. Co., 764 A.2d 411, 416 (N.J.            1291-92 emphasizes that although the
2001)).                                             relationship between an insured and its
                                                    broker is most often contractual in nature,
        Because the New Jersey Supreme              claims by an insured against its broker are
Court has not squarely addressed whether            not based on a privity relationship but are
a surety bond broker owes a duty to the             premised on the tort concept of negligence
obligee of that bond, under Erie principles         in failing to procure the appropriate
we must predict whether that court would            coverage. That concept is fundamental to
recognize such a duty under the                     one of Carter Lincoln-Mercury’s central
circumstances presented here. In that               holdings: the principle that the broker's
respect the district court determined as a          duty owed to insured parties is also owed
matter of law that Highlands’ claims of             to other loss payees who (although not in
negligent misrepresentation against Hobbs           privity with the broker) are within the zone
and of negligence against Hobbs and                 of harm emanating from its activities (id.
Global could never succeed because New              at 1294-95, 1297).
Jersey does not impose a duty of care on
either party with respect to Highlands. We                  Carter Lincoln-M ercury, id. at
review that prediction and application of           1294-95 identifies two key elements that
New Jersey tort law de novo (Clark, 9 F.3d          should guide courts in delineating the
at 327).                                            boundaries of that zone of harm:
                                                    foreseeability and fairness. Foreseeability
       Highlands relies primarily on Carter         takes into account the relationship between
Lincoln-Mercury, Inc. v. EMAR Group,                the plaintiff and the broker, the nature of
Inc., 638 A.2d 1288 (N.J. 1994) to argue            the risk and the defendant’s ability and
that both Hobbs and Global owed a duty to           opportunity to exercise care and avert

                                                5
harm (id. at 1294). And the fairness aspect         940, 943-44 (N.J. Super. Ct. Ch. Div.
requires a court to make a value judgment           1991)). New Jersey courts have also stated
as to whether establishing a broker’s duty          more generally that because it is long
in relationship to a particular plaintiff is        settled in New Jersey that surety is
fair based on policy considerations and the         insurance, surety bondholders are
public interest (id.). After analyzing those        equivalent to insurance policyholders (id.;
two aspects under the circumstances at              Aetna Cas. & Sur. Co. v. Int’l Re-Ins.
issue there, Carter Lincoln-Mercury, id. at         Corp., 175 A. 114, 120 (N.J. Ch. 1934)).
1298 ultimately held that the insurance
broker in that case did owe a duty to the                   To be sure, in the case at bar Hobbs
loss payee of the insurance policy that the         was an insurance broker for Olympic and
broker had negligently procured for its             procured a policy from Highlands. As
insured.                                            between those two companies Olympic
                                                    was the insured and Highlands was the
        Whether the broker’s duty in the            insurer. But the critical coverage for
insurance context translates to the surety          purposes of the current lawsuit is that
context before us requires that we consider         provided (or, more accurately, not
in the first instance whether surety                provided) by the surety bond–and that
relationships are equivalent to insurance           coverage was intended to serve Highlands’
relationships under New Jersey law. There           benefit. From that perspective Olympic
are certainly many similarities between the         was to be the principal obligor, Frontier
two. Like insurance relationships, surety           was to be the surety (the insurer in the
relationships have three central players–the        surety context) and Highlands was to be
principal obligor, the insured (or obligee of       the obligee of the surety bond (the insured
the surety bond) and the insurer (or surety)        in the surety context).
(In re Liquidation of Integrity Ins. Co., 657
A.2d 902, 907 (N.J. Super. Ct. App. Div.                   Hobbs and Global staunchly
1995), aff’d 685 A.2d 1286 (N.J. 1996)).            maintain that even if a surety relationship
                                                    equates to an insurance relationship, the
       Indeed, in many contexts New                 Carter Lincoln-M ercury-defined duty was
Jersey explicitly equates surety bonds with         never intended to protect insurers such as
insurance polices. For example, a New               Highlands. But that mistakes mere form
Jersey insurance rates statute expressly            (the “insurance company” label) for
defines “policy of insurance” to include            substance: In the context at issue in this
surety bonds (N.J. St. Ann. §17:29A-1(e)            case, Highlands is not an insurer qua
(2004)). And in the liquidation of an               insurer. Instead what is relevant is that
insurance corporation, the claims of surety         Highlands is an obligee on a surety bond,
bondholders are accorded priority together          even though it also happens to be in the
with insurance policyholders’ claims (In re         insurance business generally.
Liquidation of Integrity Ins. Co., 598 A.2d

                                                6
        As Highlands would have it, our            Highlands in the transaction at issue, as
inquiry should end with the conclusion that        evidenced by the nature and volume of the
the Carter Lincoln-M ercury-prescribed             communications between them (Weinisch
duty extends to all surety bond brokers and        v. Sawyer, 587 A.2d 615, 618 (N.J. 1991)).
issuers, so that Hobbs and Global                  Next as to the nature of the risk, by
necessarily owed a duty to Highlands as            definition the absence of protection for
the third-party obligee on the surety bond.        Highlands in the event of Olympic’s
But we must of course proceed with                 default is precisely the peril that would
caution when wading into the predictive            necessarily follow from the failure to have
Erie waters, and the New Jersey courts             obtained the surety bond on which
avoid treating questions of duty in a              Highlands was to be the obligee. And
conclusory fashion. Both of those things           finally, our determination that Highlands
being true, we proceed beyond our                  was within Hobbs’ zone of harm is
determinations (1) that New Jersey law             significantly influenced by the fact that
draws strong parallels between insurance           Hobbs had both abundant opportunities
policies generally and surety bonds                and ample ability to advise Highlands that
specifically and (2) that Highlands is             it was mistaken in its belief (an entirely
exactly the type of insured/obligee that is        reasonable one) that it was protected by a
entitled to look to the Carter Lincoln-            surety bond with Frontier, a lack of
Mercury analysis as a basis for                    protection that stemmed from Olympic's
determining the existence of a duty                nonpayment of the premium on the bond
(Weinberg, 524 A.2d at 374). Instead we            (Carter Lincoln-M ercury, 638 A.2d at
must proceed with the same type of                 1294).
foreseeability-plus-fairness analysis that
the New Jersey Supreme Court carried out                   Much        of     H ighlands’
in Carter Lincoln-Mercury in evaluating            correspondence with Hobbs clearly shows
the existence or nonexistence of a duty to         that it was under the impression that the
third parties such as Highlands. And for           process of securing the surety bond was
that purpose, of course, we consider Hobbs         progressing without a hitch. Most notably,
and Global separately.                             an April 1, 1999 e-mail from Highlands to
                                                   Hobbs reporting on the transaction said in
Hobbs                                              part “we have the bond in place,” an
                                                   explicit communication to Hobbs of
       In terms of foreseeability, the             Highlands' belief that Olympic’s surety
propriety of recognizing a duty of care            bond was in effect. Hobbs had numerous
owed by Hobbs to Highlands is obvious.             communications with Highlands after that
For one thing, the technical agent-principal       April 1 e-mail about a variety of other
relationship between Hobbs and Olympic             matters, but not once did Hobbs mention to
in no way vitiates the impact of the close         Highlands that Olympic had not paid the
working relationship between Hobbs and             premium needed to cement Frontier’s

                                               7
surety bond obligation.5                         conduct (President v. Jenkins, 814 A.2d
                                                 1173, 1185 (N.J. Super. Ct. App. Div.
       Indeed, the multiple requests for         2003)).
payment running from Hobbs to Olympic
show unequivocally that throughout the                   With foreseeability thus firmly
course of its communications with                established, we turn to the fairness branch
Highlands Hobbs was fully aware that             of the Carter Lincoln-Mercury analysis. In
Olympic had not paid the premium on the          that regard we next look to New Jersey
surety bond and that Frontier would not          public policy to forecast whether the New
issue the bond until that premium was            Jersey Supreme Court would find it in the
paid. Yet Hobbs did not even make the            public interest to create that duty (639
cost-free effort to notify Highlands of          A.2d at 1294-95). We conclude that it
Olympic’s delay in paying the premium by         would.
copying Highlands on any of those
communications.                                         That court’s tradition of holding
                                                 insurance professionals to high standards
        At every step of the way Hobbs had       of care confirms its strong public policy
both the opportunity and the ability to          focus on protecting parties who deal with
advise Highlands that it was not protected       such professionals (Aden v. Fortsh, 776
by any surety bond because Olympic had           A.2d 792, 805 (N.J. 2001)). True enough,
not paid the premium. And its ongoing            Highlands’ own involvement in the
total silence invited Highlands to rely on       insurance industry, rather than its being a
Hobbs’ conduct that otherwise suggested          general member of the public as was
the surety bond placement process had            involved in Carter Lincoln-Mercury, may
been completed as planned. Without doubt         cut against the imposition of an actual
Highlands fell squarely within the               fiduciary responsibility on Hobbs’ part vis-
foreseeable zone of harm from Hobbs’             a-vis Highlands (see Aden, 776 A.2d at
                                                 800-01). But that does not at all control
                                                 the fairness concerns at issue here, as
   5                                             Hobbs suggests–it merely calls for the
        That silence on Hobbs’ part under
                                                 examination of other important public
the circumstances just mentioned, and in
                                                 interest considerations (Glezerman, 944
the face of the other factors mentioned
                                                 F.2d at 150).
hereafter, is especially egregious because
even a whisper to that effect would have
                                                         In the case of an unsophisticated
eliminated the problem and the
                                                 insured, we are primarily concerned that
disastrous consequence that has
                                                 the individual will suffer harm while adrift
prompted this litigation–Highlands could
                                                 in the insurance world and at the mercy of
promptly have paid the $62,500 premium
                                                 a professional with far greater expertise.
itself (as it had the right to do), thus
                                                 Although that spectre is obviously not
shifting the risk to Frontier.

                                             8
universally present as to an entity such as                First, Hobbs asserts that Highlands
Highlands, the public policy value that            has not created a genuine issue of material
uniformly requires brokers to carry out the        fact as to the other elements of either of its
instructions given to them to the best of          tort claims against Hobbs. To deal with
their abilities applies with equal force           that contention, we need to identify those
whether a broker is dealing with an                other elements.
individual unschooled in insurance
complexities or is conducting business                     As     for     the     negligen t
with a savvy entity such as Highlands              misrepresentation claim, the New Jersey
(Aden, 776 A.2d at 805-06). And finally,           caselaw that allows such a claim to be
to shift from the general to the particular,       based on the defendant’s silence or
the imposition of a broker’s duty in the           suppression of truth rather than on some
surety context hones in on the primary             affirmative misrepresentation (Strawn v.
purpose that underscores the entire surety         Canuso, 657 A.2d 420, 429 (N.J. 1995)) is
relationship: protecting the obligee of the        not limited to special relationship
surety bond in the case of a default by the        situations such as those involving
principal (United States ex rel. Don Siegel        transactions within explicit fiduciary
Constr. Co. v. Atul Constr. Co., 85                relationships, transactions where a quasi-
F.Supp.2d 414, 418 (D. N.J. 2000)).                fiduciary relationship develops either
                                                   through the express conduct of the parties
       In sum, our analysis in the terms           or other circumstances particular to that
taught by          Carter      Lincoln-            individual transaction or transactions (such
Mercury–consideration of the elements of           as insurance) whose nature inherently
both foreseeability and fairness–has led us        requires such a duty regardless of the
to conclude that the New Jersey Supreme            parties’ intentions (Berman v. Gurwicz,
Court would find, as to both torts asserted        458 A.2d 1311, 1313-14 (N.J. Super. Ct.
by Highlands against Hobbs, that the latter        Ch. Div. 1981)). In addition, the required
owed a duty to Highlands as the obligee of         duty of disclosure may also arise in any
Olympic’s surety bond.6 We go on to                situation called for by good faith and
address (and to dispatch) Hobbs’ several           common decency (Maertin v. Armstrong
fallback arguments.                                World Indus., Inc., 241 F.Supp.2d 434,
                                                   461 (D. N.J. 2002), conforming to the
                                                   holding in City Check Cashing, 764 A.2d
   6                                               at 417).
       We find no reason to differentiate,
in Carter Lincoln-Mercury terms, as
                                                          Evaluation of the existence or
between negligence actions generally and
                                                   nonexistence of a duty of disclosure in the
negligent misrepresentation actions
                                                   present situation calls for the weighing of
specifically (see H. Rosenblum, Inc. v.
                                                   factors essentially identical to those
Adler, 461 A.2d 138, 145, 153 (N.J.
                                                   already drawn from Carter Lincoln-
1983)).

                                               9
Mercury: foreseeability and fairness. We            sharing the common theme that some
need not then repeat the analysis–what has          factor other than Hobbs’ failure to inform
been said before also supports the                  Highlands of Olympic’s nonpayment of its
grounding of H ighlands’ negligent                  premium (including perhaps Highlands’
misrepresentation claim in breach-by-               own asserted negligence) was assertedly
omission.     And more briefly as to                an intervening or superseding cause of
Highlands’ general negligence claim                 Highlands’ loss. But all those efforts fail,
against Hobbs, it is hornbook law that a            because questions of negligence (including
broker’s failure to obtain adequate                 comparative negligence) and causation are
coverage can support a claim that the               within the jury’s province in all but the
broker has breached its duty (Weinisch,             most exceptional situations (Fleuhr v. City
587 A.2d at 618).                                   of Cape May, 732 A.2d 1035, 1041 (N.J.
                                                    1999); Vega v. Piedilato, 713 A.2d 442,
       Against that backdrop it is plain            459 (N.J. 1998)). And for Rule 56
that Highlands has adduced enough                   purposes it is not our function to make
evidence to raise genuine issues of                 credibility determinations or otherwise to
material fact as to both breach and                 weigh the evidence (Petruzzi’s IGA
causation for each tort. Several of Hobbs’          Supermkts., 998 F.2d at 1230).
communications–including
communications to Highlands that referred                   In short, there are at least genuine
to the surety bond in ways that made it             issues of material fact precluding summary
appear the bond had already been secured,           judgment on the negligence and causation
communications to Highlands that omitted            aspects of Highlands’ claims against
any reference to the problems with the              Hobbs. And finally, because Highlands has
surety bond that Hobbs knew about, and              paid over $3 million in claims against
communications to Olympic that could                Olympic during the coverage period (all of
have been but were not shared with                  which were under the policy’s loss-per-
Highlands–could reasonably support a                occurrence limit and would therefore have
finding that Hobbs breached its duty to             been covered by the Olympic deductible
Highlands (see Glezerman, 944 F.2d at               had the surety bond been in place), it has at
151). And Highlands’ totally plausible              a minimum raised a genuine issue of
statement that if Hobbs had only said the           material fact as to damages.
surety bond was not in place because of
the nonpaym ent of the premium,                             Next Hobbs asserts that Highlands’
Highlands would itself have paid the                tort claims are precluded under Saltiel v.
premium, raises at least a genuine issue of         GSI Consultants, Inc., 788 A.2d 268 (N.J.
material fact about causation.                      2002), which dictates that conduct within
                                                    a relationship defined solely by contract
        Hobbs tries to escape the impact of         cannot give rise to a tort claim against the
all that evidence via several arguments, all        allegedly breaching party or its agent

                                               10
unless that party has some independent              Highlands sufficient notice to trigger the
duty to the aggrieved party outside the             ratification scenario.7
scope of the contract (id. at 279-80).
Hobbs seeks to support that argument by                     While ratification may sometimes
pointing out that although Highlands never          be determined as a question of law (see,
had any formal contractual relationship             e.g., Garden State Bldgs., L.P. v. First Fid.
with Hobbs, it did have a contractual               Bank, N.A., 702 A.2d 1315, 1324 (N.J.
relationship with Olympic. And Hobbs as             Super. Ct. App. Div. 1995)), that is not the
an insurance broker was unequivocally               case here.         Highlands ’ Ap ril 1
Olympic’s agent (Weinisch, 587 A.2d at              communication reflecting its belief that the
618).                                               surety bond had already been placed puts
                                                    into dispute, for resolution by a jury, any
        But that contention by Hobbs                contention that the March 3 fax
misses the mark completely in all events,           sequence–which reflected that Hobbs was
in light of our determination that the duty         sending a specimen surety form to
Hobbs owed Highlands is wholly                      Highlands simply to approve the wording
independent of any contractual obligations          and which plainly evidenced Highlands’
it might have had to Highlands as a                 clear intention to be designated as the
function of Hobbs’ status as an agent of            obligee on the final documents–somehow
Olympic. In that respect Saltiel, 788 A.2d          placed Highlands on notice that the surety
at 280-81 itself explicitly lists the Carter        bond was not being arranged as expected.
Lincoln-M ercury duty as an example of an           Absent a finding of notice to Highlands
independent duty that would negate the              that there was a potential problem with the
Saltiel-announced limitation.                       surety a g r e e m e n t , i t s c o n t i n u ed
                                                    performance under its insurance policy
       Nothing daunted, Hobbs also                  with Olympic could not be viewed as a
advances the suggestion that once
Highlands had sufficient notice that the
surety bond was not in place, its decision             7
                                                            Even though the text discussion
to retain Olympic’s premiums and to
                                                    assumes purely arguendo that ratification
continue processing Olympic’s claims
                                                    in New Jersey forecloses a party from
amounted to a ratification that effectively
                                                    bringing all tort and contract claims, as
waived Highlands’ right to rescind the
                                                    compared with just precluding the party
contract based on the absence of the bond
                                                    from seeking the equitable remedy of
(Ajamian v. Schlanger, 89 A.2d 702 (N.J.
                                                    rescission (as in Ajamian), such cases as
Super. Ct. App. Div. 1952)). Hobbs
                                                    Bilotti v. Accurate Forming Corp., 188
maintains that its March 3, 1999 fax to
                                                    A.2d 24, 33, 34 (N.J. 1963) and
Highlands that did not contain any
                                                    Merchants Indem. Corp. v. Eggleston,
information indicating that the bond had
                                                    170 A.2d 505, 513 (N.J. 1962) suggest
been executed and completed gave
                                                    otherwise.

                                               11
ratification (Merchants Indem., 179 A.2d                  We have thus rejected each of
at 514; Martin Glennon, Inc. v. First Fid.         Hobbs’ alternative grounds for summary
Bank, N.A., 652 A.2d 199, 205 (N.J.                judgment. We therefore reverse the district
Super. Ct. App. Div. 1995)). Again the             court’s grant of judgment in Hobbs’ favor
existence of a genuine issue of material           and remand for the resolution at trial of
fact defeats a summary judgment in                 Highlands’ claims against Hobbs.
Hobbs’ favor.                                      Global

        Finally, Hobbs u rges that                        In Global’s case the Carter Lincoln-
Highlands’ claims are not really                   Mercury analysis cuts in the opposite
independent tort claims directly against           direction. Far less discussion is needed to
Hobbs, but rather seek indemnification             explain why that is so.
from Hobbs for insurance claims that
Highlands had paid on behalf of Olympic.                  Throughout the entire process of
On that premise Hobbs asserts that                 arranging for Frontier to act as the surety
Highlands cannot prevail, because once it          on Olympic’s deductible, Global’s line of
cancelled Olympic’s insurance policy it            communication ran only between Frontier
became partially responsible for Olympic’s         and Hobbs: At no point did Global ever
failure to live up to its obligation to pay        interact directly with Highlands. By
the premium on the surety bond, so as to           contrast, Hobbs’ line of communication
be precluded under New Jersey law from             stretched from Global to Highlands.
recovering its losses in indemnity (Ramos
v. Browning Ferris Indus. of S. Jersey,                   It is plain that communication with
Inc., 510 A.2d 1152, 1158-59 (N.J. 1986)).         Highlands was wholly outside the scope of
                                                   Global’s professional role, which was to
       That attempted reclassification of          help Hobbs secure Frontier as the surety
Highlands’ tort actions is unpersuasive.           on Olympic’s deductible (see Zielinski v.
After all, Highlands fronted the payment           Professional Appraisal Assocs., 740 A.2d
for the claims against Olympic as it was           1131, 1135 (N.J. Super. Ct. App. Div.
required to do by its insurance policy.            1999)).       Hence it would be an
That being so, the recovery Highlands              impermissible stretch to hold that Global
seeks from Hobbs consists of plain old-            “had particular knowledge or reason to
fashioned damages in tort, flowing directly        know” that Highlands was at risk of being
from Highlands’ performance without the            harmed from its conduct, a key factor that
benefit of the protection that should have         Carter Lincoln-M ercury employed in
been provided by the surety bond–a                 finding the existence of a duty based on a
deprivation that a factfinder can determine        zone of harm theory.
shou ld be attributed to Hobbs’
malfeasance.                                              Absent any communication or other
                                                   relationship between Highlands and

                                              12
Global, it would do violence to any
reasonable notion of foreseeability to
saddle Global with liability because it did
not go outside the scope of its undertaking
by informing Highlands directly about the
problems with securing the surety bond
(City Check Cashing, 411 A.2d at 416-17;
Carter Lincoln-M ercury, 638 A.2d at
1298). And because foreseeability is a
necessary (though not a sufficient)
precondition to the imposition of a duty
flowing from an insurance or surety broker
to a third party, we need not address the
other–the fairness–precondition (Carvalho
v. Toll Bros. & Developers, 675 A.2d 209,
213 (N.J. 1996)). Highlands’ negligence
claim against Global therefore fails as a
matter of law.

               Conclusion

       We have followed the teaching of
Carter Lincoln-M ercury in identifying the
existence or nonexistence of a duty
running to Highlands as the expected
obligee of a surety bond–the subject of its
defeated expectations. In those terms we
REVERSE the district court’s grant of
summary judgment in Hobbs’ favor and
REMAND for the resolution of Highlands’
claims at trial, and we AFFIRM the district
court’s grant of summary judgment in
favor of Global, which is dismissed as a
defendant in this action.




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