APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 75-1638).
Aldisert and Weis, Circuit Judges, and A. Sherman Christensen, District Judge.*fn*
CHRISTENSEN, District Judge.
Irrespective of whether the loss for which the insurance company in this case sued its agent involved no negligence on the part of the latter, as we are inclined to believe, or was not the proximate result of the agent's negligence, as the district court held, it is clear that no liability attached. We, therefore, affirm the judgment denying recovery.
The case was submitted to the district court on an agreed statement of facts. Reserve Insurance Company (Reserve), plaintiff below and appellant here, is an insurer with its principal office and place of business in Chicago, Illinois. It was authorized to write surplus lines insurance coverage in accordance with New Jersey law. The defendant-appellee, Brokerage Surplus Corporation (Brokerage), with its office in Short Hills, New Jersey, is an insurance agency licensed under the laws of New Jersey, with authority to issue policies and bind risks on behalf of Reserve.
Harbor Laundry Service, Inc. (Harbor Laundry), conducting a commercial laundry business in Camden, New Jersey, obtained through its broker-agent, Insurance Management Associates (I.M.A.), from Brokerage as writing agent for Reserve an insurance policy bearing an effective date of August 8, 1974, for a three year period. This policy provided fire insurance coverage of Harbor Laundry's building in the amount of $150,000, its personal property in the amount of $232,000, business interruption insurance of $155,000, and bailee customer floater protection of the owners of goods on the laundry's premises in the amount of $75,000.
Being advised of the issuance by Brokerage of the Harbor Laundry policy, Reserve informed Brokerage that it was not authorized to issue the bailee floater coverage and consequently requested Brokerage to return the Harbor policy for cancellation or delete the floater as soon as possible.*fn1 This letter was received by Brokerage on August 23, 1974. Thereafter, Brokerage issued in the name of Harbor Laundry as insured another policy on behalf of Horace Mann Insurance Company, which it also represented as writing agent. The latter policy had an identical effective date of August 8, 1974, and insured Harbor against the same risks and in the same amounts covered by the Reserve policy. It was the intention of Brokerage in so doing to replace the Reserve policy with the Horace Mann policy. On September 5, 1974, Brokerage mailed the Horace Mann policy to I.M.A. with the request that the Reserve policy be returned for cancellation.
The intervening coincidence which also occurred on September 5, 1974, and which precipitated this law suit was a fire on the premises of Harbor Laundry causing extensive damage to the laundry building and its contents.
Although it was stipulated that Brokerage did not notify Harbor Laundry Service of the cancellation of Reserve's policy, or the issuance of the Horace Mann policy, prior to September 5, 1974, there is a dispute between the parties, not resolved by the stipulation, as to whether such notification was made by Brokerage prior to its being advised of the fire. The trial court inferred that it was after Brokerage was notified of the fire loss that it sent the Horace Mann policy to the agent of the insured with instructions to return the Reserve policy for cancellation. We do not question this finding.
Following the loss, Brokerage assigned General Adjustment Bureau to adjust the loss on behalf of Horace Mann. No action was taken at that time for the involvement of Reserve in the adjustment. On October 17, however, Reserve was put on notice of the loss by adjusters, who raised the question of whether Reserve should not participate in the loss. Reserve took the position that it was not liable because its policy had been replaced by the Horace Mann policy.
On December 27, the Laundry company instituted suit against both Horace Mann and Reserve for the recovery of its losses. The case was settled on March 13, 1975, each of the insurance companies agreeing to pay $266,507. Settlement thus was made for the total loss with costs in the amount of $533,014, including, of course, the amount of the bailee floater coverage in full.
Reserve then brought the present action to recover from Brokerage the $266,507 which it had paid to Harbor Laundry. Its contention was that it had been obliged to contribute to a settlement of the laundry loss as a result of the negligence of the defendant in failing to effect a cancellation of the Reserve policy as directed, and more particularly that, having undertaken to cancel the Reserve policy by substitution, Brokerage had been negligent in failing to obtain consent from the insured for the substitution and a return of its policy. Brokerage defended primarily on the ground that it had in fact cancelled the Reserve policy by substituting the Horace Mann policy in consequence of which Reserve had not been legally obligated to pay any part of the loss to Harbor Laundry. It also maintained that it had acted reasonably and was guilty of no negligence.
The trial court properly held that in the absence of consent of the insured, special authority, waiver or ratification, none of which was shown in this case, an agent representing the insurer as well as another insurance company could not transfer the risk unless substitution of a new policy for the existing policy has been approved by the insured. Thus it concluded that the Reserve policy had not been effectively cancelled before the fire occurred. The trial court further held, nonetheless, that the negligence of Brokerage was not the proximate cause of plaintiff's loss, in view of a regulation promulgated by the New Jersey Commissioner of Banking and Insurance providing that fire insurance policies may not be cancelled except upon thirty days written notice to the insured.*fn2
The insurance company argues on this appeal that denial of liability was based upon a false premise: The thirty day notice of cancellation directive did not forbid cancellation by substitution and mutual consent. Brokerage did not attempt to cancel by a written notice that could have been effective only after thirty days but undertook to cancel by substituting a new policy within that time. After undertaking to do so, Reserve contends, ...