Holm v. Purdy

252 N.J. 384

285 A.3d 857

Nancy L. HOLM, individually and as Administratrix of the Estate of Christopher R. Friedauer, deceased, Plaintiff-Respondent,

v.Daniel M. PURDY, Defendant-Appellant.

A-39 September Term 2021

086229

Supreme Court of New Jersey.

Argued September 12, 2022

Decided December 13, 2022

Michael J. Dunn argued the cause for appellant (Law Offices of Michael J. Dunn, attorneys; Michael J. Dunn, on the brief).

Ryan Milun, Iselin, argued the cause for respondent (The Milun Law Firm, attorneys; Ryan Milun, on the brief).

JUSTICE PATTERSON delivered the opinion of the Court.

The New Jersey Workers’ Compensation Act provides that the members of a limited liability company (LLC) who actively perform services on behalf of the LLC are eligible for workers’ compensation coverage if the LLC elects to obtain that coverage for its members. N.J.S.A. 34:15-36. The Act mandates that every application for workers’ compensation insurance include a notice of the availability of workers’ compensation coverage for LLC members and a form by which an LLC may elect such coverage. Ibid. However, the statute precludes the imposition of liability on an insurance broker based on the LLC's failure to obtain such workers’ compensation coverage for an LLC member unless the insurance broker "causes damage by a willful, wanton or grossly negligent act of commission or omission." Ibid.

This action was brought by plaintiff Nancy L. Holm, administratrix of the estate of her husband, Christopher Friedauer, who died in 2015 after falling at his workplace, Holmdel Nurseries, LLC. As a longtime employee of the family-owned business, Christopher had been covered by workers’ compensation insurance, but he was no longer covered after he became a member of the LLC in 2012.

Plaintiff claims that defendant Daniel M. Purdy, who served as the insurance broker for Holmdel Nurseries from 2002 to 2015, failed to provide to the LLC the notice mandated by N.J.S.A. 34:15-36, and that Christopher was unaware that he no longer had workers’ compensation coverage in his new role as an LLC member. She alleges that as a result of defendant's negligence and breach of fiduciary duty, Christopher Friedauer's dependents were deprived of a workers’ compensation death benefit to which they would have been entitled under N.J.S.A. 34:15-13 had he been covered by workers’ compensation insurance at the time of his death.

Defendant asserts that Christopher Friedauer's father, Robert Friedauer, the LLC's managing member for insurance issues, instructed defendant in 2002 that Holmdel Nurseries did not want to purchase workers’ compensation coverage for its LLC members because of the cost of that coverage. He claims that the LLC would have maintained that position even if he had advised the LLC members of their right to obtain such coverage when Christopher Friedauer became an LLC member.

At the close of a jury trial, the trial court granted defendant's motion for an involuntary dismissal pursuant to Rule 4:37-2(b) and his motion for judgment at trial pursuant to Rule 4:40-1. The court ruled that in light of Holmdel Nurseries’ previous decision not to purchase workers’ compensation insurance coverage for its LLC members, defendant had no duty to inform the LLC members in 2012 that such coverage was available to its new members if the LLC opted to pay a higher premium for that coverage. The trial court further found that plaintiff failed to present evidence that a breach of duty by defendant was the proximate cause of the damages alleged.

Plaintiff appealed the trial court's judgment. The Appellate Division affirmed in part and reversed in part and remanded the case for a new trial. The appellate court held that N.J.S.A. 34:15-36 imposes a non-waivable duty on insurance brokers to inform new LLC members of the availability of workers’ compensation coverage and the right to elect such coverage. The court found that plaintiff had presented sufficient evidence on the issue of proximate cause to warrant denial of defendant's motion to dismiss and his motion for judgment at trial.

We granted defendant's petition for certification. Informed by the Legislature's expression of public policy in N.J.S.A. 34:15-36, we concur with the Appellate Division that defendant had a duty to advise the LLC members, at the time of the workers’ compensation policy's purchase or renewal, that an LLC member actively performing services on the LLC's behalf is eligible for workers’ compensation coverage, but that the LLC must elect to purchase such coverage in order to obtain it. Consistent with N.J.S.A. 34:15-36, however, we hold that defendant may not be held liable for breach of that duty unless the damages alleged were caused by defendant's willful, wanton or grossly negligent act of commission or omission. We disagree with the trial court's assessment of the evidence presented by plaintiff on the question of proximate cause.

Accordingly, we concur that the trial court erred when it granted defendant's motion to dismiss and his motion for judgment at trial, and we affirm as modified the Appellate Division's judgment. We remand this matter to the trial court for further proceedings.

I.

A.

We summarize the facts based upon the record presented at trial.

1.

From 1978, Robert Friedauer and his brother, Walter Friedauer, owned Holmdel Nurseries, a business founded by their father that sold trees and other landscaping supplies. Robert and Walter Friedauer eventually formed an LLC in which they were members, each owning a fifty percent interest in the LLC. Robert Friedauer managed insurance issues for the LLC.

Beginning when they were teenagers, Robert Friedauer's sons, Michael Friedauer and Christopher Friedauer, worked part-time at Holmdel Nurseries. After graduating from college, they became full-time employees of the family business.

Defendant has decades of experience as an insurance broker specializing in commercial insurance for agriculture-related businesses. During the period relevant to this case, he owned a captive agency for Farm Family Insurance Company.

Defendant became the insurance broker for Holmdel Nurseries in 2002. Thereafter, during annual in-person meetings and many telephone calls, defendant discussed with Robert Friedauer various types of coverage available to Holmdel Nurseries. Robert Friedauer instructed defendant to obtain for Holmdel Nurseries insurance policies covering the business's buildings, vehicles, equipment, and other property; a general liability policy; an umbrella policy; and a workers’ compensation policy. The premium charged for Holmdel Nurseries’ workers’ compensation policy was based on the number of employees covered and the salaries paid to those employees, ascertained in annual audits conducted by the insurer. Because his compensation was based on commissions, defendant had a financial incentive to encourage Holmdel Nurseries to purchase workers’ compensation insurance that provided coverage to more employees at a higher premium.

For approximately a year after workers’ compensation coverage became available to LLC members in New Jersey under N.J.S.A. 34:15-36, Holmdel Nurseries elected to obtain that coverage for Robert and Walter Friedauer. Robert Friedauer testified that after he broke his wrist in a work-related accident, he determined that it was not cost-effective for Holmdel Nurseries to maintain workers’ compensation insurance for himself or Walter Friedauer, given the high cost of the coverage. Robert Friedauer testified that he and his brother "had an agreement, if one of us got hurt, we would take care of each other," and that he advised defendant of the LLC members’ decision not to purchase workers’ compensation coverage for themselves. Accordingly, defendant's initial proposal for Holmdel Nurseries’ workers’ compensation policy stated, "LLC members excluded."

Defendant testified that every policy renewal sent by Farm Family to Holmdel Nurseries included the form by which an LLC could elect workers’ compensation coverage for its members. He stated that it was Farm Family's responsibility, not his agency's, to send the notice of election. Plaintiff denies that the LLC received the required notices of election.

Defendant also served as the personal insurance broker for Robert Friedauer and Walter Friedauer, and he discussed with each of them life insurance, disability insurance, homeowners’ insurance, auto insurance, and other types of coverage available to them. According to defendant, although the life and disability policies he suggested offered a death benefit, Robert Friedauer declined to purchase such policies, commenting that "we're good."

Defendant also acted as the personal insurance broker for Michael and Christopher Friedauer. He testified that he secured for Christopher Friedauer homeowners’ insurance, automobile insurance, boat insurance, and an umbrella policy. He stated that he offered to obtain life insurance and disability insurance for Christopher Friedauer, but "he did not show any interest [in that insurance] to me."

It is undisputed that from 2002 to 2012, Holmdel Nurseries’ workers’ compensation policies provided no coverage to the LLC members, in accordance with Robert Friedauer's instructions to defendant. As employees, however, Christopher Friedauer and his brother Michael Friedauer were covered by Holmdel Nurseries’ workers’ compensation policy during that period.

2.

In April or May 2012, Michael Friedauer and Christopher Friedauer reached an agreement with Walter Friedauer to purchase Walter's fifty percent interest in Holmdel Nurseries. Michael, Christopher, and Walter Friedauer made their agreement retroactive to January 1, 2012. As of that date, Michael Friedauer and Christopher Friedauer were no longer employees of the business, but rather members of the LLC, each owning a twenty-five percent share.

On July 12, 2012, defendant held his annual meeting with Holmdel Nurseries management to discuss the LLC's insurance needs. The...