A New Jersey insurance agent learned that the ownership of a business he insured had changed. Because he did not follow up with questions and notifications related to that change, he landed on the losing side of a lawsuit.
The insured was a family-owned nursery business organized as a limited liability company (LLC.) The legal term for owners of an LLC is “members.” Two brothers were the initial members of the LLC. In 2002 they engaged a local insurance agent to obtain business insurance and personal insurance for the brothers and one brother’s two sons, who were nursery employees.
New Jersey’s Workers’ Compensation law permits members of an LLC to opt out of insuring themselves for benefits. In 2002, the brothers concluded that insuring themselves for Workers’ Comp benefits did not make financial sense. They instructed the agent to have their policy amended so that it provided no coverage for injuries to members.
For 10 years the policy covered the two sons who were employees but not the two members. In 2012, the employees’ uncle sold his interest to his nephews and left the business. The sons became members of the LLC and were no longer employees.
That summer, the agent held an insurance review meeting with the nursery’ management and learned of the change in ownership. Crucially, the agent did not tell the sons that, because they were now members and not employees, they were not insured for Workers’ Comp but they could elect to be covered if they wanted.
Accounts of the meeting conflicted. Their father testified that he had “no reason to believe” after the meeting that his sons were not covered for Workers’ Comp. The agent testified that all three members knew after the meeting that they were not covered and “were satisfied.” Whatever the truth was, the 2013, 2014 and 2015 renewals of the Workers’ Comp policy excluded coverage for injuries to members.
On February 15, 2015, Christopher (one of the sons who was now a member) prepared the company’s trucks for snow plowing. He told his brother Michael that, while trying to get his truck running, he slipped and fell, hitting his head “so hard (he) saw stars.” Later that day, when Michael did not see Christopher at the business premises, he drove out to a location where some employees were plowing. There he found his brother dead in his truck.
The agent filed a Workers’ Comp claim on behalf of the man’s widow and minor children. However, he later testified that he did not expect the claim to be successful because the nursery’ policy excluded coverage for members. He was correct; the claim was denied. Death benefits in New Jersey are 70% of the worker’s weekly wage, up to the maximum provided by law (currently $1,065.) In addition, a deceased worker’s family is entitled to $3,500 for funeral costs.
The widow sued the agent for failing to provide to the LLC a notice required by New Jersey law that advises LLC members that they can obtain Workers’ Comp coverage. She claimed that the agent’s negligence deprived her children and her of the death benefit.
The trial court ruled in the agent’s favor, but that decision was reversed on appeal. The agent then appealed to the state supreme court. The supreme court ruled in late 2022 that the agent had a “non-waivable duty” to provide the legally required notice. The potential injury to the man’s survivors from his not having the coverage was foreseeable. Consequently, the agent’s failure to provide the notice ultimately harmed the man’s family.
In general, insurance agents do not have a legal duty to provide ongoing advice to clients about their coverage needs. However, when an agent becomes aware of a change in a client’s business, whether it’s ownership, entry into new markets, or purchases of buildings or equipment, it is prudent to ask questions to determine whether coverage needs have changed. When an uninsured loss happens, the agent may ultimately win the ensuing lawsuit, but at the cost of time and money.
Asking the question and providing the notice might have kept this agent out of the courtroom. Instead, his errors and omissions liability insurance carrier will likely provide Workers’ Comp benefits for the family.
