Assignability of Claims Against Insurance Brokers in New Jersey
Edited by Timothy G. Ventura, Esq.
In AII1, LLC v. Pinnacle Ins. Sols., LLC, A-2241-17T4, A-2291-17T4, 2019 N.J.Super. Unpub. LEXIS 1874 (App. Div. Sept. 6, 2019), the Appellate Division affirmed the long-standing prohibition in New Jersey against the assignment of tort claims. In July 2013, Automotive Innovations, Inc. suffered a fire at one of its locations and later discovered its insurance coverage was inadequate to cover its property and business interruption losses. Automotive assigned its claims against its insurance broker, Pinnacle Insurance Solutions, to the plaintiff, AII1, LLC. As Automotive’s assignee, All1 filed suit against Pinnacle alleging two claims. In the first count, AII1 alleged Pinnacle failed to exercise the requisite skill or diligence in connection with the procurement of insurance for Automotive and, as a result of its professional malpractice, Automotive was uninsured for its losses for inventory, business interruption and business personal property. In the second count, AII1 alleged Pinnacle was liable for its consequential damages as a result of the inadequate business interruption losses.
Prior to trial, the court dismissed the second count citing Rider v. Lynch, where the Supreme Court held: “If a broker neglects to procure the coverage, or otherwise fails to act with proper skill and care, he becomes liable in damages not exceeding the amount of insurance he was employed to effect.” The trial court reasoned that the plaintiff could only claim damages limited to the amount of insurance the defendant was tasked to obtain and could not recover consequential damages for losses proximately caused by the alleged inadequate business interruption insurance.
The claim asserted in the first count proceeded to trial. At the close of the plaintiff’s case, the defendant moved for an involuntary dismissal and entry of judgment in its favor on the basis that AII1, as Automotive’s assignee, could not prosecute Automotive’s claims because tort claims may not be validly assigned prior to judgment. The motions were denied. A verdict was returned in the plaintiff’s favor. The defendant then moved for judgment not withstanding the verdict, which was likewise denied. Both parties filed appeals.
On appeal, the Appellate Division held that the assignment of tort claims asserted in AII1’s complaint against Pinnacle was invalid. It reversed the trial court’s order and vacated the judgment against Pinnacle. The Appellate Division did not address the appeal of the court’s order granting the defendant partial summary judgment on the claim for consequential damages as its decision rendered the claim moot.
In reaching its decision, the Appellate Division noted that it is well-settled in New Jersey that “[a] tort claim is not subject to assignment prior to judgment.” Cherilus v. Fed. Express, 435 N.J. Super. 172, 178 (App. Div. 2014). The court rejected AII1’s assertion that the prohibition against the assignment of tort claims prior to judgment was inapplicable because the claims brought sounded in contract, not tort. The assignment of choses in action sounding in contract are authorized by statute, see N.J.S.A. 2A:25-1. ("A chose in action is a personal right not reduced to possession but recoverable by a suit at law." In re Estate of Roche, 16 N.J. 579, 595, 109 A.2d 655 (1954).) However, AII1 did not assert that Automotive and Pinnacle were parties to any contract or that Pinnacle breached a contract. The complaint only alleged professional malpractice in connection with procurement of insurance for Automotive. The court noted that, although a malpractice claim against an insurance broker might support contract and tort claims, the plaintiff opted only to assert tort claims against the defendant.
The prohibition against the assignment of tort claims prior to judgment is founded on the principle that, except when authorized by statute, nothing is assignable that does not directly or indirectly involve a right to property. Thus, a chose in action unrelated to a right involving property may not be assigned unless otherwise authorized by statute. New Jersey only permits the assignment of certain claims and does not authorize the assignment of choses in action arising out of tort claims prior to a judgment. The court found no basis to depart from this longstanding application of the non-assignability rule to all tort claims. The prohibition against the assignment of tort claims is founded on the principles that actions should be brought only by the injured party and assignment of claims are barred except as expressly authorized by statute.
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