In Nancy L. Holm v. Daniel M. Purdy (A-39-21/086229) (Decided December 13, 2022), the Supreme Court of New Jersey 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 further held, however, that the 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.
Facts of Holm v. Purdy
Plaintiff Nancy L. Holm is the 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; however, 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.
N.J.S.A. 34:15-36 provides that the members of 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. The statute 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. 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.”
The trial 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. However, the Appellate Division reversed.
NJ Supreme Court’s Decision in Holm v. Purdy
The New Jersey Supreme Court agreed 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. The court, however, also held that a broker is not liable for damages for breach of that duty to inform the LLC members unless the broker’s failure to inform was “willful, wanton or grossly negligent.”
As the New Jersey Supreme Court explained, to determine whether a duty of care should be imposed in a given context, a court must first consider the foreseeability of harm to a potential plaintiff and then analyze whether accepted fairness and policy considerations support the imposition of a duty by weighing the (1) relationship of the parties, (2) nature of the risk, (3) opportunity and ability to exercise care, and (4) public interest. In certain cases, the existence of a legal duty may be informed by a statute, even when the statute creates no civil cause of action for a violation.
The court first addressed whether the harm to the plaintiff was foreseeable. In answering in the affirmative, the court found “it was foreseeable that if defendant did not inform Holmdel Nurseries’ LLC members that the LLC could obtain workers’ compensation coverage for Christopher Friedauer, his dependents could be harmed in the event that Christopher were to die in a work-related accident without such coverage.” The court further found that the fairness and policy considerations also favored recognition of a duty.
The New Jersey Supreme Court went on to hold that, in accordance with N.J.S.A. 34:15-36, an insurance broker for an LLC, charged by the LLC to obtain workers’ compensation coverage on its behalf, has a non-waivable duty to provide notice that such coverage is available to LLC members who actively perform services on behalf of the LLC — but that such coverage is available only if the LLC elects the coverage when the policy is purchased or renewed. According to the court, because it is foreseeable that the failure to provide such notice may harm an LLC member or the member’s dependents, the broker’s duty may extend not only to the LLC, but also to LLC members eligible for workers’ compensation coverage under N.J.S.A. 34:15-36.
While the New Jersey Supreme Court found that a duty existed, it noted that liability under N.J.S.A. 34:15-36 may not be imposed on an insurance broker absent proof of “a willful, wanton or grossly negligent act of commission or omission.” It went on to find that standard should govern any common-law claim based on a failure to provide the notice mandated by the statute. “In this case, and in other cases premised on an alleged breach of an insurance broker’s duty to provide notice of the availability of workers’ compensation insurance for LLC members, a plaintiff must prove that the damage was caused by a willful, wanton, or grossly negligent act of commission or omission by the broker,” the court wrote.
Because the lower court failed to address the issue, the New Jersey Supreme Court remanded the case to the trial court for a determination of plaintiff’s claims under the “willful, wanton or grossly negligent” standard of N.J.S.A. 34:15-36.