What is the duty of a New Jersey insurance broker to members of a limited liability company (LLC) when it comes to providing coverage for workers’ compensation?
The New Jersey Supreme Court ruled this week that a broker has an “inalienable” duty to notify LLC members that workers’ compensation insurance is available to them, but the company must elect to include LLC members if the workers’ compensation policy is acquired or renewed.
At the same time, under New Jersey law, a broker will not be liable for damages for breach of this duty to notify LLC members unless the broker’s failure to provide the information was “willful, willful or grossly negligent.”
“In this case, and others arising out of an alleged breach of an insurance broker’s duty to notify the availability of workers’ compensation insurance for LLC members, a plaintiff must prove that the damage was caused by an intentional, willful, or grossly negligent act or omission of the Brokers”, ruled the Higher Regional Court.
The company pending in court was a small company with only three LLC members. In such a case, the court held, the broker must notify each LLC member directly. The court declined to say whether, in cases involving numerous LLC members, an insurance broker must notify all LLC members directly; rather, it merely indicated that in such larger corporations, a notice to the LLC’s officer or other designated officer may fulfill the agent’s duty.
The High Court partially contradicted both the First Court and the Court of Appeal. It sent the case back to the court to weigh the “willful, willful or grossly negligent” standard in the case of the longtime broker for a nursery business, who was sued after an LLC member died from a head injury that appeared to occur on the job .
The case concerns a New Jersey law that allows a member of an LLC who is actively performing services on behalf of the LLC to be considered an employee to qualify for workers’ compensation insurance if the LLC elects to provide coverage for to get its LLC members when it acquires or renews its workers’ compensation insurance.
The case developed after two employees who were also sons of the owners of Holmdel Nurseries bought shares and became LLC members and were no longer considered employees. The company, which used the same broker, had declined to buy workers’ compensation for its LLC members in previous years (2013-2015).
At the next meeting to discuss their insurance, the Farm Family’s insurance broker, Daniel M. Purdy, did not tell the sons that they were no longer covered by the company’s workers’ compensation insurance because they were now LLC members and no longer employees . Nor did the broker tell them that the LLC could elect to purchase workers’ compensation that would cover them in the event of a work-related accident.
The father/owner testified that after that meeting he had “no reason to believe” that the sons were not covered by the company’s workers’ compensation insurance. But the policy Purdy entered into excluded LLC members, as has been the case in recent years.
According to Purdy, all three Holmdel Nurseries LLC members knew they were excluded from workers’ compensation and were satisfied “because they were saving premium dollars.”
accident at work
On February 15, 2015, one of the sons, now an LLC member, told the other that while trying to get his truck to run, he slipped and fell and hit his head, “so hard I saw stars.” have”. He died later that day.
Shortly thereafter, the insurance broker filed a workers’ compensation claim for death benefits on behalf of his wife and their two minor children, although the broker testified that he had no reason to expect the claim to be paid because the LLC members had not opted for coverage.
His wife filed a lawsuit against Purdy, alleging that he failed to provide the LLC with the statutory notice and that her husband was unaware that he no longer had workers’ compensation insurance in his new role as an LLC member. She alleged that due to Purdy’s negligence and breach of fiduciary duty, family members were denied worker’s death compensation to which they would have been entitled had he been insured at the time of his death.
The trial court ruled that an LLC’s insurance broker is not required to notify individual LLC members of their right to choose workers’ compensation insurance. The Court of Appeals went the other way, ruling that an insurance broker has an indispensable duty to advise new members of an LLC that workers’ compensation insurance is available to them. However, the appeals court did not require the plaintiff to prove that the agent committed an “intentional, willful or grossly negligent act or omission” in order to seek damages.
The court added that the Department of Banks and Insurance “may choose to enact regulations” that provide insurers and insurance providers with specific guidance regarding LLCs’ notification requirements.
Agencies Worker’s Compensation Talent
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