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Harbor Commuter Service, Inc. v. Frenkel & Co., Inc.

401 N.J. Super. 354, 951 A.2d 198 (App. Div. 2008)

INSURANCE; BROKERS — Where an insurance policy is cancelled because the policyholder misrepresented the value of the insured article, the policyholder’s brokers are not liable to the policyholder for failure to obtain adequate insurance coverage on behalf of the policyholder.

A business that operated a ferry service purchased a high speed ship in its “as is” condition. It financed the purchase with a loan secured by a mortgage on their entire fleet of vessels. The business subsequently defaulted on the loan. The business was required to secure both hull and breach of warranty insurance prior to purchase. The hull insurance was to protect both buyer and lender, and the breach of warranty insurance was solely to protect the lender’s interest. The business misrepresented the purchase price when it secured the hull insurance. Because of the misrepresentation, the hull insurer cancelled the policy after the business realized the ship it had purchased had extensive structure damage and was declared a constructive total loss. The business sought damages against its brokers, arguing it believed the brokers breached their duties to secure breach of warranty coverage for the business. The lower court denied the brokers’ motions for summary judgment and ultimately enforced a jury damage verdict.

On appeal, the Appellate Division reversed and entered summary judgment as to the brokers. It found that it was the business’s misrepresentation that caused the lack of coverage under the hull policy, which ordinarily would have covered the ship’s damage. As such, the business caused the event that the breach of warranty insurance was designed to protect the lender against – an inability to recover under the hull policy. Therefore, the Court found that the business was estopped from recovering under that policy, regardless of what the insurance brokers told the business about the availability of the coverage.

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