HIGHLANDS INSURANCE COMPANY f/k/a HIGHLANDS INSURANCE GROUP, INC. v. Hobbs Group, LLC

PRECEDENTIAL
UNITED STATES COURT OF
APPEALS FOR THE THIRD CIRCUIT
No. 03-1760
HIGHLANDS INSURANCE
COMPANY f/k/a HIGHLANDS
INSURANCE GROUP, INC.,
Appellant
v.
HOBBS GROUP, LLC; ROBERT
MARKEL; NISSAN PERLA;
FRONTIER INSURANCE COMPANY
and GLOBAL RISK
MANAGEMENT SERVICES, INC.,
Appeal from the United States District
Court for the District of New Jersey
(D.C. Civil Action No. 00-cv-00686)
District Judge: Honorable Garrett E.
Brown, Jr.
Argued March 12, 2004
Before: SLOVITER and NYGAARD,
Circuit Judges, and SHADUR1, District
Judge
(Opinion filed June 24, 2004 )
Louis R. Moffa, Jr. (Argued)
Ballard Spahr Andrews & Ingersoll, LLP
Plaza 1000, Suite 500
Main Street
Voorhees, NJ 08043-4636
Attorney for Appellant
Michael O. Kassak (Argued)
Stephen Trzcinski
White and Williams LLP
222 Haddon Avenue, Suite 300
Westmont, NJ 08108
Attorneys for Appellee,
Hobbs Group, LLC
Stephen G. Rhoads (Argued)
Kristen E. Polovoy
Montgomery McCracken Walker &
Rhoads, LLP
Liberty View, Suite 600
457 Haddonfield Road
Cherry Hill, NJ 08002
Attorneys for Appellee, Global
Risk Management Services, Inc.
OPINION OF THE COURT
SHADUR, District Judge.
In February 1999 Highlands
Insurance Company, Inc. (“Highlands”)
issued a policy to Olympic Limousine, Inc.
(“Olympic”) that provided Olympic with
1 Honorable Milton I. Shadur,
United States District Court Judge for the
Northern District of Illinois, sitting by
designation.

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commercial automobile insurance
coverage, subject to a $2.5 million
aggregate annual deductible (as to which
Olympic was effectively self-insured).
Before the policy was cancelled by
Highlands just seven months later,
Highlands found itself responsible for
handling in excess of $3 million in claims
against Olympic. Unfortunately for
Highlands, Olympic never paid the $2.5
million deductible on those claims. Even
more unfortunately for Highlands,
Olympic had also failed to pay the $62,500
premium required to button up a surety
arrangement that would have protected
Highlands against such nonpayment.
In response to those events,
Highlands filed a federal court diversity
action against a slew of defendants,
including (1) Hobbs Group, LLC
(“Hobbs”), the insurance broker that had
arranged for the underlying liability
insurance policy between Highlands and
Olympic and had also dealt with Highlands
in the course of the surety bond
procurement process and (2) Global Risk
Management Services, Inc. (“Global”), the
surety bond broker that had worked with
Hobbs and with proposed surety Frontier
Insurance Co. (“Frontier”). Eventually
Highlands’ action was whittled down to
three counts–claims of negligent
misrepresentation and negligence against
Hobbs and a claim of negligence against
Global. Both Hobbs and Global then
moved for summary judgment pursuant to
Fed. R. Civ. P. 56 (“Rule 56”). After full
briefing, the district court concluded that
under New Jersey law neither Hobbs nor
Global owed any duty to Highlands, and it
therefore granted summary judgment
dismissing all three claims.
Highlands now appeals those
rulings, and we have jurisdiction under 28
U.S.C. §1291. We hold that under New
Jersey law Hobbs did owe a duty to
Highlands that rendered the latter’s
negligence claims viable, so we reverse
and remand for a trial on those claims.
But we find that the district court was
correct in holding that no such duty ran
from Global to Highlands, and we
therefore affirm the district court’s
dismissal of Global as a defendant.
Facts
Olympic was a limousine and livery
service that operated in and around
Manhattan. It sought out Hobbs in late
1998 to act as its insurance broker in
securing a new commercial automobile
insurance policy to take over when
Olympic’s old policy expired in early
1999. Hobbs in turn got in touch with
Highlands,2 and the parties began to
2 Because of a fronting agreement
between Highlands and Virginia Surety
Company, Inc. (“Virginia Surety”),
Olympic’s insurance coverage was
technically a contract between Olympic
and Virginia Surety. But because
Highlands was completely responsible
for all financial and administrative
aspects of the policy, we refer to
Highlands as Olympic’s insurance

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discuss terms for potential coverage. After
much negotiation Highlands and Olympic
(through Hobbs) agreed on a policy that
included the following relevant provisions:
1. Highlands would initially
process and pay for claims against
Olympic. Each month Highlands would
then invoice Olympic for the claims it had
paid and Olympic would reimburse
Highlands, subject to a $250,000 loss
deductible per vehicle/$1 million coverage
per vehicle rate. But un der no
circumstances would Olympic’s annual
reimbursement obligation to Highlands
exceed $2.5 million.
2. Olympic would secure a surety
bond (with Highlands as the obligee) in the
amount of Olympic’s $2.5 million
aggregate annual deductible.3
With the expiration date of
Olympic’s existing policy approaching
rapidly, Hobbs communicated with Global
to see if it would be interested in procuring
the surety bond that Highlands required
under its policy with Olympic. Global was
indeed interested. Working as an agent for
Frontier, Global locked in Frontier as the
expected surety for Olympic’s deductible
and relayed that commitment back to
Hobbs. Although it had already agreed to
be Olympic’s surety, Frontier expressly
conditioned the issuance of the actual
surety bond on two events: Several parties
were required to sign indemnification
agreements, and Olympic had to pay the
first year’s premium of $62,500.
On February 28, 1999 the insurance
policy between Olympic and Highlands
took effect, and Highlands dutifully began
to pay out on Olympic’s claims as they
accrued. But although Highlands then
invoiced Olympic for the reimbursements
that Olympic owed Highlands under the
terms of the policy, Olympic did not honor
its reimbursement obligation.
For a variety of reasons (including
Highlands’ realization that it had exposed
itself to a far greater risk than it had
originally anticipated, as well as other
legal compliance issues with its policy),
Highlands began efforts to cancel the
policy with Olympic as early as April
1999. It nonetheless remained responsible
for claims against Olympic until
September 1999, when the cancellation
took effect.
But neither Hobbs nor Global ever
informed Highlands that even though
Global had prepared the surety bond (on
Frontier’s behalf), the bond was never
executed and was ultimately “cancelled
carrier.
3 Although Olympic never actually
signed all the documents that would have
legally bound it to obtain the surety bond,
at all times both Hobbs and Global (not
to mention Highlands) appeared to be
working under the basic assumption that
the surety bond requirement was integral
to the final policy to which Olympic and
Highlands agreed.

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flat”4 because of Olympic’s failure to pay
the premium on the bond. Highlands was
completely unaware until well after it
began the cancellation process with
Olympic that it was not protected, as the
obligee under the surety bond, from the
huge loss that resulted from Olympic’s
nonpayment. And it is that failure to
inform that Highlands asserts gives rise to
Hobbs’ and Global’s liability.
Rule 56 Standard and Standard of
Review
We review de novo the decision to
grant summary judgment and use the same
Rule 56 standards as did the district court
(Petruzzi’s IGA Supermkts., Inc. v.
Darling-Del. Co., 998 F.2d 1224, 1230 (3d
Cir. 1993)). Those standards establish that
the Rule 56 movant bears the burden of
showing the absence of any “genuine issue
of material fact” (Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986)): that is, the
failure to provide “evidence such that a
reasonable jury could return a verdict for
the nonmoving party” (Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)), even while “accepting its
evidence as true and drawing all justifiable
inferences from the evidence in its favor”
(Sameric Corp. of Del. v. City of
Philadelphia, 142 F.3d 582, 590 (3d Cir.
1998)).
New Jersey’s Rules of Decision
As always in diversity cases, a
federal court must apply the substantive
law of the forum state–and where the
state’s highest court has not spoken
definitively on a particular issue, the
federal court must make an informed
prediction as to how the highest state court
would decide the issue (Erie R.R. v.
Tompkins, 304 U.S. 64, 78 (1938); Clark
v. Modern Group Ltd., 9 F.3d 321, 326 (3d
Cir. 1993)). To that end the federal court
may consider a wide range of reliable
sources, including relevant state
precedents, analogous decisions and
reasoned dicta, as well as the policies and
doctrinal trends informing and emerging
from those decisions (Scotts African
United Methodist Protestant Church v.
Conference of African Union First
Colored Methodist Protestant Church, 98
F.3d 78, 92 (3d Cir. 1996)). But the court
must also be mindful not “to expand state
law in ways not foreshadowed by state
precedent” (City of Philadelphia v. Beretta
U.S.A. Corp., 277 F.3d 415, 421 (3d Cir.
2002)).
In New Jersey (as in all other
jurisdictions) any tort of negligence
requires the plaintiff to prove that the
putative tortfeasor breached a duty of care
owed to plaintiff and that plaintiff suffered
damages proximately caused by that
breach (Weinberg v. Dinger, 524 A.2d
366, 373 (N.J. 1987)). In particular, under
N e w J e r s e y l a w n e g l i g e n t
misrepresentation requires a showing that
defendant negligently provided false
4 That locution denotes a
cancellation ab initio, as though the bond
had never been in force.

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information and that plaintiff incurred
damages proximately caused by its
reliance on that information (Karu v.
Feldman, 574 A.2d 420, 425 (N.J. 1990)).
In that respect a defendant may be liable
(because it owes a duty) to any reasonably
foreseeable recipient who relies on the
information (id.).
For Highlands to prevail on any of
its claims, then, it must first show that the
defendant being considered owed it a
relevant duty of care. That determination
is quintessentially a question of law for the
court (City Check Cashing, Inc. v. Mfrs.
Hanover Tr. Co., 764 A.2d 411, 416 (N.J.
2001)).
Because the New Jersey Supreme
Court has not squarely addressed whether
a surety bond broker owes a duty to the
obligee of that bond, under Erie principles
we must predict whether that court would
recognize such a duty under the
circumstances presented here. In that
respect the district court determined as a
matter of law that Highlands’ claims of
negligent misrepresentation against Hobbs
and of negligence against Hobbs and
Global could never succeed because New
Jersey does not impose a duty of care on
either party with respect to Highlands. We
review that prediction and application of
New Jersey tort law de novo (Clark, 9 F.3d
at 327).
Highlands relies primarily on Carter
Lincoln-Mercury, Inc. v. EMAR Group,
Inc., 638 A.2d 1288 (N.J. 1994) to argue
that both Hobbs and Global owed a duty to
Highlands. It is conventional wisdom that
an insurance broker must “act with
reasonable skill and diligence in
performing the services of a broker” with
respect to its insured (id. at 1291). Lapses
in that duty that can give rise to liability
include, but are not limited to, either (1)
failing completely to arrange for an
insurance policy or (2) delivering a policy
that is void, materially deficient or
otherwise does not provide the coverage
the broker agreed to procure (id.;
Glezerman v. Columbian Mut. Life Ins.
Co., 944 F.2d 146, 150 (3d Cir. 1991)).
Carter Lincoln-Mercury, 628 A.2d at
1291-92 emphasizes that although the
relationship between an insured and its
broker is most often contractual in nature,
claims by an insured against its broker are
not based on a privity relationship but are
premised on the tort concept of negligence
in failing to procure the appropriate
coverage. That concept is fundamental to
one of Carter Lincoln-Mercury’s central
holdings: the principle that the broker's
duty owed to insured parties is also owed
to other loss payees who (although not in
privity with the broker) are within the zone
of harm emanating from its activities (id.
at 1294-95, 1297).
Carter Lincoln-M ercury, id. at
1294-95 identifies two key elements that
should guide courts in delineating the
boundaries of that zone of harm:
foreseeability and fairness. Foreseeability
takes into account the relationship between
the plaintiff and the broker, the nature of
the risk and the defendant’s ability and
opportunity to exercise care and avert

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harm (id. at 1294). And the fairness aspect
requires a court to make a value judgment
as to whether establishing a broker’s duty
in relationship to a particular plaintiff is
fair based on policy considerations and the
public interest (id.). After analyzing those
two aspects under the circumstances at
issue there, Carter Lincoln-Mercury, id. at
1298 ultimately held that the insurance
broker in that case did owe a duty to the
loss payee of the insurance policy that the
broker had negligently procured for its
insured.
Whether the broker’s duty in the
insurance context translates to the surety
context before us requires that we consider
in the first instance whether surety
relationships are equivalent to insurance
relationships under New Jersey law. There
are certainly many similarities between the
two. Like insurance relationships, surety
relationships have three central players–the
principal obligor, the insured (or obligee of
the surety bond) and the insurer (or surety)
(In re Liquidation of Integrity Ins. Co., 657
A.2d 902, 907 (N.J. Super. Ct. App. Div.
1995), aff’d 685 A.2d 1286 (N.J. 1996)).
Indeed, in many contexts New
Jersey explicitly equates surety bonds with
insurance polices. For example, a New
Jersey insurance rates statute expressly
defines “policy of insurance” to include
surety bonds (N.J. St. Ann. §17:29A-1(e)
(2004)). And in the liquidation of an
insurance corporation, the claims of surety
bondholders are accorded priority together
with insurance policyholders’ claims (In re
Liquidation of Integrity Ins. Co., 598 A.2d
940, 943-44 (N.J. Super. Ct. Ch. Div.
1991)). New Jersey courts have also stated
more generally that because it is long
settled in New Jersey that surety is
insurance, surety bondholders are
equivalent to insurance policyholders (id.;
Aetna Cas. & Sur. Co. v. Int’l Re-Ins.
Corp., 175 A. 114, 120 (N.J. Ch. 1934)).
To be sure, in the case at bar Hobbs
was an insurance broker for Olympic and
procured a policy from Highlands. As
between those two companies Olympic
was the insured and Highlands was the
insurer. But the critical coverage for
purposes of the current lawsuit is that
provided (or, more accurately, not
provided) by the surety bond–and that
coverage was intended to serve Highlands’
benefit. From that perspective Olympic
was to be the principal obligor, Frontier
was to be the surety (the insurer in the
surety context) and Highlands was to be
the obligee of the surety bond (the insured
in the surety context).
Hobbs and Global staunchly
maintain that even if a surety relationship
equates to an insurance relationship, the
Carter Lincoln-M ercury-defined duty was
never intended to protect insurers such as
Highlands. But that mistakes mere form
(the “insurance company” label) for
substance: In the context at issue in this
case, Highlands is not an insurer qua
insurer. Instead what is relevant is that
Highlands is an obligee on a surety bond,
even though it also happens to be in the
insurance business generally.

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As Highlands would have it, our
inquiry should end with the conclusion that
the Carter Lincoln-M ercury-prescribed
duty extends to all surety bond brokers and
issuers, so that Hobbs and Global
necessarily owed a duty to Highlands as
the third-party obligee on the surety bond.
But we must of course proceed with
caution when wading into the predictive
Erie waters, and the New Jersey courts
avoid treating questions of duty in a
conclusory fashion. Both of those things
being true, we proceed beyond our
determinations (1) that New Jersey law
draws strong parallels between insurance
policies generally and surety bonds
specifically and (2) that Highlands is
exactly the type of insured/obligee that is
entitled to look to the Carter Lincoln-
Mercury analysis as a basis for
determining the existence of a duty
(Weinberg, 524 A.2d at 374). Instead we
must proceed with the same type of
foreseeability-plus-fairness analysis that
the New Jersey Supreme Court carried out
in Carter Lincoln-Mercury in evaluating
the existence or nonexistence of a duty to
third parties such as Highlands. And for
that purpose, of course, we consider Hobbs
and Global separately.
Hobbs
In terms of foreseeability, the
propriety of recognizing a duty of care
owed by Hobbs to Highlands is obvious.
For one thing, the technical agent-principal
relationship between Hobbs and Olympic
in no way vitiates the impact of the close
working relationship between Hobbs and
Highlands in the transaction at issue, as
evidenced by the nature and volume of the
communications between them (Weinisch
v. Sawyer, 587 A.2d 615, 618 (N.J. 1991)).
Next as to the nature of the risk, by
definition the absence of protection for
Highlands in the event of Olympic’s
default is precisely the peril that would
necessarily follow from the failure to have
obtained the surety bond on which
Highlands was to be the obligee. And
finally, our determination that Highlands
was within Hobbs’ zone of harm is
significantly influenced by the fact that
Hobbs had both abundant opportunities
and ample ability to advise Highlands that
it was mistaken in its belief (an entirely
reasonable one) that it was protected by a
surety bond with Frontier, a lack of
protection that stemmed from Olympic's
nonpayment of the premium on the bond
(Carter Lincoln-M ercury, 638 A.2d at
1294).
M u c h o f H i g h l a n d s ’
correspondence with Hobbs clearly shows
that it was under the impression that the
process of securing the surety bond was
progressing without a hitch. Most notably,
an April 1, 1999 e-mail from Highlands to
Hobbs reporting on the transaction said in
part “we have the bond in place,” an
explicit communication to Hobbs of
Highlands' belief that Olympic’s surety
bond was in effect. Hobbs had numerous
communications with Highlands after that
April 1 e-mail about a variety of other
matters, but not once did Hobbs mention to
Highlands that Olympic had not paid the
premium needed to cement Frontier’s

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surety bond obligation.5
Indeed, the multiple requests for
payment running from Hobbs to Olympic
show unequivocally that throughout the
course of its communications with
Highlands Hobbs was fully aware that
Olympic had not paid the premium on the
surety bond and that Frontier would not
issue the bond until that premium was
paid. Yet Hobbs did not even make the
cost-free effort to notify Highlands of
Olympic’s delay in paying the premium by
copying Highlands on any of those
communications.
At every step of the way Hobbs had
both the opportunity and the ability to
advise Highlands that it was not protected
by any surety bond because Olympic had
not paid the premium. And its ongoing
total silence invited Highlands to rely on
Hobbs’ conduct that otherwise suggested
the surety bond placement process had
been completed as planned. Without doubt
Highlands fell squarely within the
foreseeable zone of harm from Hobbs’
conduct (President v. Jenkins, 814 A.2d
1173, 1185 (N.J. Super. Ct. App. Div.
2003)).
With foreseeability thus firmly
established, we turn to the fairness branch
of the Carter Lincoln-Mercury analysis. In
that regard we next look to New Jersey
public policy to forecast whether the New
Jersey Supreme Court would find it in the
public interest to create that duty (639
A.2d at 1294-95). We conclude that it
would.
That court’s tradition of holding
insurance professionals to high standards
of care confirms its strong public policy
focus on protecting parties who deal with
such professionals (Aden v. Fortsh, 776
A.2d 792, 805 (N.J. 2001)). True enough,
Highlands’ own involvement in the
insurance industry, rather than its being a
general member of the public as was
involved in Carter Lincoln-Mercury, may
cut against the imposition of an actual
fiduciary responsibility on Hobbs’ part vis-
a-vis Highlands (see Aden, 776 A.2d at
800-01). But that does not at all control
the fairness concerns at issue here, as
Hobbs suggests–it merely calls for the
examination of other important public
interest considerations (Glezerman, 944
F.2d at 150).
In the case of an unsophisticated
insured, we are primarily concerned that
the individual will suffer harm while adrift
in the insurance world and at the mercy of
a professional with far greater expertise.
Although that spectre is obviously not
5 That silence on Hobbs’ part under
the circumstances just mentioned, and in
the face of the other factors mentioned
hereafter, is especially egregious because
even a whisper to that effect would have
eliminated the problem and the
disastrous consequence that has
prompted this litigation–Highlands could
promptly have paid the $62,500 premium
itself (as it had the right to do), thus
shifting the risk to Frontier.

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universally present as to an entity such as
Highlands, the public policy value that
uniformly requires brokers to carry out the
instructions given to them to the best of
their abilities applies with equal force
whether a broker is dealing with an
individual unschooled in insurance
complexities or is conducting business
with a savvy entity such as Highlands
(Aden, 776 A.2d at 805-06). And finally,
to shift from the general to the particular,
the imposition of a broker’s duty in the
surety context hones in on the primary
purpose that underscores the entire surety
relationship: protecting the obligee of the
surety bond in the case of a default by the
principal (United States ex rel. Don Siegel
Constr. Co. v. Atul Constr. Co., 85
F.Supp.2d 414, 418 (D. N.J. 2000)).
In sum, our analysis in the terms
t a u g h t b y C a r t e r L i n c o l n -
Mercury–consideration of the elements of
both foreseeability and fairness–has led us
to conclude that the New Jersey Supreme
Court would find, as to both torts asserted
by Highlands against Hobbs, that the latter
owed a duty to Highlands as the obligee of
Olympic’s surety bond.6 We go on to
address (and to dispatch) Hobbs’ several
fallback arguments.
First, Hobbs asserts that Highlands
has not created a genuine issue of material
fact as to the other elements of either of its
tort claims against Hobbs. To deal with
that contention, we need to identify those
other elements.
A s f o r t h e n e g l i g e n t
misrepresentation claim, the New Jersey
caselaw that allows such a claim to be
based on the defendant’s silence or
suppression of truth rather than on some
affirmative misrepresentation (Strawn v.
Canuso, 657 A.2d 420, 429 (N.J. 1995)) is
not limited to special relationship
situations such as those involving
transactions within explicit fiduciary
relationships, transactions where a quasi-
fiduciary relationship develops either
through the express conduct of the parties
or other circumstances particular to that
individual transaction or transactions (such
as insurance) whose nature inherently
requires such a duty regardless of the
parties’ intentions (Berman v. Gurwicz,
458 A.2d 1311, 1313-14 (N.J. Super. Ct.
Ch. Div. 1981)). In addition, the required
duty of disclosure may also arise in any
situation called for by good faith and
common decency (Maertin v. Armstrong
World Indus., Inc., 241 F.Supp.2d 434,
461 (D. N.J. 2002), conforming to the
holding in City Check Cashing, 764 A.2d
at 417).
Evaluation of the existence or
nonexistence of a duty of disclosure in the
present situation calls for the weighing of
factors essentially identical to those
already drawn from Carter Lincoln-
6 We find no reason to differentiate,
in Carter Lincoln-Mercury terms, as
between negligence actions generally and
negligent misrepresentation actions
specifically (see H. Rosenblum, Inc. v.
Adler, 461 A.2d 138, 145, 153 (N.J.
1983)).

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Mercury: foreseeability and fairness. We
need not then repeat the analysis–what has
been said before also supports the
grounding of H ighlands’ negligent
misrepresentation claim in breach-by-
omission. And more briefly as to
Highlands’ general negligence claim
against Hobbs, it is hornbook law that a
broker’s failure to obtain adequate
coverage can support a claim that the
broker has breached its duty (Weinisch,
587 A.2d at 618).
Against that backdrop it is plain
that Highlands has adduced enough
evidence to raise genuine issues of
material fact as to both breach and
causation for each tort. Several of Hobbs’
c o m m u n i c a t i o n s – i n c l u d i n g
communications to Highlands that referred
to the surety bond in ways that made it
appear the bond had already been secured,
communications to Highlands that omitted
any reference to the problems with the
surety bond that Hobbs knew about, and
communications to Olympic that could
have been but were not shared with
Highlands–could reasonably support a
finding that Hobbs breached its duty to
Highlands (see Glezerman, 944 F.2d at
151). And Highlands’ totally plausible
statement that if Hobbs had only said the
surety bond was not in place because of
the nonpaym ent of the premium,
Highlands would itself have paid the
premium, raises at least a genuine issue of
material fact about causation.
Hobbs tries to escape the impact of
all that evidence via several arguments, all
sharing the common theme that some
factor other than Hobbs’ failure to inform
Highlands of Olympic’s nonpayment of its
premium (including perhaps Highlands’
own asserted negligence) was assertedly
an intervening or superseding cause of
Highlands’ loss. But all those efforts fail,
because questions of negligence (including
comparative negligence) and causation are
within the jury’s province in all but the
most exceptional situations (Fleuhr v. City
of Cape May, 732 A.2d 1035, 1041 (N.J.
1999); Vega v. Piedilato, 713 A.2d 442,
459 (N.J. 1998)). And for Rule 56
purposes it is not our function to make
credibility determinations or otherwise to
weigh the evidence (Petruzzi’s IGA
Supermkts., 998 F.2d at 1230).
In short, there are at least genuine
issues of material fact precluding summary
judgment on the negligence and causation
aspects of Highlands’ claims against
Hobbs. And finally, because Highlands has
paid over $3 million in claims against
Olympic during the coverage period (all of
which were under the policy’s loss-per-
occurrence limit and would therefore have
been covered by the Olympic deductible
had the surety bond been in place), it has at
a minimum raised a genuine issue of
material fact as to damages.
Next Hobbs asserts that Highlands’
tort claims are precluded under Saltiel v.
GSI Consultants, Inc., 788 A.2d 268 (N.J.
2002), which dictates that conduct within
a relationship defined solely by contract
cannot give rise to a tort claim against the
allegedly breaching party or its agent

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unless that party has some independent
duty to the aggrieved party outside the
scope of the contract (id. at 279-80).
Hobbs seeks to support that argument by
pointing out that although Highlands never
had any formal contractual relationship
with Hobbs, it did have a contractual
relationship with Olympic. And Hobbs as
an insurance broker was unequivocally
Olympic’s agent (Weinisch, 587 A.2d at
618).
But that contention by Hobbs
misses the mark completely in all events,
in light of our determination that the duty
Hobbs owed Highlands is wholly
independent of any contractual obligations
it might have had to Highlands as a
function of Hobbs’ status as an agent of
Olympic. In that respect Saltiel, 788 A.2d
at 280-81 itself explicitly lists the Carter
Lincoln-M ercury duty as an example of an
independent duty that would negate the
Saltiel-announced limitation.
Nothing daunted, Hobbs also
advances the suggestion that once
Highlands had sufficient notice that the
surety bond was not in place, its decision
to retain Olympic’s premiums and to
continue processing Olympic’s claims
amounted to a ratification that effectively
waived Highlands’ right to rescind the
contract based on the absence of the bond
(Ajamian v. Schlanger, 89 A.2d 702 (N.J.
Super. Ct. App. Div. 1952)). Hobbs
maintains that its March 3, 1999 fax to
Highlands that did not contain any
information indicating that the bond had
been executed and completed gave
Highlands sufficient notice to trigger the
ratification scenario.7
While ratification may sometimes
be determined as a question of law (see,
e.g., Garden State Bldgs., L.P. v. First Fid.
Bank, N.A., 702 A.2d 1315, 1324 (N.J.
Super. Ct. App. Div. 1995)), that is not the
case here. Highlands ’ Ap ril 1
communication reflecting its belief that the
surety bond had already been placed puts
into dispute, for resolution by a jury, any
contention that the March 3 fax
sequence–which reflected that Hobbs was
sending a specimen surety form to
Highlands simply to approve the wording
and which plainly evidenced Highlands’
clear intention to be designated as the
obligee on the final documents–somehow
placed Highlands on notice that the surety
bond was not being arranged as expected.
Absent a finding of notice to Highlands
that there was a potential problem with the
surety a g r e e m e n t , i t s c o n t i n u ed
performance under its insurance policy
with Olympic could not be viewed as a
7 Even though the text discussion
assumes purely arguendo that ratification
in New Jersey forecloses a party from
bringing all tort and contract claims, as
compared with just precluding the party
from seeking the equitable remedy of
rescission (as in Ajamian), such cases as
Bilotti v. Accurate Forming Corp., 188
A.2d 24, 33, 34 (N.J. 1963) and
Merchants Indem. Corp. v. Eggleston,
170 A.2d 505, 513 (N.J. 1962) suggest
otherwise.

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ratification (Merchants Indem., 179 A.2d
at 514; Martin Glennon, Inc. v. First Fid.
Bank, N.A., 652 A.2d 199, 205 (N.J.
Super. Ct. App. Div. 1995)). Again the
existence of a genuine issue of material
fact defeats a summary judgment in
Hobbs’ favor.
Finally, Hobbs u rges that
Highlands’ claims are not really
independent tort claims directly against
Hobbs, but rather seek indemnification
from Hobbs for insurance claims that
Highlands had paid on behalf of Olympic.
On that premise Hobbs asserts that
Highlands cannot prevail, because once it
cancelled Olympic’s insurance policy it
became partially responsible for Olympic’s
failure to live up to its obligation to pay
the premium on the surety bond, so as to
be precluded under New Jersey law from
recovering its losses in indemnity (Ramos
v. Browning Ferris Indus. of S. Jersey,
Inc., 510 A.2d 1152, 1158-59 (N.J. 1986)).
That attempted reclassification of
Highlands’ tort actions is unpersuasive.
After all, Highlands fronted the payment
for the claims against Olympic as it was
required to do by its insurance policy.
That being so, the recovery Highlands
seeks from Hobbs consists of plain old-
fashioned damages in tort, flowing directly
from Highlands’ performance without the
benefit of the protection that should have
been provided by the surety bond–a
deprivation that a factfinder can determine
shou ld be attributed to Hobbs’
malfeasance.
We have thus rejected each of
Hobbs’ alternative grounds for summary
judgment. We therefore reverse the district
court’s grant of judgment in Hobbs’ favor
and remand for the resolution at trial of
Highlands’ claims against Hobbs.
Global
In Global’s case the Carter Lincoln-
Mercury analysis cuts in the opposite
direction. Far less discussion is needed to
explain why that is so.
Throughout the entire process of
arranging for Frontier to act as the surety
on Olympic’s deductible, Global’s line of
communication ran only between Frontier
and Hobbs: At no point did Global ever
interact directly with Highlands. By
contrast, Hobbs’ line of communication
stretched from Global to Highlands.
It is plain that communication with
Highlands was wholly outside the scope of
Global’s professional role, which was to
help Hobbs secure Frontier as the surety
on Olympic’s deductible (see Zielinski v.
Professional Appraisal Assocs., 740 A.2d
1131, 1135 (N.J. Super. Ct. App. Div.
1999)). Hence it would be an
impermissible stretch to hold that Global
“had particular knowledge or reason to
know” that Highlands was at risk of being
harmed from its conduct, a key factor that
Carter Lincoln-M ercury employed in
finding the existence of a duty based on a
zone of harm theory.
Absent any communication or other
relationship between Highlands and

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Global, it would do violence to any
reasonable notion of foreseeability to
saddle Global with liability because it did
not go outside the scope of its undertaking
by informing Highlands directly about the
problems with securing the surety bond
(City Check Cashing, 411 A.2d at 416-17;
Carter Lincoln-M ercury, 638 A.2d at
1298). And because foreseeability is a
necessary (though not a sufficient)
precondition to the imposition of a duty
flowing from an insurance or surety broker
to a third party, we need not address the
other–the fairness–precondition (Carvalho
v. Toll Bros. & Developers, 675 A.2d 209,
213 (N.J. 1996)). Highlands’ negligence
claim against Global therefore fails as a
matter of law.
Conclusion
We have followed the teaching of
Carter Lincoln-M ercury in identifying the
existence or nonexistence of a duty
running to Highlands as the expected
obligee of a surety bond–the subject of its
defeated expectations. In those terms we
REVERSE the district court’s grant of
summary judgment in Hobbs’ favor and
REMAND for the resolution of Highlands’
claims at trial, and we AFFIRM the district
court’s grant of summary judgment in
favor of Global, which is dismissed as a
defendant in this action.

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