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NJ Supreme Court: Insurance Brokers Have Duty to Inform LLC Members of Workers’ Compensation Coverage Eligibility

Injured employee visiting lawyer for advice on insurance

In the recent case of Nancy L. Holm v. Daniel M. Purdy, the New Jersey Supreme Court considered whether insurance broker Daniel Purdy had a duty to inform members of a LLC about their eligibility for workers' compensation coverage. The case was decided on December 13, 2022.

The case arose when brothers Robert and Walter Friedauer owned Holmdel Nurseries and formed an LLC in which they each owned a fifty percent interest. The Defendant, Daniel Purdy, became the insurance broker for the company in 2002. For approximately a year after workers' compensation coverage became available to LLC members in New Jersey, the company elected to obtain that coverage for Robert and Walter Friedauer. However, after determining that the coverage was not cost-effective, Robert Friedauer informed Purdy of the brothers' decision not to purchase workers' compensation coverage for themselves. As a result, from 2002 to 2012, the company's workers' compensation policies provided no coverage to the LLC members.

Eventually, Robert Friedauer's sons, Michael and Christopher Friedauer, purchased Walter Friedauer's fifty percent interest in the company. As of January 1, 2012, they were no longer employees of the business, but rather members of the LLC, each owning a twenty-five percent share. Purdy held a meeting with the company to discuss insurance needs but did not inform the sons that they were no longer covered by the company's workers' compensation insurance.

In February 2015, Christopher Friedauer was at work when he slipped and fell on his head, resulting in a fatal injury. His wife, Nancy L. Holm, sued Purdy alleging that he failed to provide to the LLC the notice that they did not have worker’s compensation coverage 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 alleged that because 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 had he been covered at the time of his death.

In its ruling, the NJ Supreme Court held that Purdy did have a duty to inform the LLC members of their eligibility for workers' compensation coverage and that his failure to do so constituted a breach of that duty. The Court then remanded the case back to the Trial Court to determine whether Purdy’s conduct constituted a willful, wanton or grossly negligent act of commission or omission. Further, while not explicitly stated in the opinion, the parties needed to discuss whether Christopher’s passing was “arising out of the course of the employment” for the underlying workers’ compensation claim.

Sadly, we have seen this situation before. Many business owners that work for their companies are unaware of whether they have coverage for themselves. We have even seen workers’ compensation policies that are issued with no employees listed!

The Holm v. Purdy case serves as a reminder of the importance of insurance brokers properly informing their clients of their eligibility for workers' compensation coverage and the potential consequences of electing to purchase such coverage.

At Levinson Axelrod, P.A., our experienced workers' compensation team can help you understand your rights and options if you have been injured on the job. Call (732) 440-3089 or contact us online today to schedule a free and confidential consultation.