The opinion of the court was delivered by: Irenas, District Judge.
On July 6, 1996, defendants Frank Bader ("Bader") and Robert
Bruce ("Bruce") were involved in a water boat accident that
resulted in fatal injuries to Edward Shagen ("Shagen"). Each
defendant, as well as Shagen, were operating separate watercraft
when the accident occurred.
At the time of the accident, the watercraft belonging to Bader
was insured under a liability and property policy ("the policy")
issued by National Marine Underwriters on behalf of plaintiff
North American Specialty Insurance Company ("North American" or
"Plaintiff"). The insurance policy between Bader and plaintiff
was a one year policy that was initially issued on August 25,
1991, and renewed annually thereafter. The last insurance policy
in effect prior to the accident was a renewal policy that began
coverage on September 6, 1995.
Each year, from 1991 through 1995, Bader's policy was renewed
and paid for by credit card telephonically. Thereafter, North
American mailed an application to Bader who signed and returned
such application to plaintiff. The signed application then became
the declaration sheet for the policy.
As declared on the renewal policy, the rated horsepower for
Bader's boat was 330 horsepower per each of its two engines.
Subsequent to the September, 1995, renewal and prior to the July,
1996, accident, Bader replaced the original engines with high
performance engines of 480 horsepower each. There is no evidence
that suggests that the increased horsepower of Bader's watercraft
contributed to his accident with the deceased.
As a result of the accident, Carolyn Shagen ("Shagen"),
Executrix of the Estate of Edward Shagen, Deceased, and Carolyn
Shagen, Individually, filed a wrongful death action against Bader
and Bruce seeking special and liquidated damages in New Jersey
state court. Defendant Bruce has asserted cross claims against
Bader in the underlying state court matter.
North American was unaware that Bader's boat engines were
replaced until they investigated the claim after the fatal
accident. As Bader's insurance carrier, North American is
currently defending Bader against Shagen's state court action
under a reservation of rights assertion.
On September 24, 1997, North American filed a complaint seeking
a declaratory judgment that its obligation to defend and
indemnify Bader is null and void. On January 23, 1998, defendant
Bader filed a counterclaim against North American seeking a
declaratory judgment that North American is required to defend
and indemnify him in the underlying state court action.
On June 8, 1999, North American brought the instant motion for
summary judgment. Specifically, plaintiff alleges that Bader has
violated his duty of good faith and fair dealing based on his
material misrepresentations concerning the alteration performed
on his boat. North American argues that they should not be
required to indemnify Bader because, at the time of Bader's 1995
policy renewal, Bader was already under contract to have his
boat's engines replaced. Plaintiff contends that the
modification, if disclosed to them, would have resulted in a
non-renewal or cancellation of all coverages.
Bader contends that there is nothing in the record to support
plaintiff's allegations that he is not entitled to
indemnification, and that summary judgment for the plaintiff is