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ENRIGHT v. FARM FAMILY CASUALTY INSURANCE COMPANY

December 29, 2005.

JOSEPH AND ANN ENRIGHT, Plaintiffs,
v.
FARM FAMILY CASUALTY INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: JEROME SIMANDLE, District Judge

OPINION

This matter comes before the Court upon a motion by Defendant Farm Family Casualty Insurance Company for summary judgment against plaintiffs Joseph and Ann Enright ("Plaintiff"). For the reasons discussed below, this Court finds that (a) no reasonable jury could determine that Defendant did not act properly when it denied the claims under Plaintiff's homeowner's and contractor's advantage insurance policies at issue in this case or that Defendant's denial of such claims amounted to bad faith, (b) under New Jersey law, any liability for negligent acts of Ken Tomasso, Jr. in this case can not be imputed to Defendant under the doctrine of respondent superior as claimed by Plaintiff and (c) liability for negligent acts — associated with the allegedly negligent supervision of Tomasso — of Jack Dempsey and Dempsey Weiss and Associates can be imputed to Defendant because Dempsey and Dempsey Weiss and Associates were acting under the express authority of Defendant in their supervision of Tomasso. Accordingly, Defendant's summary judgment motion will be granted in part and denied in part.

  I. BACKGROUND

  In 1994, Plaintiffs, Joseph and Ann Enright purchased certain property located at 2120 Delsea Drive in Dennis Township, New Jersey (the "Property"). The property consisted of a main dwelling house and a 2,100 square foot stone and wood framed barn (the "Barn"). In addition to living at the property, Joseph Enright ("Enright") also operated a sheet metal fabrication and restaurant stainless steel and vent cleaning business out of the Barn on the Property. (Pl.'s Amend. Compl. ¶ 7.)

  Around the end of December 1999 or the beginning of January of 2000, Enright investigated transferring his property, automobile and business insurance from State Farm Insurance to Defendant, Farm Family Casualty Insurance Company. (Defendant's Opp. Br. at 29.) At the advice of an acquaintance, Plaintiff contacted Ken Tomasso Jr., ("Tomasso") an agent for Defendant. (Id.) In early January of 2000, Tomasso visited Plaintiff, inspected the Property, and discussed with Plaintiff his insurance needs. (Id. at 29-30.) Plaintiff testified that, during this visit, Plaintiff told Tomasso that he operated a sheet metal fabrication business in the Barn. (Deposition of Joseph Enright, at 72, Pl.'s Opp. Br. at Ex. 2.) After his visit to the Property, Tomasso wrote nine insurance policies for Plaintiff and his family including commercial and personal automobile insurance policies, a homeowner's insurance policy, a contractor's advantage policy and life insurance for each member of Plaintiff's family. (Id. at 61-62)

  Tomasso testified that, in determining the appropriate coverage under Plaintiff's homeowner's insurance policy, Tomasso (1) used Plaintiff's prior State Farm Insurance policy as a guide and (2) employed an insurance tool called the Bocck and Rhodes cost estimator (which estimates the replacement cost of a building based purely on the building's square footage). (Deposition of Ken Tomasso, at 53, 63-67, Pl.'s Opp. Br., Ex. 3.) Tomasso completed the insurance policy applications and sent them to Plaintiff who signed them. (Enright Depo. Tr., p. 62, 67.) Soon after, the policies were issued. Of note is the fact that, on Plaintiff's insurance policy issued January 10, 2000, Tomasso listed Plaintiff's occupation as "contractor," listed Plaintiff's base of operations as his residence, and listed that Plaintiff used his garage for tool storage. (Pl.'s Opp. Br. at Ex. 30-33.) Regarding this fact, Tomasso later stated that Defendant "had no problem approving" the policy after Plaintiff informed Tomasso that the Plaintiff stored his tools used in his business in his garage.*fn1 (Tomasso Depo. Tr. at 36.)

  After the policies were issued, Tomasso sent a request to Defendant that it amend Plaintiff's homeowner's insurance policy. (Pl.'s Opp. Br. at Ex. 28.) Specifically, Tomasso advised Defendant that, after inspection of the Property, the coverage on the Barn would need to be increased.*fn2 (Id.) Tomasso stated that he decided to increase coverage on the Barn by some $40,000 based on the Boeck and Rhodes commercial cost estimator he employed but also testified that he did not go inside or measure the Barn. (Enright Depo. Tr. at 67.) A. Plaintiff's Insurance Policies

  After Tomasso's meeting with Enright at the Property, Defendant issued a number of insurance policies to Enright including homeowners, business, auto, "contractor's advantage," and life insurance policies. The present dispute centers only on Plaintiff's homeowner's and contractor's advantage insurance policies.

  1. Plaintiff's Homeowner's Insurance Policy

  In February of 2000, Defendant issued homeowner's insurance policy number 2905H2229 to Plaintiff. The policy provided coverage for Plaintiff's home, the Barn, his personal property, and for any "loss of use" of certain personal property. (Homeowner's Policy, ¶ A-D, Def.'s Br. at Ex. B.) Specifically at issue in this case is Section B of Plaintiff's homeowner's policy which provided coverage for "Other Structures" on the premise that are set apart from the insured's Plaintiff's home. (Id. ¶ B.) As discussed above, coverage for "Other Structures" was originally covered in the amount of $22,600 but this amount was increased to $41,600 upon Tomasso's request after his inspection.*fn3 (Pl.'s Opp. Br. at Ex. 28.) Of note are two additional provisions of Section B. (Def.'s Br. at Ex. B.) Section B also contains an exclusion stating that the policy does not "cover other structures . . . used in whole or in part as a `business.'" (Homeowner's Policy, ¶ A.) "Business" is defined in the policy as any "trade, profession or occupation." (Id.) In addition, the policy states that the "limit of liability for this coverage will not be more than 10% of the limit of liability that applies" for Plaintiff's home.*fn4 (Id.)

  2. Contractor's Advantage Policy

  Defendant also issued Plaintiff a contractor's advantage insurance policy, which covered business personal property up to the policy limit of $12,600. (Contractor's Advantage Policy, Def.'s Br. Ex. L.) Tomasso explained to Plaintiff that the contractor's advantage would have a minimum automatic coverage of $5,000 but that Plaintiff could elect to increase the level of coverage after submitting to Defendant a list of all the business property that Plaintiff would seek to cover under the contractor's advantage policy. (Tomasso Depo. Tr. at 77-81.) Plaintiff completed the inventory list — specifically listing equipment, tools, and other business personal business property — for use in connection with the contractor's advantage policy, as indicated by Tomasso. (Id. at 143-46.)

  B. The Fire at Plaintiff's Premises and Claims Adjustment under Plaintiff's Insurance Policies.

  On the morning of October 11, 2002, Plaintiff's Barn caught fire and was completely destroyed.*fn5 On October 12, 2002, Plaintiff faxed to Defendant's Claims Department in Trenton, New Jersey; (1) a completed "Notice of Loss" form and (2) a partial list of damaged business property. Soon after the fire, Plaintiff retained ABC Public Adjusters ("ABC") in order to assist him in adjusting and submitting claims to Defendant.

  With the assistance of ABC, Plaintiff made the following claims under its homeowner's insurance policy (with Defendant paying or denying the claims as listed below):
• Plaintiff made a claim in the amount of $41,600.00 under the homeowner's insurance policy's coverage of "Other Structures." Defendant denied this claim under the homeowner's policy's exclusion for property used in a business on October 22, 2002 after learning that Plaintiff operated his sheet metal fabrication business out of his barn.
• Plaintiff filed a claim in the amount of $4,415.20 for a new water line, fences, lawn and trees. This claim was paid in full by Defendant.
• Plaintiff filed a claim for lost personal property in the amount of $58,950.00. Defendant paid a total amount of $49,139.60 for the lost personal property (which, according to Defendant, denotes the depreciated value of the property).
• Plaintiff's neighbor also made a claim for personal property under Plaintiff's homeowner's policy in the amount of $3,264.69. This claim was paid in full by Defendant.
Under the contractor's advantage policy, Plaintiff made the following claims (with Defendant paying or denying the claims as listed below):
• Plaintiff claimed $1,000.00 for the loss of valuable papers and $4,310.00 for debris removal. Both claims were paid in full by Defendant.
• Plaintiff claimed $11,523.63 under the contractor's advantage policy for extra expenses related to keeping Plaintiff's sheet metal business operational. Defendant paid $5,000.00 as a "settlement" with Defendant taking the position that such a claim was not covered by the policy.*fn6 • Plaintiff made a claim in the amount of $93,990.00 for lost business personal property under the contractor's advantage policy. This claim was denied because Plaintiff had already paid out $12,600.00, which was the policy limit.
  In sum, Plaintiff seeks indemnity for (1) the estimated amount to rebuild its barn to original specifications ($251,210.22) and for (2) unreimbursed business personal property ($81,390.00).

  C. Ken Tomasso and his Relationship with Defendant.

  Tomasso became licensed to sell insurance in New Jersey in or about September of 1998 after completing a four week class at South Jersey Professional School of Business. (Depo. Tr. of Ken Tomasso, at 13-14.). Beginning in late 1998 or 1999, Tomasso began working for Defendant. (Id. at 14.) Prior to this employment, Tomasso had no prior employment or experience in the insurance, real estate, appraisal, or construction industries. (Id.) At the beginning of his employment with Defendant, Plaintiff entered into an Agent Contract (the "Agent Contract") with Defendant and he received two weeks of training by Defendant (Id. at 44-45.).

  Under the Agent Contract, Tomasso had limited authority to act on behalf of Defendant. (Agent Contract, ¶ 4-6, Pl.'s Opp. Br. Ex. 6.) Tomasso was specifically authorized to "solicit, maintain and service insurance in accordance with all applicable laws and regulations and with the limitations and provisions set forth in this agreement. . . ." (Id. ¶ 1.) Tomasso was not authorized, however, to bind Defendant to any insurance contracts and he was required to forward all premiums to Defendant and forward copies of all applications, binders, policies, certificates and endorsements to Defendants. (Id.) Moreover, Tomasso had

 
no authority to make, alter, vary, or discharge any policy contract, to extend the time for payment of premiums, to waive or extend any policy obligation or condition, to incur any liability or waive any rights on behalf of the [Defendant], to advertise using the [Defendant's] name or service marks except as specifically authorized by the [Defendant] in writing, or to incur any obligation or indebtedness in the name of [Defendant.]
(Id.)

  Tomasso also had certain obligations under his Agent Contract with Defendant. (Id.) For example, Tomasso was required to give Defendant a right of first refusal to underwrite any property or casualty insurance policy solicited by Tomasso.*fn7 (Id. ¶ 2.) If Defendant did not want to underwrite the policy or the customer Tomasso solicited did not want Defendant as its insurance company, Tomasso was free to (and, for Plaintiff's life insurance policies, in fact did) place the insurance business elsewhere. (Tomasso Depo. Tr. at 98-99, 139-41.) Under the Agent Contract, Tomasso was responsible for maintaining all necessary licenses and was required to fulfill any minimum production requirement established by Defendant. (Agent Contract ¶ 4.) While Defendant "may invite" him to attend training seminars, Tomasso, and not Defendant was not responsible for his training. (Id. ¶ 3.)

  According to the Agent Contract, Tomasso was an independent contractor rather than an employee of Defendant. (Id.) The contracts expressly stated that Tomasso was an independent contractor and not an employee and "[n]othing in [the Contract] shall be construed as creating an employer/employee relationship" between Tomasso and Defendant. (Id.) As such, Tomasso acknowledges in the Agent Contract that he:
will exercise [his] own judgment as to time, place and the manner of soliciting insurance, servicing policyholders and otherwise performing his duties in a harmonious relationship with [Defendant.]
(Id.) Moreover, under the Agent Contract, Tomasso was "responsible for payment of his self-employment taxes, income taxes and for meeting any other reporting or like requirements instituted by state, federal or local laws, rules and regulation." (Id. ¶ 3.) Tomasso testified that he employed and paid his own staff at his own office. (Depo. Tr. of Tomasso, at 30-32.) Tomasso was not paid a salary from Defendant. (Agent Contract ¶ 6; Depo. Tr. of Tomasso at 21.) Instead, he was paid "a commission in accordance with the commission schedule and rules . . . on business submitted by [Tomasso] to [Defendant] and accepted by [Defendant.]" (Agent Contract ¶ 6.) Such payments were considered "full compensation for all services" rendered by Tomasso and Tomasso was responsible for all expenses, debts or liabilities (including payment of his own errors and omissions policy through Defendant, which was payable to Defendant). (Depo. Tr. of Tomasso at 21.) Further, Tomasso was not provided with any business or contacts upon signing on with Defendant but the Contract stated that all business generated by Tomasso was "owned" by Defendant and must remain with Defendant upon the completion of Tomasso's employment. (Id. ¶ ...

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