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Biederman v. Retcho


February 8, 2007


On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-4663-05.

Per curiam.


Submitted December 20, 2006

Before Judges Wefing and Messano.

Plaintiffs, Lita P. and David A. Biederman (plaintiffs or the Biedermans), appeal the motion judge's grant of summary judgment dismissing their complaint with prejudice. They commenced this suit against Joseph Retcho and the Retcho Agency (collectively, Retcho), Barry Moffett (Moffett), and a fictitious "John Doe." Plaintiffs alleged that Retcho was an authorized agent for Security Indemnity Insurance Company (Security), and, based upon his representations, they purchased an automobile insurance policy issued by Security in March 2002 and renewed the policy in March 2003. They further alleged that Moffett was the president and owned 95% of the stock in Security.

The complaint alleged that Security's financial health was highly suspect prior to plaintiffs' initial purchase of the policy and that Retcho knew or should have known of the precarious fiscal situation when he made his recommendations. Plaintiffs contended that ultimately Security was declared insolvent in January 2004 and was required by court order to liquidate all assets.

Lita Biederman was involved in a motor vehicle accident on January 24, 2003 and sustained back injuries as a result. Plaintiffs claimed that because of its financial woes: a) Security refused to pay of some of her medical bills which remained outstanding and were referred to collection agencies, negatively affecting plaintiffs' credit; and b) plaintiffs settled their underinsured motorist claim for less than full value. Plaintiffs claimed Moffett was aware of and may have caused some of the financial problems at Security, and that he breached a fiduciary duty to policyholders by collecting policy premiums knowing that Security was headed toward insolvency. Alleging various theories of relief, including violations of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20 (the CFA), plaintiffs sought compensatory and punitive damages, and attorney fees.

After the completion of discovery, Moffett moved for summary judgment.*fn1 Plaintiffs opposed that application and cross-moved to amend their complaint to add additional causes of action against Moffett and to add William Moffett and Herbert Klein as defendants.*fn2 In an oral opinion, later supplemented by a written memorandum opinion, the motion judge concluded that Moffett's position as president and majority shareholder of Security did not make him personally liable to plaintiffs absent facts that would warrant "pierc[ing] the corporate veil." He found no such facts "[p]articularly since there was [] public disclosure [of Security's financial conditions] in compliance with all legal requirements." He further determined that plaintiffs had failed to present any evidence sufficient to raise a "genuine issue of material fact" as to Moffett's individual liability under the CFA.*fn3 Thus, he granted the summary judgment motion, dismissed the complaint, and denied plaintiffs' motion to amend. On that last issue, he reasoned that his rulings on Moffett's application for summary judgment made the proposed amendment "[un]sustainable as a matter of law."*fn4

In reviewing a grant of summary judgment, we use the same standard employed by the trial court. Atlantic Mutual Ins. Co. v. Hillside Bottling Co., 387 N.J. Super. 224, 230 (App. Div. 2006). We decide first whether there was a genuine issue of material fact; if not, we then decide whether the motion judge's application of the law was correct. Id. at 230-31. We apply the standards articulated by the Supreme Court in Brill v. Guardian Life Ins. Co., 142 N.J. 520, 540 (1995).

[A] determination whether there exists a "genuine issue" of material fact that precludes summary judgment requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party.

We must assume the non-moving party's version of the facts as true and give that party the benefit of all favorable inferences available in the record. Id. at 536.

Utilizing these standards, and after careful consideration, we affirm essentially for the reasons set forth in the motion judge's oral and written decisions. We add only these brief comments.

Plaintiffs essentially rely upon factual findings contained in our unreported decision in the consolidated appeals of Baake v. Security Indemnity Insurance Co., No. A-6551-02 (App. Div. November 29, 2005) and In the Matter of the Rehabilitation of the Security Indemnity Insurance Co., No. A-6063-03 (App. Div. November 29, 2005). In particular, they note that the factual conclusions reached by the trial judge in those cases demonstrated that Security was in precarious financial condition by the end of 2002. Furthermore, by February 2003, Security had entered into a confidential administrative agreement which essentially placed it under the supervision of the Commissioner of Banking. Security's statutorily-required public disclosures made in the spring of 2003 demonstrated the precipitous decline of its financial health. Plaintiffs argue that Moffett was obligated to advise them of these financial problems based upon a fiduciary obligation owed to Security's policyholders.

Initially, we note that none of these subsequent factual developments are significant with respect to the purchase of plaintiffs' insurance policy in March 2002. There is no evidence anywhere in the record that suggests that Security was financially insolvent at the time it sold plaintiffs the policy of insurance in effect at the time of Lita Biederman's accident. Since the PIP and Underinsured Motorist provisions of that policy govern, we fail to see how plaintiffs claim could survive the lack of proximate causal connection between their alleged damages and any alleged misrepresentations or material omissions regarding Security's later financial insolvency.

Nevertheless, to the extent plaintiffs' claim that immediate disclosure of Security's financial position as of late 2002 would have caused them to cancel the policy and contract with another insurer before the January 24, 2003 accident, or that their March 2003 policy renewal somehow created an additional array of damages, these assertions are unavailing for the reasons set forth by the motion judge.

Plaintiffs chose to bring this action against Moffett, not Security. Generally, courts will not pierce the corporate veil absent fraud or injustice. Lyon v. Barrett, 89 N.J. 294, 300, (1982). Personal liability will only be imposed upon a director or controlling shareholder if it is demonstrated that he or she disregarded the corporate form and "utilize[d] the corporation as a vehicle for committing equitable or legal fraud." Marascio v. Campanella, 298 N.J. Super. 491, 502 (1997). Thus, to the extent plaintiffs' claims rested upon representations or omissions made by Security, there is no evidence in the record that would prove Moffett's personal liability because, but for the bare allegations of their complaint, plaintiffs offered no proof of equitable or legal fraud committed by Moffett. See Brae Asset Fund, L.P. v. Newman, 327 N.J. Super. 129, 134 (App. Div. 1999) (bare conclusions in pleadings are insufficient to defeat summary judgment). The very same analysis applies to plaintiffs' CFA claims against Moffett. Marascio, supra, 298 N.J. Super. at 502-03 .

To the extent plaintiffs' claims rested upon a theory that Moffett, as a director or officer of Security, had an independent fiduciary duty to warn policyholders of Security's financial condition, we disagree and find no precedent for the imposition of such an obligation.

Plaintiffs cite to dicta contained in In Re Prudential Insurance Co., 132 N.J. Eq. 170, 176 (Ch. Div. 1942). However, in Prudential, the court considered the sufficiency of a petition brought by a stock insurance company seeking to convert into a mutual insurance company. Id. at 172. A mutual insurance company's policyholders are also its shareholders. See Black's Law Dictionary 1041 (7th ed. 1999) ("mutual insurance company" is an insurer whose policyholders are its owners). Therefore, traditional fiduciary obligations of corporate directors to their shareholders were appropriately cited by the court. Security's policyholders, like the Biedermans, were not shareholders in the corporation, and this factual distinction makes Prudential's dicta irrelevant.

Plaintiffs summon no other authority that extends the fiduciary obligations of directors of an insurance company to their policyholders, and our independent review has found none. We decline plaintiffs' invitation to extend such a duty for the first time on the facts presented here.


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