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Alpine Home Inspections, LLC v. Underwriters at Lloyd's London


November 24, 2008


On appeal from Superior Court of New Jersey, Law Division, Bergen County, No. L-3353-06.

Per curiam.


Argued October 21, 2008

Before Judges Wefing and Yannotti.

Jeffrey Rotenberg filed suit against Alpine Home Inspections, LLC, and its principal, Glen Woertz, alleging Woertz had negligently conducted a home inspection for Rotenberg and failed to discover the presence of termites.*fn1 Woertz had liability coverage through Underwriters at Lloyd's London ("Underwriters"); coverage was declined, but Underwriters agreed to defend Woertz under a reservation of rights. Woertz then filed a declaratory judgment suit against Underwriters, and the two actions were consolidated. Underwriters moved for summary judgment and its motion was granted. Woertz and Rotenberg moved for reconsideration, which was denied. Woertz and Rotenberg have appealed. Having reviewed the record in light of the contentions advanced on appeal, we affirm.

Woertz performed the home inspection on December 6, 2004, and he reported to Rotenberg that wood-destroying insects were not present on the premises. Rotenberg had a second test performed after he closed on the premises, and that inspection revealed the presence of termites. On June 2, 2005, Rotenberg's attorney wrote to Woertz in connection with this claim and advised that Rotenberg had received a preliminary estimate of $3,300 to repair the damage. The attorney asked that Woertz advise him of the name, address and policy number for his liability insurance policy.

At the time Woertz received this letter, he had a claims made liability policy issued through Underwriters; the policy period was August 1, 2004, through August 1, 2005. This policy had the following provision:

[T]he Insured shall report such Claim in writing to the Insurers, as soon as practicable, but in no event later than 60 days after expiration or termination of this Policy, or during the Extended Reporting Period, if applicable, and that prior to the inception date of this Policy Period no Insured knew or could have reasonably foreseen that any Wrongful Act might give rise to a Claim.

The policy defined a claim as "any civil action, suit, proceeding, or written demand received by any Insured seeking to hold the Insured responsible for Loss as a result of an alleged Wrongful Act committed by any Insured."

Woertz responded to this letter by simply telling Rotenberg's attorney to direct all of his correspondence with respect to this matter to Woertz's attorney. Woertz, however, did not advise Underwriters of the receipt of this letter. This, Woertz later contended, was because the amount of the claim was less than his deductible under the policy.

Woertz obtained a second claims made policy through Underwriters for the policy period August 1, 2005, through August 1, 2006. He obtained a ten percent discount on his premium because he had been "claim free" for a year.

On November 11, 2005, Rotenberg filed suit in the Special Civil Part of the Law Division, alleging negligence, breach of contract and consumer fraud. On November 22, 2005, Woertz informed Underwriters of the pending litigation, and Underwriters' counsel responded with a reservation of rights letter.

In the course of preparing his case, Rotenberg's attorney received an opinion from a real estate expert that there had been a ten percent reduction in the fair market value of Rotenberg's home, which he had purchased for more than $3,000,000. In March 2006, Rotenberg's complaint was transferred out of the Special Civil Part to avoid the limitation on damages. R. 6:1-2(a)(1).

Woertz then filed a declaratory judgment action against Underwriters. The trial court ruled that Woertz was not entitled to coverage because of his failure to notify Underwriters in a timely manner of his receipt of the June 2, 2005, claims letter.

Woertz argues, in essence, that because he provided notification to Underwriters after Rotenberg filed suit, and within the policy period, August 1, 2005, to August 1, 2006, he is entitled to coverage under that policy. Denying him coverage, he contends, would defeat his reasonable expectations.

The underlying thesis of defendant's argument is that the assertion of these increased damages, and the consequent transfer from the Special Civil Part, in some manner constitutes a new claim. We reject this premise, however, for we find it wholly inconsistent with the nature of a claims made policy of insurance.

The Supreme Court rejected such an argument in Zuckerman v. Nat'l Union Fire Ins. Co., 100 N.J. 304 (1985), a case that is similar in many ways to that presented here. Plaintiff in that case was an attorney who had a claims made liability policy issued by defendant. He did not notify the carrier when first sued by a client, thinking the matter would resolve for an amount within the deductible. The Court upheld the carrier's denial of coverage.

[T]he event that invokes coverage under a "claims made" policy is transmittal of notice of the claim to the insurance carrier. In exchange for limiting coverage only to claims made during the policy period, the carrier provides the insured with retroactive coverage for errors and omissions that took place prior to the policy period. Thus, an extension of the notice period in a "claims made" policy constitutes an unbargained-for expansion of coverage, gratis, resulting in the insurance company's exposure to a risk substantially broader than that expressly insured against in the policy. [Id. at 324.]

Indeed, the chronology of events in this case belies Woertz's assertion that his "reasonable expectation" that the matter involved an amount smaller than his deductible led to his decision not to notify his insurer when he received the June 2, 2005, letter. He did notify the insurer once litigation commenced, at which point the amount he could hope to recover under his policy (which excluded claims for treble damages under the Consumer Fraud Act) was still less than his deductible. Litigation started, and Woertz notified Underwriters after the policy period in which the claim first arose had expired. We cannot consider a claim for increased damages a new claim that arose within the second policy period; it is simply a claim for enhanced damages for the same claim for which Woertz received notification during the first policy period.

We also reject the argument that because Woertz had one policy issued by Underwriters providing coverage from August 1, 2004, to August 1, 2005, and a second policy from Underwriters providing coverage from August 1, 2005, to August 1, 2006, he had, in effect, continuous coverage so that notification at any point from August 1, 2004, to August 1, 2006, was effective. Such an analysis flies in the face of a claims made policy. We rejected a similar argument in Insite-Properties, Inc. v. Jay Phillips, Inc., 271 N.J. Super. 380, 385-86 (App. Div. 1994), and perceive no basis to come to a different conclusion in this matter.

These policies had none of the ambiguities which existed in the medical malpractice claims made policy at issue in President v. Jenkins, 180 N.J. 550, 565-66 (2004), a case upon which Rotenberg relies. These policies issued by Underwriters clearly defined the retroactive date as the date upon which each policy commenced. There was no confusion here as to either the effective date of each policy or the retroactive date.

Nor are we persuaded by Rotenberg's argument that public policy requires that coverage be afforded. Woertz was denied coverage not because of any misunderstanding about the nature of a claims made policy or because he did not comply with statutory or regulatory requirements, or because of an exception within the policy, but because he simply chose not to report the claim when he received it.

Having concluded that the trial court correctly granted summary judgment to Underwriters, we are satisfied that the trial court correctly denied the motion for reconsideration.

The orders under review are affirmed.

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