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Bartello v. Option One Mortgage Corp.

January 22, 2009


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-1577-06.

Per curiam.


Argued January 5, 2009

Before Judges Lisa and Sapp-Peterson.

After a homeowner's policy lapsed for nonpayment of premium, the mortgagee, Option One Mortgage Corporation (Option One), as authorized by the mortgage agreement, obtained insurance at the mortgagor's expense covering loss or damage to the structure. The policy did not contain liability coverage. A dog owned by the mortgagor's daughter, a resident in the home, bit a neighborhood child. The child brought a personal injury claim against the mortgagor and his daughter. The homeowner contended that in purchasing insurance without liability coverage the mortgagee breached its obligations under the mortgage agreement. The homeowner and his daughter assigned their claim against Option One to the personal injury claimant, who brought this action against Option One. Judge Schott granted Option One's summary judgment motion and dismissed the complaint, concluding that Option One breached no express or implied obligation under the mortgage agreement.

On appeal, plaintiff argues that (1) Option One breached its implied covenant of good faith and fair dealing contained in the mortgage, (2) to the extent the mortgage permitted Option One to place coverage at higher premiums and for less coverage, the provision is unenforceable as unconscionable and against public policy, and (3) Option One breached its common law duty to the mortgagor. We reject these arguments and affirm.

On September 7, 2000, Frank Capezzano purchased a home at 324 Horseneck Road in Fairfield. In doing so, he entered into a purchase money mortgage in the amount of $301,500 with Option One. Capezzano did not immediately move into the home, but his daughter, Susan LaVarco and her family did. Capezzano bought the home for the benefit of his daughter, and she attended to the payment of the mortgage and insurance on the property. Capezzano eventually moved into the home with his daughter, approximately in late 2001.

The mortgage contained these provisions:

5. Hazard or Property Insurance. Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term "extended coverage" and any other hazards, including floods or flooding, for which Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender requires. . . . If Borrower fails to maintain coverage described above, Lender may, at Lender's option, obtain coverage to protect Lender's rights in the Property in accordance with Paragraph 7.

7. Protection of Lender's Rights in the Property. If Borrower fails to perform the covenants and agreements contained in this Security Instrument . . . then Lender may do and pay for whatever is necessary to protect the value of the Property and Lender's rights in the Property. Lender's actions may include paying any sums secured by a lien which has priority over this Security Instrument . . . . Although Lender may take action under this paragraph 7, Lender does not have to do so.

Any amounts disbursed [b]y Lender under this paragraph 7 shall become additional debt of Borrower secured by this Security Instrument. Unless Borrower and Lender agree to other terms of payment, these amounts shall bear interest from the date of disbursement at the Note rate in effect from time to time and shall be payable, with interest, upon notice from Lender to Borrower requesting payment.

Capezzano initially obtained a typical homeowner's policy, which insured the structure against loss and also provided him with liability coverage. The policy period was from August 16, 2000 to August 16, 2001, and the annual premium was $791. A later renewal of the policy for the period from August 16, 2002 to August 16, 2003 carried an annual premium of $996. On September 14, 2002, the policy was canceled for nonpayment of premium.

Throughout the short history of this mortgage, there were repeated deficiencies in Capezzano's obligation to provide Option One with proof of insurance. As a result, Option One sent multiple notices to Capezzano. Each notice was in similar form, informed Capezzano that proof of current insurance coverage had not been furnished, requested the furnishing of such proof, and stated:

It is important that we receive the correct insurance information within (21) days from the date of this notice, otherwise we may buy insurance to protect the property. If we buy the insurance, we will require you to repay us the premium shown above. No attempt will be made to duplicate any coverage you may have had in the past. The insurance we buy may be more expensive and provide less coverage than you could buy from an insurance agent of your choice. ...

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