On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-460-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Carchman and Sabatino.
Plaintiff George Chen appeals from a final judgment of the Law Division: 1) dismissing his declaratory judgment complaint seeking coverage under a homeowner's policy issued by defendant Vigilant Insurance Company (defendant or Vigilant); and 2) and entering judgment on defendant's counterclaim resulting in rescission of the policy. Following a bench trial, Judge David Rand found by clear and convincing evidence that plaintiff made material misrepresentations to defendant in obtaining his homeowner's policy and that those misrepresentations constituted equitable fraud warranting rescission. We affirm.
These are the facts adduced at trial. Plaintiff, a homebuilder, purchased property on Old Timber Trail, Boonton Township with the intention of constructing a home for sale. At the time, plaintiff resided with his wife and family on McCaffrey Lane in Boonton. Plaintiff secured construction mortgage financing and as a condition of the financing, plaintiff was required to secure insurance on the property. He secured a "builder's risk" policy, but after entering into a contract for the sale of the property, litigation ensued between plaintiff and the contract purchasers, Azad V. Khubani and his wife*fn1. As a result, the lender called the loan, and plaintiff was required to secure new financing. Plaintiff did so.
In addition to financing, plaintiff sought to secure new insurance on the property and contacted Ronald Obuch at Weichert Insurance Agency (Weichert) for that purpose. Weichert produced a policy written by Vigilant, a member of the Chubb Insurance Group. The insurance policy was a private homeowner's policy at a premium cost of $4,754, which included a two-month vacancy surcharge. As Sharon Alexander, a underwriter for defendant, explained, "[t]he vacancy surcharge is an additional 25 percent that's added to the policy premium for the time that the insureds are not actually living in the home." Alexander noted that the expected vacancy period would be "somewhere in the neighborhood of 30 to 60 days" "[which was] based on the expectation of how long it would take someone to move into a brand new house." A commercial policy insuring the property would have generated a premium twice as costly.
The critical fact in contention at trial was whether plaintiff misrepresented to defendant that he and his family were intending to occupy the Timber Trail property. According to Obuch, plaintiff made that representation to him. A similar representation was made to defendant's appraiser, Amanda Glazer, who was concerned that the property was underinsured. At trial, plaintiff continuously indicated that he could not remember whether he told Obuch that he and his family intended on moving into the home within the next month or so. Plaintiff later conceded that, due to the pending litigation with Khubani, he could not sell the property to anyone nor could he move in himself. When the trial judge questioned plaintiff regarding the inconsistencies in his testimony, plaintiff responded, "I don't know what I said that time. I just say, in my mind I just think about that, after C.O. [certificate of occupancy] some -- maybe Cubani (sic) will move in."
The fact became significant as Obuch asserted that the policy would not have been written if the true facts were known. As Obuch explained: "if the home is owner-occupied, it's eligible for standard insurance.... If the home is not going to be owner occupied, it may require investment property, a dwelling fire policy, so it's very germane." A property that is owner occupied, or a rental, is eligible for a "personal lines" policy. A property that is being built for a third party, however, would require a commercial policy.
While the policy was in force and plaintiff was out of the country, the Timber Trail property sustained water damage from frozen pipes that burst. The freezing pipes resulted from plaintiff's failure to pay the gas bill causing the gas company to terminate service and remove the meter. In January 2005, plaintiff filed a claim with defendant. During an interview with James Alvino, a private claims investigator retained by defendant, plaintiff disclosed that he intended to live in the house and that his furniture was in the house when the water damage occurred. At trial, defendant indicated that he bought the furniture and was simply storing it at the Timber Trail house. As the judge noted: "[t]he point is [that] it wasn't purchased for [plaintiff and his family] to use in Old Timber Trail[.]"
Ultimately, Vigilant issued a "Non-renewal" of plaintiff's policy on March 31, 2005, effective May 5, 2005, citing the following reasons: "increased hazard due to home is not [sic] owner occupied; lack of cooperation on loss control matters that affect the insurability of the risk; failure to install central station alarms." Alexander explained why the policy was not renewed, rather than canceled mid-term: when I wrote the policy originally, it was with the understanding that plaintiff would be moving in. We only have 60 days*fn2 to make that decision on whether or not we're going to cancel it mid-term based on the insured not complying with our requirement.
Generally, we, you know, give them the benefit of the doubt, that they're going to follow through. I -- I like to see the results of the appraisal, and in some cases I don't have that early enough to be able to actually take action.
So we give the insured the benefit of the doubt and if they don't follow through, then we go to non-renewal instead of a mid-term cancellation.
Alexander explained that on February 7, 2005 she set the policy for non-renewal because she had not received confirmation that the house had been occupied, nor had she received proof of installation of an alarm, as required under the initial policy terms. As such, Chubb would keep the premium, including the vacancy surcharge, and the policy would remain in effect through its natural termination date. ...