September 9, 2009
CRUM & FORSTER INSURANCE COMPANIES AND UNITED STATES FIRE INSURANCE COMPANY, PLAINTIFFS-RESPONDENTS/ CROSS-APPELLANTS,
MECCA & SONS TRUCKING CORPORATION, ATRIMEC REALTY CORP., AND CLEAN-O-MAT CORP., DEFENDANTS/THIRD-PARTY PLAINTIFFS-APPELLANTS/CROSS-RESPONDENTS,
EASTERN INSURANCE AGENCY, INC. AND CRUMP GROUP OF NEW JERSEY, INC., THIRD-PARTY DEFENDANTS.
On appeal from the Superior Court of New Jersey, Law Division, Morris County, L-847-02.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 8, 2008
Before Judges R. B. Coleman, Sabatino and Simonelli.
Defendants Mecca & Sons Trucking Corporation, Atrimec Realty Corp. and Clean-O-Mat Corp. (collectively Mecca) appeal from a Law Division order granting summary judgment in favor of plaintiffs Crum & Forster Insurance Companies and United States Fire Insurance Company (collectively plaintiff or C&F) and denying Mecca's motion for summary judgment. C&F has filed a cross-appeal, contending the Law Division rejected additional grounds to deny coverage to Mecca. Because we agree that the insurance policy vacancy exclusion applies, we affirm.
On March 12, 2002, C&F filed a complaint for declaratory judgment against Mecca seeking a determination that C&F was not liable on an insurance policy issued to Mecca for damages claimed as a result of a fire on September 3, 2001, at a building located at 163 Avenue A, Bayonne, New Jersey (the property). The complaint alleged in five counts that (1) Mecca did not own the property where the loss occurred and, therefore, did not have an insurable interest; (2) the premises were vacant at the time of the loss, triggering an exclusion to coverage; (3) the policy was suspended at the time of the loss because Mecca had increased the hazard; (4) Mecca did not sustain a loss because the property had no value on the day of the fire; and (5) Mecca misrepresented material facts in its application that warrant rescission of the policy.
On June 6, 2002, Mecca filed an answer and counterclaim, asserting in its pleadings that: (1) C&F breached the insurance contract by failing to pay the Agreed Value on the policy; (2) C&F's failure to pay pursuant to the terms of the written policy of insurance constitutes bad faith dealings; (3) C&F disclaimed coverage in an untimely and improper manner; (4) C&F breached its statutory and common law duties to act in good faith and in fair dealing; (5) C&F breached the Plain Language Act, N.J.S.A. 56:12-1 to -13; and (6) C&F violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -106. Mecca joined its insurance brokers, Eastern Insurance Agency, Inc. (Eastern) and Crump Group of New Jersey, Inc. (Crump), as third-party defendants; however, the claims against those parties have been resolved and are not at issue in this appeal.
In this appeal, Mecca contends that plaintiffs were improperly granted summary judgment based on the vacancy/vandalism condition of the policy, and that Mecca's breach of contract claim was improperly dismissed. In the cross-appeal, C&F essentially contends that it is entitled to judgment on each of the theories advanced in the various counts of its cross-claim.
By an insurance application dated October 25, 2000, submitted on its behalf, Mecca sought insurance coverage from C&F in compliance with a leasehold agreement Mecca held on the property in question. In the "Property Section" of the application, the broker Crump represented that all of the locations for which it sought coverage were "Masonry, except 528-530 Art Lane, Ridgefield, NJ." The letters "NC" were handwritten above the word "Masonry." C&F states it understood "NC" to be an abbreviation for non-combustible. The application further stated that "[a]ll locations have smoke and CS Burglar Alarms." Below this language is handwriting stating "all are AS" which, according to C&F, indicates sprinklers.
In contrast, Peggy Mecca, the President of Mecca, filed a certification in support of Mecca's motion for summary judgment in which she certifies that she never represented -- either to C&F or to her own agent -- that the premises had sprinklers. In fact, she avers that she specifically represented the premises were not alarmed for smoke, burglary or fire. She states she was never asked whether the premises had sprinklers.
The initial Property Coverage Schedule listed eleven properties, including 163 Avenue A, Bayonne. Mecca requested and the issued policy provided for $700,000 in building coverage and $250,000 in business interruption and extra expenses coverage. Coverage was effective from November 29, 2000 to November 29, 2001. C&F asserts that Mecca's request for that type of coverage led it to believe that the building was actively in use. C&F also points out that an employee of Crump, which acted as the broker in procuring the policy, communicated to C&F that "[insured] has regular maintenance on all locations, all will be in good condition and inspect [sic] well." Consistent with its policy not to inspect buildings unless the proposed value of the building was stated to be in excess of $2,000,000, C&F did not conduct its own inspection of the property.
The term "vacancy" is a defined term in the policy, in pertinent part, to include the following:
(a) When this policy is issued to a tenant, and with respect to that tenant's interest in Covered Property, building means the unit or suite rented or leased to the tenant. Such building is vacant when it does not contain enough business personal property to conduct customary operations.
By way of limitation, the policy provides that: "C&F will pay no more for loss of or damage to [Covered Property to which this Optional Coverage applies] than the proportion that the Limit of Insurance under this Coverage Part for the property bears to the Agreed Value shown for it in the Declarations." Section F(2) of the Custom Deluxe Coverage Form states that if Mecca and C&F disagree on the value of property or the amount of a loss, either party may make a demand for an appraisal and each party will then select an appraiser.
On September 3, 2001, a fire occurred at 163 Avenue A, Bayonne, and Mecca promptly reported the loss to C&F. Various individuals investigated the fire, and issued reports regarding their findings. Among those issuing such reports were firefighter Kevin Fitzhenry and investigators Gerald Trimboli and James Young.
In his report dated October 1, 2001, Fitzhenry indicated that no fire and smoke detectors were present in the building. He reported the building status as vacant and unsecured. Similarly, a report prepared by the Bayonne Police Department described the building as abandoned.
Trimboli, who was retained by C&F, prepared a report that contained the following observations: the fire occurred at a "one-story... warehouse (vacant)"; "[t]here were no utilities in service [sic] at the time of this fire"; "the structure was vacant at the time of the fire"; "[t]he building was vacant at the time of the incident with all roll downs secure"; "[t]he building was vacant with concrete floors"; "[e]lectrical service was not in service to this building"; and "[t]he building reportedly has been vacant for approximately 5 plus years."
Young certified that he spoke with Peggy Mecca, who advised him that on the date of the fire, Mecca did not own the building, that it had a leasehold interest in the property. Mecca certified further that at the time of the fire, the building was being used for viable business purposes and for storage.
In the course of its investigation, C&F obtained a December 1996 appraisal report of the building. That appraisal report estimated that the entire premises were valued at $1,804,200, but the existing industrial building could no longer be used due to zoning restrictions. Given that the cost to demolish the building was approximately $845,000, the report concluded that the market value of the site, valued as vacant land only, was approximately $960,000.
On March 12, 2002, C&F sent a letter to Mecca disclaiming liability for Mecca's claim. The letter provided the following reasons for denying coverage: (1) at the time of the damage, Mecca had no insurable interest in that the legal title of the building was in the name of a third party, and Mecca's subsidiaries that may have had an insurable interest were not named insureds under the policy; (2) the building was vacant for more than ninety days prior to the loss and coverage was subject to an exclusion in the event of vandalism; (3) the policy was suspended because Mecca increased the hazard of fire by failing to have a functioning sprinkler system as was represented in the application process; (4) Mecca did not sustain any loss because the building could not be used for industrial use and the cost of demolishing the building negated any value the building might have had; and (5) C&F is entitled to rescind the policy due to misrepresentations made by Mecca at the time of its application for the issuance of the policy. Shortly after sending this letter to Mecca, C&F filed its complaint for declaratory judgment.
Mecca and C&F filed competing motions for summary judgment which were resolved in accordance with the court's June 27, 2006 letter opinion. In summary, the court determined that Mecca did have an insurable interest because it maintained the insurance policy, had a right of occupancy and provided evidence of substantial loss due to the fire. The court declined to determine whether the fire was caused by vandalism because it believed disputed issues of material fact existed as to the cause of the fire. The court did find, however, that the building was "vacant" under the terms of the policy, and that any use of the building was not customary or valid. As for the increased risk of hazard, the court again found that the existence of issues of material fact precluded the grant of summary judgment. The court held, however, that the property had an Agreed Value of $700,000 that neither party to the insurance agreement could challenge. Also, the court found that there were disputed issues of material fact as to whether Mecca had made false representations in the application process.
As for the issues related to Mecca's counterclaim, the court determined that C&F did not breach its contractual obligations to Mecca by disclaiming coverage. The court concluded that C&F had a reasonable or debatable basis to deny coverage and it had not acted in bad faith. Moreover, the court held that C&F gave Mecca time to demonstrate an insurable interest and loss, therefore, its disclaimer of coverage was not impermissible. Lastly, the court found that the policy did not violate the Plain Language Act.
As a preliminary matter, C&F contends that because Mecca's notice of appeal does not mention the June 27, 2006 order deciding the motions and cross-motions for summary judgment, Mecca has appealed only from the January 22, 2007 order disposing of the parties' motions in limine, and not the June 27, 2006 order. Rule 2:5-1 states, in pertinent part, that an appellant "shall designate the judgment [or] decision... appealed from...." It has been observed that "[w]hile the rule does not in terms so provide, it is clear that it is only the judgments or orders... designated in the notice of appeal which are subject to the appeal process and review." Pressler, Current N.J. Court Rules, comment 6.1 on R. 2:5-1 (2008); see also Fusco v. Bd. of Educ. of Newark, 349 N.J. Super. 455, 461-62 (App. Div.), certif. denied, 174 N.J. 544 (2002) (order of summary judgment was not included with notice of appeal and would not be considered on appeal); 30 River Court E. Urban Renewal Co. v. Capograsso, 383 N.J. Super. 470, 473-74 (App. Div. 2006) (claims dismissed by orders not included in the notice of appeal are not within scope of the appeal and the court would not consider them). Thus, under a strict construction of Rule 2:5-1, we could decline to consider Mecca's arguments that are pertinent to the June 27, 2006 order.
It is well established, however, that we may choose to apply Rule 1:1-2 and relax the application of Rule 2:5-1 in the interest of fairness. Here, both parties fully briefed the issues that C&F argues should not be considered on appeal, and the issues appear to be inextricably intertwined with those involved in the January 2007 order. It also appears that in order to secure a just and complete determination, we should consider all of Mecca's arguments raised on appeal. Recognizing that we may choose to apply the procedural bar of Rule 2:5-1, for the sake of completeness, we, nevertheless, will address Mecca's arguments that the motion judge erred in his disposition of the cross-motions for summary judgment.
On appeal, this court reviews a summary judgment order de novo, utilizing the same standard as the motion court. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Summary judgment must be granted if "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." Rule 4:46-2; see also Brill v. Guardian Life Ins. Co., 142 N.J. 520, 540 (1995). We, therefore, must decide whether there was a genuine issue of material fact, and if none exists, decide whether the trial court's ruling on the law was correct. "All inferences of doubt are drawn against the movant in favor of the opponent of the motion." Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 75 (1954).
Our Supreme Court has thoroughly articulated a court's role when interpreting an insurance policy:
We give special scrutiny to insurance contracts because of the stark imbalance between insurance companies and insureds in their respective understanding of the terms and conditions of insurance policies. Gibson v. Callaghan, 158 N.J. 662, 669 (1999). In the first instance, the words of an insurance policy are to be given their plain, ordinary meaning. "In the absence of any ambiguity, courts should not write for the insured a better policy of insurance than the one purchased." Id. at 670 (quotation and citation omitted). However, "[i]nsurance policies are contracts of adhesion and as such, are subject to special rules of interpretation." Ibid. (citing Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537, (1990); Meier v. N.J. Life Ins. Co., 101 N.J. 597, 611-12 (1986)). When there is ambiguity in an insurance contract, courts interpret the contract to comport with the reasonable expectations of the insured, even if a close reading of the written text reveals a contrary meaning. Id. at 671. "The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations." Sparks v. St. Paul Ins. Co., 100 N.J. 325, 338-39, (1985) (quoting R. Keeton, Insurance Law 351 (1971); R. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv. L. Rev. 961, 967 (1970)). [Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2001).]
The terms of an insurance policy that are ambiguous will be construed against the insurer. See Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482 (1961) (observing that members of the public who purchase policies of insurance are entitled to the broad measure of protection necessary to fulfill their reasonable expectations, and "they should not be subjected to technical encumbrances or hidden pitfalls and their policies should be construed liberally in their favor to the end that coverage is afforded 'to the full extent that any fair interpretation will allow.'"); Gerhardt v. Continental Ins. Co., 48 N.J. 291, 298 (1966) (holding the insured was entitled to protection against a workers' compensation claim by a domestic employee injured at the insured's home where the exclusionary clause in the comprehensive homeowner's policy was neither conspicuous, nor plain, nor clear).
On the other hand, when the language of the policy is clear, our courts have enforced those insurance contracts as written. For example, in Di Orio v. N.J. Mfrs. Ins. Co., 79 N.J. 257, 263 (1979), the Court held that the term "non-owned automobile," which the policy defined as "an automobile... not owned by or furnished for the regular use of either the named insured or any relative," was unambiguous. That was not a "situation where the entangled and professional interpretation of an insurance underwriter [was] pitted against that of an average purchaser of insurance." Id. at 270.
Similarly, in Weedo v. Stone-E-Brick, Inc. 81 N.J. 233, 235-36, 241 (1979), the Court found that an exclusion in a comprehensive general liability provision of a policy issued to a corporation engaged in masonry contracting was unambiguous and enforceable. The policy excluding "property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith" precluded coverage for replacement costs occasioned by the insured's shoddily performed stucco and roofing work. In Weedo, the Court instructed:
We conceive a genuine ambiguity to arise where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage. In that instance, application of the test of the objectively reasonable expectation of the insured often will result in benefits coverage never intended from the insurer's point of view. [Id. at 247.]
Keeping in mind these standards and rules of interpretation, we proceed with our analysis.
The trial court in this case found that the building was vacant and consequently granted C&F's cross-motion for summary judgment on that issue. The court wrote:
On the issue of the vacancy of the subject premises, there is no genuine issue of material fact as to whether the premises were vacant under the terms of the policy.... Here, the building had no customary operations. Any use of the building except for residential purposes violated the zoning obligations upheld by the Appellate Division. Defendants claim that landscaping equipment and trailers were periodically stored in the subject premises, but this was not a customary operation. The building was vacant.
We agree that the evidence provided by Mecca does not establish customary operations. Although Mecca contends evidence that it used a small portion of the building for storage of documents and that a landscaper leased space in the building to store some of its equipment, the evidence was so one-sided on the issue of vacancy that C&F was entitled to prevail as a matter of law. Brill, supra, 142 N.J. at 540. All disinterested sources indicated the property was vacant. For example, the Bayonne Police report indicates that the building was abandoned, and the Fire Department's report stated the building was vacant. There were trees and bushes growing in the building. However, even if, based on this evidence, a genuine dispute existed as to a material issue of fact, no disputed facts exist as to the propriety of the nature of the operations that may be conducted at the premises. Thus, the building was vacant, as defined in the policy.
The Law Division judge justifiably relied on the absence of any customary operation, noting further that any use of the building for non-residential purposes violated zoning regulations. See Englander Co, Inc. v. Zoning Bd. of Adj. of Bayonne, No. A-6271-89T5, slip op. at 15 (App. Div. 1991). In that case, a different panel of this court affirmed in an unpublished opinion that the proposed use of the property by Mecca's subsidiary, Clean-O-Mat Corporation, as a public warehouse, was not a continuing lawful nonconforming use; such use was, therefore, prohibited because it violated zoning ordinances. Accepting as true that Mecca was storing trailers and equipment in the building, we do not accept that such an unauthorized or unlawful use of the premises by Mecca can be a customary operation. The Law Division judge properly concluded the building was vacant. Mecca argues that vacancy connotes the absence of inanimate objects in a building, relying on a distinction between "vacant" and "unoccupied" considered in Ellmex Constr. Co., Inc. v. Republic Ins. Co., 202 N.J. Super. 195, 203 (App. Div. 1985), certif. denied, 103 N.J. 453 (1986). That argument was appropriately rejected. Under the policy in Ellmex, such a distinction was more meaningful because there was definition of the term "vacancy" in the policy. In the end, we found coverage in Ellmex for vandalism because the property was physically occupied by a realty company which used it as a model home and sales office four days out of every week during the thirty days preceding the vandalism loss.
Here, Mecca argues that while vandalism is listed among the exclusions for which C&F will not pay when the property is vacant for more than ninety days, fire is not so expressly excluded. The trial court, of course, ruled that issues of fact precluded a grant of summary judgment determining that the damage to the building was caused by vandalism. We agree that an issue of fact exists as to the meaning of vandalism which, unlike "vacant," is not a defined term in the policy. Given the ordinary rule of construction calling for strict interpretation of exclusionary issues, we conclude that a further question exists as to whether vandalism may include the destruction of property by fire. In this regard, we note that the policy exclusion for perils other than those stated therein does not preclude all recovery. Instead, it limits recovery, by reduction of fifteen percent, the amount C&F would otherwise pay for the loss or damages.
The policy in this case states that C&F will not provide coverage if the building where the loss occurred is vacant for more than ninety consecutive days before the loss or damage, and the loss was caused by specific perils, including vandalism. The term "vandalism" is not defined. Therefore, we must apply the ordinary meaning of the term. Zacarias, supra, 168 N.J. at 595. A dictionary definition of vandalism is "willful or malicious destruction or defacement of things of beauty or of public or private property." Webster's Third New International Dictionary (Unabridged) (1993). In Parnell v. Rohrer Chevrolet Co., 95 N.J. Super. 471, 480 (App. Div. 1967), we recognized that "any unusual destruction wrought in the doing of a wrongful act" constitutes vandalism. Nevertheless, after having initially denied C&F's motion for summary judgment, the court thereafter granted its motion in limine to exclude evidence that "no human factor contribute[d] to ignition." As a result of that ruling, it granted summary judgment as to count two of the complaint. Mecca contends that this presents a genuine disputed issue of material fact, which should have prevented the court from granting summary judgment. In particular, Mecca asserts that its expert's opinion as to the cause of the fire contradicts the opinion of C&F's expert.
Mecca's expert, Fitzhenry, opines that the cause of the fire was "Undetermined." Fitzhenry explained, however, that the building's structural instability, a result of the fire, "prohibited [him] from making a thorough and complete determination of cause and origin of this fire." In contrast, C&F's expert opined that "the event that caused the union of this ignition source [an open flame] and the first material ignited [roofing material] is consistent with available ignitable materials being intentionally lighted and placed in contact with the roofing materials." C&F's expert reached this conclusion based on interviews of witnesses, and exterior and interior site observations.
In Brill, supra, 142 N.J. at 540, the Court explained when a genuine issue of fact exists:
[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. The "judge's function is not himself [or herself] to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." [(internal citations omitted).]
However, the Brill Court further stated that:
A party cannot defeat a motion for summary judgment merely by submitting an expert's report in his or her favor. In order for such a report to have any bearing on the appropriateness of summary judgment, it must create a genuine issue of material fact. [142 N.J. at 544 (citing Ziemba v. Riverview Med. Ctr., 275 N.J. Super. 293, 302 (App. Div. 1994)).]
In Brill, the expert's conclusion concerning the defendant's liability was "based on a factually inaccurate and unjustifiable assertion, [therefore, the court] agree[d] with the trial court's conclusion that [the expert's] report does not create a genuine issue of material fact precluding the grant of summary judgment." Id. at 544. In this case, the only evidence proffered by Mecca, Fitzhenry's report, does not create a genuine issue of material fact. Similar to the report in Brill, Fitzhenry's report did not advance a determination that was based on fact. Because Mecca's expert report, devoid of any determination as to causation, is not sufficiently supported by fact, it cannot create a genuine issue of fact that would preclude summary judgment.
The trial court was correct that Fitzhenry's report has limited value. Conversely, C&F's expert report was grounded in fact and the inferences made by the expert were rational and permissible. In contrast to Fitzhenry, C&F's expert was able to conduct a thorough investigation of the building, in turn allowing him to make an educated decision as to the cause of the fire. As previously noted, we have recognized that the term "vandalism" means "any unusual destruction wrought in the doing of a wrongful act." Parnell, supra, 95 N.J. Super. at 480. Thus, intent is not truly an element of vandalism, and C&F was not required to prove intent. Assuming, however, that intent is a requirement, the undisputed facts gathered by the investigators support a reasonable inference that the cause of the fire indeed was an intentional act by unknown persons that resulted in damage or destruction of the property. C&F's expert reviewed the facts and used the process of elimination to reach a determination that "the fire was incendiary." The question remains whether destruction by fire was reasonably understood by the insured to be excluded from coverage under the vandalism exclusion.
Mecca argues that the court should not have granted summary judgment because C&F's expert report is open to cross-examination. Again, that argument is unfounded. Mecca's disagreement with C&F's expert report, without a competent expert opinion of its own, does not sufficiently create a genuine dispute of material fact to warrant submission of the issue to a jury. See Butler v. Acme Markets, Inc., 89 N.J. 270, 283 (1982) (finding need for expert testimony when the matter is so esoteric that jurors of common knowledge and experience cannot form a valid judgment).
Mecca's remaining arguments lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(a)(1)(E). Such arguments include the assertion that C&F breached the contract and the covenant of good faith and fair dealing, that C&F's disclaimer was untimely and unreasonable, that C&F's investigation and disposition of the claim was conducted in bad faith and that there was a violation of the Plain Language Act. We discern no basis to conclude that C&F violated the good faith obligations imposed upon it either statutorily by N.J.S.A. 17:29B-4(9) or by common law. See, e.g., Pickett v. Lloyd's and Peerless Ins. Agency, Inc., 131 N.J. 457, 467 (1993); Griggs v. Bertran, 88 N.J. 347, 357 (1982).
In light of our disposition of Mecca's appeal in chief, we could dispense with any discussion by C&F's cross-appeal.
Nevertheless, for the sake of completeness, we shall proceed. In its cross-appeal*fn1, C&F contends that Mecca did not have an ownership interest or pecuniary interest in the property, and that it, therefore, did not have an insurable interest.
We are convinced the motion judge properly rejected the contention that Mecca lacked an insurable interest. "The test of insurable interest in property is whether the insured has such a right, title or interest therein, or relation thereto, that he will be benefited [sic] by its preservation and continued existence or suffer a direct pecuniary loss from its destruction or injury by the peril insured against." Lancellotti v. Maryland Cas. Co., 260 N.J. Super. 579, 584 (App. Div. 1992). "It is also fundamental that one may have an insurable interest in property without any necessity of being the absolute owner thereof." Hyman v. Sun Ins. Co., 70 N.J. Super. 96, 99 (App. Div. 1961).
In Miller v. New Jersey Ins. Underwriting Assoc., 82 N.J. 594, 600 (1980), the Court stated:
With respect to real estate, an insurable interest need not rise to the level of legal or equitable title. In the past, New Jersey courts have recognized that an insured retains an insurable interest as long as he has a reasonable expectation of deriving pecuniary benefit from the preservation of the property or would suffer a direct pecuniary loss from its destruction.
Our courts have applied this principle on many occasions. For example, in Wolf v. Home Ins. Co., 100 N.J. Super. 27 (Law Div.), aff'd, 103 N.J. Super. 357 (App. Div. 1968), an owner of property that transferred possession to the State was found still to have an insurable interest in the property after transferring possession. Similarly, in Miller, supra, the Court determined that the plaintiffs, who continued to occupy property foreclosed upon by the State, would be allowed to demonstrate a pecuniary loss. 82 N.J. at 604.
Mecca had a leasehold interest in the property. It was required to maintain insurance on the property and the owner of the property agreed not to make any claims for insurance proceeds that might be paid to the tenant. To the extent Mecca would suffer a potential loss as a result of damage to the property, it has an insurable interest. See Balentine v. New Jersey Ins. Underwriting Ass'n, 406 N.J. Super. 127 (App. Div. 2009).
C&F argues that it was a subsidiary that was the tenant of the property, and not Mecca itself, thereby preventing Mecca from having an insurable interest. This argument is not persuasive. First, as the asserted owner of the subsidiaries, Mecca has "an interest or relation thereto" so that it would be benefited by the preservation of the property. Lancellotti, supra, 260 N.J. Super. at 584. Moreover, to the extent that C&F contests the validity of Mecca's ownership of the subsidiaries, the facts, viewed in favor of the non-moving party, preclude summary judgment on this issue. Accordingly, we agree that the court properly denied C&F's motion for summary judgment on this issue.
C&F also continues to assert that Mecca increased the hazard by making misrepresentations that the premises had a sprinkler system; it urges that coverage was suspended during the time of the increased hazard. In Indus. Dev. Assocs. v. Commercial Union Surplus Lines Ins. Co., 222 N.J. Super. 282, 291-92 (App. Div.), certif. denied, 111 N.J. 632 (1988), we considered what action constitutes an increase of hazard, explaining:
An increase in hazard takes place when a new use is made of the insured property, or when its physical condition is changed from that which existed when the policy was written, and the new use or changed condition increases the risk assumed by the insurer. An increase of hazard will generally not be found if there has been merely... a casual change of a temporary character. Thus, the negligence of the insured does not constitute an increase in the hazard, unless that negligence results in a change of some duration of the structure, use or occupancy of the premises. [(internal citations and quotations omitted).]
Furthermore, "[w]hether there has been an increase of hazard suspending coverage under a policy is a question of fact which should be determined by a jury unless the evidence is so conclusive that reasonable minds could not differ." Ibid.
In Dynasty v. Princeton Ins. Co., 165 N.J. 1, 9-10 (2000), the Court was asked to decide "whether a sprinkler system locked in the off position represent[ed] a 'new use' of the insured's property or a 'changed condition' that ha[d] increased the risk assumed by the insurer." Reviewing New Jersey precedent and cases with similar facts from other jurisdictions, the Court concluded "an insured's unjustified disabling of a sprinkler system falls within the realm of an increase-of-hazard clause." Id. at 12. Thus, coverage in that case was suspended.
This case is distinguishable from Dynasty because it does not involve such a disabling of the sprinkler system or "new use." If Mecca did in fact misrepresent that the property had sprinklers, its failure to actually have sprinklers would not constitute a "new use," because in reality, the property did not have sprinklers at the time of Mecca's application. A misrepresentation is not a change of the physical condition of the property from that which existed at the time the policy was written. If anything, it is a false statement during the application process that is better suited for the alternative claim of rescission. See Ledley v. William Penn Life Ins. Co., 138 N.J. 627 (1995).
Moreover, issues of increased hazard are generally for the trier of fact. Dynasty, supra, 165 N.J. at 9-10. In the present case, the evidence is not so overwhelming that reasonable minds could not differ. Instead, the disputed evidence on this issue presents a genuine question of material fact. Peggy Mecca certified that she never represented that the property had sprinklers, while C&F's underwriter testified that Mecca's application indicated that the property did have sprinklers.*fn2 The motion judge appropriately denied the motions of both parties concerning this issue.
C&F also argued that Mecca did not sustain a loss because the building destroyed by the fire had no value. The trial court ruled that "the Broad Evidence Rule did not apply because the subject policy was an Agreed Value Policy...." The court determined that C&F "ignored the fact that there was an Agreed Value policy, which would preclude both parties from challenging the value. As both parties agreed to the value as part of the contract, both parties are precluded from challenging that value." The Broad Evidence Rule requires:
the fact-finder to consider all evidence an expert would consider relevant to an evaluation, and particularly both fair market value and replacement cost less depreciation.
If the appraiser finds it appropriate under the particular circumstances he may, after weighing both factors, settle on either alone. Normally, replacement cost minus depreciation can be significant evidence of value but it is not necessarily conclusive. Thus under the broad evidence rule the two stated criteria do not bind the fact-finder but instead become guidelines, along with other relevant evidence. No evidence is per se exclusive of other evidence; any evidence may be used jointly or alternatively according to the circumstances and the property to be evaluated. [Elberon Bathing Co, Inc. v. Ambassador Ins. Co., 77 N.J. 1, 13 (1978).]
We first consider what the term "Agreed Value" means in the context of this insurance policy. The policy provides:
7. Valuation We will determine the value of Covered Property in the event of loss or damage as follows:
a. At replacement cost (without deduction for depreciation) as of the time of loss or damage, except....
(1) The most we will pay is actual cash value for any loss or damage:
(a) Until the lost or damaged property is actually repaired or replaced; and
(b) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.
Under the "Optional Coverages" section, the policy explains "Agreed Value" as follows:
1. Agreed Value
a. The Additional Condition, Coinsurance, does not apply to Covered Property to which this Optional Coverage applies. We will pay no more for loss of or damage to that property than the proportion that the Limit of Insurance under this Coverage Part for the property bears to the Agreed Value shown for it in the Declarations.
The language of the policy is clear. See Zacarias, supra, 168 N.J. at 595. C&F committed to pay the replacement cost for any Covered Property. The Agreed Value was not a stipulation of the actual valuation of any specific loss. Although the parties may have agreed that the building had a value of $700,000, this did not necessarily represent the amount of loss from a covered event. That amount is an upper limit, rather than a liquidated amount of damages. At no point does the policy state that in the event that the building is destroyed, Mecca is entitled to receive the Agreed Value of the Property. Thus, we disagree with the trial court's conclusion that the policy "was an Agreed Value Policy... which would preclude both parties from challenging the value"; however, in light of our determination that the Law Division properly granted summary judgment in favor of C&F on count two, the question of property value is moot.
Finally, the trial court appropriately denied summary judgment on the basis of Mecca's alleged misrepresentation. "Rescission remains a form of equitable relief in whatever setting its need arises, and courts wielding that remedy retain the discretion and judgment required to ensure that equity is done." Rutgers Casualty Ins. Co. v. LaCroix, 194 N.J. 515, 528 (2008). In First Am. Title Ins. Co. v. Lawson, 177 N.J. 125, 137 (2003), the Court explained that:
The law is well settled that equitable fraud provides a basis for a party to rescind a contract. In general, equitable fraud requires proof of (1) a material misrepresentation of a presently existing or past fact; (2) the maker's intent that the other party rely on it; and (3) detrimental reliance by the other party. Rescission voids the contract ab initio, meaning that it is considered null from the beginning and treated as if it does not exist for any purpose. [(internal citations and quotations omitted).]
In the context of an insurance contract, a representation by the insured, whether contained in the policy itself or in the application for insurance, will support the forfeiture of the insured's rights under the policy if it is untruthful, material to the particular risk assumed by the insurer, and actually and reasonably relied upon by the insurer in the issuance of the policy.
[Allstate Ins. Co. v. Meloni, 98 N.J. Super. 154, 158-59 (App. Div. 1967); accord Ledley, supra, 138 N.J. at 627.]
In the present case, the Law Division concluded there are genuine issues of material fact concerning the alleged misrepresentations that were made. It is unclear whether Mecca, or its insurance broker, Crump, made the allegedly false representations that the building was masonry, had alarms, and was equipped with sprinklers. If Mecca made these representations and C&F reasonably relied upon them, then it would have been proper for the court to grant summary judgment in favor of C&F.
C&F asserts that judgment was appropriate even if Crump, rather than Mecca, made the misrepresentations. It contends it was still entitled to rescind the policy because Crump was acting as an agent on behalf of Mecca. C&F does not provide adequate legal support to justify its claim of agency or its justified reliance on the representations. The cases cited by C&F do not hold that an insured is liable for representations made by a broker procuring a policy on behalf of the insured. In Equitable Life Assurance Soc'y v. New Horizons, Inc., 28 N.J. 307, 314 (1958), the Court held that an insured is liable for the statements of its employee, who acted as its agent when acquiring insurance for the insured. Similarly, in Weinsih v. Sawyer, 123 N.J. 333, 340 (1991), the Court held that an insurance agent owes a fiduciary duty to the insurance company, whereas a broker owes a duty directly to its principal. Neither case holds an insured liable for the actions of its broker. Thus, if coverage had not been excluded under the vacancy provisions of the policy, a question of fact would have remained for the trier of fact. At this juncture, however, the issue is moot.
We affirm the orders from which the appeal was taken. While we disagree with that portion of the order that determined neither party could challenge the existence or amount of the loss because of the Agreed Value, we are satisfied that the portion of the order, as well as other issues raised by the cross-appeal, are moot.
Affirmed as to the appeal; the cross-appeal is dismissed as moot.