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New Hampshire Ins. Co. v. Diller

January 13, 2010


The opinion of the court was delivered by: Hillman, District Judge


This case presents the issue, among others, of whether an insurance company may draft and enter into a marine insurance contract with an insured which on its face allows it to void coverage for only intentional misrepresentations, and later, when the issue of intent is unclear, rely on a common law doctrine to deny coverage which deems intent irrelevant. We conclude that it may not.

Plaintiff, New Hampshire Insurance Company ("NHIC"), filed a complaint against its insured, defendant/counter-claimant/third-party plaintiff, William Diller, Jr., requesting a declaratory judgment denying marine insurance coverage for damage to Diller's 60-foot vessel, "M/V Dream Catcher." Diller counterclaimed against NHIC and also filed a third-party complaint against his insurance broker, John C. Kopp, Jr. (sued as "Jay Kopp"), and Kopp's employer, NIA Group Associates, LLC ("NIA"). Subsequently, Diller filed an amended third-party complaint in which he also named as a third-party defendant Mann Custom Boats, Inc. ("Mann"), the designer, manufacturer, and repairer of the vessel.

Presently before the Court are several motions: NHIC's Motion for Summary Judgment; Kopp and NIA's (collectively "Kopp/NIA") Motion for Summary Judgment*fn2 and Motion on the Pleadings to Dismiss the Amended Third-party Complaint; and Diller's Cross-motion for Partial Summary Judgment on its Counterclaim and Motion for Leave to File a Sur-reply and Affidavit. For the reasons explained below, NHIC's Motion for Summary Judgment, Kopp/NIA's Motion for Summary Judgment, and Diller's Cross-motion for Partial Summary Judgment are all denied. However, Diller's Motion for Leave to File a Sur-reply is granted and Kopp/NIA's Motion to Dismiss will be granted with leave to re-file under certain conditions.


This Court exercises subject matter jurisdiction over the underlying claim pursuant to 28 U.S.C. § 1332. There is complete diversity between the plaintiff in the underlying action who is a citizen of the Commonwealth of Pennsylvania where it is incorporated and of New York where it has its principal place of business, and defendant/counter-claimant/third-party plaintiff who is a citizen of New Jersey.*fn3 Plaintiff alleges that the amount in controversy exceeds $75,000.


Diller, who owned M/V Dream Catcher (the "vessel"), requested that NIA obtain a quote for marine insurance coverage for the vessel for the 2006-07 policy year. Diller was a client of NIA, and Kopp, who was employed by NIA, had been Diller's insurance broker for several years. To obtain a quote for Diller, Kopp filled out a request form on a website maintained by Maritime General Agency ("MGA"), the intermediary for NHIC. Kopp stated in his affidavit that one of the fields on the MGA website requested information for the "number of claims in last 5 years."

After Kopp filled in the form on the MGA website, the information was electronically submitted to MGA. The information was reviewed by Michael Terrier, an MGA underwriter. On the basis of this information, MGA provided a quote and application for coverage from NHIC. Kopp filled out the application including information requesting "Loss History: (Date, Cause, Amount)." At the center of this case is the absence of certain information from Diller's "Loss History," as well as other alleged misrepresentations or omissions relating to Diller's application.

Among the information absent from Diller's application to NHIC was an incident that occurred in February 2001. Diller's vessel was involved in a "grounding," for which the vessel's insurer at the time paid $115,000. Also as a result of that accident, a mate on the vessel suffered a personal injury, resulting in a $3,000 claim.

Second, Kopp stated on the application that in December 2002, Diller's vessel hit an object and that the amount paid for that accident was $19,000. In an insurance application to CIGNA Insurance Company dated July 16, 2003,*fn4 however, the amount paid as a result of the December 2002 incident was listed as $32,000.*fn5

Third, in August 2004, the vessel, with Diller aboard, suffered damage to its hull and began taking on seawater, forcing the crew to radio a "Mayday" distress call. The vessel was escorted to port by the United States Coast Guard and was later repaired by Mann. This casualty was not reported on the application.

Fourth, on the application Kopp checked off the "Licensed Capt." box based on information from Diller that the vessel was being operated by a licensed captain. Diller, however, admits that he is not a licensed captain, but reports that he employed Michael Bennett, who is a licensed captain.

Finally, the total horsepower of the vessel's engine as indicated on the application was "1350." Its actual horsepower was approximately 2,700.

After filling in the application, Kopp forwarded it to Diller with instructions for Diller to sign it and return it to Kopp with a check for the insurance premium due. Diller stated that after reviewing the application he noticed that the February 2001 and August 2004 incidents were not reported on the application. Diller asked Kopp why they were excluded. With regard to the February 2001 incident, Kopp replied that he understood the application's request for "Loss History" to be asking for any claims made within the past five years, just as the MGA website form had requested. By Kopp's estimation, the February 2001 incident occurred more than five years prior to completing the current application to NHIC and, therefore, did not have to be reported.*fn6 Further, Kopp said that the August 2004 incident did not have to be disclosed because Diller did not pursue an insurance claim in relation to it.*fn7 In June 2006, Diller signed the application, which was forwarded by Kopp to NHIC. Shortly thereafter, NHIC issued a policy for the vessel for the period of June 29, 2006 through June 29, 2007.

On August 9, 2006, while participating in a fishing contest in the Atlantic Ocean, the vessel's hull was damaged. Diller submitted a claim to NHIC for coverage of this accident. NHIC began an investigation of Diller's claim and, on October 20, 2006, took his examination under oath ("EUO").

During the EUO, Diller was asked whether he had suffered any losses with his vessel other than the December 2002 claim. Diller answered yes, and recalled the August 2004 incident. When asked if he had submitted an insurance claim to his previous marine insurer in connection to the August 2004 claim, Diller replied that he had not. However, Diller acknowledged that he had told Kopp of the incident and did not know whether Kopp had reported it to the insurer. Documentation indicates that the August 2004 incident was reported to Diller's insurer at that time, but the claim was later withdrawn.

In a letter dated March 8, 2007, NHIC denied Diller coverage on the grounds that, in violation of his NHIC policy, Diller "intentionally concealed and/or misrepresented material facts" in his insurance application and his EUO. Specifically, NHIC refused to cover Diller's loss because, in his application, he failed to disclose the February 2001 and August 2004 incidents and failed to disclose the full amount of damages suffered during the December 2002 incident. The letter also denied coverage because Diller had marked off "Licensed Capt." on his application even though he was not a licensed captain. In addition, NHIC submitted that Diller misrepresented material facts during the EUO by failing to mention the February 2001 incident and by denying that he had filed an insurance claim in connection to the August 2004 incident. Finally, NHIC denied coverage on the determination that the vessel was not seaworthy either at the inception of the policy or on the August 9, 2006 voyage.

NHIC filed a complaint requesting that this Court enter judgment declaring that no coverage is afforded for any claims arising out of the August 9, 2006 incident; that the policy is void ab initio; that the policy is rescinded; and that NHIC is entitled to reimbursement of costs and expenses relating to the storage, survey, salvage, and hauling of the vessel in connection with the August 9, 2006 incident. On May 1, 2007, Diller filed a counterclaim against NHIC for a declaratory judgment as to coverage of the vessel, and for breach of contract, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, bad faith, and estoppel. Diller also filed a third-party complaint against Kopp/NIA for negligence, breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty.*fn8 On January 8, 2008, Diller filed an amended third-party complaint also naming Mann as a third-party defendant. Along with designing and manufacturing the vessel, Mann also made repairs to the vessel before the August 9, 2006 accident.

In an opinion dated June 30, 2008, this Court addressed Kopp/NIA's previous motion for summary judgment. At that stage of the litigation, this Court rejected Kopp/NIA's arguments that Diller's alleged misrepresentations during his EUO constituted an independent basis for Diller's loss or that his review and signature on the written insurance application relieved Kopp/NIA of any liability.*fn9

NHIC now moves this Court for summary judgment, seeking to deny Diller coverage and to void the insurance contract ab initio. Although not directed at them, Kopp/NIA oppose NHIC's motion*fn10 and submit their own motion for summary judgment against Diller, requesting the dismissal of Diller's claims against them. Alternatively, Kopp/NIA have also filed a motion to dismiss Diller's third-party complaint on the basis that he failed to submit an Affidavit of Merit as prescribed by N.J.S.A. 2A:53A-26. Finally, Diller, relying on Kopp/NIA's motion for summary judgment, cross-moves for partial summary judgment against NHIC and also submits a motion for leave to file a sur-reply to Kopp/NIA's motion to dismiss.


Presently before the Court are NHIC's Motion for Summary Judgment, Kopp/NIA's Motion for Summary Judgment and Motion to Dismiss on the Pleadings, and Diller's Cross-motion for Partial Summary Judgment and Motion for Leave to File a Sur-reply and Affidavit. The Court will address each motion in turn.

A. Standard for Summary Judgment

Summary judgment is appropriate where the Court is satisfied that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986); Fed. R. Civ. P. 56(c).

An issue is "genuine" if it is supported by evidence such that a reasonable jury could return a verdict in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if, under the governing substantive law, a dispute about the fact might affect the outcome of the suit. Id. In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the nonmoving party's evidence "is to be believed and all justifiable inferences are to be drawn in his favor." Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).

Initially, the moving party has the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp., 477 U.S. at 323. Once the moving party has met this burden, the nonmoving party must identify, by affidavits or otherwise, specific facts showing that there is a genuine issue for trial. Id. Thus, to withstand a properly supported motion for summary judgment, the nonmoving party must identify specific facts and affirmative evidence that contradict those offered by the moving party. Anderson, 477 U.S. at 256-57. A party opposing summary judgment must do more than just rest upon mere allegations, general denials, or vague statements. Saldana v. Kmart Corp., 260 F.3d 228, 232 (3d Cir. 2001)

B. NHIC's Motion for Summary Judgment

NHIC moves this Court to rule in its favor on summary judgment, arguing that Diller, in completing his insurance application and testifying during his EUO, failed to disclose casualties involving his vessel that occurred during February 2001 and August 2004, misrepresented the amount of damage his vessel suffered as a result of the December 2002 incident, identified himself as a licensed captain even though he is not, and misrepresented his vessel's horsepower.*fn11 According to NHIC, no genuine issue of material fact exists to refute Diller's knowing concealment and misrepresentation on which NHIC relied when extending insurance coverage to his vessel. NHIC submits that Diller's concealment and misrepresentation of material facts breach his duty of utmost good faith under the federal admiralty doctrine of uberrimae fidei, constitute equitable fraud under New Jersey law, and violate the terms of his policy, thereby voiding coverage.*fn12

Diller (as well as Kopp/NIA) opposes NHIC's Motion for Summary Judgment, arguing that genuine issues of material fact exist with regards to whether they intentionally concealed or misrepresented certain information, whether any information was misrepresented at all, and whether the absent information was material and, thus, pertinent to NHIC's decision to insure Diller's vessel. Diller contends that the language of NHIC's policy circumvents the doctrines of uberrimae fidei and equitable fraud and enables NHIC to void the insurance contract only if any material information was "intentionally" concealed or misrepresented --- a high threshold, they suggest, which cannot be demonstrated here. Alternatively, even if Diller and Kopp/NIA misrepresented or omitted certain facts, they submit that the information was not material and that NHIC did not rely on it in issuing Diller a quote and deciding to provide him with insurance.

1. Doctrine of Uberrimae Fidei

Recently, the Third Circuit Court of Appeals affirmed the doctrine of uberrimae fidei as federal admiralty law "well entrenched" within our Circuit's precedent and, thus, applicable to and controlling maritime insurance contracts. AGF Marine Aviation & Transp. v. Cassin, 544 F.3d 255, 263 (3d Cir. 2008). "The doctrine of uberrimae fidei imposes a duty of the utmost good faith and requires that parties to an insurance contract disclose all facts material to the risk." Id. at 262. If an insured fails to disclose all material facts, the insurer may void the contract. Id. Moreover, "[a] party's intent to conceal, or lack thereof, is irrelevant to the uberrimae fidei analysis." Id. In other words, it is of no moment whether the insured breaches its duty to disclose by virtue of calculated deceit or by innocent mistake; the insured's failure to disclose voids the contract and its coverage. Id.

Because maritime insurance is at issue in this case, NHIC argues that the doctrine of uberrimae fidei controls and necessitates summary judgment against Diller on account of his alleged misrepresentations and non-disclosures, as further described above. Diller counters that his insurance policy with NHIC embodies a contractual agreement between the parties which, by its express terms, modifies uberrimae fidei and permits NHIC to void the policy only if Diller intended to misrepresent or omit material facts.*fn13 For that reason, posits Diller, NHIC must demonstrate Diller's intent to misrepresent and conceal material facts in the application or during the post-loss investigation, a burden it cannot carry on summary judgment.

Therefore, essential to the disposition of the pending motion is in what way, if at all, a marine insurer and a marine insured may contractually abandon, modify, or otherwise circumvent the doctrine of uberrimae fidei. On this point, conflicting authority exists.

In support of its argument that parties cannot contract around the doctrine of uberrimae fidei without explicitly stating their intent to do so, NHIC points to the recent opinion in New Hampshire Insurance Co. v. C'est, Moi, Inc., 519 F.3d 937 (9th Cir. 2008), cert. denied, 129 S.Ct. 639 (2008). In that case, the district court found that the insured misrepresented on its application to the insurer material facts pertaining to its yacht. Id. at 938. As a result, the court granted summary judgment to the insurance company and rescinded the policy. Id.

On appeal, the insured argued that the policy's provision concerning misrepresentations lowered its uberrimae fidei obligation, thereby permitting rescission only if the insured misrepresented a material fact intentionally and not by accident or mistake. Id. Acknowledging the issue as "an open question in this circuit," the Ninth Circuit Court of Appeals, nevertheless, concluded that were it possible to contract around uberrimae fidei in an insurance policy, the modification would "certainly require very clear policy language, unequivocally disclosing a mutual intent to supersede the insured's common law obligation." Id. at 938-39. Clear and unambiguous language is necessary, the Ninth Circuit reasoned, to ensure the uberrimae fidei doctrine's objective of protecting insurers and "the integrity of the risk pool." Id. at 939. Turning its attention to the parties' policy,*fn14 the Ninth Circuit rejected the insured's argument that the challenged provision substituted a different standard by which to ...

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