May 17, 2010
THOMAS J. COCCO, JR., AND T.J. COCCO ENTERPRISES, INC., PLAINTIFFS-RESPONDENTS,
RONALD HAMILTON; KAREN C. HAMILTON; RTS ENTERPRISES, INC.; C.G. KOSTA; KATHERINE MORRIS; FREDERIC L. SHENKMAN; COOPER, LEVENSON, APRIL, NIEDELMAN & WAGENHEIM, P.A., FORMERLY KNOWN AS COOPER, PERSKIE, APRIL, NIEDELMAN, WAGENHEIM & LEVENSON; JEFFREY LIGHT; GOLDENBERG, MACKLER, SAYEGH, MINTZ, PFEFFER, BONCHI, & GILL; AND COMMONWEALTH LAND TITLE INSURANCE COMPANY OF NEW JERSEY; JOINTLY AND/OR INDIVIDUALLY, DEFENDANTS-RESPONDENTS, AND GATEWAY FUNDING, DEFENDANT, AND MICHAEL YORK, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-2349-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued April 26, 2010
Before Judges Lisa and Baxter.
Defendant Michael York appeals from an October 19, 2007 Law Division order that granted the motion of defendant Commonwealth Land Title Insurance Company of New Jersey (Commonwealth) to dismiss York's cross-claim. York also appeals from a May 7, 2008 order that denied his motion for reconsideration. In his cross-claim, York asserted claims against Commonwealth for negligence, breach of contract, consumer fraud and bad faith in denying coverage under a policy of title insurance he purchased from Commonwealth in December 2003. With the exception of the Consumer Fraud Act claim, we agree with York's contention that because there were genuine issues of material fact, the motion judge erred when he granted Commonwealth's motion for summary judgment and dismissed York's cross-claim with prejudice. We reverse.
This litigation arises out of the sale of the Bayside Marina (marina) in Brigantine. We begin our review of the record with an analysis of contracts formed by other parties as those contracts have a bearing on the claims York has advanced. On February 3, 2001, defendant C.G. Kosta*fn1, as seller-lessor, and plaintiff Thomas J. Cocco, Jr., as buyer-lessee, entered into a lease-purchase agreement entitling Cocco to lease and potentially purchase the land and equipment that comprised the marina property. The February 3, 2001 agreement established a three-year lease that was to begin on March 1, 2001 and end on February 28, 2004. The agreement also afforded Cocco the "unconditional right" to purchase the marina at any time prior to February 28, 2004 at a price of $1,500,000.
A few months after the lease-purchase agreement was executed, Cocco discovered three underground gasoline tanks buried on the property and ceased making the monthly lease payments. Cocco's non-payment caused Kosta to file an action in the Law Division under docket number L-2403-01, which was resolved by an order of settlement on May 7, 2002. The terms of that settlement were complex and we need not set them forth in great detail. Suffice it to say, the settlement altered Cocco's purchasing rights by extending his purchase option deadline by a period of one year and reducing the purchase price to $1,150,000. The settlement also required Kosta to indemnify Cocco for costs he had incurred in connection with the continued presence of the second tank. That indemnification was accomplished on June 23, 2003.
Meanwhile, on October 5, 2002, Cocco entered into an agreement to sell the marina to defendant Ronald Hamilton for the sum of $1,950,000. The Cocco-Hamilton agreement had two significant contingency clauses: the marina being appraised at $1,950,000 and Hamilton being able to obtain a first mortgage of eighty percent of the appraised value. The purchase price was to be paid in installments. Although Hamilton made the first two payments in a timely manner, a dispute arose between Hamilton and Cocco when Hamilton learned that Cocco was not the fee simple owner of the marina. Hamilton then filed a complaint against Cocco, docketed as L-921-03, seeking reformation of their October 5, 2002 agreement. Hamilton also filed a lis pendens against the marina property on May 6, 2003.
In response to Hamilton's filing, Cocco moved for enforcement of litigant's rights. In relevant part, the resulting September 24, 2003 order*fn2 afforded Hamilton until November 14, 2003 to decide whether he wished to proceed with his purchase of the marina from Cocco. If so, he was obliged to close no later than December 14, 2003. In accordance with the September 24, 2003 order, Hamilton notified Cocco of his intention to purchase the marina and assured him that he was attempting to secure financing.
Hamilton experienced difficulty in obtaining a mortgage because the marina was appraised at a value significantly lower than the agreed upon purchase price. Therefore, on November 30, 2003, Hamilton entered into a contract with York to sell one of the four lots that comprised the marina property for a purchase price of $400,000. The lot in question was known as Lot 6. According to York, during his purchase negotiations with Hamilton, Hamilton informed him of the "litigation involving the tank removal," but nothing else.
Hamilton told York, without further elaboration, that he "had to settle before the end of the year." Hamilton did not inform York of the pending eviction proceedings filed against him by Cocco. Although the closing was scheduled for December 14, 2003, Hamilton called York asking to extend the closing date until December 29 because he was having difficulty securing a mortgage. York's understanding of what would occur at the closing was as follows: "Mr. Hamilton was going to purchase the property from Mr. Cocco, who was going to purchase the property from Mr. Kosta, and I was going to purchase the building lot from Mr. Hamilton." Hamilton provided him with copies of both the Kosta-Cocco and Cocco-Hamilton agreements of sale.
Meanwhile, on December 12, 2003, two days before the court-ordered deadline for Hamilton to go to closing with Cocco to purchase the marina, Hamilton and Kosta, along with their attorneys, met to discuss the financing arrangements for Hamilton's purchase of the marina, not from Cocco, but instead from Kosta. They did not invite Cocco or his attorney to attend. At the meeting, Kosta agreed to take back a mortgage in the amount of $1,050,000, which, in combination with the $400,000 proceeds from Hamilton's pending sale of Lot 6 to York, would enable Hamilton to complete the purchase of the marina.
However, because Hamilton had not attempted to close on the purchase of the marina on or before the December 14, 2003 date established by the judge's September 24, 2003 order, and had not made any effort to obtain an extension of that date from Cocco, on December 19, 2003, Cocco filed a motion for a warrant of removal and order of possession against Hamilton. Cocco's motion was returnable in early January 2004. Hamilton did not notify York of the pending eviction motion.
York testified that he had expected Kosta, Cocco and Hamilton to be at the closing. However, when he arrived, Cocco was missing. The only parties present were Kosta and his lawyer, Katherine Morris; Hamilton and his attorney, Jeffrey Light; and Marie Micheel, who was the branch manager of Commonwealth's Brigantine office and was the title clerk who would be conducting closing. York was not represented by counsel. According to York, Morris explained that the Coccos*fn3 "don't have to be here" because "at the end of the settlement they are going to get their money." York maintained that Micheel asked Morris and Light whether the Coccos were "going to be in title" after the closing was completed. When Morris and Light answered in the negative, Micheel turned to York and said "well, if they are not going to be in title, they don't have to be here."
Shortly after the closing began, Hamilton produced an Affidavit of Title, certifying that he was, as of December 29, 2003, "the owner" of Lot 6, of which he was in "sole possession." He further certified that no pending lawsuits or other legal obligations enforceable against Lot 6 existed. Although Commonwealth asserts that Kosta executed a similar Affidavit of Title, it is not part of the record on appeal; however, the parties do not appear to dispute its existence.
According to York, once he, the lawyers and Micheel "got past... where the Coccos are, it was disclosed that there was a lis pendens filed on the property." York "had no knowledge" of that encumbrance before arriving at the closing. Upon being presented with the lis pendens, York asked "a series of questions" to find out why the lis pendens had been filed and what it was "in regard to." According to York, "then it was disclosed for the first time to me that Mr. Hamilton was having legal proceedings against Mr. Cocco." When asked to describe what he was told about that litigation, York answered, "I was told that Mr. Hamilton was bringing suit against the Coccos for imprietaries [sic] in the contract." When York asked Light and Morris how they intended to proceed in light of the lis pendens, Light responded, according to York, "that they were going to release the lis pendens at the conclusion of the settlement, that this is going to go away." York was also told that as part of the distribution of the proceeds of the closing, the Coccos would receive a check for $150,000.
York explained that in the midst of that discussion, Morris "chimed in that she had a conversation with the judge [presiding over the Cocco-Hamilton litigation] in the elevator prior to coming to the closing, and that she [Morris] had 100% approval from [the] [j]udge... to conduct the settlement and he had given his blessing for it."
York continued to express concern about the absence of the Coccos and the existence of the lis pendens. At that point, Light suddenly offered to indemnify York should there be any litigation after the settlement. According to York, Light stated, "because we are so confident that there won't be any litigation after the settlement, we'll indemnify you." Due to his longstanding business relationship with Commonwealth, York asked Light to include Commonwealth in the indemnification, and Light, with Hamilton's approval, agreed to do so.
Micheel was present during the discussion of the lis pendens and stepped away from the settlement table, but only for five to ten minutes, to telephone Commonwealth's underwriters to discuss the impact of the lis pendens. When she returned, according to York, Micheel said that "the underwriter had cleared it and that they were going to file a release of the lis pendens with the settlement." Although Micheel had been away from the settlement table for as much as ten minutes while consulting with the underwriters, York was emphatic that she had been present when Morris and Light assured him that the closing of title at the settlement table would serve to conclude and resolve all of the litigation.
The indemnification agreement, which was prepared at the Commonwealth office, was a "turning point." As York later explained, the indemnification agreement allowed him to "bec[o]me comfortable with proceeding with the closing because... th[e] indemnification provided... protection." York was quick to add that other "factors played into [his] decision." He explained:
I became comfortable based on the title company, two lawyers making statements to me that all of the litigation -- the lawyer who instituted the litigation was releasing the lis pendens and telling me that the litigation would stop, and getting an indemnification agreement. [Emphasis added.]
He explained how he had also relied upon Commonwealth's issuance of the title policy:
Q: And you also testified earlier that you knew you were going to get a title insurance policy, right?
Q: And you relied upon that fact in your decision to proceed at the closing, correct?
A: As one of the factors, yes, sir.
Q: You told us 99.93 percent, or whatever percentage of the time it was, you always got title policies from Commonwealth?
A: That's correct.
Q: You did a lot of business with them?
Q: You believed that they were going to stand behind you and insure title to this property if you closed?
Q: [W]as it an important factor to you in deciding to close title, your understanding that the title company was going to insure this property?
York also maintained that he had never, in any of the twenty-five or thirty real estate closings that he had attended as a real estate developer, ever been presented with an indemnification agreement, nor had he ever even heard of one being proposed. York later asserted that although "he was made aware of the litigation between Hamilton and Cocco when the lis pendens was presented to him at the settlement table, he did not become aware until after the closing that -- prior to the closing -- the Coccos had "countersu[ed]" Hamilton and Kosta and that Cocco had filed a motion to evict Hamilton.
It did not take long for York to learn that, despite the assurances from Morris and Light that he had nothing to worry about once the settlement was over, Cocco was far from satisfied. Indeed, in January 2004, only two weeks after the closing, Cocco filed a lis pendens against Lot 6 "which encumbered it to the point where [York] could not do anything with it." York wrote to Cocco expressing his anger "at the fact that this lis pendens had been filed on a property that was presented to [him] as litigation free." York also contacted Morris, who sought permission from the court to remove the lis pendens, but the judge denied her request.
In addition to filing the lis pendens against York's property, in January 2004, Cocco filed suit against Hamilton, Light, Kosta, Morris and Commonwealth. Cocco alleged that the settlement of the litigation in L-2304-01 gave him the right to either complete his purchase of the marina property from Kosta or to enter into an agreement to sell his interest to Hamilton.
Cocco's complaint alleged that Hamilton entered into a conspiracy with the other defendants to deprive him of his interest in the marina. He further alleged that during the time the two motions were pending in the Law Division -- one of which sought Hamilton's eviction from the marina -- Kosta, Hamilton and York had unlawfully "circumvented the judicial process entirely by conducting a private closing amongst themselves on December 29, 2003 without notice to the Court or to Cocco's counsel." Alleging unjust enrichment and fraud, Cocco demanded judgment requiring defendants to pay him the present value of the marina property or, in the alternative, to convey ownership of the marina from Hamilton to him, with a "return of the York sold off section." Cocco also sought an award of attorney's fees, compensatory damages and punitive damages.
In his answer to Cocco's complaint, York denied the allegations of fraud and conspiracy and filed counterclaims and cross-claims against Cocco, Hamilton and their attorneys, which we need not describe as those claims are not pertinent to the present appeal. What is relevant to this appeal, however, is the cross-claim York filed against Commonwealth on March 8, 2006, in which he asserted causes of action for negligence, gross negligence, breach of contract and a violation of the Consumer Fraud Act (CFA).
In relevant part, his factual allegations against Commonwealth included the following assertions: in determining to proceed with the closing and pay the $400,000 purchase price to Hamilton, he reasonably relied upon the title insurance contract issued by Commonwealth; Micheel breached her duty to "inquire and investigate the true status of the litigation between and among the Coccos, Kosta and Hamilton and thereafter to inform York openly and candidly of same"; Micheel misrepresented the true status of the litigation between those three parties; Micheel and Commonwealth failed to "prudently and carefully" perform their duties in connection with the December 29, 2003 closing and the passing of title to York; the negligence and breach of contract by Commonwealth and Micheel compromised the marketability of Lot 6 and caused York to suffer a financial loss; and even though he made formal demand upon Commonwealth to satisfy its obligations to him under the title insurance policy it issued, Commonwealth refused to do so.
York maintained that because of the litigation filed by Cocco naming him as a defendant, and because he viewed the lis pendens as an obstacle to development of the property, he had been forced to sell Lot 6. Following a several month period of negotiation, he entered into an agreement of sale with Robert Demos for the sale of Lot 6 for $600,000. Closing took place on August 31, 2005. York insisted that Commonwealth conduct the closing and insure title, and Commonwealth complied. However, due to the ongoing Cocco litigation, Commonwealth placed an exception in the title insurance policy issued to Demos, despite an objection by York and his insistence that it be removed.
York asserts that had Cocco not sued him and filed the lis pendens on Lot 6, he would have built a luxury home on the lot, would have been able to take advantage of "the greatest secondary real estate market in the history of the United States, and... [would have] made a very large profit" of between $600,000 to $800,000, as opposed to the $200,000 profit he made on the sale to Demos.
On December 27, 2006, Commonwealth moved for summary judgment seeking dismissal of York's cross-claim. On October 19, 2007, after a hearing, the judge granted summary judgment in favor of Commonwealth, dismissing all of York's claims against Commonwealth with prejudice. The judge reasoned: Commonwealth was prohibited by N.J.S.A. 17:46B-13 from issuing York legal advice; there was no indication that the title search by Commonwealth was incorrect; there was no reference to the pending litigation in the affidavits of title supplied by Hamilton and Kosta at closing, and Micheel was entitled to rely on those affidavits; there was no defect in title because York was able to sell the property at a profit to Demos in 2005; Micheel did not have information regarding the litigation; and the record did not support York's claims of consumer fraud, breach of contract, negligence or gross negligence by Commonwealth or Micheel.
York moved for reconsideration of the October 19, 2007 order on November 12, 2007. On May 7, 2008, the judge denied the motion, reasoning:
The motion for reconsideration is denied. Further oral argument would not assist the court. Nothing new was presented to the court that could not have been presented previously and do not affect [sic] the court's analysis. The new submission by certification of Mr. York constitutes a sham certification contradicted by his sworn deposition testimony concerning information supplied to Commonwealth.
The matter came before the Court for trial on April 27, 2009, but all remaining parties dismissed their respective claims against one another after having settled all issues not disposed of by way of summary judgment. On April 29, 2009, the judge issued a final order disposing "of all issues as to all parties," thereby rendering the May 7, 2008 order final for purposes of appeal.
On appeal, our review of the trial court's grant of summary judgment is de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). We apply the same standards the motion judge applied. 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 where "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 challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). "An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." Ibid.
On a motion for summary judgment, the trial court may not decide issues of fact, but must only decide whether any such disputed issues exist. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). That is to say, "when the evidence 'is so one-sided that one party must prevail as a matter of law,' the trial court should not hesitate to grant summary judgment." Ibid. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed. 2d 202, 214 (1986)).
However, the judge should not "'resolve a dispute on the merits that should have been decided by a jury[,]'" nor is it "'the court's function to weigh the evidence and determine the outcome....'" Parks v. Rogers, 176 N.J. 491, 502 (2003) (quoting Gilhooley v. County of Union, 164 N.J. 533, 545 (2000)). Summary judgment "should not ordinarily be granted when an action or defense requires determination of a state of mind or intent, such as claims of waiver, bad faith, fraud or duress." Lilliston Chrysler Plymouth Dodge Truck Jeep Eagle, Inc. v. Universal Underwriters Group, 329 N.J. Super 318, 324 (App Div. 2000).
Before analyzing York's claims, we set forth the statutory duties imposed on title insurance companies by the Title Insurance Act of 1974, N.J.S.A. 17:46B-1 to -62. N.J.S.A. 17:46B-9 prohibits a title insurance company from issuing a title insurance policy unless it has "conducted a reasonable examination of the title... in accordance with sound underwriting practices for title insurance companies." Before issuing the title insurance policy, the insurer is obliged to notify the proposed insured, at least five days before the closing of title, of any "conditions, exceptions [or] limitations of the insurance liability of the title company" that it proposes to incorporate in the title insurance policy.
Ibid. Once issued, a policy of title insurance "insur[es], guarantee[s] or indemnif[ies] owners of real property... against loss or damage suffered by reason of liens, encumbrances upon, defects in or the unmarketability of the title to said property." N.J.S.A. 17:46B-1(a). By issuing such a policy, the insurer "guarantee[s] [and] warrant[s]... the correctness of searches relating to the title to real property." Ibid.
As York correctly observes, Commonwealth's motion sought the equivalent of a declaratory judgment that the title insurance policy issued to York did not provide coverage under the circumstances presented here. The factual disputes relating to the circumstances surrounding the transfers of the property at issue, however, should not have been resolved on a motion for summary judgment. Numerous disputes remain concerning the representations made by Micheel to induce York to close title at the December 29, 2003 settlement. Numerous disputes also exist as to the adequacy of Commonwealth's own investigation of the existence of Cocco's claim to the property and Commonwealth's voluntary assumption of any risk created by the existence of Hamilton's lis pendens and the associated litigation Hamilton had filed against Cocco, which was pending at the time of the December 29, 2003 closing. The uncontroverted evidence demonstrates that Micheel was present at the settlement table while Morris, Light and York were discussing that litigation. Moreover, Micheel knew that Cocco was involved in the pending litigation that Light and Morris were discussing, yet she also knew he was not present at the closing. The jury could conclude from such facts that she breached her contractually imposed duty to make reasonable inquiry about the title insurance policy Commonwealth was issuing to York.
In particular, despite her knowledge of that litigation and the existence of the lis pendens, Micheel made affirmative representations to York that the Coccos need not be present at the closing. She then proceeded to take additional steps to confirm her ability to issue a policy and to proceed with the closing, which she accomplished by telephoning the underwriters, who agreed to issue the policy. Notably, they inserted no exception in the policy issued to York, despite an exception later demanded by Commonwealth when York resold the property to Demos.
In reaching his decision, the motion judge improperly relied upon Micheel's knowledge, or her claimed lack of knowledge, concerning the agreements of sale between the various parties to the transaction. The judge accepted Commonwealth's contention that York never provided Micheel with copies of the Kosta-Cocco and Cocco-Hamilton agreements and, by so doing, York concealed from Micheel the "defects" and "encumbrances" about which he later complained. The judge held that by so doing, York triggered the Exclusion from Coverage set forth in paragraph three of the policy, the language of which we describe below.
In reaching that conclusion, the judge ignored other evidence in the record that could have led a jury to conclude that Micheel knew, or should have known, of the very circumstances that would later make York's title unmarketable. In particular, Micheel was present while Light and Morris discussed the litigation Hamilton had filed and she assumed, erroneously, that Hamilton's dismissal of the lis pendens would, by operation of law, result in the dismissal of Hamilton's claims against Cocco. Moreover, despite the existence of the lis pendens that had been discovered during Commonwealth's title search, and which was still active at the time the closing began, neither Micheel nor any of Commonwealth's underwriters made any effort to inquire about the circumstances that precipitated the filing of the lis pendens.
Had Micheel or the underwriters asked any questions, they would presumably have discovered the existence of the pending motion to evict Hamilton and would have discovered the existence of the September 24, 2003 order that would have extinguished Hamilton's right to purchase the marina if he did not complete the closing by December 14, 2003. Had those questions been asked, Commonwealth would have discovered that Kosta and Hamilton had essentially connived to exclude Cocco from his right to take title to the marina property.
The judge's evaluation of the record improperly focused only on those facts that supported Commonwealth's point of view while ignoring the facts we have just described that supported York's contention that he did nothing to mislead Micheel or Commonwealth and that all of the facts were available to Commonwealth had it made even the slightest inquiry of the two lawyers and the two parties who were seated at the settlement table along with York. As we have noted, when deciding a motion for summary judgment, the judge may not decide issues of fact, but must only decide whether such disputed issues exist. Brill, supra, 142 N.J. at 540. It is not "'the court's function to weigh the evidence and determine the outcome....'" Parks, supra, 176 N.J. at 502 (quoting Gilhooley, supra, 154 N.J. at 545). Moreover, when deciding a motion for summary judgment, the judge is obliged to view the evidence "in the light most favorable to the non-moving party." Brill, supra, 142 N.J. at 540.
Yet, contrary to the command of both Parks and Brill, the judge did not give York, the party opposing the motion, the benefit of viewing disputed facts in the light most favorable to him, nor did the judge refrain from deciding facts that were in dispute. We therefore conclude that the record contains sufficient evidence from which a jury could find that: there were defects "or encumbrances" on the title at the time of the closing that Micheel and Commonwealth should not have ignored and that York's conduct did not trigger the Exclusion from Coverage set forth in paragraph three of the policy.
In evaluating York's cross-claim, the judge also erred by accepting Commonwealth's contention that York intended to rely solely on the indemnification prepared at the closing table, rather than the policy of title insurance issued by Commonwealth. In making that finding, the judge ignored the contrary evidence in the record. As is revealed in the deposition testimony that we have quoted, the indemnification provided by Hamilton was but one factor upon which York relied in choosing to proceed with the closing. He specifically testified that knowing Commonwealth was "going to stand behind [him] and insure title to this property if [he] closed was... an important factor... in deciding to close title." By ignoring this evidence, the judge impermissibly found the facts, an approach that both Parks and Brill forbid. Thus, there was a genuine issue of material fact on the question of whether York intended to rely on the indemnification from Hamilton rather than upon the title insurance policy he had purchased from Commonwealth, and the judge erred when he concluded otherwise.
Equally problematic is the judge's conclusion that there was no defect in title to be covered by the policy. The record was replete with evidence demonstrating the opposite. The policy Commonwealth issued to York read in relevant part:
SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, COMMONWEALTH LAND TITLE INSURANCE COMPANY OF NEW JERSEY, a New Jersey corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of:
1. Title to the estate or interest described in Schedule A being vested other: than as stated therein;
2. Any defect in or lien or encumbrance on title;
3. Unmarketability of the title;....
The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title, as insured, but only to the extent provided in the conditions and Stipulations.
EXCLUSIONS FROM COVERAGE
3. Defects, liens, encumbrances, adverse claims or other matters:
(b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy;
(c) resulting in no loss or damage to the insured claimant;
The policy defines "unmarketability of the title" as:
An alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, which would entitle a purchaser of the estate or interest described in Schedule A to be relieved from the obligation to purchase by virtue of a contractual condition requiring the delivering of marketable title.
As York correctly argues, "[w]hether Commonwealth (like York) was duped by the attorneys for Hamilton and Kosta and whether Commonwealth had knowledge of the litigation is irrelevant to York's claim for relief under the terms of the contract. York's claim is purely contractual. If there was a defect in title to the property or if the title was unmarketable as that term is defined in the policy, Commonwealth is required to pay damages to York."
Indeed, Commonwealth's own actions at the closing between York and Demos in 2005 belie Commonwealth's assertion, and the judge's conclusion, that there were no defects in the title York received on December 29, 2003. Commonwealth's own undisputed actions with regard to the subsequent sale to Demos confirmed that York was unable to provide marketable title as defined in the policy. It stands to reason that if, in Commonwealth's view, York was unable to provide clear title to Demos, as evidenced by the complaint Cocco filed against York in this litigation, York himself had not received clear title from Hamilton, because Cocco's allegations arise from the very same Kosta-Cocco and Cocco-Hamilton agreements that were in existence at the time of the December 29, 2003 closing.
Moreover, because of the litigation between Cocco, Hamilton and Kosta, York was forced to discontinue construction and, ultimately, was forced to sell the property at what he claimed was a sharp discount. York produced an expert report from a Certified General Real Estate Appraiser appraising the lot at $1,165,000 had he been able to develop the property as he had intended. The record also establishes that Demos, in turn, could not obtain financing to complete the purchase from York, even at a discounted price, because of the encumbrances on title. This evidence was more than sufficient to raise a genuine issue of material fact on whether there was a defect in title.
We turn next to the motion judge's conclusion that York's claim under the title insurance policy was barred because it was out of time. In so finding, the judge relied on a portion of Commonwealth's policy entitled "Continuation of Insurance After Conveyance of Title," which provides:
2. CONTINUATION OF INSURANCE AFTER CONVEYANCE OF TITLE
The coverage of this policy shall continue in full force as of Date of Policy in favor of an insured only so long as the insured retains an estate or interest in the land,... or only so long as the insured shall have liability by reason of covenants of warranty made by the insured in any... conveyance of the estate or interest....
When interpreting a policy of title insurance, a court analyzes it "like other policies of insurance," which "are construed to give effect to the intention of the parties as manifested by the reasonable meaning of policy terms." Amidano v. Donnelly, 260 N.J. Super. 148, 154 (App. Div. 1992), certif. denied, 133 N.J. 435 (1993). Because of the unequal bargaining power between a title insurance company and its insured, and insurance companies' expertise in this field, title insurance policies are viewed as adhesion contracts. Ibid. Although a "court will not write a better policy for the insured than he or she purchased[,]" a judge is obliged to strictly construe any exceptions to coverage against the insurer. Ibid. "'[C]courts will enforce only the restrictions and the terms in an insurance contract that are consistent with the objectively reasonable expectations of the average insured.'" Id. at 154-55 (quoting Meier v. N.J. Life Ins. Co., 101 N.J. 597, 612 (1986)).
The causes of action York asserted in his cross-claim against Commonwealth arose before he transferred title to Demos in August 2005. Indeed, Commonwealth implicitly acknowledged that the defect in York's title existed at a time when York still owned Lot 6 because Commonwealth insisted on placing an exception in the title insurance policy it issued to Demos in August 2005. Giving effect to the reasonable meaning of the policy terms, as Amidano requires, and strictly construing "exceptions to coverage... against the insurer," as Amidano also requires, id. at 154, we reject the motion judge's conclusion that York's filing of the cross-claim in March 2006 was untimely and therefore barred him from proceeding with his damages action and also barred him from receiving a defense from Commonwealth to the action Cocco filed against him in this matter. As is evident from the language of the policy, the contract obligates Commonwealth to indemnify York for any losses he sustained as a result of a defect in title or the unmarketability of the title. York was entitled to such indemnification, and was entitled to a defense from Commonwealth on the claims Cocco filed against him.
In concluding that York raised a genuine issue of material fact about whether Micheel acted reasonably in not inquiring further about the litigation and in blithely assuming that Cocco need not be present because he would not be "in title," we do not rely upon negligence principles. We recognize that the Court held in Walker Rogge, Inc. v. Chelsea Title & Guaranty Co., 116 N.J. 517, 535 (1989), that "a title company's liability is limited to the policy and... the company is not liable in tort for negligence in searching records." Here, for the reasons we have described, the record demonstrates that a reasonable jury could conclude Commonwealth breached its contractual duty, as set forth in N.J.S.A. 17:46B-9, to "conduct a reasonable examination of the title... in accordance with sound underwriting practices." Moreover, as the Court observed in Walker Rogge, "in an action under the title policy, the insured may establish a cause of action for breach of contract without establishing that the title company breached the standard of care appropriate for a reasonable title search." Supra, 116 N.J. at 541. Thus, Commonwealth's reliance upon Walker Rogge is unavailing.
Moreover, we conclude that the trial judge overread the Court's Walker Rogge holding. The issue before the Court in Walker Rogge was whether a title company could be liable in negligence for duties assumed by the title company in addition to the contract to insure title. Id. at 535. Specifically, the Court considered whether a survey exception in a title policy covered matters that would have been discovered by the purchaser had he obtained a survey prior to the closing. Id. at 532-34. The Court refused to allow the purchaser to maintain a cause of action against the title company, holding that the dispute over acreage created by the lack of a survey was not covered by "the business of guaranteeing title." Id. at 531. In reaching its decision, the Court relied upon the fact that the title insurance policy at issue contained an enforceable survey exception, the very purpose of which was "to exclude from coverage errors that would be revealed not by a search of public records, but by an accurate survey." Id. at 534.
The Court held that the obligations of a title insurance company to its insured depend on the agreement between the parties, not necessarily on negligence. Id. at 535. The Court recognized, however, that "[n]otwithstanding the essentially contractual nature of the relationship between a title company and its insured, the company could be subject to a negligence action if the 'act complained of was the direct result of duties voluntarily assumed by the insurer in addition to the mere contract to insure title.'" Id. at 541 (quoting Brown's Tie & Lumber Co. v. Chicago Title Co. of Idaho, 764 P.2d 423, 426 (Idaho 1988)). A reasonable jury could conclude that Micheel's assurances to York that Cocco need not be present was such a "'dut[y] voluntarily assumed,'" ibid., and that such duty was subject to negligence principles. We thus conclude that the judge erred when he granted summary judgment to Commonwealth and dismissed the breach of contract, negligence and gross negligence claims York asserted in his cross-claim.
In addition to those causes of action, York alleged that Commonwealth acted in bad faith by refusing to resolve York's claims despite clear evidence of liability under the policy. The tort of bad faith arises where an insurance company knowingly refuses to cover a potentially meritorious claim. Pickett v. Lloyd's, 131 N.J. 457, 473 (1993). In light of our conclusion that York presented sufficient evidence to have triggered coverage under the policy, we likewise conclude that the judge erred by dismissing York's bad faith claim. Thus, on remand, York shall be permitted to proceed not only with his breach of contract and negligence claims, but also with his bad faith cause of action.
Last, we address York's contention that the judge erred by granting summary judgment on his CFA claim. It is beyond dispute that the CFA "encompass[es] the sale of insurance policies as goods and services that are marketed to consumers." Lemelledo v. Benefit Mgmt. Corp. of Am., 150 N.J. 255, 265 (1997). To succeed on a claim of an unconscionable commercial practice against an insurance company, the insured must demonstrate "that substantial aggravating circumstances [were] present in addition to the breach [of contract]." Cox v. Sears Roebuck & Co., 138 N.J. 2, 18 (1994). No such additional aggravating circumstance was represented by York, and thus, the judge did not err in granting summary judgment on his CFA claim.
Affirmed in part, reversed in part and remanded.