July 23, 2010
JOHN DEMASI, PLAINTIFF-APPELLANT,
LEXINGTON INSURANCE COMPANY, DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-1638-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 18, 2009
Before Judges Axelrad and Espinosa.
Plaintiff John DeMasi appeals from an order that granted summary judgment to defendant, Lexington Insurance Company (Lexington), dismissing his complaint, which alleged, inter alia, breach of contract and bad faith.
Plaintiff purchased a single-family home in Burlington in May 2006 for $500,000, sight unseen, knowing that the previous owners had kept fifty dogs in the basement. He purchased the house at the request of his friend, Tony Mutinani, who held a third mortgage on the property. Mutinani had given the prior owners a mortgage so that they could purchase a business that later failed. The bank with the first mortgage was about to foreclose on the property when Mutinani suggested to plaintiff that he purchase it. Plaintiff bought the house with 100% financing, consisting of a first and second mortgage and a home equity loan on a property he owned in Brigantine. Plaintiff never occupied the house. He undertook some renovations and listed the house for sale for $589,000 in August 2006. At the same time, he listed the Brigantine property for sale for $1,550,000.
In December 2006, the house had been vacant for six months and there had been no offers. Plaintiff went to the property on December 18, 2006 to meet a new realtor, Anthony Balboni, so that Balboni could inspect the property and determine a marketing strategy. Balboni stated that plaintiff was at the house when he arrived with his assistant, Linda. They walked in through the front door. Balboni stated that as soon as the door opened, he noticed a musty smell. Plaintiff said that there had been a lot of dogs in the house and they had a lot of problems getting rid of the smell. The walls were "sort of gray with smoke" and, as they walked further in, Balboni realized that there had been a fire when he saw that the carpet on the staircase was all black. Balboni said that plaintiff did not really say anything and remained in the entrance way as he and Linda walked into other areas of the house. Cobwebs were filled with smoke in the ceilings. Balboni saw mice tracks across the smoke on the kitchen floor in front of the sliding glass doors. As Linda and Balboni discussed the situation, plaintiff was just standing there for a while. They told him that he should probably call the police or his insurance company and walked out the front door. Balboni stated that plaintiff said, "very neutrally," that he could not believe what happened. Balboni suggested that they look around back of the house. He observed glass on the deck, an open second floor window that looked like part of it had blown out. They tried to open some of the doors. The sliding glass door did not open. When they walked to the back door that entered the laundry room, Balboni stated that "the dead bolt looked like somebody had twisted the lock mechanism all the way around. It looked like it was pretty damaged[.]" Balboni turned the door knob and it opened freely. Balboni stated that they then had "some conversation" about how a fire could start like this and the police never get called, but said that most of that conversation was between Linda and him. As they returned to the front of the house, he again told plaintiff that he should call the police and the fire department. Plaintiff thanked him and said that he would do so and would be in touch with Balboni.
Plaintiff called the police and his insurance agent after Balboni left to report the damage to the house. An arson investigation was conducted. The State Police Laboratory report stated that gasoline was detected in items found at the property and the area of origin was determined to be the landing at the base of the steps leading to the second floor.
Lexington retained a certified fire investigator to determine the origin and cause of the fire; his conclusions were consistent with that of the State Police Laboratory and he stated further that the cause of the fire was intentional. The inspector reported that, upon inspection of the broken window, it appeared to have been broken prior to the fire from the inside, because there was no soot on the broken glass on the deck. He observed damage on the face of the dead bolt key pad for the rear entry interior door. The investigator reported that the police had not determined how the fire had been extinguished but noted that he observed a spent dry chemical fire extinguisher in the laundry room. Lexington also retained a forensic locksmith to examine the deadbolt lock for evidence of forced entry. The locksmith reported his conclusions that "the dead bolt lock was unlocked at the time damage was inflicted. Damage to the lock is cosmetic; there is no evidence of successful compromise or entry."
Plaintiff submitted to an examination under oath (EUO) by Lexington on May 14, 2008. He was advised at the outset that "if and when an insured makes an intentional misstatement at an examination under oath, that can jeopardize the entire claim of the insurance policy." He admitted to a prior conviction for theft by deception. Plaintiff testified that he had been at the house approximately two weeks earlier and everything had been fine. He testified that all the doors to the house were locked as of December 18, 2008 and that he and the realtor had the only keys.
Plaintiff's individual income tax return for 2006 reflected plaintiff's wages, salaries and tips as zero, taxable interest of $2782 from his investment account, negative capital gain and a negative real estate rental income, resulting in a negative income of $14,000 for 2006. Plaintiff testified that in December 2006, his mortgage and home equity obligations for the Brigantine property and a commercial building in Hammonton were approximately $6950. In addition, he had monthly automobile loan payments of $1807 for a Mercedes, $870 for a Corvette and a Lexus lease of $700. He had a credit card balance of approximately $10,000. He received rental income from the Hammonton property of $2800 per month and had an investment account valued at approximately $100,000. Despite the absence of any cognizable income, plaintiff testified that he was current on all of these obligations in 2006.
Plaintiff testified that he was self-employed in an advertising business, JD Advertising. JD Advertising's corporate tax return for 2006 reflected zero compensation for officers for that year and a total ordinary business income of $11,000. Plaintiff testified that he was compensated through the business by taking expenses. The corporate tax return reported an expense item called check cashing in the amount of $57,900. Plaintiff was vague when questioned about this expense. He speculated that this may have related to his occasionally cashing checks of some clients who needed cash right away but could not answer how this was an expense to him. Plaintiff stated that he could not comment on whether the $57,900 referred to a transaction when a client of his was trying to hide money from his wife:
I don't know if it's referring to that. No, as I said, I really can't comment on that.
I have to really talk to the people who do my books and who prepared the tax return to give you the specifics. [(Emphasis added).]
Plaintiff said that he would speak to the person at H&R Block who prepared the return. Plaintiff was asked further about his check-cashing activities:
Q: So let's just say this client whose trying to hide money from his ex-wife, he has a check written out to him of some kind?
He comes to you, and let's say it's a check for $5,000.
Q: He gives the check and you deposit the check where?
A: In my bank.
Q: The business bank account or the personal?
A: Business bank account.
Q: Is that listed as income for your company?
A: Yes. And that's probably why they have the line of check cashing. Again, I can't comment definitely, but that's how it would play out.
Q: Is it fair to say that any such transaction is in some manner or other of the person who asks you to cash the check dishonest or illegal?
A: I don't know if I would get into that because with clients typically or people who ask me to do it I don't get into it. I don't feel it's you know, my place.
When asked if he took a fee for cashing the checks, plaintiff stated that he did so rarely, for $20 or $30. Lexington's counsel asked plaintiff "to secure from H&R Block a breakdown of the check cashing fees for '06 indicating the individual[']s names and addresses."
When questioned about the fact that his income tax return stated that the Burlington property was listed as a rental property, allowing for the deduction of mortgage payments, taxes and other expenses, plaintiff again could not explain why H&R Block had listed it as such:
A: I wouldn't be able to answer that question. I gave them all my information.
Q: But did you tell them that it was a rental property?
A: I don't recall.
Q: Well, it was never intended to be a rental property, was it?
A: No, no.
Q: You say you don't recall telling them that, but they wouldn't have derived that other than through you, is that correct?
A: Not necessarily.
Q: Well, did anyone else deal with them besides you?
Q: I mean they didn't make it up. Do you think they made it up themselves that it was a rental property?
A: I don't know why they would do that. I mean they know that I own it. They saw mortgage statements and mortgage interest and taxes. They knew that.
Q: But someone would have to tell them it was rental, wouldn't they?
A: I didn't tell them that. I would never have told them that because it wasn't a rental.
Lexington's counsel then asked for authorization to speak to the tax preparer at H&R Block.
Following the EUO, Lexington's counsel requested the following documents by letter of May 27, 2008:
(a) Listing agreement re Brigantine House;
(b) All closing papers in connection with the acquisition of the subject property;
(c) All loan documents in regard to the acquisition of the subject property (two mortgages on the subject property and mortgage on Brigantine house);
(d) All records of [investment] account, reflecting withdrawals for improvements to property;
(e) December, 2006, loan statement in regard to primary loan on Brigantine property;
(f) December, 2006, home equity statement in regard to loan on Brigantine property;
(g) December, 2006, loan statement in regard to primary loan on Hammonton property;
(h) December, 2006, home equity statement in regard to loan on Hammonton property;
(i) December, 2006, statement as loan re Mercedes SL500;
(j) December, 2006, statement as loan re 2004 Corvette;
(k) December, 2006, statement as to the lease on the Lexus SUV;
(l) A copy of December, 2006, statement in re Bank of America MasterCard;
(m) A copy of December, 2006, statement as to all other credit cards;
(n) Execution of the enclosed authorization form, permitting us to speak to Ms Geary [plaintiff's realtor], who has heretofore indicated that she had some "confidentiality" issues as far as Mr. DeMasi was concerned;
(o) Execution of the attached authorization, enabling us to speak with and secure records from personnel at H&R Block, including but not limited to Richard [Sepe] and Lee Braddock, pertaining to tax returns;
(p) Identification of all persons whose checks were cashed and are reflected in check cashing fees;
(q) Copy of bank appraisal in regard to the subject property (to be requested of the lender); and
(r) Execution of the enclosed credit authorization statement.
Plaintiff filed this lawsuit on May 30, 2008, alleging breach of contract, bad faith and that plaintiff had relied on Lexington's representations of coverage and, as a result, had "suffered a loss in which Plaintiff allegedly does not have homeowner's insurance to cover the December 18, 2006 loss[.]"
By letter dated July 7, 2008, plaintiff's counsel advised that plaintiff "has declined to execute the Authorization for H&R Block." By letter dated September 11, 2008, Rick Sepe of H&R Block responded to a subpoena served by Lexington. He explained that he could not comply with the subpoena without either plaintiff's consent or a court order and that plaintiff had not consented to the requested disclosure.
During the period from late July into early August 2008, plaintiff produced some of the items requested in the May 30 letter (Items a, b, d, e, f, j, k, n and r). The remaining items were never produced.
Lexington filed an answer and counterclaim on August 19, 2008, in which it demanded contribution and indemnification for all moneys that may be paid to plaintiff's mortgagee and further alleged that the claim submitted by plaintiff "was false and fraudulent as the fire at issue was set by the plaintiff"; violation of the Insurance Fraud Prevention Act, N.J.S.A. 17:33A-7; and a claim for treble damages pursuant to that Act.
The Lexington policy provided in pertinent part:*fn1
B. Duties After Loss
In case of a loss to covered property, we have no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to us. These duties must be performed either by you, an "insured" seeking coverage, or a representative of either:
2. Cooperate with us in the investigation of a claim;
7. As often as we reasonably require: . . . .
b. Provide us with records and documents we request and permit us to make copies; and
c. Submit to examination under oath, while not in the presence of another "insured," and sign the same.
G. Suits Against Us
No action can be brought against us unless there has been full compliance with all of the terms under Section I of this policy and the action is started within two years after the date of loss. [(Emphasis added).]
In addition, the policy provides:
We provide coverage to no 'insureds' under this policy if, whether before or after a loss, an "insured" has:
(1) intentionally concealed or misrepresented any material fact or circumstance;
(2) engaged in fraudulent conduct;
(3) made false statements; relating to this insurance.
Lexington moved for summary judgment, arguing that the financial motive to set a fire is an important element in the investigation of an arson loss and that plaintiff's refusal to provide defendant with access to communications between him and H&R Block was a material breach of the insurance policy that relieved it of its obligation to provide coverage. In opposing summary judgment, plaintiff denied that he had failed to cooperate with Lexington and stated that a letter from his counsel dated June 16, 2008 "clearly demonstrates that it was H&R Block who declined to be informally interrogated by defense counsel." There is, however, no evidence that plaintiff's counsel's subsequent letter of July 7, 2008 was inaccurate in stating, "Mr. DeMasi has declined to execute the Authorization for H&R Block[,]" or that the letter from H&R Block was inaccurate in reporting that plaintiff did not consent to the disclosure of his financial information. Plaintiff also argued that Lexington had failed to establish that plaintiff provided any false testimony at his EUO.
In a written opinion, the trial court granted summary judgment to defendant, stating:
In accordance with DiFrancisco [v. Chubb Ins. Co., 283 N.J. Super. 601 (App. Div. 1995)] plaintiff's failure to produce the appropriate records constitutes a willful refusal to comply with the terms of his insurance contract. An insured's financial condition is relevant to an insurer when arson is suspected, especially where suspicious circumstances are present and the request is reasonable and specific. DiFrancisco, supra, 283 N.J. Super. at 610 (citing Ransom v. Selective Ins. Co., 229 N.J. Super. 43, 46 (Law Div. 1988)). Therefore, as in Ransom, supra, the circumstances of the case justify a suspicion of arson and the requested documents were specific, relevant, material and reasonable. These documents still have not been provided by the defendant, nor does he explain their whereabouts. Additionally, the documents Lexington requested from plaintiff were still outstanding at the time he filed suit. This is also contrary to the subject policy, under the "Suits Against Us" clause. As such, defendant is entitled to summary judgment as a matter of law.
In light of these conclusions, the court deemed it unnecessary to determine whether plaintiff had violated the terms of his policy by giving false testimony at his EUO.
In this appeal, plaintiff presents the following issues for our consideration:
THE TRIAL COURT COMMITTED AN ERROR OF LAW AND MISTAKE OF FACT WHEN IT GRANTED SUMMARY JUDGMENT ON THE BASIS OF THE COOPERATION AND DOCUMENT REQUEST CLAUSES OF THE POLICY.
THE RECORD EVIDENCES THAT PLAINTIFF SUBSTANTIALLY COMPLIED WITH DEFENDANT'S INVESTIGATION THUS THE INSURANCE COMPANY PROVED NO PREJUDICE AS WAS FOUND BY THE COURT IN [DIFRANCISCO, SUPRA, 283 N.J. SUPER. AT 601].
THE COURT ERRED IN GRANTING THE MOTION FOR SUMMARY JUDGMENT WHEN IT DECIDED MATERIAL ISSUES OF MATERIAL FACT IN DETERMINING WHETHER PLAINTIFF HAD BREACHED THE COOPERATION CLAUSE.
After careful consideration of the record, briefs and arguments of counsel, we are satisfied that none of these arguments have merit.
When reviewing a grant of summary judgment, we employ the same standards used by the trial court, which grants summary judgment if the record shows 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). Burnett v. Gloucester County Bd. of Chosen Freeholders, 409 N.J. Super. 219, 228 (App. Div. 2009); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). First, we determine whether the moving party has demonstrated that there are no genuine disputes as to material facts, and then we decide whether the motion judge's application of the law was correct. Atl. Mut. Ins. Co. v. Hillside Bottling Co., 387 N.J. Super. 224, 230-31 (App. Div.), certif. denied, 189 N.J. 104 (2006). In so doing, we view the evidence in a light most favorable to the non-moving party. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). We review issues of law de novo and accord no deference to the motion judge's conclusions on issues of law. Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009).
The issue at the heart of this appeal is whether plaintiff's failure to provide the authorization for the insurer to speak to H&R Block and other requested documents constituted a material breach of his duty to cooperate, voiding the policy.
We first consider whether plaintiff's failure constituted a breach of his contractual obligation to cooperate with Lexington's investigation.
An insurance carrier has both the right and the obligation to promptly investigate claims. See Griggs v. Bertram, 88 N.J. 347, 357 (1982); DiFrancisco, supra, 283 N.J. Super. at 613. In Claflin v. Commonwealth Insurance Co., 110 U.S. 81, 94-95, 3 S.Ct. 507, 515, 28 L.Ed. 76, 82 (1884), the Supreme Court described the purpose of the investigation "to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims." In short, the investigation allows the insurer "to pursue its rights under the policy in order to determine whether the claim is legitimate and should be paid." DiFrancisco, supra, 283 N.J. Super. at 611. See also Longobardi v. Chubb Ins. Co., 121 N.J. 530, 539 (1990) (post-loss misrepresentations "strike at the heart of the insurer's ability to acquire the information necessary to determine its obligations and to protect itself from false claims").
In Ransom, supra, 229 N.J. Super. at 48, Judge Haines reviewed the examination under oath provision in a policy and concluded that the insured was required to submit to the EUO and produce requested documents in accordance with the written demand of counsel "because the circumstances surrounding the loss arouse[d] a justified suspicion of arson and because the requests are specific, relevant, material and reasonable." (Emphasis added). In DiFrancisco, we reviewed the grant of summary judgment to an insurer following the refusal of the insured to produce financial records responsive to the insurer's investigation of a theft claim. Applying the principles articulated in Ransom, and finding a reasonable basis to suspect that his claim of a theft loss was fraudulent, we determined that the insured's failure to produce the requested documents constituted a material breach of the conditions of his policy. DiFrancisco, supra, 283 N.J. Super. at 605. Recognizing that the insurer's rights may be "materially diluted by the delay between the loss and [the] resolution of the issue[,]" id. at 613, we held:
[A]n insured in these circumstances must promptly file a declaratory judgment action seeking a determination of its obligation to produce the records demanded by its insurer under an insurance policy when the insured objects to their production. The insured may not wait to assert his rights until the eve of the expiration of the statute of limitations for filing suit to compel coverage. Such delay works too great a hardship to the insurer who must be able to promptly investigate the legitimacy of claims. [Id. at 614.]
Plaintiff failed to file a declaratory judgment action to determine his obligation to produce the authorizations to speak to H&R Block. Instead, he argues that his "substantial compliance" with Lexington's request for documents should preclude summary judgment. We disagree.
Plaintiff submitted to the EUO on May 14, 2008. Quite remarkably, he testified that he had expenses for mortgages, home equity loan and automobiles alone that approximated $10,000 per month*fn2 in 2006; and that, although he reported a negative income of $14,000 for that year, all his obligations were current. He was questioned specifically about an expense item of $57,900 for "check cashing" on the corporate tax return and the listing of the Burlington property on his personal income tax return as a rental property when it was admittedly not a rental property. Plaintiff deflected each of these inquiries by claiming ignorance as to how or why H&R Block had included such information in the returns. The carrier's counsel immediately requested authorization to speak to the H&R Block personnel who could supply such information. This request was followed by a letter dated May 27 that set forth in detail the documents requested by the carrier, including the authorization to speak to H&R Block.
In the face of this demand, plaintiff was required to file a declaratory judgment action if he disputed his obligation to provide the requested authorization and additional documents. DiFrancisco, supra, 283 N.J. Super. at 613. Instead, he filed this action, sent a one sentence letter to the carrier's counsel, stating that he declined to execute the authorization, and, thereafter, complied with some of the requests for documents.
We do not find plaintiff's argument of substantial compliance persuasive. The fact that he may have furnished other information does not excuse his failure to comply with a request for information that was material to Lexington's investigation.
The principles applicable to determining the materiality of an insured's misrepresentations are instructive. Adopting a rule "that provides insureds with an incentive to tell the truth," our Supreme Court stated, "An insured's misstatement is material if when made a reasonable insurer would have considered the misrepresented fact relevant to its concerns and important in determining its course of action." Longobardi, supra, 121 N.J. at 541-42. Such statements are "equally material if they may be said to have been calculated either to discourage, mislead or deflect the company's investigation in any area that might seem to the company, at that time, a relevant or productive area to investigate." Id. at 541 (quoting Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179, 183 (2d Cir. 1984), cert. denied, 474 U.S. 826, 106 S.Ct. 86, 88 L.Ed. 2d 70 (1985)). Turning to the materiality of a refused request for documents, it is well-settled that information that reveals a claimant's financial condition is material to an insurer's investigation when arson or other possible fraud is suspected. See DiFrancisco, supra, 283 N.J. Super. at 610; Ransom, supra, 229 N.J. Super. at 46. See also Dadurian v. Underwriters at Lloyd's, 787 F.2d 756, 760 (1st Cir. 1986) (statement is material if it is "reasonably relevant to the insurance company's investigation of a claim," and therefore, the source of cash used to purchase jewelry was material to theft claim).
To limit the insured's responsibility to "substantial compliance" would allow the insured to selectively produce some responsive documents while withholding other documents relevant and perhaps more significant to the investigation. The ability to "discourage, mislead or deflect" the investigation would then lie entirely within the insured's hands and deprive the insurer of its rights under the policy.
Although plaintiff was not charged, it is not disputed that the damage here was caused by arson. According to his own testimony, the property was unscathed two weeks before the damage was discovered. The property was locked with the only keys in the possession of the realtor and plaintiff. There was evidence that the arsonist was able to enter the property with a key and faked a forced entry. The unrefuted report of the forensic locksmith stated that the damage to the rear entry lock was merely cosmetic in nature and was inflicted when the door was already unlocked. The certified fire investigator reported that the upstairs window was apparently broken from the inside before the fire since the broken glass fell to the deck below and did not bear any soot from the fire. When the fire was started, neither the police nor the fire department was called. Yet the fire was extinguished, by means unknown to the police, and a spent extinguisher was located in the laundry room. Under these circumstances, it was clear that the damage was caused by an arson and a suspicion that plaintiff was responsible was justified. The authorization to speak to H&R Block was specifically designed to secure information regarding very questionable aspects of plaintiff's finances from the source that plaintiff identified and deferred to at the EUO. Therefore, like the trial court, we conclude that plaintiff was required to provide the requested authorization because, as in Ransom, the request was "specific, relevant, material and reasonable" and there was "a justified suspicion of arson." See Ransom, supra, 229 N.J. Super. at 48. Plaintiff's failure to provide the requested documents constituted a breach of his contractual duty to cooperate.
Not every breach of a contractual provision by an insured will permit a carrier to decline coverage. In Cooper v. Government Employees Insurance Co., 51 N.J. 86, 94 (1968), our Supreme Court held that coverage may not be declined "unless there are both a breach of the notice provision and a likelihood of appreciable prejudice." In Solvents Recovery Service v. Midland Insurance Co., 218 N.J. Super. 49, 54 (App. Div. 1987), we concluded that "where the insured has acted in good faith," this "appreciable prejudice" rule should be applied to an alleged breach of the duty to cooperate. Therefore, we next turn to the question whether the circumstances warrant the voiding of coverage.
Our Supreme Court has noted that, like every contract, an insurance policy is subject to the "implied covenant that 'neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract; in other words, in every contract there exists an implied covenant of good faith and fair dealing.'" Fireman's Fund Ins. Co. v. Sec. Ins. Co., 72 N.J. 63, 72 (1976) (quoting Ass'n Group Life, Inc. v. Catholic War Vets. of U.S., 61 N.J. 150, 153 (1972); 5 Williston on Contracts § 670 (3d. ed. 1961)). Therefore, the insured is also required to act fairly and in good faith. Greer ex rel. Peterson v. Naklicki, 379 N.J. Super. 153, 164 (App. Div.), certif. denied, 185 N.J. 390 (2005); see also Sears Mortgage Corp. v. Rose, 134 N.J. 326, 347 (1993).
In applying the Cooper "appreciable prejudice" rule to an alleged breach of the cooperation clause, we suggested that an insured's "good faith" should be a precondition of obtaining the rule's benefit. Solvents Recovery Serv., supra, 218 N.J. Super. at 55. See also Hager v. Gonsalves, 398 N.J. Super. 529, 538 (App. Div.), certif. denied sub nom., High Point Ins. Co. v. Rutgers Cas. Ins. Co., 195 N.J. 522 (2008). The good faith of the insured has also been considered a precondition to application of the appreciable prejudice rule in the context of other alleged breaches by the insured. See, e.g., Ohaus v. Continental Cas. Ins. Co., 292 N.J. Super. 501, 511 (App. Div. 1996) ("[w]here the insured has acted in good faith, an exclusion barring coverage for the insured's voluntary assumption of an obligation only applies where the insurer can establish 'appreciable prejudice.'").
There are grounds here to question the good faith of plaintiff. If, in good faith, he truthfully testified that he was ignorant as to the circumstances of the check cashing exemption and the false representation that the Burlington property was a rental property, continued good faith required him to permit Lexington access to the one source of information that he identified as capable of resolving that issue. See Cooper, supra, 51 N.J. at 94 n.3 ("[t]he carrier of course does not have to speculate upon and rebut hypothetical possibilities when the insured alone is in a position to make an affirmative showing of the material facts."). All that was required was for him to give his consent. He did not do so and has offered no reason why he could not have complied with a request that required such minimal effort on his part. His frustration of Lexington's reasonable investigative inquiry was exacerbated by the filing of this lawsuit, rather than the declaratory judgment action required by DiFrancisco, leading to further delay before Lexington could hope to obtain the requested documents. As the trial judge noted, even as of the date the motion was decided, plaintiff had neither produced the requested documents nor explained their whereabouts.
Arguably, the absence of good faith by plaintiff renders it unnecessary for us to apply the "appreciable prejudice" rule. However, the applicable policy provision relieves Lexington of the duty to provide coverage "if the failure to comply with the [duty to cooperate] is prejudicial to [Lexington]." Therefore, the issue of prejudice must be addressed.
In Sagendorf v. Selective Insurance Co. of America, 293 N.J. Super. 81, 93 (App. Div. 1996), we discussed the variables applicable to a determination whether there has been appreciable prejudice. The factor most relevant to that determination here is "whether substantial rights have been irretrievably lost by virtue of failure of the insured." See ibid.
It is evident that the failure here was not inconsequential, as in Haardt v. Farmer's Mutual Fire Insurance Co. of Salem County, 796 F. Supp. 804, 809 (D.N.J. 1992), where the insured missed one appointment with an adjuster due to medical reasons. To date, plaintiff has foreclosed Lexington's investigation into pertinent details of his financial condition. As a result, although we observed in Solvents Recovery Service, that "[t]he carrier can best demonstrate what action it would have taken that cannot now be accomplished due to the insured's default," 218 N.J. Super. at 55, plaintiff's conduct precludes Lexington from venturing beyond speculation to demonstrate precisely what course of action it would have pursued. In DiFrancisco, we found a sufficient showing of prejudice because the insurer's rights had been "materially diluted by the delay between the loss and resolution of the issue presented." 283 N.J. Super. at 613. Plaintiff's conduct here has produced a similar delay that has materially diluted Lexington's ability to promptly investigate the legitimacy of his claim. His continued refusal has also caused Lexington to "irretrievably lose" the ability to discover facts that had the clear potential of revealing fraud. See Hager, supra, 398 N.J. Super. at 534. Therefore, we conclude that Lexington made a sufficient showing of prejudice to justify a forfeiture of coverage by plaintiff.