The opinion of the court was delivered by: Hon. Jerome B. Simandle
This matter is before the Court on two motions for summary judgment by Defendants Twin City Fire Insurance Company ("Twin City") and Hartford Casualty Insurance Company ("Hartford") against claims of bad faith, breach of contract, and declaratory judgment raised by Plaintiff, Peter A. Tucci, Sr. Defendant Twin City moves for summary judgment of Plaintiff's declaratory judgment claim in Count V. [Docket Item 41.] Defendant Hartford moves for summary judgment of Plaintiff's counts alleging badfaith (Counts I-III) and additionally moves to dismiss the action without prejudice in favor of contractual appraisal. [Docket Item 42.] Because the Court concludes that Plaintiff's insurance policy is not ambiguous in the disputed portions, and that Defendants' delays in paying Plaintiff's claim and denial of certain areas of coverage were undisputably based on valid or at least debatable reasons, the Court will grant Defendant Hartford's motion. Additionally, because the Court concludes that Plaintiff's policy language regarding advertising injury coverage is not ambiguous, and that the policy excluded the duty to defend against claims for trademark violations, the Court will grant Defendant Twin City's motion for summary judgment.
I. FACTS AND PROCEDURAL HISTORY
This case revolves around a parcel of land and the buildings thereon located at 2015 Burlington Mount Holly Road in Westhampton, New Jersey, and the insurance policy covering it. For at least 30 years, there have been hotels operating on the property. Plaintiff has owned the land in question for decades, but only took possession of the buildings there in 2006 after he evicted the long-term tenants for material breach of their lease. As a result, Plaintiff took out additional insurance on the property by expanding his existing policy, issued by Defendants. Upon taking possession of the property on September 1, 2006, Plaintiff discovered that the hotel buildings had been vandalized and that furnishings and fixtures he had expected to be there had been removed. He subsequently filed a claim for vandalism and theft with Defendant Hartford, but has never been able to resolve his claim. This litigation followed.
The following facts are not meaningfully disputed in the record.
A. History of the Property
Plaintiff inherited the land at 2015 Burlington Mount Holly Road from his parents, and became sole owner in 1985. (Tucci Examination Under Oath at 7:17-23, Schorr Cert. Ex. 1.) His family had been renting the property to long-term tenants since at least 1958, pursuant to a 99-year ground lease. (Lease Agreement at 1, HA 1316, Rose Cert. Ex. 2.)*fn1 The tenants had built and operated hotels on the land over the decades. (Tucci EUO at 9:19-22.) Since at least 1999, a Howard Johnson Motor Lodge hotel franchise was operated on the property. (Management Agreement, Rose Cert. Ex. 3.) For all times relevant, the leaseholder of the land was an entity known as Northeast Hospitality Properties, or a derivation thereof. (Id. at 11:22-12:7.) In 1999, Northeast Hospitality Properties ("Northeast") entered into a management agreement with an entity called Vraj Brig PA, LLC ("Vraj Brig") under which Vraj Brig assumed management and operational control over the premises. (Management Agreement at 1-2.)
In addition to the Howard Johnson motel, there were also three other buildings on the land, which were operated as an independent hotel (the "ABC buildings"). (See Aerial Photo, Ex. Patel 2, Schorr Cert. Ex. 2.) Prior to September of 2006, the ABC buildings were largely occupied by guests referred and subsidized by the Burlington County Department of Social Services. (Patel Dep. at 33:14-20, Schorr Cer. Ex. 2.) Between the Howard Johnson and the ABC buildings, the complex had more than 140 rooms. (Dec. 8, 2006 Schleifer Report, HA 1299-1303, Rose Cert. Ex. 4.)
Northeast was responsible under the lease for all expenses and taxes on the property, and additionally paid monthly rent to Plaintiff amounting to $20,000. (Tucci Dep. at 452:1-25.) According to the Management Agreement that Northeast signed with Vraj Brig in 1999, this rent was to be paid by Vraj Brig, who also paid an additional $15,000 monthly "manager's fee" to Northeast. (Management Agreement at 5, HA 1371.) Yashvant Patel, an employee of Vraj Brig, testified that the manager's fee was actually closer to $11,000 per month, which is consistent with Northeast's 2005 Income Statement. (Patel Dep. at 88:9-13; Northeast Income Statement, Scaramella Cert. Ex. 4 at HA 1221.)
In addition to operating the two hotels, Vraj Brig also leased space in one of the buildings to a restaurant operator. (Patel Dep. at 100:16-24.) Vraj Brig owned the furniture and appliances in the hotel properties, including hotel room beds and laundry machines.*fn2 (Patel Dep. at 70:1-16, 66:13-25.) Additionally, the owner of the restaurant owned the furnishings and equipment of the restaurant. (Id. 102:14-15, 106:22-23.)
B. Eviction of Northeast and Expansion of Insurance Policy
Plaintiff began eviction proceedings against Northeast in late 2005 due to, at least in part, Northeast's failure to acquire adequate insurance on the property. (Tucci EUO at 18:8-19:14.) On July 21, 2006, Plaintiff prevailed when the Superior Court of Burlington County, Law Division, entered a judgment of possession of the hotel premises to Plaintiff. (July 21, 2006 Order, Schorr Cert. Ex. 3.) The court subsequently entered a stay of execution of its judgment, and ordered that "the status quo is to be maintained by all parties . . . . There shall be no destruction, disposal or sale of any property at the leased premises that is not in the ordinary course of the business of the motel." (Aug. 8, 2006 Order, Schorr Cert. Ex. 4.)
In anticipation of the eviction, Plaintiff worked with his insurance broker, the Geisenheimer Agency, to modify his existing insurance policy with Hartford. (Geisenheimer Dep. at 42:22-43:1, Schorr Cert. Ex. 8.) Plaintiff's existing policy, number 13 UUN CR9352, already covered twenty two commercial properties in various locations throughout New Jersey. (Rose Cert. Ex. 1, HA 1839-49.) Plaintiff's broker requested that the policy be expanded to cover the hotel premises at 2015 Burlington Mount Holly Road, to cover both the buildings themselves and their contents up to $3,500 per room, and also to cover loss of income at the premises up to $1,000,000. (Jul. 27, 2006 Geisenheimer e-mail, Schorr Cert. Ex. 8.)
Plaintiff's Hartford policy offered four different areas of coverage: 1) Property Choice, 2) Commercial Inland Marine, 3) Commercial Auto, and 4) Commercial General Liability. (Rose Cert. Ex. 1 at HA 1818-19.) Within each of these areas, the policy provided for coverage of specific kinds of property and loss. Within Property Choice, the policy provided for payment of the actual cash value or replacement cost of damage or loss of buildings and business personal property located on covered premises ("property coverage"). (Rose Cert. Ex. 1 at HA 1857, 1870-71.) The Property Choice area of coverage also provided for "Business Interruption" coverage, in the form of business income loss or rental income loss ("income coverage"). (Rose Cert. Ex. 1 at HA 1760-61.) Income coverage would pay the insured for the "actual loss of business income" that results from a disruption of business due to damage or loss to a covered premises. (Id.)
Plaintiff's policy had previously offered a maximum building and property coverage (described in the policy as the Blanket Buildings and Business Personal Property coverage) of $13,960,900 and income coverage (described in the policy as the Blanket Special Business Income coverage) of $100,000. (Rose Ex. 1, HA 1833-35.)
On August 3, 2006, Hartford increased the coverage of Plaintiff's policy, as detailed in Endorsement 2 to the policy. (Rose Cert. Ex. 1, HA 1736-1759.) Endorsement 2 added the hotel premises at 2015 Burlington Mount Holly Road as "Premises 23" and modified the policy to increase the policy's blanket Buildings and Business Personal Property coverage to $19,442,900 and increased the policy's blanket Business Income coverage to $1 million. (Id. at HA 1736-37, 1740.) The specific description of the hotel property, listed as Premises No. 23, specified that the covered buildings and business personal property would be covered under the blanket building and personal property limit, and that business income losses would be covered under the blanket special business income limit. (HA 1757-58.) As a result of this increased coverage, Plaintiff's premiums more than doubled, from $44,160 to $92,142. (HA 1816, 1736.)
Plaintiff testified that, when applying for coverage, he did not request a specific business income coverage limit, but merely trusted Mr. Geisenheimer to set the coverage level appropriately. (Tucci Dep. at 636:10-17, Schorr Cert. Ex. 14.) He also testified that he was unaware that business income coverage had a separate coverage limit distinct from the blanket property coverage limit. (Tucci Dep. at 629:4-15.)
Plaintiff's policy defined property covered under "business personal property" to include, in addition to the insured's own property, "personal property owned by others, that is in your care, custody or control" but excluded property that is "owned by your tenants." (Rose Cert. Ex. 1, at HA 1857-58.)
Under Plaintiff's 99-year ground lease agreement with Northeast, upon termination of the lease, the landlord acquires the buildings and structures on the land, including "alterations, changes, additions and improvements which may have been made upon the premises (except movable furniture or movable trade fixtures put in at the expense of Tenant)" and the tenant is authorized to "remove all of Tenant's personal property from the demised premises, and all property not so removed shall be deemed to have been abandoned . . . ." (Lease Agreement at HA 1333-34.)
Plaintiff's policy additionally included, in the area of Commercial General Liability coverage (which was issued by Defendant Twin City, rather than Hartford Casualty), a "Personal and Advertising Injury Liability" provision, which provides:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages.
However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply. (Rose Cert. Ex. 1 at HA 1933.) The policy defines "personal and advertising injury" to include, among other things, "Oral, written or electronic publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services" and also includes "Copying, in your 'advertisement,' a person's or organization's 'advertising idea' or style of 'advertisement.'" (Id. at HA 1945.)
The policy excludes from coverage "infringement of intellectual property rights." The IP exclusion specifies that the policy does not cover 'Personal and advertising injury' arising out of any violation of any intellectual property rights such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity. However, this exclusion does not apply to infringement, in your 'advertisement', of . . . Slogan, unless the slogan is also a trademark, trade name, service mark or other designation of origin or authenticity . . . (Id. at 1934.)
Finally, the Policy included a mandatory appraisal clause in the event of a disputed claim. The procedure laid out in the policy stated that If we and you disagree on the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal, we will still retain our right to deny the claim on the grounds that it is not covered under this policy. (Id. at HA 1850.)
D. Removal and Transfer of Possession of Hotel Premises
On August 17, 2006, the Superior Court of Burlington County ordered that the warrant of removal it had granted to Plaintiff in July would be stayed only until August 31. (Aug. 17, 2006 Order, Schorr Cert Ex. 5.) Consequently, in mid-August, Northeast and Vraj Brig prepared to depart the premises and made arrangements for the removal of their property. Mr. Patel of Vraj Brig testified that he offered the continued management services of Vraj Brig to Plaintiff, who declined the offer. (Patel Dep. at 66:5-12.) Failing that, Mr. Patel offered, instead, to sell or lease the property of Vrag Brig, including the furnishings and appliances, in the hotels to Plaintiff, who refused that offer as well. (Patel Dep. at 66:20-25, 67:11-15.) Mr. Patel additionally testified that he witnessed Plaintiff reject a similar offer from the restaurant owner. (Id. at 103:12-106-3.)
Plaintiff had visited the hotel premises on August 2 with an individual named Vincent Ciro, whom Plaintiff anticipated employing as the new hotel and property manager. (Patel Dep. at 299:1-14.) Both Plaintiff and Mr. Ciro submitted certifications to the Superior Court of Burlington County testifying that they were unimpressed with the condition of the premises. Mr. Ciro certified that he believed that, due to the neglect and disrepair of the buildings, "the hotel was not in a proper rentable condition" and that it "would require the expenditure of approximately $900,000 to $1.2 million dollars" to bring the hotel into reasonable condition. (Aug. 15, 2006 Ciro Cert. ¶¶ 4, 7, Schorr Cert. Ex. 6.) Plaintiff certified that he observed "the poor condition of the property. Such poor condition included mold, stained carpeting, non-functioning HVAC systems, evidence of water infiltration and leaks, peeling paint, crumbling concrete on stairways . . . and other evidence of deterioration and neglect." (Aug. 15, 2006 Tucci Cert. ¶ 3, Schorr Cert. Ex. 7.)
In the final few days of August, Vraj Brig began to move all of the furniture and equipment out of the hotels, loading them into multiple trucks which were parked outside the buildings. (Patel Dep. at 71:1-7.) Mr. Patel saw Plaintiff on the premises during this time when the property was being moved out of the hotels. (Id. at 70:18-25.) On August 31, 2006, after everything had been moved out, Mr. Patel offered to walk through the property with Plaintiff to account for the condition of the property, but Plaintiff declined. (Id. at 73:1-4.) Vraj Brig had removed virtually everything from the hotels, including HVAC units from the walls, the hot water heater, a communication system, and the locks on the doors. (Id. at 70:3-16.) Additionally, the restaurant owner had removed all of his equipment and furnishings from the restaurant. (Id. at 106:22-23.)
Despite the fact that he had been informed that all the movable furnishings would be removed from the premises, Plaintiff testified that he expected, when he arrived at the premises on September 1, 2006, that the hotel would immediately be operational. (Tucci Dep. at 459:3-7, Scaramella Decl. Ex. 1.) Plaintiff testified that he had based this expectation on the language of the August 8, 2006 Order of the Burlington County Superior Court, which ordered that "the status quo is to be maintained by all parties" and that "[t]here shall be no destruction, disposal or sale of ...