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Bay Colony Condominium Assoc. v. Scottsdale Insurance Company

December 26, 2012



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


Presently before the Court are: (1) the Motion for Partial Summary Judgment [Doc. No. 11] of Plaintiff Bay Colony Condominium Association ("Bay Colony," "the Association," or "Plaintiff"), and (2) the Cross-Motion for Summary Judgment [Doc. No. 16] of Defendants Scottsdale Insurance Company ("Scottsdale"), C.I.A. Adjusters & Investigators, Inc.'s ("C.I.A.") and Bruce D. Guttenplan ("Guttenplan")(collectively hereinafter "Defendants"). For the reasons that follow, Plaintiff's Motion will be denied, and Defendants' Cross-Motion will be granted in part and denied in part.


This matter involves an insurance coverage dispute stemming from a fire that occurred at a two-building condominium complex in Atlantic City, New Jersey.*fn1 (Pl.'s Mot. Partial Summ. J., Ex. 1, Statement of Material Facts Not In Dispute("Pl.'s Statement of Facts")¶ 1; Defs.' Resp. Pl.'s Statement of Material Facts ("Defs.' Statement of Facts") ¶1.) Plaintiff Bay Colony is a nonprofit corporation responsible for the maintenance and oversight of the condominium complex. (Pl.'s Mot. Partial Summ. J., Ex. 10, Compl. for Decl. J. & Other Relief & Jury Demand ("Compl.") ¶1.) Defendant Scottsdale entered into an insurance agreement with Plaintiff to provide coverage for the condominium complex. (Def. C.I.A. Am. Notice of Removal ("Notice of Removal") [Doc. No. 7] ¶3.) Defendant C.I.A. is a company engaged in the business of investigating insurance claims, and Defendant Guttenplan is a C.I.A. employee. (Id. ¶¶4,7; Defs.' Cross-Mot. Summ. J., Ex. O, Certification of Bruce D. Guttenplan ("Guttenplan Cert.") ¶1.)

In 1976, Bay Colony recorded its Master Deed, which, inter alia, defined specific terms and delineated the responsibilities of the Condominium Association and the individual condominium unit owners. (Pl.'s Mot. Partial Summ. J., Ex. 3, 1975 Master Deed Creating & Est. Bay Colony Condo. ("Original Master Deed").) Section 10 of the Master Deed provided that the Association would insure the entire condominium complex, including both the parameters of the individual units and the "common elements" of the building. (Id. at Art. I, § 10(A).) The Master Deed also provided that an affirmative vote of at least 75% of the Association's members was required to amend any part of its contents. (Id. at Art. XV.)

On August 4, 2008, the Condominium Association sent a letter to the individual unit owners requesting their vote on an amendment to the Master Deed that would reduce the cost of the Association's insurance obligations. (Defs.' Cross-Mot. Summ. J., Ex. J, 08/04/08 Letter Re: Proposed Am. Master Deed.) The text of the letter stated as follows:

The way the Master Deed document is written, Bay Colony continues to be at risk with increasing insurance premiums. . . . Where the problem lies is that the documents clearly and unequivocally require the Association to insure everything except [the] owner's personal property. That is the provision that must be addressed. In the early days it was felt that the Association was in a better position to insure everything and should act as the agent for the unit owners even in adjusting damage to the unit itself. These days that is obviously not the case and the Association does not wish to be responsible for individual unit owner property damage or insurance. (Id.) Bay Colony therefore proposed an amended definition of a "unit" that included window and door frames, as well as "everything that is within the unit itself, [including] the heating, air conditioning and utility lines that exclusively serve the unit." (Id.) This amendment was thereafter adopted by the requisite percentage of the Association's members, and properly recorded in Atlantic County in October of 2008. (Defs.' Cross-Mot. Summ. J., Ex. H, Recorded Bay Colony Condo. Assoc. Am. Master Deed ("Am. Master Deed").)

Section 10 of the Amended Master Deed explicitly stated that the Association was only obligated to insure the common elements of the buildings, and that the unit owners were individually responsible for purchasing insurance to cover the boundaries of their separate units. (Id. at §§ 10(A)(1),10(B)(1)&(2).) The amended document also contained the aforementioned altered definition of a "unit," which now included: all framing; heating, plumbing, ventilating, and air conditioning systems; electrical and cable television wiring; circuit breakers and outlets; equipment; appliances; and machinery "to the extent that they serve[d] []individual Unit[s]" of the building. (Id. at § 1E(2).) In tandem with the new definition of a "unit," the Amended Master Deed likewise contained a narrowed definition of the "common elements" of the building. As amended, "common elements" under the deed only included "common systems and equipment, including mechanical, electrical, plumbing, ventilating, sprinkler, and fire suppression systems" that serviced all units and that did not fall within the boundaries of any individual unit. (Id. at § 3A(1)(n).)

On February 19, 2009, Bay Colony sent a letter to all unit owners advising them of the changes made to the Master Deed, and attached a copy of the amended document. (Defs.' Cross-Mot. Summ. J., Ex. L, 02/19/09 Letter Re: Approved Master Deed Change.) In this same letter, the Association "strongly recommended" that unit owners provide a copy of the Amended Master Deed to their individual insurance agents to ensure that they maintained insurance coverage in compliance with the new provisions. (Id.)

Bay Colony thereafter purchased its own insurance policy ("the Policy") from Defendant Scottsdale to obtain coverage for the portions of the building it was obligated to insure. (Pl.'s Mot. Partial Summ. J., Ex. 2, Aff. Joseph Simonetta in Supp. of Pl.'s Mot. Partial Summ. J. ("Simonetta Aff.")¶33.) The terms of the Policy provided that both buildings in the condominium complex would receive blanket building coverage, and that "business income, bulkheads, pilings, boardwalks and railings" would also be covered. (Pl.'s Mot. Partial Summ. J., Ex. 9, Scottsdale Ins. Co. Comm. Prop. Coverage Part Supplemental Decl. ("Scottsdale Supp. Decl.").) The limit of the Policy was set at $1,974,000.00. (Id.)

Most relevant to the instant dispute, the Policy explicitly stated that Scottsdale would provide Bay Colony with coverage for: "direct physical loss of or damage to Covered Property at the premises[.]" (Pl.'s Mot. Partial Summ. J., Ex. 6, Condo. Assoc. Coverage Form ("Scottsdale Ins. Policy") at 1.) According to the Policy's terms,"covered property" was defined to include both "the building or structure" and "permanently installed machinery and equipment" within it. (Id.) The Policy also indicated that Scottsdale would pay for any "direct physical damage" to machinery or equipment that was "the direct result of an 'accident.'" (Id. at 16.)

In the event that Scottsdale and Bay Colony disagreed as to the value of any loss or damage to covered property, the insurance agreement provided that the two entities could choose to partake in an appraisal. The appraisal process was described in the text of the Policy as follows:

If [Scottsdale] and [Bay Colony] disagree on the value of the property or the amount of loss, either [party] 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 value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed upon by any two will be binding. (Id. at 9.)

On September 2, 2009, a fire occurred at the Bay Colony condominium complex. (Defs.' Cross-Mot. Summ. J., Ex. A., 09/02/09 Atl. City Fire Dep't Rep.) The fire allegedly affected a significant portion of the building, damaging a majority of the complex's common elements and individual units. (Simonetta Aff. ¶5.) Bay Colony immediately notified Scottsdale of the fire, and retained the services of a licensed insurance adjuster to address its loss claim.*fn2 (Compl.¶¶20,21.) Scottsdale retained Defendant Guttenplan to handle the insurance claim. (Defs.' Cross-Mot.

Summ. J., Ex. G, Decl. Appraisers; Guttenplan Cert. ¶1.)

Over the course of several months, the parties attempted to reach a mutually-agreed upon amount reflecting Bay Colony's loss due to the fire. (See generally Compl. ¶¶19--68.) They were unable to do so, however, and therefore opted to partake in an appraisal in June of 2011. (Rodriguez Aff. ¶¶4--6.) In accordance with the appraisal procedure set forth in the Policy, Bay Colony chose Carl Rodriguez ("Rodriguez") to serve as its appraiser, and Scottsdale retained the services of Frank Antonucci ("Antonucci"). (Id. at ¶2; Simonetta Aff. ¶15.) Rodriguez and Antonucci selected Douglas MacKinney ("MacKinney") as their umpire. (Id. ¶16; Rodriguez Aff. ¶6.) Rodriguez and Antonucci both submitted monetary estimates to MacKinney reflecting what they believed to be the proper amount of Bay Colony's loss due to the fire. (Id. ¶5.) Rodriguez avers that he only submitted an amount reflective of the damage done to the common elements of the building. (Id.) Notably, he included damage to the electrical, HVAC, plumbing, and framing of the building in his estimate, as he considered these items to be insured common elements. (Id.) According to Rodriguez, "[a]ll of my numbers related to components of the systems . . . [that were] located in common areas and serv[ed] all units, and components [that ran] between units (such as wiring and duct work)." (Id.) Antonucci, on the other hand, did not include any damage done to these items in his estimate because he did not believe them to be common elements. (Defs.' Cross-Mot. Summ. J., Ex. M, 05/11/11 MacKinney Letter.)

As the "umpire" to the dispute, MacKinney assessed both parties' submitted estimates and conducted his own inspection of the property. (Id.) In July of 2011, MacKinney released a report stating that Bay Colony's total loss due to the fire was $996,547.81. (Id.) In his report, MacKinney separated the total amount of loss into two categories: (1) loss that occurred to common elements owned by the Condominium Association, and (2) loss that occurred to "non-condo association unit components" attributable to the individual unit owners. (Id.) MacKinney allocated $335,530.04 to the common elements category, and $661,017.78 to the unit components category. (Id.) With regard to electricity, HVAC, plumbing, framing, and architectural and engineering fees that could be attributed to both categories, MacKinney divided the amount of loss between the two as follows:


Electric $10,000.00 $43,520.00 HVAC $0.00 $67,960.00 Plumbing & Heating $0.00 $32,070.00 Framing $7,245.00 $28,707.91 Architectural & $24,388.85 $46,811.15 Engineering Fees TOTAL $41,388.85 $219,069.06 (Id.; Simonetta Aff. ¶41.)

To date, Scottsdale has paid Bay Colony approximately $291,000.00 in insurance proceeds.*fn3 Bay Colony asserts, however, that it is entitled to further proceeds from Scottsdale because MacKinney based his finding on an incorrect definition of "common elements" that did not match the one provided in the Amended Master Deed and applicable statutory law. (Pl.'s Statement of Facts ¶6; Simonetta Aff. ¶¶17,19; Rodriguez Aff. ¶6; Compl. ¶¶81,82.) Bay Colony therefore alleges that it should receive the $219,069.06 amount that MacKinney allocated to the unit owners for damage done to the building's electricity, HVAC, plumbing, and framing. (Simonetta Aff. ¶42.) Bay Colony further avers that the estimated actual cost to rebuild the ...

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