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Those Certain Underwriters at Lloyd's, London Subscribing to Policy Number Buy1780 v. Cleopatra, LLC

Superior Court of New Jersey, Appellate Division

November 20, 2013

CLEOPATRA, LLC, d/b/a EDEN ROC MOTEL and AFFIFA MICHAEL, Defendants/Third Party Plaintiffs-Appellants/ Cross-Respondents,
KK INSURANCE AGENCY, INC. and KIRAN M. SONDHI, Third-Party Defendants-Respondents.


Argued November 4, 2013

On appeal from the Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-0645-10.

Nancy L. Goldstein argued the cause for appellants/cross-respondents (Mark J. Hill & Associates, P.C., attorneys; Mark J. Hill and Ms. Goldstein, on the brief).

Joseph M. Powell argued the cause for respondents/cross-appellants (Powell & Roman, L.L.C., attorneys; Mr. Powell, on the brief).

Michael C. Salvo argued the cause for respondents (Ahmuty, Demers & McManus, attorneys; Mr. Salvo, on the brief).

Before Judges Parrillo, Harris, and Guadagno.


This appeal arises out of a property insurer's denial of a claim resulting from wind and water damage to a Wildwood motel allegedly caused by 2009's Hurricane Ida and related nor'easter. The dispute involves claims, counterclaims, and third-party claims among insured Cleopatra, LLC d/b/a Eden Roc Motel (Cleopatra); Cleopatra's owner, Affifa Michael; property insurer Those Certain Underwriters at Lloyd's, London subscribing to Policy No. BUY1780 (Lloyd's); insurance broker KK Insurance Agency, Inc. (KK); and one of KK's agents, Kiran M. Sondhi. We affirm in part, reverse in part, and remand for further proceedings.


At all relevant times, Michael —— a sixty-year old Egyptian immigrant with a high school education[1] —— owned Cleopatra, which operated The Eden Roc Motel, located on Atlantic Avenue in Wildwood. Sondhi —— employed as an "underwriter" by KK —— assisted Michael with her insurance needs for several years. KK was instrumental in obtaining one-year liability and property insurance policies for the motel in July 2007, and again in July 2008, both of which were underwritten by non-party Seneca Specialty Insurance Company (Seneca).

In January 2008, prior to the weather events that are the subject of the present appeal, the motel sustained water damage resulting from high winds and heavy rains. After having the damage appraised, Cleopatra submitted its claim to KK, who then sent a loss notice to Seneca seeking reimbursement under the extant policy. Seneca determined that the amount of damages incurred was $5, 685, but denied coverage due to the policy's windstorm or hail exclusion, resulting in Cleopatra's out-of-pocket payment to fund repairs.

Cleopatra elected to change insurance brokers for the ensuing policy year. After selecting the Schick Insurance Agency (Schick), Michael submitted an application on Cleopatra's behalf for liability and property insurance in July 2008. An unrelated syndicate at Lloyd's underwrote the subsequent commercial property policy that was issued for a one-year term.[2]

In March 2009, the motel suffered a $6, 740 loss, described in Schick's April 15, 2009 property loss notice as "wind damaged roof & water leaked into room 13 & room 29 & hallway – 2nd floor." In June 2009, the motel was paid $5, 740 for the claimed damages by the insurer.

A second claim, seeking $4, 595, alleged that on June 10, 2009, a pipe burst in the bathroom ceiling of room eleven, "causing a water loss to unit[s] 10 & 11." On December 3, 2009, the insurer paid $3, 407.68 with respect to the loss.[3]

Meanwhile, beginning in April 2009, KK —— through Sondhi, operating on his own initiative because Cleopatra was then no longer KK's client —— sought to procure insurance for the motel. On April 9, 2009, as part of the unsolicited application process initiated by Sondhi, a commercial insurance application was prepared on behalf of Cleopatra with respect to the motel. The application required a "Prior Carrier History, " which was completed to disclose the Seneca and other Lloyd's syndicate policies. The application also contained a "Loss History" section that read:

Enter all claims or losses (regardless of fault and whether or not insured) or occurrences that may give rise to claims for the prior 5 years (3 years in KS & NY).

KK's response to this section of the application indicated, "None."

Lloyd's used Bass Underwriters (Bass) to underwrite its new property insurance policies. Although Bass was able to issue a policy quote, binding coverage was not possible without a signed insurance application accompanied by proof that an applicant's "loss record is clean." On June 19, 2009, in furtherance of procuring insurance for Cleopatra, KK sent an e-mail and a proposed application to Bass underwriter Julia Sauceda requesting a quote. After not hearing from Sauceda, Sondhi sent another e-mail to Sauceda eleven days later, on June 30:

Subject: "Urgent!!! Cleopatra LLC DBA EDEN ROCK MOTEL . . . eff. d[a]te 07/12/09[.]
Importance: High
Hi Julia
On the above account I am just wondering if you need any further information or if you have the quote yet.
Please let us know the quote ASAP.
Let me know if you have any questions.
Thanks, Kiran
K.K. Insurance Agency
Sauceda immediately sent the following response:
Kiran, I can get you this quote today . . . I was trying to get it approved by management first because there was some unfavorable info we found online. If loss record is clean. I can push this through. Do you happen to have either loss runs or can you give me confirmation that there have been no losses?
Let me know and we'll take it from there.

Sondhi's assistant responded to Sauceda, stating, "Right now we do not have the loss run and as per our record, there is [sic] no losses. We will try to get the current loss history later." Sondhi claimed he later sent loss run statements to Sauceda before the present Lloyd's policy was issued, but Sauceda stated that she —— and therefore Lloyd's —— never received those statements.

On June 30, 2009, Sauceda sent the Lloyd's insurance quote to Sondhi for "Package W-Wind" Coverage for Cleopatra for a one-year term to commence on July 12, 2009. The insurance quote specifically stated:

In accordance with the instructions of the below mentioned insurer, which has acted in reliance upon the statements made in the retail broker's submission for the insured, the insurer has offered the following quotation.

According to Sondhi, on either July 1 or July 3, 2009, Sondhi spoke with Michael and inquired as to whether she had submitted any loss claims during the prior year when she was a client of Schick. Sondhi testified at his deposition that Michael stated the motel did not have any losses during that year:

Q. Well, and did you have a conversation with Affifa Michael before sending the [commercial insurance application]?
A. Definitely.
Q. When did you have conversation with Affifa Michael in connection with the July 3, 2009 commercial insurance application and the record you typed up?
A. Last two, July, 1st and 3rd. I'm not sure.
Q. Okay. July 1st and 3rd of 2009, and what is your recollection of that conversation?
A. We asked them, we have this quote, do you have any losses in [the] last year since she was not with us, and if she said none, this is good. We are going to mail you the paper, sign it and send it back.
Q. So you are telling me that you asked her if she had any losses in the last year when she was with another company?
A. Correct. I ask all along and every time it was no. I have never claim[ed] anything.

Thus, and allegedly as a result of this understanding, Sondhi prepared the final application form, drafted a no-loss-letter, and directed Michael to review and sign both documents in the required places.

Directly above Michael's signature on the application was the following language:

Any person who knowingly and with intent to defraud any insurance company or any other person files an application for insurance or statement of claim containing any materially false information, or conceals for the purpose of misleading, information concerning any fact material, thereto, commits a fraudulent insurance act, which is a crime and subjects the person to criminal and civil penalties.

SMoreover, the no-loss-letter read:

I, Affifa Michael, want to certify that I have no loss or claim since last 3 years on this property at[] 5201 Atlantic Avenue, Wildwood, N.J. 08260.

Michael testified at her deposition that she was never presented with completed documents. Instead, she merely signed and dated blank pieces of paper provided by KK. Michael further stated that she knew that if she had signed the no-loss-letter with such information on it, she would have deliberately misled the insurer, but all she signed was a completely blank piece of paper. Contrariwise, Sondhi denied sending Michael blank pieces of paper to sign and further testified that KK prepared the document and read it to Michael before Michael signed it.

Lloyd's asserts that based upon Michael's certification that the motel had no losses or claims in the last three years, as well as her signed application that further indicated no claims or losses, Lloyd's issued Policy Number BUY1780 to Cleopatra.

On or about November 11 through November 15, 2009, the motel suffered severe damage caused by high winds and rain associated with Hurricane Ida and an accompanying nor'easter. As a result, on January 29, 2010, Cleopatra submitted a property loss notice to Lloyd's for the storm damage at issue, describing the loss as "[h]eavy winds damaged roof causing a water loss to building and property." On February 11, 2010, Lloyd's, through its third-party claims administrator, Raphael & Associates (Raphael), issued a reservation of rights reserving Lloyd's ability to deny coverage due to Cleopatra's failure to timely notify Lloyd's of the loss, and based upon a disqualifying cause of the incident, the scope of damages, and costs of repairs.

After an investigation, Raphael reported that Lloyd's declined coverage for Cleopatra's damages because "there is no evidence of exterior damage to the roof caused by wind or the weight of ice and snow. Rather the roof exhibits evidence of wear and tear and seepage over a period of time which has resulted in the damages claimed."

On September 24, 2010, Lloyd's filed the present action against Cleopatra seeking a declaratory judgment that Lloyd's was not obliged to provide coverage for any losses or damage to the motel caused by high winds and rains associated with the weather events of November 2009. Cleopatra responded with a counterclaim seeking, among other things, remedies for breach of contract and bad faith.

On May 10, 2011, Lloyd's filed an amended complaint joining Michael as a defendant, and adding claims of legal fraud, equitable fraud, and violations of the New Jersey Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30, all in an effort to void the policy. Specifically, Lloyd's asserted that Michael engaged in fraudulent misrepresentations in the policy's application process.

Cleopatra and Michael responded to Lloyd's amended complaint in June 2011, and filed a three-count third-party complaint against KK and Sondhi alleging professional negligence, and seeking contractual and common law indemnification.

The litigation progressed in the usual course: discovery was completed, expert opinions were obtained, and the parties prepared for trial. According to the certification of Lloyd's attorney, Joseph M. Powell, Esq., on July 20, 2012, his law office "offered the defendant[s] $36, 617.10 to settle this matter in its entirety." Cleopatra and Michael's attorney, Mark J. Hill, Esq., responded on August 9, 2012, with the following e-mail:

I just received the trial notice, which means I have to begin prep shortly. I am willing to settle this case with Lloyd's for $60K and a mutual release of all claims, including your client's fraud claims and my client's yet to be asserted claims under the Trade Practices Act.[4] I said this to you in a recent telephone conversation, and you said you would get back to me, but I have not heard from you. The $60K figure is as to Lloyd's only, and is intended to preserve all claims my client has against KK. As a gross #, $60K is not enough for us to resolve this case in its entirely, but in my experience, leaving the professional liability carrier in the case and standing alone will increase our leverage with them. We are willing to release Lloyd's as stated above, but only if we can do so promptly, without need for commitment of additional time and expense, and only if it leaves us with a viable opportunity to obtain the remainder of what we need in settlement from KK's prof. liab. carrier.
Please let me know where your client stands asap.

Thanks. Powell responded less than twenty-four hours later:

The Underwriters have reviewed your counteroffer and have advised me that their offer to settle this case for $36, 617.10 remains on the table and that they will offer no further money to settle this case. I have been further instructed to file a motion for summary judgment. The underwriters ask that you reconsider your position. In light of the $13, 382.90[5] already paid to your client, if you accept the above offer your client would be paid a total of $50, 000.00 You would still be able to seek further damages from KK Insurance. This offer will remain open until such time that I file my motion for summary judgment.

Several days passed before Hill attempted to communicate with Powell. On August 15, 2012, Hill telephoned Powell to communicate his clients' acceptance of the settlement and reconfirm the terms of the agreement. Two days later, after unsuccessfully reaching Powell, Hill sent an e-mail to Powell accepting Lloyd's settlement offer:

I called you early this week to respond to your email, but haven't heard back from you.
In response to your email, [Cleopatra] will accept Lloyd's offer of $36, 617.10 in full and final settlement of all claims asserted by [Cleopatra] in the lawsuit, together with a mutual release from Lloyd's for the claims it asserted against [Cleopatra] and its owner in the lawsuit, including the fraud claims. Payment must be received within 30 days. You prepare the mutual release.
As previously indicated, [Cleopatra] and its owner expressly reserve, and do not waive, release or relinquish any rights or claims they may have under the New Jersey Trade Practices Act or otherwise with respect to Lloyd's' and/or its agents written expressions of voidance of policy #s BUY1780 and BUY2751 in April 2011 and June 2012, respectively, and the actual return premium for those policies occurring in July 2012, as any such rights or claims in that regard did not accrue until July 2012, were not part of the lawsuit and indeed, could not have been made part of the lawsuit.

Within minutes, Powell responded to Hill's e-mail stating:

My motion papers were filed and served on you today. My offer to settle has expired.
Joe Powell

Hill's impassioned response was predictable, ferociously claiming that at the time he e-mailed his clients' acceptance, Hill neither knew that a summary judgment motion had been filed nor did Hill receive a copy of the motion until August 20, 2012. Hill promised that he would file a motion to enforce the settlement if Lloyd's did not reconsider its position. Powell responded as follows:

Just so we are clear, my offer by its terms expired when I filed the motion for summary judgment. Moreover, your counter-offer [] indicates you were reserving the right to sue my client under the New Jersey Fair Trade Practices Act. My client would never accept those terms. Your counter-offer is rejected.

In short order, the Law Division had before it Lloyd's motion for summary judgment, KK and Sondhi's motion for summary judgment with respect to the third-party complaint, and Cleopatra and Michael's motion to enforce the settlement. After oral argument, but without an evidentiary hearing, the motion court issued a six-page opinion explaining that "a valid settlement agreement was not formed between the parties, " and entered an order on September 28, 2012, denying Cleopatra and Michael's motion to enforce the settlement. A few days later, the court issued a thirty-six page opinion concluding that Lloyd's "has established by clear and convincing evidence the elements of equitable fraud." In its opinion, the court wrote,

As a result of the rescission of the policy by the [c]ourt[, ] the balance of Plaintiff's claims, Defendant Eden Roc's counterclaims[, ] and all third party claims and responsive pleadings thereto are rendered moot thereby negating the need to rule on Eden Roc's claims for bad faith against Plaintiff as well as the need to rule on Third Party Defendant KK Insurance and Sondhi's motion. All claims are now concluded.

On October 2, 2012, the court entered an order dismissing Cleopatra and Michael's claims against Lloyd's, and confirmed that the policy "is herewith rescinded and deemed void from inception." The order further stated that KK and Sondhi's motion was moot, but it never expressly dismissed either the third-party complaint or Lloyd's open IFPA claims. Cleopatra and Michael appeal from the denial of their motion to enforce the settlement, the grant of Lloyd's motion confirming rescission of the policy, and the implicit dismissal of claims against KK and Sondhi. Lloyd's cross-appeals from the implicit dismissal of its IFPA claims.[6]


We start with the legal issue of whether Lloyd's, Cleopatra, and Michael settled their dispute in August 2012. As noted, the Law Division concluded, "the evidence does not manifest a meeting of the minds upon which to support a valid settlement agreement." Even in the absence of an evidentiary hearing, we agree that the record fully supports this conclusion.

A "settlement agreement is governed by principles of contract law." Brundage v. Estate of Carambio, 195 N.J. 575, 600-01 (2008) (quoting Thompson v. City of Atlantic City, 190 N.J. 359, 379 (2007)). An interpretation of a contract is ordinarily a legal question for the trial court to decide and is subject to de novo review. Kieffer v. Best Buy, 205 N.J. 213, 222 (2011). While contract interpretation is a question of law, de novo review of a contract is predicated on the absence of a factual dispute at issue. Id. at 223, n.5 (citing Jennings v. Pinto, 5 N.J. 562, 569-70 (1950)). When there is a factual dispute, the factfinder is tasked to resolve it, and a deferential standard of review applies to any found facts. Ibid.

Nevertheless, we owe no deference to the trial court's "'interpretation of the law and the legal consequences that flow from established facts.'" Town of Kearny v. Brandt, 214 N.J. 76, 92 (2013) (quoting Manalapan Realty v. Twp. Comm., 140 N.J. 366, 378 (1995)). We are not bound by the trial court's application of law to the facts or its evaluation of the legal implications of facts where credibility is not in issue. State v. Harris, 211 N.J. 566, 578-79 (2012) (citing State v. Handy, 206 N.J. 39, 45 (2011)). Although a trial court's factual findings are ordinarily given great deference, pure legal decisions are subject to plenary review. N.J. Div. of Youth & Family Servs. v. R.M., 411 N.J.Super. 467, 474 (App. Div. 2010) (citing Crespo v. Crespo, 395 N.J.Super. 190, 194 (App. Div. 2007)).

A contract arises from offer and acceptance, and "must be sufficiently definite" so that "the performance to be rendered by each party can be ascertained with reasonable certainty." Gamble v. Connolly, 399 N.J.Super. 130, 140 (App. Div. 2007) (quoting Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992)). It follows that if "the parties agree on essential terms and further manifest an intention to be bound by those terms, they have created an enforceable contract." Ibid. However, where the parties do not agree to one or more essential terms, courts generally conclude the agreement is unenforceable. Id. at 140-41. Ultimately, "there must be an unqualified acceptance of the offer for there to be a contract." Id. at 141.

A legally binding contract is formed "when there is a 'meeting of the minds' between the parties evidenced by a written offer and an unconditional, written acceptance." Morton v. 4 Orchard Land Trust, 180 N.J. 118, 129-30 (2004) (citing Johnson & Johnson v. Charmley Drug Co., 11 N.J. 526, 538-39 (1953)). "A qualified or conditional acceptance containing terms and conditions not found in the original proposal may operate as a counter-offer but does not constitute an acceptance and does not result in the formation of a valid contract binding upon the parties." Carlin v. City of Newark, 36 N.J.Super. 74, 89 (Law Div. 1955).

It is widely established that New Jersey has a "strong public policy in favor of the settlement of litigation." Gere v. Louis, 209 N.J. 486, 500 (2012) (citing Brundage, supra, 195 N.J. at 601 (stating "[t]he settlement of litigation ranks high in our public policy") (quoting Jannarone v. W.T. Co., 65 N.J.Super. 472, 476 (App. Div.), certif. denied, 35 N.J. 61 (1961)); see also N.H. v. H.H., 418 N.J.Super. 262, 279 (App. Div. 2011 ("Settlement of litigation ranks high in the pantheon of public policy."). This dogma rests on the recognition that "parties to a dispute are in the best position to determine how to resolve a contested matter in a way which is least disadvantageous to everyone." Brundage, supra, 195 N.J. at 601.

In furtherance of this policy, our courts "strain to give effect to the terms of a settlement wherever possible." Dep't of Pub. Advocate[ v. N.J. Bd. of Pub. Util., 206 N.J.Super. 523, 528 (App. Div. 1985), certif. denied, 137 N.J. 165 (1994)]. As we have held, settlements will usually be honored "absent compelling circumstances." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). "An agreement to settle a lawsuit is a contract, which like all contracts, may be freely entered into and which a court, absent a demonstration of 'fraud or other compelling circumstances, ' should honor and enforce as it does other contracts." Pascarella[ v. Bruck, 190 N.J.Super. 118, 124-25 (App. Div.), certif. denied, 94 N.J. 600 (1983)] (quoting Honeywell v. Bubb, 130 N.J.Super. 130, 136 (App. Div. 1974)).

Here, the Law Division correctly determined that Cleopatra and Michael had the burden of proving a settlement agreement existed with Lloyd's. Amatuzzo v. Kozmiuk, 305 N.J.Super. 469, 475 (App. Div. 1997). "It is only where a contract of settlement is actually held to exist that the party seeking to vacate the settlement must show compelling circumstances." Ibid. (citing Lee Ho, supra, 120 N.J. at 472). The court was further correct that there never was a meeting of the minds of the disputants.

Here, writings exist that confirm the absence of an agreement: the two e-mails, one from Lloyd's counsel Powell, proffering an offer to settle on August 10, 2012, and the other from Cleopatra and Michael's counsel Hill, communicating a provisional acceptance of that settlement seven days later on August 17, 2012. Powell's e-mail specifically stated Lloyd's

offer to settle this case for $36, 617.10 remains on the table and that they will offer no further money to settle this case. I have been further instructed to file a motion for summary judgment . . . This offer will remain open until such time that I file my motion for summary judgment.

Hill's response details what Hill's clients wanted in return:

As previously indicated, [Cleopatra] and its owner expressly reserve, and do not waive, release or relinquish any rights or claims they may have under the New Jersey Trade Practices Act or otherwise with respect to Lloyd's' and/or its agents written expressions of voidance of policy #s BUY1780 and BUY2751 in April 2011 and June 2012, respectively, and the actual return premium for those policies occurring in July 2012, as any such rights or claims in that regard did not accrue until July 2012, were not part of the lawsuit and indeed, could not have been made part of the lawsuit.

The Law Division correctly characterized Hill's reservation of rights as an additional term, and, as such, a counteroffer. Although Powell's e-mail spoke of settling "this case, " which had not yet ripened to include a viable claim under N.J.S.A. 17:29B-4, we harbor no doubts that Powell's client sought to finally end all disputes between the insurer and insureds. Hill's effort to retain the novel right to continue the battle with Lloyd's on a supposed newly opened front was plainly a rebuff to Powell's truce offer, and a proverbial "meeting of the minds" did not occur. This is not a case where the parties agreed upon the essential terms of a settlement, so that the mechanics could be later memorialized in a final writing. Thus, no settlement can be enforced.[7] Cf. Lahue v. Pio Costa, 263 N.J.Super. 575, 596 (App. Div. 1993).

We now turn to Lloyd's motion for summary judgment. In granting summary judgment in favor of Lloyd's —— thereby voiding the policy —— the Law Division concluded that Lloyd's definitively proved the elements of equitable fraud. "Appellate review of a trial judge's conclusions of law is de novo." Oyola v. Xing Lan Liu, 431 N.J.Super. 493, 497 (App. Div. 2013) (quoting Manalapan Realty, supra, 140 N.J. at 378). As such, we review a "grant of summary judgment de novo because it presents a purely legal question, applying the same standard governing the trial court under [Rule] 4:46-2(c)." Ibid. (quoting Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 539-40 (1995)). Under this standard, summary judgment should be granted in favor of the moving party only "[i]f 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 judgment or order as a matter of law." R. 4:46-2(c).

On review, the summary judgment record that was before the Law Division, including all evidence and inferences therefrom, is viewed in a light most favorable to the non-moving parties. Polzo v. Cnty. of Essex, 209 N.J. 51, 57 (2012). Under this lens, we must determine "whether the competent evidential materials presented . . . are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving part[ies]." Townsend v. Pierre, 429 N.J.Super. 522, 525 (App. Div. 2013) (quoting Brill, supra, 142 N.J. at 540). The "'essence of the inquiry'" is "'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Mayo, Lynch & Assocs., Inc. v. Pollack, 351 N.J.Super. 486, 494-95 (App. Div. 2002) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202, 214 (1986)).

A claim of equitable fraud requires proof of "(1) a material misrepresentation of a presently existing or past fact; (2) the maker's intent that the other party rely on it; and (3) detrimental reliance by the other party." Toll Bros., Inc. v. Bd. of Chosen Freeholders of Burlington, 194 N.J. 223, 254 (2008) (quoting Liebling v. Garden State Indem., 337 N.J.Super. 447, 453 (App. Div.), certif. denied, 169 N.J. 606 (2001)). A plaintiff's reliance also must be reasonable. Daibo v. Kirsch, 316 N.J.Super. 580, 588 (App. Div. 1998). These elements must be proven by clear and convincing evidence. Ibid. Unlike legal fraud, equitable fraud does not require proof that a defendant knew of the falsity of her representation. Liebling, supra, 337 N.J.Super. at 453 (citing Jewish Ctr. of Sussex Cnty. v. Whale, 86 N.J. 619, 624 (1981)).

A representation by an insured will support the forfeiture of the insured's rights under the policy if it is "untruthful, material to the particular risk assumed by the insurer, and actually and reasonably relied upon by the insurer in the issuance of the policy." First Am. Title Ins. Co. v. Lawson, 177 N.J. 125, 137 (2003) (quoting Allstate Ins. Co. v. Meloni, 98 N.J.Super. 154, 158-59 (App. Div. 1967)). Thus, it is firmly established that even innocent misrepresentations can constitute equitable fraud justifying rescission of an insurance policy. See Palisades Safety & Ins. Ass'n v. Bastien, 175 N.J. 144, 151 (2003) (recognizing that a "policy may be rescinded and benefits denied to the innocent intended beneficiary based on material misrepresentations, even when the misrepresentations are innocent").

A misrepresentation is material if it "naturally and reasonably influence[s] the judgment of the underwriter in making the contract at all, or in estimating the degree or character of the risk, or in fixing the rate of premiums." Mass. Mut. v. Manzo, 122 N.J. 104, 115 (1991) (quoting Kerpchak v. John Hancock Mut. Ins. Co., 97 N.J.L. 196, 198 (1922)). The materiality test is structured to "encourage[] applicants to be honest." Palisades Safety, supra, 175 N.J. at 148-49. As such, a material factual misrepresentation in an insurance application may justify rescission if the "insurer relied upon it to determine whether or not to issue the policy." Remsden v. Dependable Ins. Co., 71 N.J. 587, 589 (1976)).

Even absent fault, New Jersey courts consider prior loss history material to the underwriting of insurance risks, recognizing insurers rely on prior loss information when issuing policies. Coal. for Quality Health Care v. N.J. Dep't of Banking & Ins., 348 N.J.Super. 272, 321 (App. Div. 2002). In this context, accurate prior loss history is both material and highly relevant because it serves as a "good predictor of future loss." Ibid.

The record reveals that Cleopatra's insurance application and Michael's no-loss-letter indubitably contained material misrepresentations. Specifically, despite contrary information provided to Lloyd's in its application, Cleopatra had claims and losses in the last three to five years. The record indicates that Michaels submitted three prior claims relating to the motel within the eighteen months prior to its submission of the Lloyd's application and letter.

In January 2008, Cleopatra's water damage claim alleging roof and interior unit damage to its motel for $24, 966 was denied by Seneca. In 2009, Cleopatra submitted two claims to Schick, which resulted in the recovery of substantial monies. Michael's assertion that she did not understand what she was signing —— specifically the terms "claims" and "losses" —— is unavailing.

Furthermore, Michael's argument that she and Cleopatra cannot be held accountable for materially misrepresenting the motel's loss history because it was KK that submitted the documents is similarly unpersuasive. Directly above the signature line of the signed insurance application was the following warning:

Any person who knowingly and with intent to defraud any insurance company or any person files an application for insurance or false information, or conceals for the purpose of misleading, thereto, commits a fraudulent insurance act, which is a crime and subjects the person to criminal and civil penalties.

In addition to the insurance application, Michael also signed a letter stating, "I, Affifa Michael, want to certify that I have no loss or claim since last 3 years on this property at[] 5201 Atlantic Avenue, Wildwood, N.J. 08260."

New Jersey law recognizes that an insurance agent or broker can act as the agent of the insured during a particular transaction. Mann v. Interstate Fire & Cas. Co., 307 N.J.Super. 587, 595 (App. Div. 1998) (citing Spilka v. S. Am. Managers., Inc., 54 N.J. 452, 463 (1969)). Furthermore, it is widely established that

the principal is bound by the acts of his agent within the apparent authority which he knowingly permits the agent to assume, or which he holds the agent out to the public as possessing. The question in every case depending upon the apparent authority of the agent is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question; and when . . . the party, relying upon such apparent authority, presents evidence which would justify a finding in his favor, he is entitled to have the question submitted to the jury.
[Id. at 595-96 (quoting Am. Well Works v. Royal Indem. Co., 109 N.J.L. 104, 108 (E. & A. 1932)).]

As such, "a principal may be held for damages resulting from his agent's fraudulent representation where the principal has put the agent in such a position that a person of ordinary prudence would be reasonably justified in the assumption that the agent has the authority to make the representation." Gennari v. Weichert Co. Realtors, 288 N.J.Super. 504, 547 (App. Div. 1996) (citing Gardner v. Rosecliff Realty Co., 41 N.J.Super. 1, 9 (App. Div. 1956)).

Cleopatra argues that the submission of its insurance application with inaccurate loss information to Lloyd's and any resulting liability from that action should be directed at KK. However, KK, as insurance broker for the relevant period, acted as Cleopatra's agent and had the apparent authority to bind Cleopatra. Thus, because KK acted on behalf of Cleopatra, the insured remains liable for KK's material misrepresentation, regardless of whether that misrepresentation was intentional or innocent.

To support the rescission of an insurance policy, an actionable equitable fraud claim also requires that the insurer, when initiating the policy, actually, reasonably, and detrimentally rely on the alleged misrepresentation. Allstate Ins. Co. v. Lopez, 325 N.J.Super. 268, 274-75 (Law Div. 1999) (citing Meloni, supra, 98 N.J.Super. at 160)). Here, the Law Division concluded that Cleopatra failed to proffer any evidence to rebut the certainty that Sauceda (Lloyd's underwriting agent) actually and reasonably relied upon the disclosures in the insurance application and no-loss-letter.

When an insured materially misrepresents information, the insurer, "in the absence of knowledge of conflicting facts, does not have a duty to investigate independently." Ledley v. William Penn Life Ins. Co., 138 N.J. 627, 631 (1995). Thus, it is only when an insurer's independent investigation "discloses sufficient facts to seriously impair the value" of the application information does a further duty to investigate the statements and admissions in the application arise. Gallagher v. New England Mut. Life Ins. Co., 19 N.J. 14, 22 (1955).

Furthermore, when an insurer undertakes an independent investigation and then relies upon it, the insurer is presumed to have been guided by that investigation and should be bound accordingly. Golden v. Northwestern Mut. Life Ins. Co., 229 N.J.Super. 405, 415 (App. Div. 1988). It follows that "one cannot secure redress for fraud when he acted in reliance upon his own knowledge or judgment based upon an independent investigation." Ibid. Thus, a "false representation made to a person who knows it to be false is not in legal estimation a fraud." Ibid.

Our review of the record reveals no evidence that Sauceda was aware of relevant information that was at odds with Cleopatra and Michael's assertion of no claims or losses within close temporal proximity to July 2009. Any "unfavorable" information allegedly possessed by Sauceda clearly played no role in Lloyd's underwriting decision, and the insurer's reliance upon the insurance application and no-loss-letter cannot be gainsaid. In short, the Law Division rightly concluded that equitable fraud was proven by clear and convincing evidence and properly granted summary judgment in favor of Lloyd's.

We next turn to the Law Division's determination to "render[] moot [and] thereby negat[e]" all other claims, specifically, Cleopatra and Michael's indemnification and professional negligence action against KK and Sondhi, as well as Lloyd's IFPA action against Cleopatra and Michael. Because there is no provenance in the law for such a precipitous conclusion, we reverse and remand those claims for further proceedings.

"When a court dismisses a matter as moot, it has found there is nothing to adjudicate." Transamerica Ins. Co. v. Nat'l Roofing, Inc., 108 N.J. 59, 64 (1987). Here, however, there remained unresolved the full spectrum of Cleopatra and Michael's malpractice and indemnification claims against KK and Sondhi. Insurance agents and brokers, when acting on behalf of an insured, owe the insured a duty of due care. Carter Lincoln-Mercury, Inc., Leasing Div. v. EMAR Grp., Inc., 135 N.J. 182, 189 (1994) (citing Weinisch v. Sawyer, 123 N.J. 333, 340 (1991)). As such, both agents and brokers "should exercise good faith and reasonable skill in advising an insured." Ledley, supra, 138 N.J. at 640. "Courts addressing the existence and scope of the duty owed by one acting on behalf of an insured or prospective insured have determined that that duty encompasses claims alleging that the agent or broker" misrepresented to the insurance company information supplied by the insured. Carter Lincoln-Mercury, supra, 135 N.J. at 189 (citing Milliken v. Woodward, 64 N.J.L. 444, 448 (1900)).

There was nothing about the Law Division's summary judgment finding of equitable fraud that obviously prohibited Cleopatra and Michael from pursuing their theories of liability against KK and Sondhi. The Law Division did not rely upon a preclusionary principle such as collateral estoppel when it ended Cleopatra and Michael's effort to recover damages from the broker and individual agent. Because the Law Division did not reach an adjudication on the merits of KK and Sondhi's summary judgment motion, we remand the matter to the Law Division so that the merits of that summary judgment motion may be addressed.

In similar vein, the Law Division gave no quarter to Lloyd's assertion of IFPA remedies, apparently believing —— without explaining why, except for mootness —— that they were no longer viable. Lloyd's IFPA claim was separately pled in the fourth count of its amended complaint, and sought statutory remedies apart from its parallel claim for a declaration that the policy was void due to either legal or equitable fraud. We do not agree that the remedial provisions of the IFPA are rendered moot simply because the underlying insurance policy is considered void. In order to fully explore whether preclusionary principles, election of remedies, or other appropriate jurisprudence bars Lloyd's fourth count, we remand to the Law Division for further proceedings. Additionally, if the Law Division determines that the IFPA claims survive, the court must then decide Lloyd's unresolved motion for summary judgment as to the fourth count.

In summary, we affirm the Law Division's conclusion that no settlement was forged among Lloyd's, Cleopatra, and Michael. We similarly affirm the grant of summary judgment in favor of Lloyd's on the claim of equitable fraud and the dismissal of all counterclaims against the insurer. We reverse the finding of mootness, and remand to the Law Division Cleopatra and Michael's third-party complaint against KK and Sondhi, and Lloyd's IFPA claims. To the extent that we have not expressly addressed any arguments made by the parties, we are convinced that they are clearly without merit. R. 2:11-3(e)(1)(E).

Affirmed in part; reversed in part; and remanded for further proceedings. We do not retain jurisdiction.

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