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Goldstein Group Holdings, Inc. v. Hartford Insurance Co. of Midwest

United States District Court, D. New Jersey

February 1, 2017

GOLDSTEIN GROUP HOLDINGS, INC., Plaintiff,
v.
HARTFORD INSURANCE COMPANY OF THE MIDWEST and NEW HAMPSHIRE INSURANCE COMPANY, Defendants.

          PETER J. KURSHAN CHASE, KURSHAN, HERZFELD & RUBIN, LLC, On behalf of Plaintiff.

          ERIN ELIZABETH NULTY CLARK & FOX, STEPHEN C. PARKER BUTLER SNOW LLP, On behalf of Defendant Hartford Insurance Company of the Midwest.

          KATHRYN A. CALLAHAN GARY S. KULL CARROLL MCNULTY & KULL LLC, KEITH M. DETWEILER, ESQ. NIELSEN, CARTER & TREAS, L.L.C., On behalf of Defendant New Hampshire Insurance Company.

          OPINION

          NOEL L. HILLMAN, U.S.D.J.

         This case concerns flood insurance claims arising from damage caused by Superstorm Sandy to a home in Atlantic City, New Jersey. Presently before the Court are three summary judgment motions filed by each of the parties. For the reasons expressed below, Plaintiff's motion will be denied, and Defendants' motions will be granted.

         BACKGROUND

         On October 29, 2012, Superstorm Sandy made landfall in New Jersey, causing flood damage to 107 N. Brighton Avenue, Atlantic City, New Jersey. At the time, the property was owned by Ismael Caban, with the front of the property insured for flood damage by Defendant Hartford Insurance Company of the Midwest and the rear of the property insured for flood damage by Defendant New Hampshire Insurance Company. Both insurance companies are Write-Your-Own (“WYO”) Program carriers participating in the United States Government's National Flood Insurance Program (“NFIP”), pursuant to the National Flood Insurance Act of 1968, as amended, 42 USC § 4001, et seq. (“NFIA”), and they are appearing in their fiduciary capacities as the “fiscal agent of the United States.” The NFIP is administered by the Federal Emergency Management Agency (“FEMA”), underwritten by the U.S. Treasury, and all flood loss claims presented under the NFIP are paid directly with U.S. Treasury funds, including defense costs. A WYO Program carrier makes a percentage of the payment of any proper flood claims - the higher the claim payment, the more the WYO Program carrier is paid by FEMA.[1]

         The Defendant insurance companies each issued Mr. Caban a Standard Flood Insurance Policy (“SFIP”), which is written by the federal government. Hartford issued to Mr. Caban a SFIP with policy limits of $184, 800.00 for building coverage for the front of the property with the effective dates from December 2, 2011 through December 2, 2012. New Hampshire issued to Mr. Caban a SFIP with policy limits of $184, 800.00 for building coverage for the rear of the property with the effective dates from September 8, 2012 to September 8, 2013. Bayview Loan Servicing (“Bayview”) held the mortgage on the property and was identified as the mortgagee on the SFIP declarations page.

         Prior to Superstorm Sandy, Mr. Caban had fallen in arrears on mortgage payments. Bayview instituted a foreclosure action in the Superior Court of New Jersey in Atlantic City on August 13, 2009, and a receiver was appointed and took custody of the property.

         On June 25, 2014, Bayview completed a foreclosure action and the Atlantic City Superior Court of New Jersey, Chancery Division, issued a writ of execution ordering the Sheriff to sell the property. Michael Goldstein, who does business as Plaintiff Goldstein Group Holdings, Inc. (hereinafter “Goldstein”), is in the business of buying and selling foreclosed properties and default notes, and became interested in the 107 N. Brighton Avenue property. Goldstein contacted Bayview and negotiated the sale of the mortgage from Bayview to Goldstein for $100, 000.00. Goldstein did this to obtain Bayview's right to bid the amount of the mortgage at the Sheriff's auction, and it would deter other bidders and limit the amount of transfer tax Goldstein would have to pay based on the auction amount. Goldstein did not inspect the building because mortgage companies and receivers do not allow an interior inspection of the buildings prior to the Sheriff's auction.

         Around August 5-7, 2014, Goldstein contacted the Defendant insurance companies, informing them that the property had been placed in a receivership in 2011, but that the receiver had never notified the insurance companies about the flood damage caused by Sandy.

         On August 7, 2014, Bayview assigned the mortgage to Goldstein and executed and filed with the Superior Court a public notice that Goldstein had the right to bid the mortgage balance at the auction. On August 21, 2014, the Sheriff held a public sale. Goldstein purchased the property with the high bid of $100.00.[2]

         Goldstein filed his proof of loss with Defendants on September 12, 2014.[3] In October 2014, both Defendants denied Goldstein's claim, explaining that the policy prohibits transfer of a SFIP claim after the date of the actual flood damage. On December 4, 2014, Goldstein filed an appeal of Defendants' decisions with FEMA. FEMA determined that even though the SFIP allows the transfer of a flood insurance policy to a new owner of a property, it does not permit the transfer of a preexisting claim for damage from a flood event that occurred prior to the transfer of the policy. FEMA found that a property holder or a mortgagee cannot claim coverage for damage to a property that occurred when they did not own the property and were not the named insured at the time of the flood loss.

         Under the SFIPs, Goldstein was afforded one year from the date of Defendants' denials to file suit against them. Goldstein timely filed the instant action, contending that because Bayview, as mortgagee and an insured under the policies, assigned the mortgage - not a post-flood claim - to him, that assignment included proceeds from any recovery from the SFIPs. Goldstein, Hartford, and New Hampshire have all moved for summary judgment in their favor. Goldstein argues that he is entitled to judgment as to liability on his breach of contract and breach of good faith and fair dealing ...


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