Hobbs v. U.S. Coastal Insurance Co.

          OPINION

          HON. JOSEPH H. RODRIGUEZ U.S.D. JUDGE.

         This matter is before the Court on Defendants' motion to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6). The Court has considered the submissions of the parties and heard oral argument on May 16, 2018. For the reasons placed on the record that day, as well as those articulated below, the motion will be granted.

         Background

         In this breach of contract action, Plaintiffs Charles and Elizabeth Hobbs filed a Complaint on May 23, 2017 claiming that Defendants' refusal to properly adjust a homeowners' insurance policy constitutes a breach of contract and bad faith.

         Defendant U.S. Coastal Insurance Company is administered by Defendant Cabrillo Coastal General Insurance Agency, LLC. U.S. Coastal issued a policy of insurance (“the Policy”) covering Plaintiffs' second home at 116 Cedarville Avenue, Villas, New Jersey (“the Property”).

         On or about September 29, 2016, Plaintiffs discovered that a leaky valve on the hot water heater caused extensive water damage and mold growth in the crawlspace of the Property. On or about October 11, 2016, a third-party adjuster estimated that the Property had sustained $8, 654 in damage as a result of the water leak and an additional $66, 415 in damage as a result of the mold growth. U.S. Coastal paid Plaintiffs $8, 654 for the water damage but only $10, 000 for the mold damage, citing the “Limited Mold Coverage” provision of the Policy.

         Plaintiffs complain that Defendants breached their contract and acted in bad faith by failing to pay benefits due and owing under the Policy because the mold was a consequence of water damage caused by the water heater's failure. Defendants seek dismissal of the Complaint, arguing that the $10, 000 Mold Sublimit in the Policy applies to the mold damage at the Property.

         Motion to Dismiss Standard

         Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss “for failure to state a claim upon which relief can be granted[.]” For a complaint to survive dismissal under Rule 12(b)(6), it must contain sufficient factual matter to state a claim that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Further, a plaintiff must “allege sufficient facts to raise a reasonable expectation that discovery will uncover proof of her claims.” Connelly v. Lane Const. Corp., 809 F.3d 780, 789 (3d Cir. 2016). In evaluating the sufficiency of a complaint, district courts must separate the factual and legal elements. Fowler v. UFMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (“Iqbal ... provides the final nail-in-the-coffin for the ‘no set of facts' standard that applied to federal complaints before Twombly.”). The Court “must accept all of the complaint's well-pleaded facts as true.” Fowler, 578 F.3d at 210. Restatements of the elements of a claim, however, are legal conclusions and, therefore, not entitled to a presumption of truth. Bztrtch v. Mutberg Factors, Inc., 662 F.3d 212, 224 (3d Cir. 2011).

         Discussion

         Under New Jersey law, a breach of contract claim requires the following: “(1) a contract between the parties; (2) a breach of that contract; (3) damages flowing therefrom; and (4) that the party stating the claim performed its own contractual obligations.” Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir. 2007).

         Next, New Jersey law establishes a general duty of good faith and fair dealing in every contract as well as duties specific to insurers. “[A]n insurance company owes a duty of good faith to its insured in processing a first-party claim, ” but no liability arises if a decision concerning a claim is “fairly debatable.” Pickett v. Lloyd's, 621 A.2d 445, 450, 453-54 (N.J. 1993) (internal quotation marks omitted). A claimant who cannot establish a substantive claim that the policy was breached, however, cannot prevail on a claim for an insurer's alleged bad faith refusal to pay the claim. Id. at 454.

         New Jersey has well-settled principles of insurance contract interpretation:

The principles of insurance contract interpretation are well settled: (1) the interpretation of an insurance contract is a question of law, (2) when interpreting an insurance contract, the basic rule is to determine the intention of the parties from the language of the policy, giving effect to all parts so as to give a reasonable meaning to the terms, (3) when the terms of the contract are clear and ambiguous, the court must enforce the contract as it is written, and the court cannot make a better contract for the parties than the one that they themselves agreed to, (4) where an ambiguity exists, it must be resolved against the insurer, (5) if the controlling language of the policy will support two meanings, one favorable to the insurer and one favorable to the insured, the interpretation supporting coverage will be applied, but (6) an insurance policy is not ambiguous merely because two ...