AFFILIATED FM INSURANCE, CO. VS. ROTHSCHILD REALTY I, L.P. (L-4339-17, HUDSON COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: August 6, 2021
• Docket: A-1448-19
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-1448-19

AFFILIATED FM INSURANCE, CO., a/s/o BEAUVAIS CARPETS, INC., and BEAUVAIS CARPETS, INC.,

Plaintiffs,

v.

ROTHSCHILD REALTY I, L.P., and UNIVERSAL CARPET DESIGN, INC.,

Defendant,

and

ROTHSCHILD REALTY I, L.P.,

Defendant/Third Party Plaintiff-Appellant,

HARLEYSVILLE INSURANCE COMPANY,

Third Party Defendant -Respondent. Argued July 13, 2021 – Decided August 6, 2021

Before Judges Hoffman and Currier.

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-4339-17.

Patrick D. Heller argued the cause for appellant (Law Offices of Terkowitz & Hermesmann, attorneys; Patrick D. Heller, on the briefs).

Tracey K. Wishert argued the cause for respondent (Riker Danzig Scherer Hyland & Perretti LLP, attorneys; Tracey K. Wishert, of counsel and on the brief; Theodore A. Mottola, on the brief).

PER CURIAM

Defendant/third-party plaintiff Rothschild Realty I, L.P. (Rothschild)

owned a warehouse which it leased to defendant Universal Carpet Design, Inc.

(Universal). The lease required Universal to obtain general liability insurance

for the property and to name Rothschild as an additional insured. Although

Universal obtained commercial property coverage and commercial general

liability coverage from third-party defendant Harleysville Insurance Company,

the insurance application did not request coverage for Rothschild as an

additional insured.

A-1448-19 2 After the warehouse roof collapsed in February 2014 and damaged

merchandise owned by Beauvais Carpets, Inc., Beauvais' insurance carrier,

Affiliated FM Insurance Company (Affiliated), compensated Beauvais for the

damaged carpets and subsequently brought a subrogation action against

Rothschild and Universal. 1 Rothschild sought coverage for the claim from

Harleysville. Because Rothschild was not named as an additional insured on the

policy, Harleysville denied coverage.

Thereafter, Rothschild filed a third-party claim against Harleysville. The

trial court granted Harleysville summary judgment, finding Rothschild was not

named as an insured under the policy and rejecting Rothschild's request for

reformation. We affirm.

As stated, the lease between Rothschild and Universal required Universal

to obtain insurance coverage naming Rothschild as an additional insured. In

2004, Universal tasked the Walsdorf Agency, Inc. to obtain the required

insurance. Walsdorf prepared a commercial insurance application, listing

"Universal Carpet" as the applicant and giving the warehouse's address in North

Bergen, New Jersey as the premises to be insured. The application was signed

1 Universal did not answer the complaint. Default judgment was subsequently entered against it. A-1448-19 3 by Edward J. Brennan, a 50% owner of Universal and, as its office manager, the

person responsible for the procurement of insurance.

Under the subsection entitled "Additional Interest/Certificate Recipient,"

the application listed "Ed J Drennan" with an address in Sparkhill, NY as an

"Additional Insured . . . ." Drennan is described on the application as the

"Building Owner . . . ."

Walsdorf sent the insurance application to the Heffner Agency, Inc.,

(Heffner) which procured property and general liability insurance coverage for

the leased warehouse from Harleysville. Roger Currier, the Harleysville

underwriter who reviewed and approved Universal's application, testified that

according to the application, the owner of the building was Ed Drennan.

Therefore, he included "an additional insured for a landlord" endorsement on

the policy. Currier stated it was "common for people to own buildings under

one entity and own a business under another entity and rent them as it appears

to have been the case in this situation." Currier believed that "Ed Drennan

personally owned the building but ran a carpet company called Universal Carpet

. . . ."

Harleysville charged Universal a $50 minimal premium for designating

Drennan as an additional insured. Currier explained that the premium for the

A-1448-19 4 additional coverage would have been higher if a different person or entity

unaffiliated with Universal was the owner of the building.

The insurance policy issued by Harleysville to Universal included

commercial property coverage and commercial general liability coverage. It

was renewed every year for ten years without any changes regarding the

additional insured. The last policy period was December 2, 2013 to December

2, 2014. Like the previous policies before it, the policy insured the warehouse

located in North Bergen and the additional insured was listed as Ed J Drennan.

During his 2019 deposition, Drennan testified that he never owned the

warehouse, and never told Walsdorf that he owned the warehouse. Although

Drennan stated he reviewed the yearly policies for the amount charged and the

"general coverage", he did not review them in totality. Drennan testified that

the first time he observed the "building owner" designation on the insurance

policy was shortly before his deposition.

After Rothschild filed a third-party complaint against Harleysville seeking

insurance coverage under the Universal liability policy, Harleysville denied it

had a duty to defend or indemnify Rothschild. Thereafter, Rothschild and

Affiliated settled the underlying property damage claim for $75,000.

A-1448-19 5 Harleysville and Rothschild each moved for summary judgment on the

third-party complaint. Harleysville asserted the clear and unambiguous terms

of the policy do not provide coverage for Rothschild as an insured or an

additional insured. Rothschild sought to reform the policy to include it as an

additional insured under a theory of mutual mistake – that Universal and

Harleysville meant to insure the warehouse owner – Rothschild – but instead

mistakenly listed Drennan.

Alternatively, Rothschild contended the unilateral mistake coupled with

Harleysville's inequitable conduct required reformation of the policy.

Rothschild referred to a Certificate of Insurance found in Heffner's file during

discovery. The certificate, issued by Walsdorf on October 29, 2013, lists

Rothschild as a certificate holder and states that "Rothschild Realty is included

as additional insured/landlord as respects [the warehouse premises]."

The certificate was not provided to Harleysville nor was it found in its

records. Nevertheless, Rothschild asserted the certificate notified Heffner of a

potential issue regarding the ownership of the warehouse and that Heffner's

knowledge of Rothschild as the possible owner of the warehouse was imputed

to Harleysville as its agent. Therefore, Harleysville should have investigated

that fact and corrected the policy.

A-1448-19 6 On November 14, 2019, the trial court issued a written decision and

accompanying orders granting summary judgment to Harleysville and denying

Rothschild's motion. In addressing Rothschild's argument that the listing of

Drennan as the building owner was a mutual mistake requiring reformation of

the policy, the court reasoned:

[T]he facts do not indicate an intent to insure anyone other than Drennan, including Rothschild, the owner. Harleysville' s underwriter testified that he charged the minimum allowable premium for the CG 2011 endorsement naming Drennan because he understood that Drennan was both the principal of Universal and the landlord for the premises where Universal maintained its operations. Consequently, naming Drennan as an additional insured did not increase the overall risk . . . . Currier further testified that if requested to insure an independent landlord, he would have charged a different premium to reflect it. Under Harleysville's premium rating guidelines, he would have been required to charge more . . . . Instead, Currier charged the minimum premium of $50 to reflect the lesser risk created in a situation where the same person has a financial interest in both the safe operation of the tenant business and the structure in which the business operates . . . .

Although Drennan ultimately did not require the insurance as an owner because he did not own or manage the warehouse, Rothschild has nevertheless failed to meet its high burden of proving by clear and convincing evidence that both parties intended to insure Drennan as the owner. Instead, the facts indicate the intent of Harleysville to insure Universal and Drennan as listed in the application. If Harleysville intended to

A-1448-19 7 insure Rothschild, it would have charged a higher premium, as it would have been required to do pursuant to a higher risk . . . . Therefore, the [c]ourt finds that Rothschild has not met the elements of reformation by mutual mistake by clear and convincing evidence.

The court also rejected Rothschild's secondary argument, stating:

Rothschild relies upon agency principles and its expert in claiming Universal's conduct was unconscionable. Specifically, it contends that Heffner, as Harleysville's agent, took possession of a document demonstrating that Rothschild was the true owner of the property. This document, a Certificate of Insurance issued by Walsdorf, identifies Rothschild as the 'insured/landlord.'

Rothschild's expert opines that Harleysville should have investigated this fact and immediately sought clarification. Currier admitted in his deposition that if he was aware, he would have investigated . . . . Therefore, Rothschild claims, the knowledge of Heffner as Harleysville's agent is imputed to the principal, Harleysville. See NCP Litig. Tr. v. KPMG LLP, 187 N.J. 353, 366 (2006).

Although Rothschild alleges a duty on behalf of Universal to ensure the applications contained the correct information and were properly issued in accordance with the insured's wishes, Rothschild has failed to demonstrate unconscionable conduct even if Universal's conduct failed to meet the alleged duty.

....

Harleysville issued the policy precisely as Universal requested in its application and then the policy was renewed with the same terms and conditions for

A-1448-19 8 approximately the following decade . . . . Universal and/or Rothschild did not assert any alleged errors in the policy. To the extent that Rothschild expected or intended to be insured, there is no evidence it ever reviewed or requested a copy of the Universal policy.

Rothschild submits that Universal's failure to read the entire policy does not bar Rothschild's suit. The [c]ourt does not find that it bars the suit. Instead, there is insufficient evidence that Harleysville acted unconscionably in its failure to name a party who raised no concerns about the terms of the policy.

Therefore, although Rothschild submits that Harleysville should have investigated the Certificate of Insurance issued by Walsdorf, there is insufficient evidence to demonstrate any 'unconscionable conduct' to warrant reformation due to unilateral mistake.

We review the grant of summary judgment de novo, applying the same

legal standard as the trial court. Green v. Monmouth Univ., 237 N.J. 516, 529

(2019) (citation omitted). Therefore, we consider "whether the competent

evidential materials presented, when viewed in the light most favorable to the

non-moving party in consideration of the applicable evidentiary standard, are

sufficient to permit a rational factfinder to resolve the alleged disputed issue in

favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J.

520, 523 (1995).

Summary judgment must be granted "if the pleadings, depositions,

answers to interrogatories and admissions on file, together with the affidavits, if

A-1448-19 9 any, show that there is no genuine issue as to any material fact challenged and

that the moving party is entitled to a judgment or order as a matter of law." R.

4:46-2(c). "If there is no genuine issue of material fact, we must then 'decide

whether the trial court correctly interpreted the law.'" DepoLink Ct. Rep. &

Litig. Support Servs. v. Rochman, 430 N.J. Super. 325, 333 (App. Div. 2013)

(citations omitted). We review issues of law de novo and accord no deference

to the trial judge's conclusions on issues of law. Nicholas v. Mynster, 213 N.J.

463, 478 (2013).

On appeal, Rothschild renews its argument, contending "the insurance

contract should be reformed to reflect the parties' intent to insure the actual

owner of the building, Rothschild." It further states that "the parties made a

mutual mistake, they both believed [they] were insuring the warehouse owner."

"Generally, when interpreting an insurance policy, we give the policy's

words their plain, ordinary meaning." Passaic Valley Sewerage Comm'rs v. St.

Paul Fire & Marine Ins. Co., 206 N.J. 596, 607-08 (2011) (citing Nav-Its, Inc.

v. Selective Ins. Co., 183 N.J. 110, 118 (2005)). The court will enforce policy

terms as written and "cannot write for the insured a better policy of insurance

than the one purchased." Memorial Properties, LLC v. Zurich Am. Ins. Co., 210

N.J. 512, 525 (2012) (internal quotation marks and citations omitted).

A-1448-19 10 However, courts will reform a contract in the context of mutual mistake.

Bonnco Petrol, Inc. v. Epstein, 115 N.J. 599, 608 (1989). Finding a mutual

mistake requires that: (1) "both parties are in agreement at the time they attempt

to reduce their understanding to writing"; and (2) "the writing fails to express

that understanding correctly." St. Pius X House of Retreats, Salvatorian Fathers

v. Diocese of Camden, 88 N.J. 571, 579 (1982). To reform a contract, there

must be "'clear and convincing proof' that the contract in its reformed, and not

original, form is the one that the contracting parties understood and meant it to

be." Id. at 581 (quoting Cen. State Bank v. Hudik-Ross Co., Inc., 164 N.J. Super.

317, 323 (App. Div. 1978)).

A review of the presented facts does not support a finding of mutual

mistake. Harleysville did not make a mistake in issuing the insurance policies.

The original insurance application was prepared by Walsdorf on behalf of

Universal. The application called for Harleysville to provide commercial

property coverage and commercial general liability coverage to Universal and

requested that "Ed J Drennan" be included as an additional insured under the

policy. Importantly, Drennan did not testify that he intended Rothschild to be

included as an additional insured on the Harleysville policy.

A-1448-19 11 Harleysville issued the policies as requested in the application, listing "Ed

J Drennan" as the additional insured on the endorsement for "Additional Insured

– Managers or Lessors of Premises." Moreover, Currier testified that Universal

was only charged an additional $50 premium for the added coverage because,

according to the application, "Mr. Drennan . . . owned the property that he was

also insuring as the owner of Universal Carpet . . . ." Currier advised that "[h]ad

it been a different business that owned the building other than Ed Drennan, it's

a different exposure and I would have sought further information."

Therefore, Rothschild has not produced clear and convincing proof that

any entity including Universal, Walsdorf, or Harleysville intended to include

Rothschild as an additional insured under the policy. Therefore, there can be no

finding of a mutual mistake.

We are also unpersuaded by Rothschild's assertion that Harleysville acted

unconscionably and that such conduct, coupled with the unilateral mistake,

requires reformation of the policy.

"The general rule with respect to the reformation of contracts applies

equally to insurance policies: relief will be granted only where . . . a mistake on

the part of one party is accompanied by fraud or other unconscionable conduct

of the other party." N.J. Transit Corp. v. Certain Underwriters at Lloyd's

A-1448-19 12 London, 461 N.J. Super. 440, 464 (App. Div. 2019) (internal quotation marks

and citations omitted).

Rothschild grounds its argument in the 2013 certificate of insurance found

in Heffner's file that listed Rothschild as an additional insured on Universal's

policy. Rothschild asserts the document revealed that "Ed Drennan might not

own the property and/or that Rothschild did." And that under agency law,

Heffner's knowledge is imputed to its principal, Harleysville. Therefore,

Harleysville should have investigated the true ownership of the warehouse.

As stated, Rothschild has not established that Harleysville either

possessed the certificate of insurance or that it had knowledge of Rothschild's

ownership of the building at any time from 2004 to the day the roof collapsed.

In addition, Harleysville had informed its agents, including Heffner , that

the agencies did not have binding authority for any additional insured coverage.

And Currier specifically advised Waldorf of this information at the time of the

application process in 2004. Therefore, Heffner could not bind Harleysville to

additional insured coverage on any basis.

In addition, an insurer's duty to investigate is limited. John Hancock Mut.

Life Ins. Co. of Boston, Mass. v. Cronin, 139 N.J. Eq. 392, 398 (E. & A. 1947).

The duty arises "'only when the independent investigation . . . discloses

A-1448-19 13 sufficient facts to seriously impair the value' of the application." Ledley v.

William Penn Life Ins. Co., 138 N.J. 627, 639 (1995) (alteration in original)

(quoting Gallagher v. New Eng. Mut. Life Ins. Co. of Boston, 19 N.J. 14, 22

(1955)). On the other hand, an insured is responsible for the accuracy of its

application and to truthfully respond to specific questions in the insurance

application. Progressive Cas. Ins. Co. v. Hanna, 316 N.J. Super. 63, 70 (App.

Div. 1998).

Here, Universal was obligated to ensure its application contained the

correct information and to read the insurance policies issued by Harleysville to

confirm that proper coverage was provided. The application requested Drennan

be covered as an additional insured as the owner of the warehouse. Harleysville

complied with the request and provided insurance coverage to Drennan as an

additional insured. The insurance policies clearly identified Drennan as the

additional insured. The same coverage was renewed year after year without

objection by either Universal or Rothschild. Neither entity ever notified

Harleysville of any error. Neither Universal nor Rothschild ever refused

acceptance of the policy as written. See Martinez v. John Hancock Mut. Life

Ins. Co, 145 N.J. Super. 301, 310 (App. Div. 1976) (holding that insured is

"under a duty to examine [its] insurance policies" and if "the terms disclosed by

A-1448-19 14 such an examination are inconsistent" with its desires, the insured is "required

to notify the company of the inconsistency and of [its] refusal to accept the

policy in the proffered condition.").

We are satisfied Harleysville did not act unconscionably in issuing the

Universal insurance policy, as it had no knowledge of the mistake made by

Universal's representative on the application. Nor was Harleysville ever

informed by Universal or Rothschild during the many years of renewal that the

policy was incorrect or unacceptable. Rothschild has not demonstrated a right

to reformation.

Affirmed.

A-1448-19 15