Dooley v. Scottsdale Ins. Co.

JOSEPH DOOLEY and ELIZABETH DOOLEY, Plaintiffs, v. SCOTTSDALE INSURANCE COMPANY, Defendant

CIVIL ACTION NO. 12-1838 (JEI/KMW)

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

February 18, 2015

HONORABLE JOSEPH E. IRENAS

OPINION

APPEARANCES:

MASTER WEINSTEIN SCHATZ MOYER, P.C.

By: Steven J. Schatz, Esq.

100 Grove Street

Haddonfield, NJ 08033

Counsel for Plaintiffs

PRUTTING & LOMBARDI

By: George A. Prutting, Jr., Esq.

701 South White Horse Pike

Audubon, NJ 08106

Counsel for Defendant

Irenas, Senior District Judge:

Plaintiffs bring this action to recover insurance benefits under a surplus lines homeowner's insurance policy issued by Defendant Scottsdale Insurance Co. ("Scottsdale").

Presently before the Court is Defendant's motion for summary judgment. For the following reasons, the motion will be DENIED as to Plaintiffs' claims for breach of contract (Count I)and for a declaratory judgment (Count III). The motion will be GRANTED as to Plaintiffs' bad faith claim (Count II).

I.

The Court recites those facts relevant to deciding the pending motion for summary judgment and resolves any disputed facts or inferences in favor of Plaintiffs, the nonmoving party.

In April 2008, Plaintiffs Joseph and Elizabeth Dooley purchased a two story, two bathroom vacation home located at 105 Bark Drive, Ocean City, New Jersey. (Pls.' Counter-Statement of Material Facts ("P.C.S.F.") at ¶ 2) Plaintiffs stayed in the home the weekend of December 11-12, 2010, and left with the intention of returning on December 31, 2010, for the New Year's holiday. (Def.'s Statement of Material Facts ("D.S.F.") at ¶ 4)

On December 20, 2010, the Ocean City Fire Department responded to a neighbor's report of a water leak at the Dooley property and shut off water at the street valve. (Expert Report of Frederic Blum at 3, Ex. Q to Def.'s Motion for Summary Judgment ("D.M.S.J.")) Plaintiffs were not aware of the leak until they returned to the house on December 31, when they noticed that water had discharged from the second floor bathroom where an inside wall shower diverter pipe and two inside wallsink pipes had burst.¹ (D.S.F. ¶ 6) Water usage records indicate that approximately 22,000 gallons leaked into the Dooley residence. (Blum Rpt. at 3) Plaintiffs claim damage to the property exceeded $160,000. (P.C.S.F. ¶ 1)

Immediately after noticing the discharge of water on December 31, 2010, Plaintiffs contacted Scottsdale, their insurance provider, through its representatives, and were given a claim number. (Id. at ¶ 3) Plaintiffs had purchased a surplus lines insurance policy with Scottsdale in 2008 prior to closing on their home. Plaintiffs used a retail agent, The McMahon Agency ("McMahon"), to procure a homeowners' policy on their behalf. McMahon then contacted Defendant's general agent, FTP, Inc., an insurance wholesaler, for placement of the Dooley's homeowners' policy through the surplus lines or secondary market. FTP subsequently placed Plaintiffs' policy with Scottsdale with effective dates of coverage running from April 16, 2008 to April 16, 2009. Plaintiffs later renewed their policy through the relevant time period.

There is an initial dispute regarding whether Plaintiffs ever received a complete copy of their policy. Defendant submitted a certification from FTP vice president PJ Powellstating that FTP mailed Plaintiffs' entire policy directly to McMahon when Plaintiffs purchased the policy in 2008. (Powell Cert. ¶ 7, Ex. M to D.M.S.J.) Angela Wolfe, a McMahon personal lines manager, testified at her deposition that a May 22, 2008, entry on the McMahon activity log shows McMahon had received Plaintiffs' entire policy from FTP by that date. (Wolfe Dep. at 48:8-49:11, Ex. N to D.M.S.J.). Ms. Wolfe also said that McMahon's normal procedure would then have been to mail the entire policy to the Dooleys, but the log does not state specifically that McMahon ever did so. (Id. at 51:22-52:7) Mrs. Dooley testified at her deposition that she and her husband never received a copy of the full policy from McMahon, though she never requested a full copy. (E. Dooley Dep. at 10:6-12:10, Ex. K to Pls.' Opposition ("P.O."))

The Dooleys' policy states, in relevant part,

SECTION I - PERILS INSURED AGAINST

A. Coverage A - Dwelling and Coverage B - Other Structures

1. We insure against risk of direct physical loss to property described in Coverages A and B.

2. We do not insure, however, for loss:

a. Excluded under Section I - Exclusions;

. . .

c. Caused by:

(1) Freezing of a plumbing, heating, air condition or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. This provision does not apply if you use reasonable care to:

(a) Maintain heat in the building; or

(b) Shut off the water supply and drain all systems and appliances of water.

. . .

B. Coverage C - Personal Property

We insure for direct physical loss to the property described in Coverage C caused by any of the following perils unless the loss is excluded in Section I -Exclusions.

. . .

14. Freezing

a. This peril means freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a house-hold appliance but only if you have used reasonable care to:

(1) Maintain heat in the building; or

(2) Shut off the water supply and drain all systems and appliances of water.

(Scottsdale Policy, Ex. K to D.M.S.J.) The policy's "Exclusions" section states as follows:

SECTION I - EXCLUSIONS

A. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

. . .

5. Neglect

Neglect means neglect of an "insured" to use all reasonable means to save and preserve property at and after the time of a loss.

(Id.)

On January 5, 2011, Defendant assigned Sweet Claims Company ("Sweet Claims"), which, in turn, assigned Lisa Friedland, as the independent adjuster investigating Plaintiffs' claim. (D.S.F. ¶ 9) Patricia Rice acted as the claims analyst forDefendant. Plaintiffs retained their own public adjuster, South Jersey Adjustment Bureau, Inc. ("South Jersey"), on January 6, 2011. (Expert Report of Gene Mehmel at 3, Ex. H to P.O.)

Frank Mazzitelli of Frank's Plumbing & Heating, who completed repairs to the home in January 2011, described his work as repairing "frozen and broken water pipes."² (Frank's Plumbing Invoice, Ex. E to D.M.S.J.) Plaintiffs informed Sweet Claims that they had left the heat on upon departing the house on December 12, 2010. (Sweet Claims 1/13/11 First Reporting at 4, attached to Friedland Dep., Ex. F to P.O.) Ms. Friedland subsequently contacted Atlantic City Electric, Plaintiffs' electricity provider, to verify that the utility bill supported Plaintiffs' story. (Sweet Claims 2/14/11 Second Reporting at 3)

The utility bill Ms. Friedland obtained states that Plaintiffs used 125 kWhs of electricity from November 16, 2010, to December 16, 2010. (12/16/10 Atlantic City Electric Bill, Ex. G to D.M.S.J.) In her Second Reporting to Defendant, dated February 14, 2011, Ms. Friedland wrote that she called Atlantic City Electric and asked whether 125 kWhs was enough to turn on heat in the home, but the electric company refused to reveal any information since she was not the customer. (Second Reporting at 3) However, the woman with whom Ms. Friedland spoke, who"would not provide her name," apparently said that 125 kWhs was "probably a light usage for a one month period of time and not an electric heating home cost." (Id.) Based on this information, Ms. Friedland told Ms. Rice that she questioned whether Plaintiffs had the heat on during that month. (Id.)

On March 8, 2011, Defendant asked South Jersey to provide documentation from a plumber indicating why the pipe leaked. (3/8/11 Ltr. from Defendant to South Jersey, Ex. H to D.M.S.J.) The following day, in an email to Ms. Rice, Ms. Friedland stated that Sweet Claims "will not be able to prove the cause" of the pipe break and that "the only aspect we have to show that this heat was not on is the electric bill previously forwarded." (3/9/11 email from L. Friedland to P. Rice, Ex. O to P.O.) On April 4, 2011, South Jersey forwarded to Sweet Claims correspondence from Mr. Dooley stating that he had set all thermostats on low before leaving the house.³ (4/4/11 Ltr. from J. Dooley to South Jersey, Ex. D to D.M.S.J.; Sweet Claims 4/4/11 Final Reporting at 2, attached to Friedland Dep., Ex. F to P.O.) In her Final Reporting, also dated April 4, 2011, Ms. Friedland wrote "the electric invoice clearly shows the heat was not on in this home at the time of the incident." (Id.)

South Jersey submitted proofs of loss to Sweet Claims on July 5, 2011, and reiterated that Plaintiffs informed South Jersey that the house was heated at the time of loss. (7/5/11 Ltr. from South Jersey to Sweet Claims, Ex. J to D.M.S.J.) On August 26, 2011, Defendant sent a letter to Plaintiffs denying their claim based on the electrical billing. (8/26/11 Denial Ltr., Ex. C to D.M.S.J.) Plaintiffs filed the present suit on March 26, 2012.

Mr. Dooley maintained in his deposition that he turned all thermostats in the home to low, and closed all interior and exterior plumbing with the exception of the main valve, before he and his wife departed their house on December 12, 2010. (J. Dooley Dep. at 48:24-49:12) He testified that he completed the same routine every time he and his wife left the house during prior winters and the pipes had never frozen. (Id.)

Defendant's expert, Frederic Blum, concludes that it was "not possible" that the thermostats were kept on low. (Blum Rpt. at 6) According to Blum, the lowest setting of most thermostats is generally 45-50 degrees Fahrenheit, and a house will not freeze even if all thermostats were set as far down as...