New Hampshire Ins. Co. v. Diller

678 F.Supp.2d 288

NEW HAMPSHIRE INS. CO., Plaintiff, v. William DILLER, Jr., Defendant, v. Jay Kopp, Nia Group Assoc., LLC, and Mann Custom Boats, Inc., Third-Party Defendants.

Civil Action No. 07-cv-1131 (NLH)(JS).

United States District Court, D. New Jersey.

December 23, 2009.

As Amended January 13, 2010.

Michael E. Stern, James E. Mercante, Keith A. Brady, Rubin, Fiorella & Friedman, LLP, New York, NY, for New Hampshire Insurance Company.

Sean T. O'Meara Archer & Greiner, PC, Haddonfield, NJ, for William Diller, Jr.

Frederick M. Klein, The Sullivan Law Group, LLP, Newark, NJ, for Jay Kopp and NIA Group Associates, LLC.

Lawrence J. Kahn, Michael Charles Elliott, Freehill Hogan & Mahar, LLP, New York, NY, for Mann Custom Boats, Inc.

OPINION

HILLMAN, District Judge.

This case presents the issue, among others, of whether an insurance company may draft and enter into a marine insurance contract with an insured which on its face allows it to void coverage for only intentional misrepresentations, and later, when the issue of intent is unclear, rely on a common law doctrine to deny coverage which deems intent irrelevant. We conclude that it may not.

Plaintiff, New Hampshire Insurance Company ("NHIC"), filed a complaint against its insured, defendant/counter-claimant/third-party plaintiff, William Diller, Jr., requesting a declaratory judgment denying marine insurance coverage for damage to Diller's 60-foot vessel, "M/V Dream Catcher." Diller counterclaimed against NHIC and also filed a third-party complaint against his insurance broker, John C. Kopp, Jr. (sued as "Jay Kopp"), and Kopp's employer, NIA Group Associates, LLC ("NIA"). Subsequently, Diller filed an amended third-party complaint in which he also named as a third-party defendant Mann Custom Boats, Inc. ("Mann"), the designer, manufacturer, and repairer of the vessel.

Presently before the Court are several motions: NHIC's Motion for Summary Judgment; Kopp and NIA's (collectively "Kopp/NIA") Motion for Summary Judgment¹ and Motion on the Pleadings to Dismiss the Amended Third-party Complaint; and Diller's Cross-motion for Partial Summary Judgment on its Counterclaim and Motion for Leave to File a Surreply and Affidavit. For the reasons explained below, NHIC's Motion for Summary Judgment, Kopp/NIA's Motion for Summary Judgment, and Diller's Cross-motion for Partial Summary Judgment are all denied. However, Diller's Motion for Leave to File a Sur-reply is granted and Kopp/NIA's Motion to Dismiss will be granted with leave to re-file under certain conditions.

I. JURISDICTION

This Court exercises subject matter jurisdiction over the underlying claim pursuant to 28 U.S.C. § 1332. There is complete diversity between the plaintiff in the underlying action who is a citizen of the Commonwealth of Pennsylvania where it is incorporated and of New York where it has its principal place of business, and defendant/counter-claimant/third-party plaintiff who is a citizen of New Jersey.² Plaintiff alleges that the amount in controversy exceeds $75,000.

II. BACKGROUND

Diller, who owned M/V Dream Catcher (the "vessel"), requested that NIA obtain a quote for marine insurance coverage for the vessel for the 2006-07 policy year. Diller was a client of NIA, and Kopp, who was employed by NIA, had been Diller's insurance broker for several years. To obtain a quote for Diller, Kopp filled out a request form on a website maintained by Maritime General Agency ("MGA"), the intermediary for NHIC. Kopp stated in his affidavit that one of the fields on the MGA website requested information for the "number of claims in last 5 years."

After Kopp filled in the form on the MGA website, the information was electronically submitted to MGA. The information was reviewed by Michael Terrier, an MGA underwriter. On the basis of this information, MGA provided a quote and application for coverage from NHIC. Kopp filled out the application including information requesting "Loss History: (Date, Cause, Amount)." At the center of this case is the absence of certain information from Diller's "Loss History," as well as other alleged misrepresentations or omissions relating to Diller's application.

Among the information absent from Diller's application to NHIC was an incident that occurred in February 2001. Diller's vessel was involved in a "grounding," for which the vessel's insurer at the time paid $115,000. Also as a result of that accident, a mate on the vessel suffered a personal injury, resulting in a $3,000 claim.

Second, Kopp stated on the application that in December 2002, Diller's vessel hit an object and that the amount paid for that accident was $19,000. In an insurance application to CIGNA Insurance Company dated July 16, 2003,³ however, the amount paid as a result of the December 2002 incident was listed as $32,000.⁴

Third, in August 2004, the vessel, with Diller aboard, suffered damage to its hull and began taking on seawater, forcing the crew to radio a "Mayday" distress call. The vessel was escorted to port by the United States Coast Guard and was later repaired by Mann. This casualty was not reported on the application.

Fourth, on the application Kopp checked off the "Licensed Capt." box based on information from Diller that the vessel was being operated by a licensed captain. Diller, however, admits that he is not a licensed captain, but reports that he employed Michael Bennett, who is a licensed captain.

Finally, the total horsepower of the vessel's engine as indicated on the application was "1350." Its actual horsepower was approximately 2,700.

After filling in the application, Kopp forwarded it to Diller with instructions for Diller to sign it and return it to Kopp with a check for the insurance premium due. Diller stated that after reviewing the application he noticed that the February 2001 and August 2004 incidents were not reported on the application. Diller asked Kopp why they were excluded. With regard to the February 2001 incident, Kopp replied that he understood the application's request for "Loss History" to be asking for any claims made within the past five years, just as the MGA website form had requested. By Kopp's estimation, the February 2001 incident occurred more than five years prior to completing the current application to NHIC and, therefore, did not have to be reported.⁵ Further, Kopp said that the August 2004 incident did not have to be disclosed because Diller did not pursue an insurance claim in relation to it.⁶ In June 2006, Diller signed the application, which was forwarded by Kopp to NHIC. Shortly thereafter, NHIC issued a policy for the vessel for the period of June 29, 2006 through June 29, 2007.

On August 9, 2006, while participating in a fishing contest in the Atlantic Ocean, the vessel's hull was damaged. Diller submitted a claim to NHIC for coverage of this accident. NHIC began an investigation of Diller's claim and, on October 20, 2006, took his examination under oath ("EUO").

During the EUO, Diller was asked whether he had suffered any losses with his vessel other than the December 2002 claim. Diller answered yes, and recalled the August 2004 incident. When asked if he had submitted an insurance claim to his previous marine insurer in connection to the August 2004 claim, Diller replied that he had not. However, Diller acknowledged that he had told Kopp of the incident and did not know whether Kopp had reported it to the insurer. Documentation indicates that the August 2004 incident was reported to Diller's insurer at that time, but the claim was later withdrawn.

In a letter dated March 8, 2007, NHIC denied Diller coverage on the grounds that, in violation of his NHIC policy, Diller "intentionally concealed and/or misrepresented material facts" in his insurance application and his EUO. Specifically, NHIC refused to cover Diller's loss because, in his application, he failed to disclose the February 2001 and August 2004 incidents and failed to disclose the full amount of damages suffered during the December 2002 incident. The letter also denied coverage because Diller had marked off "Licensed Capt." on his application even though he was not a licensed captain. In addition, NHIC submitted that Diller misrepresented material facts during the EUO by failing to mention the February 2001 incident and by denying that he had filed an insurance claim in connection to the August 2004 incident. Finally, NHIC denied coverage on the determination that the vessel was not seaworthy either at the inception of the policy or on the August 9, 2006 voyage.

NHIC filed a complaint requesting that this Court enter judgment declaring that no coverage is afforded for any claims arising out of the August 9, 2006 incident; that the policy is void ab initio; that the policy is rescinded; and that NHIC is entitled to reimbursement of costs and expenses relating to the storage, survey, salvage, and hauling of the vessel in connection with the August 9, 2006 incident. On May 1, 2007, Diller filed a counterclaim against NHIC for a declaratory judgment as to coverage of the vessel, and for breach of contract, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, bad faith, and estoppel. Diller also filed a third-party complaint against Kopp/NIA for negligence, breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty.⁷ On January 8, 2008, Diller filed an amended third-party complaint also naming Mann as a third-party defendant. Along with designing and manufacturing the vessel, Mann also made repairs to the vessel before the August 9, 2006 accident.

In an opinion dated June 30, 2008, 2008 WL 2684071, this Court addressed Kopp/NIA's previous motion for summary judgment. At that stage of the litigation, this Court rejected Kopp/NIA's arguments that Diller's alleged misrepresentations during his EUO constituted an independent basis for Diller's loss or that his review and signature on...