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NEW DECISIONS AND OLD CASES
Two recent New Jersey court decisions, one in the Appellate Division of the Superior Court and one in the U.S. District Court re-affirm established legal principles, but may also expand some parameters.
In Masaitis v. Allstate, the Appellate Division upheld a jury verdict in favor of an insurer which prevailed on a defense of material misrepresentation, following, but not citing, Longobardi v. Chubb, 121 N.J. 530 (1990). Humorously, among many other inconsistencies, the insureds claimed that they purchased Rolex watches from a jewelry store within walking distance of the Courthouse. The insurer brought the jeweler to Court to testify that they made no sale to the plaintiffs.
CIRCUMSTANTIAL EVIDENCE OF ARSON
The insurer also defended on the ground of arson, although it offered no evidence as to cause and origin and the local investigating officials could not determine the cause. The insureds tried to prevent the introduction of evidence of arson in the absence of proof of an incendiary fire. The trial court allowed the insurer to introduce evidence to try to prove arson by use of circumstantial evidence. This had the collateral effect of prejudicing the jury against the insured. The jury did not find arson.
Curiously, the Masaitis opinion does not cite any evidence of an incendiary fire, i.e. one that is not accidental in origin. Although the trial judge properly charged the jury that the first component of the arson defense was their finding that the fire was deliberately set, there is no discussion of any proofs being presented as to the cause of the fire. The appellate court discussed significant proofs regarding the insureds' motive and opportunity as warranting submission of the case to the jury on the issue of arson, but did not address any evidence regarding the means by which the fire originated. Ordinarily, absent proof that the fire was deliberately set, as opposed to accidentally occurring, the issue of arson would never reach the jury and that defense would be stricken. In this case, however, it appears that the circumstantial evidence tying the insured to the loss deflected the appellate court's attention from any proofs that the fire was deliberately set. The potential peril is that Masaitis may be misconstrued to eliminate the threshold question of whether the fire itself was not accidental. It may also support the admission of otherwise irrelevant evidence painting the insured in a bad light which reflects adversely on the insured on other issues, e.g. fraud, material misrepresentation.
Practice point: Cause and origin remains an important issue. Too many public sector investigators are satisfied to list the cause as "undetermined", which allows them to close the file. Your insured may need to retain a private expert to determine an actual or probable accidental cause for the fire or at least to eliminate an incendiary origin. The cost may be worthwhile. Every insured would prefer to avoid a denial of the claim and subsequent trial on the issue of arson.
PERIOD OF LIMITIATIONS
In Turkmany v. Excelsior Insurance Co., decided on July 18, 2014, U.S. District Judge Esther Salas re-affirmed the tolling of the period of limitations to sue under a property insurance policy in line with Peloso v. Hartford Fire Ins. Co., 56 N.J. 514, (1970). Citing Peloso, Judge Salas wrote "the period of limitation [runs] from the date of the casualty but [is tolled] from the time an insured gives notice until liability is formally declined."
DEPRECIATION FACTOR REQUIRED
While the insured survived that aspect of a motion for summary judgment, he did not prevail on the motion for other reasons worth noting. In this action, the insurer had made actual cash value (ACV) payments on building and contents based upon its own estimate of replacement cost and depreciation. The insured disputed the amount of the ACV payments and reasoned that without agreement on replacement cost (RCV), no ACV number could be postulated. The Court disagreed.
The Court found that the insured had to present a depreciation factor as well as an RCV estimate in order to create a disputed issue of fact as to ACV. Here the insured did not proffer a depreciation factor as to either building or contents. The Court found that Elberon Bathing Co. Inc. v. Ambassador Ins. Co. Inc., 77 N.J.1 (1978) held that proof only of RCV does not prove ACV. The Court required the insured to adduce proof of a depreciation factor to defeat the motion for summary judgment.
The Court would not allow the insured to cite the insurer's depreciation factor to carry his burden on the issue and would not allow the insured to wait until trial to provide the depreciation factor.
COMMENCEMENT OF REPAIRS REQUIRED
Perhaps the most important aspect of the opinion is the holding that the insured was not entitled to recover replacement cost at trial in the absence of making repairs once the carrier paid its own estimate of the actual cash value loss. The Court distinguished Ward v. Merrimack Mut. Fire Ins. Co., 332 N.J.Super. 515 (App. Div. 2000) which stands for the proposition that an insurer which makes replacement impossible by not paying the claim is not entitled to enforce the policy terms limiting recovery to ACV unless and until repairs are complete. In such a case, the insured is entitled to a verdict for RCV.
Here, the Court was impressed by the substantial ACV payments made by the insurer and found that since the insured did not at least start the repairs, he was not entitled to a verdict for RCV. The opinion seems to suggest that the insured must "commence" repairs, but is not required to have completed them in order to argue for an RCV verdict. The Court did not explicate its reasoning, simply finding that Ward applied only to a case in which the insurer made no payment at all.
Practice point: It is too easy to lose the right to the RCV holdback. Your insured must undertake repairs in order to argue for the holdback. If the insured is content to take the ACV payment and not repair or replace the property, the carrier will not have to pay the holdback. In reality, if the insured expends the ACV payment making repairs prior to completing them, the insurer would be hard pressed to deny additional funds necessary to complete repairs. On the other hand, if the insured completes repairs within the amount of the ACV, then the RCV estimate is proved to have been wrong and unwarranted. You should counsel your insureds to make repairs that bring the property back to its true pre-loss condition and not skimp on the repairs because they fear that they will not receive the holdback.
If you or your insureds have any questions on these or other issues, please feel free to contact us at 973-538-4100 or by email at tmaloney@thomasmaloneylaw.com. We are here to help!
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