Christopher M. Davis and Denise A. Obre-Davis v. Dennis P. Crowley et al.,
On September 24, 2021, the New Jersey Superior Court issued an opinion in Christopher M. Davis and Denise A. Obre-Davis v. Dennis P. Crowley et al., No. GLO L 000655-21, dismissing the Third-Party Complaint against United Property Casualty Insurance Company (“UPC”). The Third-Party Action was predicated upon theories of breach of contract, breach of duty of good faith, and promissory estoppel. The court approved UPC’s rescission of a homeowners’ policy based on a concealment of material facts (i.e., presence of knob and tube wiring) in an Insurance Application and commented that water damages were, nevertheless, not covered by the Policy.
The Insureds applied for and obtained a homeowner’s insurance policy for a historic residence in New Jersey. The Insureds sold their residence in 2019 to the Plaintiffs and notified UPC of the sale for purposes of cancellation of the Policy. At that time, prior to the cancellation, the Insureds did not disclose known property conditions including the presence of knob and tube wiring and water infiltration and/or mold. The Plaintiffs alleged, inter alia, that the Insureds intentionally or negligently concealed facts concerning these property conditions prior to the sale. The Insureds filed a Third-Party Complaint against UPC after it rescinded the Policy based on the misrepresentation in the Insurance Application and denied coverage concerning Plaintiffs’ allegations.
In their Insurance Application, the Insureds answered “no” to the question whether there was knob and tube wiring at the residence premises. The Insureds argued that they overlooked the question, their answer was incorrect, and they did not intend to defraud UPC, and that the “subjective” intent of the Insureds supported there was no “equitable” fraud supporting a rescission of the Policy.
The Court disagreed with the Insureds. The court found it noteworthy that the Insureds notified UPC of the sale of the residence premises to cancel their policy at the time of sale, but failed to notify UPC of “the water, mold, and knob and tube wiring.” The court found that the Policy was void ab initio due to the misrepresentation by the Insureds in the Insurance Application about the presence of knob and tube wiring. The court noted that, even if the Policy had not been rescinded, the Policy would not have covered the alleged water damages: “coverage for water is expressly excluded so UPC cannot be held liable to indemnify for this part of Plaintiff’s damages anyway.” The court highlighted Policy provisions requiring Insureds to take “reasonable means” to protect and preserve property, fraud, concealment, and misrepresentations.
The trial court decision supports that Insureds must accurately complete Insurance Applications and must accurately disclose property conditions discovered during the Policy Period. Otherwise, Insurers may deny coverage and may successfully win motions to dismiss. Since this is an evolving area of law, we strongly encourage obtaining competent legal counsel to defend an Insurer in such material misrepresentation cases.