A-0CITIZENS UNITED RECIPROCAL EXCHANGE v. JOSE LUIS RAMIREZ ESPINOZA JOSEPH WEBER, U-HAUL COMPANY OF AMERICA, NEW JERSEY MANUFACTURERS INSURANCE COMPANY, and REPUBLICAN WESTERN INSURANCE COMPANY and JAISHANKA ARNALA January 23, 2015

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

CITIZENS UNITED RECIPROCAL

EXCHANGE,

Plaintiff-Respondent,

v.

JOSE LUIS RAMIREZ ESPINOZA,

JOSEPH WEBER, U-HAUL COMPANY

OF AMERICA, NEW JERSEY MANUFACTURERS

INSURANCE COMPANY, and REPUBLICAN

WESTERN INSURANCE COMPANY,

Defendants,

and

JAISHANKA ARNALA,

Defendant-Appellant.

________________________________

January 23, 2015

Before Judges Haas and Higbee.

On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-7438-11.

Lisa R. Bicocchi argued the cause for appellant (Archer & Greiner, PC, attorneys; Patrick Papalia, of counsel; Jason T. Shafron, on the brief).

Chad B. Sponder argued the cause for respondent (Bright & Sponder, attorneys; Mr. Sponder, on the brief).

PER CURIAM

Defendant Jaishanka Arnala appeals from the June 18, 2013 order of the Law Division, declaring that plaintiff Citizens United Reciprocal Exchange "owe[d] no liability coverage" to defendant under the terms of an auto insurance policy, and dismissing defendant's counterclaim alleging bad faith, breach of duty of good faith and fair dealing, and other claims against plaintiff. After reviewing the record in light of the contentions advanced on appeal, we reverse and remand.

I.

Plaintiff is an insurance company, which issued a personal auto insurance policy to defendant.1 In pertinent part, the policy stated that plaintiff "will pay damages for 'bodily injury' or 'property damage' for which any 'insured' becomes legally responsible because of an auto accident."

As used in the policy, the term "Insured" was defined as

1. You or any "family member" for the ownership, maintenance or use of any auto or "trailer".

2. Any person using "your covered auto".

3. For "your covered auto", any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part.

4. For any auto or "trailer", other than "your covered auto", any other person or organization but only with respect to legal responsibility for acts or omissions of you or any "family member" for whom coverage is afforded under this Part. This Provision . . . only applies if the person or organization does not own or hire the auto or "trailer".

The policy defined the term "covered auto" as meaning

1. Any vehicle shown in the Declarations.

2. A "newly acquired auto".

3. Any "trailer" you own.

4. Any auto or "trailer" you do not own while used as a temporary substitute for any other vehicle described in this definition which is out of normal use because of its

a. Breakdown;

b. Repair;

c. Servicing;

d. Loss; or

e. Destruction.

Defendant had only one vehicle listed on the Declaration page of the policy, a 2004 Volvo sedan.

According to plaintiff's complaint, defendant rented a vehicle2 from a U-Haul facility on November 29, 2007 "for the purpose[] of transporting goods he intended to purchase at a home improvement store." Before leaving the facility, defendant gave the keys to Jose Espinoza, who drove the vehicle while plaintiff followed in his Volvo. Espinoza was then involved in an accident with Joseph Weber, who allegedly sustained injuries.

Weber sued Espinoza and U-Haul, but did not originally name defendant in the litigation. In January 2011, however, Weber filed an amended complaint and defendant was joined in the action. Weber alleged he was injured as a "direct and proximate result" of defendant's "carelessness, negligence, and recklessness." In his counterclaim to CURE's complaint, defendant asserted he retained an attorney and, in February 2011, notified plaintiff of Weber's claim and sought coverage under his auto insurance policy. For some period of time, U-Haul assigned an attorney to defendant.

Defendant alleged that plaintiff did not respond to his request for representation and coverage until April 27, 2011, when he received a letter from plaintiff stating it reserved its right to disclaim coverage in the future. Plaintiff's letter did not set forth an explanation for its reservation of rights under the policy. Defendant asserted that plaintiff did not immediately provide him with an attorney, and allowed him to be deposed over a month later without plaintiff's assigned counsel being present. Defendant asserts that an attorney assigned by plaintiff did not substitute into the case on defendant's behalf until August 16, 2011.

On August 25, 2011, plaintiff sent defendant a letter stating he had "no coverage" under his policy for the accident involving Weber. The letter explained that "Espinoza was not an 'Insured' pursuant to the terms of the . . . auto policy" and, therefore, "there is no coverage for this claim."

In October 2011, plaintiff filed a declaratory judgment complaint against defendant, Espinoza, Weber, Weber's insurance company, U-Haul, and U-Haul's insurance company. Plaintiff sought an order determining that it "owe[d] no obligation [to] afford insurance coverage or a defense" to defendant or Espinoza for Weber's claims.3

Defendant filed an answer and a counterclaim. Defendant alleged that plaintiff acted in bad faith by first agreeing to provide him with a defense and then failing to follow through in a timely manner. As a result, defendant stated he was deposed without plaintiff's counsel being present, and that plaintiff then used that deposition as the basis for its declaratory judgment complaint against him. Defendant also asserted that plaintiff breached its agreement to provide coverage, together with its duty of good faith and fair dealing, when it belatedly denied coverage. Plaintiff never filed an answer to defendant's counterclaim.

Plaintiff thereafter filed a motion for summary judgment on the coverage issue, which was denied by the court on July 13, 2012. Although the parties have not provided us with a copy of the transcript of that proceeding, they agree the motion was denied because the court found there were material facts in dispute between the parties.

At a case management conference in January 2013, the court ordered that plaintiff's declaratory judgment action would be tried prior to the court's consideration of Weber's complaint for damages arising out of the accident. On June 5, 2013, the court entered default against plaintiff on defendant's counterclaim.

On June 10, 2013, the matter was called for trial and assigned to a judge who was not previously involved in the case. Defendant's attorney submitted a trial brief, a list of twenty-three exhibits he intended to introduce in evidence, and a witness list indicating he intended to call defendant and plaintiff's claims manager. According to the witness list, defendant would testify as to the circumstances surrounding his rental of the U-Haul vehicle and his decision to permit Espinoza to drive it on his behalf. Defendant would also testify about the allegations set forth in his counterclaim against plaintiff. The claims manager, whom defendant had deposed, would testify as to plaintiff's: (1) inaction upon receiving defendant's claim; (2) delay in providing a defense to defendant after sending him the April 27, 2011 reservation of rights letter; and (3) improper denial of coverage.

Defendant's attorney also stated that the claims manager would testify "as to the fact that [plaintiff] now only denies coverage [to defendant] on the basis that he does not meet the term 'insured' under the policy because [defendant] was not using the vehicle." Previously, plaintiff stated there was no coverage because Espinoza was not an "insured" under the contract. Significantly, defendant did not propose that the claims manager testify as to her personal interpretation of the policy in an attempt to modify or expand it.

When the matter could not be settled, the parties appeared before the judge on June 11, 2013 for a jury trial. At that time, the parties agreed to proceed with a bench trial and defendant's attorney stated he wished to call both defendant and plaintiff's claims manager as witnesses. While defendant's attorney stated he did not expect the judge to enter a default judgment against plaintiff on defendant's counterclaim, he made clear that he wished to proceed with a trial on those issues as well.

After some discussion, however, the judge stated, "this isn't a trial. This is a motion." He also stated there would be "no testimony" because the question of coverage was "all a matter of law." Defendant's attorney disagreed, again stating that he wanted to call plaintiff's claims manager to testify about plaintiff's "position on coverage and positions that [plaintiff took] in the past on coverage." The attorney argued that plaintiff's changing positions and interpretations demonstrated that the policy was ambiguous and, therefore, the policy should be construed in favor of providing coverage to defendant.

At the conclusion of argument, and without permitting any testimony or the introduction of any of defendant's exhibits, the judge rendered a brief oral decision granting plaintiff's request for a declaratory judgment that it did not have to provide coverage to defendant. The judge found the policy was not ambiguous and that defendant was not an "insured" under the policy. In rejecting defendant's contention that he was "using" the U-Haul vehicle at the time of the accident because Espinoza was driving it to assist defendant in a home improvement project, the judge stated the argument was "absurd" because defendant was driving his "covered vehicle" at the time of the accident. The judge also stated that the term "use" in the policy was not ambiguous and "does not include rented vehicles that are simultaneously used with your own vehicle." The judge then vacated plaintiff's default and dismissed defendant's counterclaim, finding that it was "moot" because of his conclusion that defendant was not covered under his policy.

Plaintiff submitted an order memorializing the judge's decision, but stated in the order that the parties "consented that the matter was to be decided based on stipulated facts concerning the happening of the accident and submission of the policy at issue for consideration[.]" Defendant objected to this portion of the order, arguing "there were substantial facts which would have been submitted from plaintiff's claims manager which were relevant to the issues in this case" and, therefore, only "some stipulated facts" concerning the circumstances of the accident were considered. On June 18, 2013, the judge entered the order without responding to defendant's objection, and this appeal followed.

II.

On appeal, defendant argues the judge erred by failing to conduct a bench trial, and by denying his request to present testimony concerning the circumstances of the accident and plaintiff's subsequent handling of his claim in support of his contention that he was entitled to coverage under the policy and in support of his counterclaim against plaintiff. We agree.

We begin by commenting on the manner in which the bench trial was conducted. The parties expected, and prepared for, a jury trial. On the first day, however, they agreed to proceed with a bench trial. Nevertheless, the judge later advised the parties that "this isn't a trial. This is a motion." The judge then essentially treated the matter as a summary judgment proceeding, entertained oral argument, and rendered a brief opinion finding the policy provided no coverage to defendant.

There were several problems with this approach. First, no notice was provided to defendant that, instead of a trial, the matter would now be resolved without testimony or documentary evidence. The first judge had previously denied plaintiff's motion for summary judgment because there were disputed issues of material fact. While the judge who conducted the bench trial was clearly permitted to revisit that ruling, he could do so only if he "provide[d] the parties a fair opportunity to be heard on the subject[,]" and fully explained the reasons for his decision. Lombardi v. Masso, 207 N.J. 517, 537 (2011). That did not occur in this case.

Moreover, no exhibits were marked for identification and none were formally accepted into evidence. The judge also did not allow any testimony. Although the June 18, 2013 order states the matter was determined on the basis of stipulated facts, the record contains no evidence of the scope of the alleged stipulation, the specific facts involved, or the source of those facts. During colloquy with counsel, the judge recited some basic facts concerning the accident and defendant's attorney later appeared to agree that some facts were stipulated. However, we do not know what specific facts the judge considered in rendering his decision or why he determined, unlike his predecessor, that there were no disputed material facts.

Our review of a trial court's fact-finding in a non-jury case is limited. Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011). "'The general rule is that findings by the trial court are binding on appeal when supported by adequate, substantial, credible evidence.'" Ibid. (quoting Cesare v. Cesare, 154 N.J. 394, 411-12 (1998)). Here, however, the judge made no specific findings of fact, and merely stated his conclusion that defendant was not entitled to coverage. The judge made no findings concerning the claims raised in defendant's counterclaim.

Rule 1:7-4(a) clearly states that a trial "court shall, by an opinion or memorandum decision, either written or oral, find the facts and state its conclusions of law thereon in all actions tried without a jury[.]" See Shulas v. Estabrook, 385 N.J. Super. 91, 96 (App. Div. 2006) (requiring an adequate explanation of the basis for a court's action). "'Meaningful appellate review is inhibited unless the judge sets forth the reasons for his or her opinion.'" Strahan v. Strahan, 402 N.J. Super. 298, 310 (App. Div. 2008) (quoting Salch v. Salch, 240 N.J. Super. 441, 443 (App. Div. 1990)). The failure to provide findings of fact and conclusions of law "'constitutes a disservice to the litigants, the attorneys and the appellate court.'" Curtis v. Finneran, 83 N.J. 563, 569-70 (1980) (quoting Kenwood Assocs. v. Bd. of Adjustment of Englewood, 141 N.J. Super. 1, 4 (App. Div. 1976)). Because the trial judge did not make any meaningful findings of fact underlying his decision, or permit any evidence to be formally introduced, we are constrained to reverse and remand this matter for further proceedings.

The judge also mistakenly prevented defendant from presenting his own testimony or that of the claims manager. Defendant's testimony as to what occurred when he leased the U-Haul vehicle, his relationship with Espinoza, and his reasons for permitting Espinoza to drive the vehicle on his behalf, would have been relevant to a determination as to whether defendant was "using" the vehicle at the time of the accident. While we express no view on whether an individual who is not driving a vehicle may be found to be "using" it when another individual operates it on his behalf, we note that the word "use" has been defined "as a purpose served; a purpose, object or end for useful or advantageous nature[,] . . . and many other meanings. Practically every activity of mankind . . . would amount to a 'use' of something, in the broadest sense of that word." Boswell v. Travelers Indem. Co., 38 N.J. Super. 599, 607 (App. Div. 1956) (citations omitted). Therefore, "the term must be considered with regard to the setting in which it is employed." Ibid. Thus, the judge should have permitted defendant to testify about the factual setting surrounding the "use" of the vehicle in this case.

We also discern no basis on this record for barring the testimony of plaintiff's claims manager. While parole evidence should not be permitted to modify or curtail the terms of an agreement, Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 269 (2006), that was not the purpose of the proffered testimony. Instead, defendant's witness list stated the claims manager would testify about plaintiff's changing positions on coverage. A court may "consider all of the relevant evidence that will assist in determining the intent and meaning of the contract." Ibid. The claims manager's anticipated testimony that plaintiff took different positions on the coverage issue would have been admissible for this purpose. At the very least, the judge should have reviewed the claims manager's deposition transcript to determine the full nature of the proposed testimony before summarily barring it.

Defendant also intended to have the claims manager testify about plaintiff's handling of his request for legal representation and liability coverage. This testimony was plainly relevant to the bad faith, breach of contract, and other claims set forth in defendant's counterclaim and, therefore, should have been permitted.

In sum, this matter should have proceeded as a bench trial, with defendant having the opportunity to present relevant testimony and documents in support of his claim for coverage and the claims raised in his counterclaim. Therefore, the June 18, 2013 order must be reversed.

Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.

1 We glean the underlying facts from the insurance policy and the allegations set forth in plaintiff's complaint and defendant's answer and counterclaim. As discussed in greater detail below, no testimony or exhibits were introduced by the parties or considered by the trial judge at the bench trial conducted in this matter.

2 The record is not clear whether the vehicle was a pick-up truck or a van.

3 Plaintiff did not serve Espinoza, Weber, U-Haul, or U-Haul's insurance company and, on May 4, 2012, they were dismissed from this case. Although it was served, Weber's insurance company never participated in the matter, except as an observer.