HOBBS et al v. US COASTAL INSURANCE COMPANY, No. 1:2017cv03673 - Document 39 (D.N.J. 2018)

Court Description: OPINION. Signed by Judge Joseph H. Rodriguez on 5/23/2018. (tf, )
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HOBBS et al v. US COASTAL INSURANCE COMPANY Doc. 39 UNITED STATES DISTRICT COURT DISTRICT OF NEW J ERSEY CHARLES HOBBS an d ELIZABETH HOBBS, : Plaintiffs, : v. Hon. J oseph H. Rodriguez Civil Action No. 17-3673 : OPINION US COASTAL INSURANCE COMPANY, et al., : Defendants. : This m atter is before the Court on Defendants’ m otion to dism iss the Com plaint pursuant to Fed. R. Civ. P. 12(b)(6). The Court has considered the subm issions of the parties and heard oral argument on May 16, 20 18. For the reasons placed on the record that day, as well as those articulated below, the m otion will be granted. Background In this breach of contract action, Plaintiffs Charles and Elizabeth Hobbs filed a Complaint on May 23, 20 17 claim ing that Defendants’ refusal to properly adjust a hom eowners’ insurance policy constitutes a breach of contract and bad faith. Defendant US Coastal Insurance Com pany is adm inistered by Defendant Cabrillo Coastal General Insurance Agency, LLC. US Coastal issued a policy of insurance (“the Policy”) covering Plaintiffs’ second hom e at 116 Cedarville Avenue, Villas, New J ersey (“the Property”). 1 Dockets.Justia.com On or about Septem ber 29, 20 16, Plaintiffs discovered that a leaky valve on the hot water heater caused extensive water damage and m old growth in the crawlspace of the Property. On or about October 11, 20 16, a third-party adjuster estim ated that the Property had sustained $ 8,654 in dam age as a result of the water leak and an additional $ 66,415 in dam age as a result of the mold growth. US Coastal paid Plaintiffs $ 8,654 for the water dam age but only $ 10 ,0 0 0 for the m old dam age, citing the “Lim ited Mold Coverage” provision of the Policy. Plaintiffs com plain that Defendants breached their contract and acted in bad faith by failing to pay benefits due and owing under the Policy because the m old was a consequence of water dam age caused by the water heater’s failure. Defendants seek dism issal of the Com plaint, arguing that the $ 10 ,0 0 0 Mold Sublim it in the Policy applies to the m old dam age at the Property. Motion to Dism iss Standard Federal Rule of Civil Procedure 12(b)(6) perm its a m otion to dism iss “for failure to state a claim upon which relief can be granted[.]” For a com plaint to survive dism issal under Rule 12(b)(6), it m ust contain sufficient factual m atter to state a claim that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (20 0 9) (quoting Bell Atl. Corp. v. 2 Twom bly, 550 U.S. 544, 570 (20 0 7)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the m isconduct alleged.” Id. Further, a plaintiff m ust “allege sufficient facts to raise a reasonable expectation that discovery will uncover proof of her claim s.” Connelly v. Lane Const. Corp., 80 9 F.3d 780 , 789 (3d Cir. 20 16). In evaluating the sufficiency of a complaint, district courts m ust separate the factual and legal elem ents. Fowler v. UFMC Shadyside, 578 F.3d 20 3, 210 -11 (3d Cir. 20 0 9) (“Iqbal ... provides the final nail-in-the-coffin for the ‘no set of facts’ standard that applied to federal com plaints before Twombly.”). The Court “m ust accept all of the com plaint’s well-pleaded facts as true.” Fowler, 578 F.3d at 210 . Restatem ents of the elements of a claim , however, are legal conclusions and, therefore, not entitled to a presumption of truth. Bztrtch v. Mutberg Factors, Inc., 662 F.3d 212, 224 (3d Cir. 20 11). Discussion Under New J ersey law, a breach of contract claim requires the following: “(1) a contract between the parties; (2) a breach of that contract; (3) damages flowing therefrom; and (4) that the party stating the claim perform ed its own contractual obligations.” Frederico v. Hom e Depot, 50 7 F.3d 188, 20 3 (3d Cir. 20 0 7). 3 Next, New J ersey law establishes a general duty of good faith and fair dealing in every contract as well as duties specific to insurers. “[A]n insurance com pany owes a duty of good faith to its insured in processing a first-party claim ,” but no liability arises if a decision concerning a claim is “fairly debatable.” Pickett v. Lloyd’s, 621 A.2d 445, 450 , 453-54 (N.J . 1993) (internal quotation m arks om itted). A claim ant who cannot establish a substantive claim that the policy was breached, however, cannot prevail on a claim for an insurer’s alleged bad faith refusal to pay the claim . Id. at 454. New J ersey has well-settled principles of insurance contract interpretation: The principles of insurance contract interpretation are well settled: (1) the interpretation of an insurance contract is a question of law, (2) when interpreting an insurance contract, the basic rule is to determ ine the intention of the parties from the language of the policy, giving effect to all parts so as to give a reasonable meaning to the terms, (3) when the term s of the contract are clear and am biguous, the court m ust enforce the contract as it is written, and the court cannot m ake a better contract for the parties than the one that they themselves agreed to, (4) where an ambiguity exists, it m ust be resolved against the insurer, (5) if the controlling language of the policy will support two m eanings, one favorable to the insurer and one favorable to the insured, the interpretation supporting coverage will be applied, but (6) an insurance policy is not am biguous m erely because two conflicting interpretations have been offered by the litigants, and a genuine am biguity exists when the ‘phrasing of the policy is so confusing that the average policyholder cannot m ake out the boundaries of coverage. 4 State Nat. Ins. Co. v. Cty. of Cam den, 10 F. Supp. 3d 568, 574-75 (D.N.J . 20 14) (citing Sim onetti v. Selective Ins. Co., 859 A.2d 694 (N.J . Super Ct. App. Div. 20 0 4)). Here, US Coastal Policy Num ber NJ D10 0 1528 insured Plaintiffs from May 12, 20 16 to May 12, 20 17, providing coverage for loss at the Property with a lim it of liability for the dwelling of $ 150 ,0 0 0 , subject to certain exclusions. Specifically, the Declaration Page of the Policy issued 0 5/ 18/ 16 indicates Form DP 0 4 22 12/ 0 2 is subject to “Lim ited Mold Cov” of $ 10 ,0 0 0 . Under the heading “GENERAL EXCLUSIONS,” the Policy states: 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 dam age or affects a substantial area. Special Form DP 0 0 0 3 12 0 2, p. 8. By Endorsem ent DP 0 4 22 12 0 2 1, page 2, under the heading “GENERAL EXCLSUIONS”: The following exclusion is added[ 2 ]: The Declaration Page of the Policy expressly incorporates this Endorsem ent by stating “POLICY SUBJ ECT TO THE FOLLOWING . . . ENDORSEMENTS . . . DP 0 4 22 12/ 0 2.” 1 2 Another Endorsement titled “Special Provisions – New J ersey” also added a general exclusion for windstorm or hail to paragraph A.10 . (CCD 13 SP 0 1 14, p. 3.) The windstorm or hail exclusion does not rem ove or replace the 5 10 . "Fu n gi", W e t Or D ry Ro t, Or Bacte ria "Fungi", Wet Or Dry Rot, Or Bacteria m eaning, the presence, growth, proliferation, spread or any activity of "fungi", wet or dry rot, or bacteria This Exclusion does not apply: a. When "fungi", wet or dry rot, or bacteria results from fire or lightning; or b. To the extent coverage is provided for in Other Coverages, "Fungi", Wet or Dry Rot, Or Bacteria with respect to loss caused by a Peril Insured Against other than fire or lightning. Direct loss by a Peril Insured against resulting from "fungi", wet or dry rot, or bacteria is covered. (This is General Exclusion A.10 in Form s D P 0 0 0 1 and D P 0 0 0 3 .) The first page of Endorsem ent DP 0 4 22 12 0 2 is clear: TH IS EN D ORSEMEN T CH AN GES TH E POLICY. PLEAS E READ IT CAREFU LLY. LIMITED FU N GI, W ET OR D RY ROT, OR BACTERIA COVERAGE FOR U S E W ITH ALL FORMS SCH ED U LE* m old exclusion quoted here, nor does it serve to m ake the policy language am biguous. See Mid-Continent Cas. Co. v. Petroleum Sols., Inc., No. 4:0 90 422, 20 16 WL 5539895, at *43 and n.178 (S.D. Tex. Sept. 29, 20 16) (noting that several am endments to policy provisions duplicated num bering of earlier provisions, to no m om ent; the language contained in the provisions was relevant regardless of overlap of numbers). 6 These lim its of liability apply to the total of all loss or costs payable under this endorsement, regardless of the num ber of claim s m ade or the num ber of locations insured under this endorsement and listed in this Schedule. Property Coverage Lim it of Liability for the Other Coverage "Fungi", Wet or Dry Rot, or Bacteria *Entries m ay be left blank if shown elsewhere in this policy for this coverage. The Endorsement continues: With respect to the coverage provided under this endorsem ent, “Fungi” m eans any type or form of fungus, including m old or m ildew, and any mycotoxins, spores, scents or by-products produced or released by fungi. Endorsem ent DP 0 4 22 12 0 2, p. 1. Accordingly, regarding Plaintiffs’ Property, water dam age is a covered peril subject to an exclusion for loss caused by m old, with a rider giving back excluded m old coverage up to a $ 10 ,0 0 0 lim it. Plaintiffs argue that their loss was caused by water, not m old, and that Defendants therefore are obligated to pay for the entire am ount of the loss. Plaintiffs point to the Com plaint, which alleges that the m old growth was a result of the broken valve on the hot water heater, and argue that the m old is the “loss,” rather than the “cause.” See Sim onetti, 859 A.2d at 699 (finding that m old dam age caused by a covered event was covered under a policy that excluded losses caused by mold). 7 Detrimental to Plaintiffs’ argum ent, however, is that the Policy at issue contains an anti-sequential provision applicable to the Policy’s exclusions (not present in the Sim onetti policy), which states, “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.” (Special Form DP 0 0 0 3 12 0 2, p. 8.) See Assurance Co. of Am ., Inc. v. J ayMar, Inc., 38 F. Supp. 2d 349, 354 (D.N.J . 1999) (“[T]here is no violation of public policy when parties to an insurance contract agree that there will be no coverage for loss due to sequential causes even where the first or the last cause is an included cause of loss.”). A com bination of the anti-sequential clause and the m old exclusion, 3 supports the conclusion that the Policy provides coverage for dam age from the broken valve but lim its additional recovery to $ 10 ,0 0 0 for damage caused by m old that was caused by an undetected leak. Accordingly, in asserting that Defendants’ application of the m old exclusion constituted breach of contract, Plaintiffs have failed to state a plausible claim , necessitating dism issal 3 The insurer has m et its burden of establishing application of the exclusion. See Hartford Acc. & Indem . Co. v. Aetna Life & Cas. Ins. Co., 483 A.2d 40 2, 40 8-0 9 (N.J . 1984). 8 of the First Count of the Com plaint. In addition, a claim for bad faith is not plausible because Defendants responded to Plaintiffs’ claim s, paid the am ounts they determ ined were owed under the contract, and did not disregard any obligations or unreasonably fail to investigate or settle Plaintiffs’ claim s. See Badiali v. N.J . Mfrs. Ins. Grp., 10 7 A.3d 1281, 1287 (N.J . 20 15). Because Defendants’ position was, at a minim um , fairly debatable, the Second Count of the Com plaint will be dism issed. An appropriate Order shall issue. Dated: May 23, 20 18 / s/ J oseph H. Rodriguez Hon. J oseph H. Rodriguez U.S.D.J . 9