AIG CASUALTY COMPANY OF NEW YORK, INC v. DONNA WALSH

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1784-12T1

AIG CASUALTY COMPANY

OF NEW YORK, INC.,

Plaintiff-Respondent/

Cross-Appellant,

v.

DONNA WALSH and THE ESTATE

OF FRANCIS WALSH,

Defendants-Appellants/

Cross-Respondents.

_______________________________________

February 12, 2014

Submitted January 21, 2014 Decided

Before Judges Yannotti and Ashrafi.

On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-11566-10.

Foster & Mazzie, L.L.C., attorneys for appellants/cross-respondents (Carl Mazzie, of counsel; Nicholas P. Schroter, on the briefs).

Mound Cotton Wollan & Greengrass, attorneys for respondent/cross-appellant (William D. Wilson, on the brief).

PER CURIAM

Defendants Donna Walsh and The Estate of Francis Walsh appeal from an order entered by the Law Division on November 9, 2012, which granted summary judgment in favor of plaintiff AIG Casualty Company of New York (AIG) on its claim for reimbursement of insurance benefits previously paid, and defendants counterclaim against AIG. AIG cross-appeals from the dismissal of its claim against defendants under the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30 (the Fraud Prevention Act or Act). For the reasons that follow, we affirm on the appeal and reverse on the cross-appeal.

I.

The material facts are essentially undisputed. Donna Walsh and her now-deceased husband Francis Walsh were the owners of a 2 004 Hinckley Talaria 44 yacht. AIG provided insurance for the craft, which was in effect from March 3, 2009, to March 3, 2010. The policy covered the Walshes against all risk and physical loss or damage to the yacht.

On August 15, 2009, the yacht's engine began to emit black smoke. Several days later, the Hinckley Company inspected the craft at one of its service locations and determined that the port engine was damaged. On September 1, 2009, the Walshes' insurance broker filed a claim with AIG for the damage. On September 3, 2009, Mack Boring & Parts Company informed Hinckley that it would repair the engine at a cost of $23,975. Francis Walsh forwarded the price quote to AIG the same day.

On September 8, 2009, AIG asked InterGlobe Marine Consultants to survey the yacht and the engine. Before receiving the report from InterGlobe, AIG issued a check to the Walshes in the amount of $15,975, which represented Mack's price quote of $23,975, less the $8,000 policy deductible.

On September 22, 2009, Hinckley replaced the yacht s port engine. That day, Francis Walsh was told that Yanmar Marine, the manufacturer of the engine, was going to pick up the entire cost of the replacement engine and its installation. On September 27, 2009, Hinckley provided the Walshes with an invoice for the services provided.

AIG thereafter learned that Yanmar had paid for the repair and/or replacement of the engine. On February 5, 2010, AIG contacted the Walshes insurance broker and demanded the return of the $15,975 that AIG paid on the claim. The Walshes refused to return the money. According to defendants, AIG thereafter made demands for the money that amounted to excessive badgering.

The Walshes never returned the monies and on December 1, 2010, AIG filed a complaint in the Law Division, seeking reimbursement. Defendants filed an answer denying liability. They also asserted a counterclaim against AIG, alleging that AIG acted in bad faith in seeking return of the monies. AIG later filed an amended complaint and asserted an additional claim against defendants under the Fraud Prevention Act.

Thereafter, AIG filed a motion for summary judgment. The motion judge granted AIG s motion on its claim for return of the $15,975. However, the judge dismissed AIG s claim under the Fraud Prevention Act. The judge also granted summary judgment to AIG on defendant s bad faith counterclaim. AIG's appeal and defendants' cross-appeal followed.

II.

Defendants argue that the motion judge erred by granting summary judgment to AIG on its reimbursement claim. They contend that AIG was not entitled to reimbursement because AIG failed to show that the amount paid exceeded the value of the loss. Defendants additionally contend that the judge erred by finding that they did not suffer a loss. We disagree.

Summary judgment may be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. R. 4:46-2(c). "An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." Ibid.

We apply this standard in determining whether the trial court erred in granting summary judgment. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). We review de novo any legal conclusions reached by the trial court. Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010).

Here, AIG issued a policy to the Walshes, which provided coverage for, among other things, physical loss or damage to the yacht, its contents, and the personal effects on board. Among other things, the policy stated that if the yacht is partially damaged as a result of a covered loss, the company would pay the reasonable costs of repair, less any deductible.

It is undisputed that the yacht's engine was damaged and the Walshes submitted a claim to AIG under the policy. It is also undisputed that AIG paid $15,975 to the Walshes on their claim and later learned that Yanmar agreed to repair and/or replace the engine without any cost to the Walshes.

Therefore, it is indisputable that the Walshes did not sustain any monetary loss as a result of the damage to the yacht's engine. Under the circumstances, the motion judge correctly determined that defendants were not entitled to retain the $15,975 that AIG had paid to them on the claim.

Defendants nevertheless argue that they are entitled to retain the monies because the amount they received from AIG and Yanmar does not "exceed" their loss. In support of this argument, defendants rely upon Federal Insurance Co. v. Engelhorn, 141 N.J. Eq. 349 (E. & A. 1948). However, defendant's reliance upon Engelhorn is misplaced.

In Engelhorn, the plaintiff insurer provided $1,800 in coverage to the defendant against the loss of a fur coat. Id. at 350. The defendant stored the coat at a department store, which valued the coat at $1,500. Id. at 350-51. The store lost the coat and the insurer paid the defendant the full amount on the policy. Id. at 350. The department store thereafter paid the defendant $1,500 for the lost coat. Ibid.

The Engelhorn court held that the insurer was entitled to reimbursement. Id. at 351. The court stated that "[w]here the insured receives the amount of his loss from the third party, he holds the sum recovered in trust for the insurer." Id. at 350. The court also stated that it "is incumbent on the insured to prove that the sum recovered does not exceed the value of the coat which she lost." Id. at 351.

Defendants maintain that Engelhorn does not require them to return the $15,975 that AIG paid them because in Engelhorn the defendant received two payments, one from the insurer and one from the department store. We disagree. In this case, the Walshes essentially received two payments for the loss. AIG paid the Walshes $15,975 to replace and install the yacht's engine, and the engine's manufacturer also paid for the repair and/or replacement of the engine.

Allowing defendants to retain AIG's payment would provide them with a double payment for a single loss. See Elberon Bathing Co. v. Ambassador Ins. Co., 77 N.J. 1, 8 (1978) (noting that an insured would receive a windfall if allowed to recover an amount that exceeds the amount of the loss). Therefore, the motion judge correctly determined that AIG was entitled to judgment on the claim for reimbursement.

Defendants additionally argue that the motion judge erred by dismissing their counterclaim, in which they alleged that AIG breached it duty of good faith and fair dealing by demanding the return of the monies paid to them on the claim. Defendants alleged that AIG "badgered" them "excessively" for return of the monies.

An insurer owes its insured a duty of good faith and fair dealing in processing a first-party claim and an insured may assert a claim for breach of that duty. Pickett v. Lloyd's, 131 N.J. 457, 462-68 (1993). However, the insured must establish that the insurer did not have a reasonable basis to deny the claim. Id. at 473. The insured also must establish that the insurer knew of or recklessly disregarded the lack of a reasonable basis for denying the claim. Ibid. (citing Bibeault v. Hanover Ins. Co., 417 A.2d 313, 319 (R.I. 1989); Anderson v. Cont'l Ins. Co., 271 N.W.2d 368, 376-77 (Wis. 1978)).

Here, the motion judge correctly determined that defendants' counterclaim failed as a matter of law. As we have explained, AIG had an absolute right to demand the return of the $15,975 it paid to the Walshes on their claim, and the Walshes wrongfully refused to return the monies.

Whether AIG's demands for repayment amounted to what defendants perceived to be "excessive badgering" is irrelevant. It is indisputable that AIG demanded the return of the monies in good faith. We therefore conclude that the motion judge correctly determined that AIG was entitled to judgment on defendants' counterclaim.

III.

In its cross-appeal, AIG argues that the motion judge erred by dismissing its claim under the Fraud Prevention Act. We agree.

A person or practitioner violates the Act if he or she "[c]onceals or knowingly fails to disclose the occurrence of an event which affects any person's initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled[.]" N.J.S.A. 17:33A-4(a)(3). In addition, a person or practitioner violates the Act if he or she "knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of this act." N.J.S.A. 17:33A-4(b).

In this case, AIG alleged that the Walshes submitted repair estimates totaling $32,000. AIG paid the claim based on those estimates. According to AIG, the Walshes failed to disclose that Yanmar paid for the repair and replacement of the engine. AIG also claims that defendants tried to conceal the fact that they had been compensated twice for the loss. AIG asserts that defendants did not disclose that they had received payment from Yanmar until they filed their answer to AIG's amended complaint.

In support of its claim, AIG cites defendants' answers to interrogatories. AIG says that defendants were asked whether they had incurred costs in connection with the repair and/or replacement of the engine, and defendants referred AIG to their estimates, thereby implying that they had incurred such costs.

AIG also says that, in response to a question as to whether the engine manufacturer or any other entity compensated them in whole or in part for the repair and/or replacement work, defendants said no. According to AIG, defendants concealed this information and did not withdraw or correct their erroneous interrogatory answers until later in the litigation.

Defendants argue, however, that AIG failed to establish a prima facie cause of action under the Fraud Prevention Act. They maintain that Yanmar paid for the repair and/or replacement of the engine after AIG paid the claim, and the policy does not specifically require them to return the monies that AIG paid on the claim.

Defendants argue that, under the circumstances, they had a good faith basis to refuse to return the insurance payment until that issue was resolved by a court. Defendants further argue that their interrogatory answers were correct and they did not conceal facts material to their right to retain the monies they received from AIG.

We are convinced that the motion judge erred by finding that AIG did not establish a prima facie case under the Act. As stated previously, the record shows that the Walshes were paid $15,975 on their claim for repair and/or replacement of the yacht's engine, and Yanmar thereafter paid these costs. The Walshes did not inform AIG that Yanmar had paid to repair or replace the damaged engine within a reasonable time after Yanmar paid those costs.

The record indicates that AIG learned of Yanmar's action as a result of its own investigation, which was apparently undertaken for the purpose of pursuing a subrogation claim against Yanmar. In our view, the facts as alleged by AIG support a claim that the Walshes acted to conceal facts material to their right to retain the insurance benefits paid to them.

As we have noted, AIG claims that defendants continued to attempt to conceal the fact that Yanmar paid to repair and/or replace the engine in this litigation by implying that they had incurred these costs and by expressly denying that Yanmar compensated them for the loss. Defendants point out, however, that they never specifically stated they incurred costs to repair or replace the engine, and Yanmar did not compensate them directly for these costs.

In any event, after the litigation began, AIG was well aware that Yanmar paid the cost to repair and/or replace the engine. Thus, the statements that defendants made during the course of this litigation are not a sufficient basis to establish a claim under the Act.

Nevertheless, the fact that the Walshes did not inform AIG that Yanmar paid to repair and/or replace the engine within a reasonable time after Yanmar paid those costs is sufficient to state a claim under the Act. Accordingly, the motion judge's order dismissing AIG's claim under the Act is reversed and the matter remanded to the trial court for further proceedings on that claim.

Affirmed on the appeal, reversed on the cross-appeal and remanded to the trial court for further proceedings. We do not retain jurisdiction.