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January 30, 2017


Argued December 13, 2016 Decided

Before Judges Koblitz and Rothstadt.

On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-3218-14.

Edward S. Seradzky argued the cause for appellants.

Abraham E. Havkins argued the cause for respondents (Havkins Rosenfeld Ritzert & Varriale, LLP, attorneys; Mr. Havkins, on the brief).


In this declaratory judgment action, plaintiffs Carlo Megna, Frances Megna, and Lorel Realty d/b/a Megna Bathroom & Tile Imports, Inc., appeal from the Law Division's order granting summary judgment in favor of plaintiffs' property insurance carrier, defendants Leading Insurance Services, Inc. and Leading Insurance Group Insurance Co., Ltd. The court dismissed plaintiffs' claims that defendants failed to provide coverage for a fire loss that occurred after plaintiffs' policy lapsed due to nonpayment of their insurance premiums. Plaintiffs argued on summary judgment that because they made premium payments after the date of the loss, the doctrines of waiver and estoppel prevented defendants from rejecting their claim. The motion judge rejected these arguments finding that at the time of the loss there was no coverage.

On appeal, plaintiffs advance essentially the same argument, stating that "defendant[s] waived the cancellation of [its] insurance policy by accepting and retaining the plaintiffs' premium payments." We disagree and affirm.

The material facts were undisputed and can be summarized from the motion record as follows. Defendants issued a commercial insurance policy to plaintiffs for the period beginning February 13, 2013 and ending February 13, 2014, which included hazard insurance for plaintiffs' locations, including 215 Bloomfield Avenue, Bloomfield (the Property). According to the policy, defendants retained the right to cancel it for nonpayment of premiums if defendants sent written notice to the insured at least ten days prior to the effective cancellation date, but the cancellation would not become "effective if payment of the amount is made before the effective [cancellation] date . . . ."

On May 6, 2013, defendants sent plaintiffs an invoice for the premium installment payment due May 28, 2013. Plaintiffs did not make that payment and on May 31, 2013, defendants sent plaintiffs a notice of cancellation for nonpayment that stated the cancellation of the policy would be effective June 13, 2013. The notice also stated that "[c]ancellation [of the policy] can be avoided by paying the premium prior to the cancellation date." Defendants also sent the cancellation notice to plaintiffs' insurance broker. Plaintiffs did not pay the premium and on June 13, 2013, defendants issued a cancellation endorsement indicating, "The policy has been cancelled pro-rata effective 6/13/2013 for the following reason: non-payment."

One day after the policy lapsed, on June 14, 2013, a fire caused damage to the Property. At 4:05 p.m. on that day, while the fire was burning and being attended to by the local fire department, plaintiffs made an electronic payment to defendants through their web-based payment portal.1

Three days later, defendants received notice from plaintiffs' insurance broker that there had been a fire at the Property on June 14. On June 18, 2013, plaintiffs made an additional electronic payment through the same web-based payment portal system. Defendants informed plaintiffs' insurance broker on June 19, 2013, that they would not reinstate the policy unless plaintiffs provided defendants with a statement of no losses from the June 13 cancellation date through the present date. The statement of no losses needed to be returned by June 24, 2013, in order for the policy to be honored. Plaintiffs did not provide the required statement and on July 16, 2013, their insurance broker informed plaintiffs that the policy "was cancelled for non-payment effective 6/13/2013."

On July 28, 2013, defendants issued plaintiffs a refund of all post-cancellation premium installment payments made through the web-based portal. Defendants, however, also sent plaintiffs an invoice on August 27, 2013, for the outstanding premium payments.

In response to plaintiffs' demand for coverage of their losses arising from the June 14 fire, defendants wrote to plaintiffs on August 29, 2013, advising that plaintiffs' "policy was cancelled on June 13, 2013 at 12:01 AM for Nonpayment of Premium" and stating that there was "no coverage available to" plaintiffs for the fire. Plaintiffs responded by forwarding a payment to defendants on September 13, 2013, for the amount stated in the August invoice, which defendants then refunded on or about October 18, 2013. In a letter dated October 31, 2013, plaintiffs' attorney returned defendants' July and October refund checks and wrote to defendants challenging their decision to cancel plaintiffs' policy and deny coverage for the June 14 loss. When counsel did not receive a response to his letter, he wrote again on December 9, 2013, demanding that defendants cover plaintiffs' loss. Defendants did not respond and plaintiffs instituted this action seeking a declaration that their policy was "in effect on the date of Plaintiff's loss," payment of their claim and counsel fees.

Defendants filed a motion for summary judgment, seeking a determination that plaintiffs' policy had been properly cancelled and that plaintiffs were not entitled to coverage for their June 14 loss, regardless of plaintiffs' attempts to reinstate their policy by making payments after the policy's cancellation and their loss. Plaintiffs cross-moved for summary judgment arguing that defendants waived the cancellation by accepting premium payments after the loss and defendants should be compelled to cover plaintiffs' losses for the fire damage.

The motion judge granted defendants' motion for summary judgment and denied plaintiffs', reasoning the policy was not in effect at the time of the loss, there was a valid cancellation of the insurance policy prior to the loss, and the doctrines of estoppel and waiver did not apply. This appeal followed.

Our review of a trial court's summary judgment order is de novo, employing the same Brill2 standard used by the trial court, and viewing the motion evidence in the light most favorable to plaintiff. See R. 4:46-2(c); Templo Fuente De Vida Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 199 (2016). After reviewing the record in light of those principles, we conclude that, even giving plaintiffs the benefit of all favorable inferences from the evidence, no rational fact-finder would conclude that plaintiffs' policy was not properly cancelled and that they were entitled to coverage for the June 14 loss. See Brill, supra, 142 N.J. at 540-41.

Plaintiffs' arguments relating to waiver and estoppel do not lead us to a contrary result. A "waiver" occurs where there is evidence of a "voluntary and intentional relinquishment of a known right." Knorr v. Smeal, 178 N.J. 169, 177 (2003). In order for a party "[t]o establish equitable estoppel, [they] must prove that an opposing party 'engaged in conduct, either intentionally or under circumstances that induced reliance, and that [they] acted or changed their position to their detriment.'" Hirsch v. Amper Fin. Servs., LLC, 215 N.J. 174, 189 (2013) (third alteration in original) (quoting Knorr, supra, 178 N.J. at 178). Stated differently and unlike waiver, estoppel requires detrimental reliance. Id. at 189.

An insurer may, by its retention of funds paid by an insured, waive its right to cancellation, or be estopped from asserting that right, "if the conduct of the insurer after information of fraud or breach of contract is such as to justify an inference of affirmation rather than rescission of the contract." Iafelice ex rel. Wright v. Arpino, 319 N.J. Super. 581, 588 (App. Div. 1999) (quoting Bonnet v. Stewart, 68 N.J. 287, 294 (1975), certif. denied, 77 N.J. 468 (1978)). "In the typical case, if a fact-finder could reasonably draw either inference, i.e., rescission or affirmation, the issue is one of fact for the jury." Ibid. (citing Bonnet, supra, 68 N.J. at 294).

New Jersey courts have only recognized waiver in cases where the insurer either retained a late premium payment or engaged in some other course of conduct that clearly manifested an intent on the part of the insurer to continue coverage. See, e.g., Bonnet, supra, 68 N.J. at 296 (material issue of fact as to whether insurer waived its right to cancel coverage for non-payment of premium after it retained the late premium payment); Bruni v. Prudential Ins. Co. of Am., 51 N.J. 408, 409 (1968) (material issue of fact as to whether insurer had any intention of canceling the policy after it retained the insured's late premium payment and sent an agent to the insured's home to obtain the additional premium it needed for reinstatement); Allen v. Metro. Life Ins. Co., 44 N.J. 294, 296-98 (1965) (insurer could not cancel policy after it accepted payment of first premium and told insured there would be immediate coverage upon payment); Merchants Indem. Corp. v. Eggleston, 37 N.J. 114, 130-32 (1962) (insurer affirmed policy because it continued to represent an insured in a lawsuit even after it found out coverage was fraudulently obtained); Barbera v. John Hancock Mut. Life Ins. Co., 127 N.J.L. 122, 125 (Sup. Ct. 1941) (fact question as to whether insurer's "conscious and unconditional" retention of the premiums until after the death of the insured manifested an intent to keep the policy in force); Iafelice, supra, 319 N.J. Super. at 589 (insurer waived its right to cancel coverage after it gave the insured an opportunity to correct a faulty check); Kende Leasing Corp. v. A.I. Credit Corp., 217 N.J. Super. 101, 115 (App. Div.), certif. denied, 108 N.J. 664 (1987) (delay in returning the unearned premiums raises a question of estoppel); Englishtown Auction Sales, Inc. v. Mount Vernon Fire Ins. Co., 112 N.J. Super. 332, 335-36 (App. Div. 1970) (insurer's receipt and retention of insured's partial payment constituted a waiver of the previously issued cancellation notice).

We discern, however, no evidence from which it could be inferred that defendants intended to reinstate the policy by retaining plaintiffs' post-cancellation payments or otherwise. The mere fact that plaintiffs tendered funds through the payment portal did not give rise to that inference, especially in light of defendants immediately conditioning reinstatement upon their receipt of a statement that there were no losses after the policy was cancelled, their return of premiums paid when that statement was not provided, and their repeated return of funds tendered by plaintiffs. Defendants' mere issuance of invoices, plaintiffs' payments, and defendants' timely return of those funds did not alter the fact that defendants never relinquished their right to cancel nor did plaintiffs detrimentally rely on defendants' acceptance of late premiums after the fire occurred.

Unlike the insured in Englishtown Auction Sales, Inc., supra, 112 N.J. Super. at 335-36, which plaintiffs rely upon, plaintiffs did not make any payments prior to the policy's lapse and cancellation. Rather, they only tendered payment after the lapse and during their loss on June 14. Under these circumstances, plaintiffs failed to establish either a waiver of defendants' right to cancel or a reason we should find they were estopped from doing so. Defendants never accepted and retained a late payment after issuance of a termination notice,3 and there is nothing in the course of their conduct throughout that would support a finding that they waived their right to cancel the policy for late payment after issuance of a termination notice. Accordingly, no material fact was in dispute on the waiver issue, and defendants were entitled to summary judgment determining that because they effectively cancelled the policy prior to the fire, they were not obligated to cover plaintiffs' loss.


1 An accounting manager for defendants explained that the electronic portal system was not equipped to distinguish between policies that were in place, had been cancelled, or were not renewed. Therefore, before defendants mark an account as a "final cancellation" internally, a customer may make payments through the electronic portal system.

2 Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

3 At oral argument, defendants' attorney confirmed they are holding the refund checks that plaintiffs' attorney returned to defendants pending the outcome of this appeal so as to avoid the continuing sending and returning of the refund checks. Those checks should now be returned.

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