JIAN SHEN, HUI ZHU, v. HYUNDAI MARINE FIRE INSURANCE COMPANY, LTD

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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1731-20

JIAN SHEN, HUI ZHU, and
J&H ELITE INVESTMENT
GROUP, LLC,

Plaintiffs-Appellants,

HYUNDAI MARINE & FIRE
INSURANCE COMPANY, LTD.,

Defendant-Respondent.
_____________________________

Submitted February 28, 2022 – Decided April 19, 2022

Before Judges Messano and Enright.

On appeal from the Superior Court of New Jersey, Law
Division, Middlesex County, Docket No. L-3099-20.

Robert W. Beattie, attorney for appellants.

Bongiorno, Montiglio, Mitchell & Palmieri, PLLC,
attorneys for respondent (William J. Mitchell, of
counsel and on the brief).

PER CURIAM
Plaintiffs Jian Shen, Hui Zhu, and J&H Elite Investment Group, LLC,

appeal the Law Division's January 27, 2021 orders: 1) granting defendant

Hyundai Marine & Fire Insurance Co., Ltd.'s motion to dismiss plaintiffs'

complaint; and 2) denying plaintiffs' cross-motion for partial summary

judgment.1 The facts are essentially undisputed.

On July 11, 2017, plaintiffs Jian Shen and Hui Zhu purchased a two-family

rental property in Perth Amboy as an investment; they took title as tenants in

common. Contemporaneously, Shen applied to defendant for a fire insurance

policy, representing that she was the sole owner of the property and confirming

the property was not "owned by a business or entity other than [an] individual."

1
Although filed as a motion to dismiss pursuant to Rule 4:6-2(e), defendant
included several documents and an affidavit from one of its underwriters, Eddy
Kim, in support of the motion. During the initial oral argument, the judge
decided to permit plaintiffs limited discovery. Defendant's third-party claims
administrator, Sedgwick, and insurance agent, C & M First Services, produced
their files. As a result, although neither the parties nor the judge formally
recognized defendant's motion as one seeking summary judgment, it was. See
R. 4:6-2(e) (noting that when evidence is considered outside the pleadings, the
court may transform a motion to dismiss for failure to state a claim into one
seeking summary judgment, and, if there is no objection, consider the motion as
such by applying the standards in Rule 4:46-1). Plaintiffs have not raised any
procedural objection either in the Law Division or before us, and because the
facts were essentially undisputed, considering defendant's motion as one seeking
summary judgment was entirely appropriate.
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After signing the application in several places as the owner of the property, Shen

also confirmed:

I have read the above application and any
attachments. I declare that the information provided in
them is true, complete[,] and correct to the best of my
knowledge and belief. This information is being
offered to the company as an inducement to issue the
policy for which I am applying.

In his affidavit supporting defendant's motion, Kim explained that "per

[defendant's] underwriting guidelines, the dwelling 'must be owned solely by

individuals' and forbids issuance to business entities." Defendant's underwriting

guidelines in the record confirm this. Defendant issued the policy with Shen as

the sole named insured.

Nearly six months later, on January 2, 2018, Shen formed J&H Elite

Investment Group, LLC (J&H), as its authorized representative; Shen and Zhu

were the only members, each holding a fifty-percent interest in the LLC. On

January 25, 2018, Shen and Zhu conveyed their interests in the Perth Amboy

property to J&H. It is undisputed that neither Shen nor Zhu ever notified

defendant of the transfer.

Shen twice renewed the policy, at no point advising defendant of the

transfer of title to J&H. On July 27, 2019, a fire occurred at a house neighboring

plaintiffs' rental property. At the time, both units in the property were rented;

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the leases only named Shen as the landlord. The fire spread to plaintiffs' house,

resulting in estimated damages exceeding $200,000 and the loss of rental

income.

Plaintiffs filed a claim with defendant, which began its investigation.

Defendant ordered a title report for the property and soon learned for the first

time that J&H was the owner. In October 2019, defendant issued a reservation

of rights under the policy and advised plaintiff there "[we]re underwriting issues

associated with th[e] loss and . . . coverage for the claim as submitted may be

questionable under the policy." In December, defendant examined Shen under

oath; she confirmed the signature on the application for the policy was hers. She

also admitted transferring ownership of the property to J&H on the advice of a

friend who convinced Shen it would help "avoid risks" and "potential lawsuits."

In January 2020, Sedgwick sent a letter on defendant's behalf formally

denying coverage and advising Shen that defendant was rescinding the insurance

policy ab initio. Defendant noted assignment of the policy to J&H without

consent was expressly prohibited by N.J.S.A. 17:36-5.19, and Condition T in

the policy. Defendant said, "The inherent risks with the corporate-owned

property never would have been accepted as an insurable risk . . . had the true

ownership been disclosed." Furthermore, because Shen transferred her

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ownership to J&H, she no longer had an "insurable interest" in the property.

Lastly, because Shen was under a continuing obligation to "fully disclose all

relevant information regarding . . . ownership of the subject property," her

failure to do so was a "material misrepresentation," and defendant would provide

no coverage for the fire loss.

Plaintiffs filed a complaint, alleging defendant breached the contract of

insurance and the implied covenant of good faith and fair dealing, and they also

sought reformation, contending defendant "violated the Plain Language Law"

leading plaintiffs to be "substantially confused about their rights." Defendant

never answered but rather moved to dismiss, as set forth above. Plaintiffs cross-

moved claiming defendant breached the insurance contract as a matter of law.

As also noted, before ruling on the motion and cross-motion, the judge

permitted plaintiffs limited discovery as to whether defendant was aware of the

transfer of title. The judge concluded defendant properly rescinded the policy

ab initio, because Shen violated the anti-assignment clause, a policy provision

required to be included in all fire insurance policies in New Jersey by statute.

N.J.S.A. 17:36-5.19. The judge also held under prevailing New Jersey law,

transferring ownership to an LLC without notifying defendant was a

misrepresentation that justified recission. Further, the judge found the Court's

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decision in Shotmeyer v. N.J. Realty Title Ins. Co., 195 N.J. 72 (2008), to be

factually similar and held defendant's denial of coverage was proper because

Shen had no insurable interest in the property after the transfer to J&H. The

judge also denied plaintiffs' cross-motion that sought partial summary judgment

on their breach of contract claim.

Before us, plaintiffs contend Shen had an "insurable interest" in the

property as fifty-percent owner of J&H, consistent with Shen's reasonable

expectations. Plaintiffs also argue that Shen never made a "material

misrepresentation" and had no duty to "advise defendant of a deed transfer after

the policy [wa]s issued," and, in any event, defendant "waived its fraud in the

application defense." Additionally, plaintiffs contend the judge erred in

dismissing their claim for reformation under the "Plain Language Law," and

their "bad faith claim." We find none of these arguments persuasive and affirm.

We review the grant of summary judgment using the same standard as the

motion judge. RSI Bank v. Providence Mut. Fire Ins. Co., 234 N.J. 459, 472

(2018) (citing Bhagat v. Bhagat, 217 N.J. 22, 38 (2014)). Under that standard,

"summary judgment will be granted when 'the competent evidential materials

submitted by the parties,' viewed in the light most favorable to the non-moving

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party, show there are no 'genuine issues of material fact' and that 'the moving

party is entitled to summary judgment as a matter of law." Premier Physician

Network, LLC v. Maro, 468 N.J. Super. 182, 192 (App. Div. 2021) (quoting

Bhagat, 217 N.J. at 38). We "afford[] no special deference to the legal

determinations of the trial court." Templo Fuente De Vida Corp. v. Nat'l Union

Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 199 (2016) (citing Manalapan Realty,

LP v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).

The interpretation of an insurance policy presents a question of law

"governed by . . . commonly recognized rules of construction." Id. at 200. "In

attempting to discern the meaning of a provision in an insurance contract, the

plain language is ordinarily the most direct route." Chubb Custom Ins. Co. v.

Prudential Ins. Co. of Am., 195 N.J. 231, 238 (2008) (citing Zacarias v. Allstate

Ins. Co., 168 N.J. 590, 594–95 (2001)). "If the policy terms are clear, courts

should interpret the policy as written and avoid writing a better insurance policy

than the one purchased." President v. Jenkins, 180 N.J. 550, 562 (2004) (citing

Gibson v. Callaghan, 158 N.J. 662, 670 (1999)). "Only where there is a genuine

ambiguity, that is, 'where the phrasing of the policy is so confusing that the

average policyholder cannot make out the boundaries of coverage,' should the

reviewing court read the policy in favor of the insured." Templo Fuente De Vida

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Corp., 224 N.J. at 200 (quoting Progressive Cas. Ins. Co. v. Hurley, 166 N.J.
260, 274 (2001)).

We apply these principles to the facts in this case.

II.

Pursuant to N.J.S.A. 17:36-5.15, "[n]o policy or contract of fire insurance

on any property" shall be issued without containing certain required statements,

including: "that its assignment shall not be valid except with the written consent

of the insurer," N.J.S.A. 17:36-5.19; and that provisions may be added or

amended only if "provided for in writing," but they cannot be "inconsistent with

the provisions of th[e] policy," N.J.S.A. 17:36-5.20.

Prior to obtaining the policy, plaintiff acknowledged and confirmed that

several conditions did not apply to the property, including that the "[p]roperty

was owned by a business or entity other than [an] individual." The policy further

provided that any change "must be in writing by [defendant] to be valid." Under

Section (T), an "[a]ssignment of th[e] policy w[ould] not be valid unless

[defendant] give[s their] written consent."

The policy also clearly stated defendant would not provide coverage to

the named insured if, "whether before or after a loss," the individual: "(1)

[i]ntentionally concealed or mispresented any material fact or circumstance; (2)

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[e]ngaged in fraudulent conduct; or (3) [m]ade false statements[] relating to

th[e] insurance." Section (P), "Cancellation," provided that defendant may

cancel a policy "if there has been a material representation of fact which if

known . . . would have caused [Hyundai] not to issue the policy, or . . . [i]f the

risk . . . changed substantially since the policy was issued." Defendant's

Underwriting Guidelines provided a "[d]welling must be owned solely by

individuals."

Plaintiffs contend there was no material misrepresentation when

defendant first issued the policy, because Shen was an owner of the property,

and the policy does not prohibit transfer to a business entity. Plaintiffs note it

is undisputed that defendant knew it was insuring a two-family rental investment

property from the start. We disagree.

"A misrepresentation, made in connection with an insurance policy, is

material if, when made, 'a reasonable insurer would have considered the

misrepresented fact relevant to its concerns and important in determining its

course of action.'" Palisades Safety & Ins. Ass'n v. Bastien, 175 N.J. 144, 148

(2003) (quoting Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 542 (1990)).

When the omission "naturally and reasonably influence[s] the judgment of the

underwriter in making the contract at all, or in estimating the degree or character

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of the risk, or in fixing the rate of the premium," the omission is material. Mass.

Mut. Life Ins. Co. v. Manzo, 122 N.J. 104, 115 (1991) (alteration in original)

(emphasis added) (quoting Kerpchak v. John Hancock Mut. Ins. Co., 97 N.J.L.
196, 198 (1922)). Simply put, defendant could not have issued this policy to

J&H because it indisputably would have violated its own underwriting

guidelines.

We are likewise not persuaded by the assertion that Shen was relieved of

her continuing obligation upon renewal to advise defendant of the transfer to

J&H. Although Shen's renewal applications are not in the record, counsel for

defendant certified that all the renewal files were produced in discovery, and

none permitted Shen to transfer title to the property to a business entity.

Plaintiffs have not asserted that Shen ever represented that the LLC now owned

the property on subsequent renewals. Moreover, the general rule is that in the

absence of a contrary renewal application, "underwriters may, in making

renewal decisions, rely on the contents of the original application." Batka v.

Liberty Mut. Fire Ins. Co., 704 F.2d 684, 687 (3d Cir. 1983) (citing U.S. Fid. &

Guar. Co. v. Fridrich, 123 N.J. Eq. 437 (Ch. 1938)).

Shen contends that her deed transfer to J&H was not an assignment

forbidden by the policy's terms without defendants' consent. She argues that as

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a fifty percent shareholder in the LLC, she retained an interest in the property

and never assigned that interest. Shen also contends that as a result, she retained

an insurable interest in the property that compels defendant to provide coverage.

Again, we disagree.

Initially, plaintiffs' assertion that the deed transfer to J&H was not an

assignment of the policy is only a bald-faced attempt to avoid recission. Since

Shen was the only insured on the policy and its renewals, if the deed transfer

was an assignment, defendant was entitled to rescind, because it has long been

accepted that "insurance is a contract of indemnity, personal to the party to

whom it is issued." Kase v. Hartford Fire Ins. Co., 58 N.J.L. 34, 36 (Sup. Ct.

1895). Therefore, when the language in the policy requires consent, courts

typically uphold the contractual clause and determine the policy is void, and not

merely a breach of contract when an assignment is made without consent. Owen

v. CNA Ins./Cont'l Cas. Co., 167 N.J. 450, 460–61 (2001); see also Elat, Inc. v.

Aetna Cas. & Surety Co., 280 N.J. Super. 62, 66 (App. Div. 1995) (noting

"[w]here the policy prohibits an assignment, an assignment without the insurer's

consent invalidates it") (quoting Flint Frozen Foods, Inc. v. Firemen's Ins. Co.

of Newark, 12 N.J. Super. 396, 400–01 (Law Div. 1951)).

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However, even if the deed transfer to the LLC was not a de facto

assignment of the policy, certainly J&H and Zhu, who were never named

insureds, were not entitled to coverage. Shen argues her fifty-percent interest

in J&H translated into an insurable interest in the property under defendant's

policy. The motion judge relied upon the Court's decision in Shotmeyer, and

we agree it is persuasive and serves as reason to reject Shen's independent claim

for coverage.

In Shotmeyer, two brothers created a partnership, purchased a twenty-

four-acre farm, and obtained title insurance from the defendant title insurance

company. 195 N.J. at 78. The policy named each brother as "[p]artner[]," in

the named general partnership, as insureds. Ibid. Ten years later, the brothers

formed a limited partnership, with both brothers as individual limited

partnership, and a corporation owned jointly and exclusively by the brothers as

the general partner. Ibid. Afterwards, the brothers learned of two judgments

that declared half the farm's acreage belonged to a neighbor and not the

partnership. Id. at 79. They filed a claim against the defendant title insurance

company, which denied coverage based on the lack of an insurable interest. Id.

at 79–80.

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In reversing the trial court's decision, we concluded there was never a

transfer of the brothers' beneficial interests in the property, and the limited

partnership was "not a stranger to the title insurance policy." Id. at 80. We

determined that the corporate form of ownership should be disregarded "in the

interests of justice," since the brothers' transfer "did nothing to increase the risk

to the insurer." Ibid.

The Court reversed, noting the transfer of title in the property to a limited

partnership was a "deliberate and voluntary conveyance to a separate legal

entity," and the property belonged to the limited partnership and not the brothers.

Id. at 81. The Court noted that the transfer was made to "provide[] particular

business and personal advantages to [the brothers]," including "shield[ing them]

from personal liability." Id. at 85–86. At the time of the loss, "[t]he brothers

had no ownership or insurable interest . . . and therefore [could not] recover

under the terms of the . . . title policy." Id. at 85 (emphasis added).

We recognize that "[a]lthough it is not necessary to have legal or equitable

title to have an insurable interest in real estate, it is clear that the interest in the

property must have some pecuniary value and that the party who seeks to recover

bears the burden of proving that value." Arthur Andersen, LLP v. Fed. Ins. Co.,

416 N.J. Super. 334, 350 (App. Div. 2010). See, e.g., Miller v. N.J. Ins.

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Underwriting Ass'n, 82 N.J. 594, 602–03 (1980) (former owners and mortgagees

of properties upon which the city obtained title through foreclosure proceedings

for nonpayment of real estate taxes had insurable interest (citing P.R. DeBellis

v. Lumbermen's Mut. Cas. Co., 77 N.J. 428 (1978))); Hyman v. Sun Ins. Co., 70 N.J. Super. 96, 99–101 (App. Div. 1961) (assignee of mortgage payment had

insurable interest in mortgagee's property in the amount of the payment due).

However, upon transferring her interest in the property as a tenant in common

to the LLC, Shen no longer had a separate interest in the property. See, e.g.,

N.J.S.A. 42:2C-27(a) (providing that a member of an LLC is not agent of an

LLC "solely by reason of being a member"); N.J.S.A. 42:2C-28(a)(2)(a)

(permitting an LLC to execute a "statement of authority" permitting "any

position that exists in or with respect to the company" to transfer real property

held by the LLC).

Shen contends, however, that she reasonably expected her continued

interest in the LLC meant defendant's policy would provide coverage at least for

her share of the total fire damages. However, in Shotmeyer, when addressing

whether the brothers maintained their status as "insureds" under the policy

issued prior to their transfer of the property to the limited partnership, the Court

clearly stated, "Use of a 'beneficial interest' test to determine the owner of a

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policy, however, may allow a party to 'create' ambiguity in an otherwise clear

situation." 195 N.J. at 86. Shen was the only insured under the policy, and,

upon her transfer to the LLC, she no longer maintained her insurable interest.

Plaintiffs' final two points require little discussion. Plaintiffs claim

defendant waived the right of recission because it never established that it

returned plaintiffs' premiums paid since the policy's inception. The record

contains a letter from defendant including a check for the returned premiums.

Plaintiffs claim the letter is hearsay. However, Shen's certification does not say

she never received the monies; only that she could not recall ever receiving the

monies. Plaintiffs' contention that this alleged factual dispute equates to a

waiver is not worthy of discussion in a written opinion. R. 2:11-3(e)(1)(E).

Finally, plaintiffs argue their "bad faith" and reformation claims should

not have been dismissed on summary judgment. However, there is no factual

support in the record that defendant acted in bad faith in the investigation of the

claim or its denial. And, while "contracts where there is a mutual mistake

common to both parties may be reformed in equity," Sav. Inv. & Trust Co. v.

Conn. Mut. Life Ins. Co., 17 N.J. Super. 50, 55 (App. Div. 1951), there was no

mutual mistake in this case; only Shen's unilateral conduct resulted in recission

of the policy. See Millhurst Milling & Drying Co. v. Auto. Ins. Co., 31 N.J.

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15 Super. 424, 434 (App. Div. 1954) ("Reformation on the ground of mistake is not

granted in equity where the mistake is the result of the complaining party's own

negligence.").

Affirmed.

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