STATE OF NEW JERSEY VS. KEEVIN DAVID (11-12-2138, ESSEX COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4516-12T1

TEMPLO FUENTE DE VIDA CORP.
and FUENTE PROPERTIES, INC.,

Plaintiffs-Appellants,

v.

NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, P.A.,

Defendant-Respondent.
___________________________________

Argued: May 21, 2014 – Decided: June 6, 2014

Before Judges Fuentes, Fasciale and Haas.

On appeal from the Superior Court of New
Jersey, Law Division, Hudson County, Docket
No. L-2975-11.

Mitchell B. Seidman argued the cause for
appellants (Seidman & Pincus, LLC,
attorneys; Mr. Seidman and Andrew J. Pincus,
on the brief).

Andrew L. Indeck argued the cause for
respondent (Weber Gallagher Simpson
Stapleton Fires and Newby, LLP, attorneys;
Mr. Indeck, of counsel and on the brief;
Jessica V. Henry, on the brief).

PER CURIAM

Plaintiffs Templo Fuente De Vida Corp. (Templo) and Fuente

Properties, Inc. (Fuente) (collectively plaintiffs) appeal from

the February 27, 2013 orders of the Law Division granting
defendant National Union Fire Insurance Company of Pittsburgh,

P.A.'s motion for summary judgment and denying plaintiffs'

motion for partial summary judgment. Plaintiffs also appeal

from the court's May 15, 2013 order denying their motion for

reconsideration. We affirm.

The facts underlying this appeal are not disputed. Templo

is a New Jersey corporation that operates a church and child day

care center. In early 2002, Templo decided to relocate and to

construct a new church and day care center and, in June 2002, it

entered into an agreement with Morris Mortgage, Inc. (MMI),

under which MMI agreed to secure the loans Templo needed to

purchase the land and complete the project. Templo created

Fuente to acquire the property.

In September 2002, plaintiffs entered into a contract to

purchase property in North Bergen for the project for

$3,200,000. They made a $320,000 down payment. MMI did not

promptly secure the necessary financing and, as a result,

plaintiffs paid the seller an additional $130,000 to extend the

mortgage commitment deadline. In February 2003, MMI alleged

that it had obtained funding for the project through Merl

Financial Group, Inc. (Merl), which agreed to provide a

$15,900,000 loan to plaintiffs in return for a $159,000

commitment fee. Merl later increased the loan commitment to

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$20,900,000 and plaintiffs paid Merl an additional $50,000

commitment fee. In September 2003, the loan commitment was

again revised so that plaintiffs could obtain "early funding of

the loan proceeds" in order to close on the property.

Plaintiff's paid Merl $209,000 as an early commitment fee.

By this time, the seller of the property had issued a "time

is of the essence" notice to plaintiffs, which obligated them to

close on the property by October 8, 2003. However, Merl advised

plaintiffs that it could not secure the necessary funds until

November 24, 2003. Plaintiffs then paid the seller $100,000 to

extend the closing deadline.

Without notifying plaintiffs, Merl assigned the loan to

Heritage Capital Corporation (Heritage Capital), which then

assigned it to Independent Capital Credit Corporation

(Independent). Both of these entities were affiliated with

Merl, although Merl told plaintiffs they were independent

companies. Neither of these companies provided the promised

loan funds to plaintiffs and, as a result, the seller refused to

extend the closing date and plaintiffs were unable to complete

the purchase. Plaintiffs asserted that they expended over

$1,000,000 in attempting to purchase the property.

On November 24, 2003, Merl transferred its interests to

First Independent Financial Group (First Independent) and Merl

3 A-4516-12T1
continued its operations under First Independent's name. In

late 2005, defendant issued an insurance policy to First

Independent for a policy period that ran from January 1, 2006

until January 1, 2007. This policy provided First Independent

with liability insurance for losses caused by the "wrongful

acts" of its directors, officers, and employees, except to the

extent that First Independent indemnified these individuals.

The term "wrongful acts" was defined in the policy as "any

breach of duty, neglect, error, misstatement, misleading

statement, omission or act by any such Insureds in their

respective capacities as such, or any matter claimed against

such Insured solely by reason of their status as directors,

officers or [e]mployees" of First Independent.

To be eligible for coverage under the policy, the losses

had to arise from a claim first made "during the Policy Period

or the Discovery Period (if applicable) and reported to the

Insurer pursuant to the terms of this policy." The notice

provisions of the policy stated that:

(a) The Company or the Insureds shall, as a
condition precedent to the obligations of
the Insurer under this policy, give written
notice to the Insurer of any Claim made
against an Insured as soon as practicable
and either:

(1) anytime during the Policy Period or
during the Discovery Period (if applicable);
or

4 A-4516-12T1
 (2) within [thirty] days after the end of
the Policy Period or the Discovery Period
(if applicable), as long as such Claim is
reported no later than [thirty] days after
the date such Claim was first made against
an Insured.

[(Emphasis added).]

On November 22, 2005, plaintiffs filed a complaint alleging

breach of contract and tort claims in the Law Division against

MMI, MMI's principal, Merl, Merl's affiliates, including

Heritage Capital, and their principals. Plaintiffs never served

this complaint. On December 2, 2005, plaintiffs filed an

amended complaint adding two John Doe defendants.

Plaintiffs served the amended complaint, and the corporate

entities and individuals allegedly covered by defendant's

insurance policy with First Independent (the insureds)

acknowledged receipt of it on February 21, 2006. However, they

did not provide notice of the complaint to defendant until

August 28, 2006.

Defendant thereafter sent the insureds three letters

disclaiming coverage. The first letter, dated September 11,

2006, advised the insureds that plaintiffs' allegations were

directed to Heritage Capital and its affiliates and principals,

and that such claims were specifically excluded from coverage

under the terms of the policy. The letter further stated:

5 A-4516-12T1
 The purpose of this correspondence is
to advise you that [the Policy] does not
provide coverage for this claim. This
coverage evaluation may be subject to
amendment and/or supplementation because the
applicability of certain exclusions, terms
and conditions cannot be fully determined
until the facts are more fully developed.
[Defendant] reserves all rights, defenses
and privileges under the Policy, at law or
in equity, including the right to disclaim
or otherwise amend or supplement our
coverage analysis as forthcoming information
dictates.

. . . .

Given our position as outlined above,
we have not addressed certain other
provisions of the Policy which may also
limit and/or preclude coverage for this
claim.

In a second disclaimer of coverage letter, issued on March

6, 2007, defendant advised the insureds that the exclusion noted

in the September 2006 letter did not apply, but that there were

other reasons for denying coverage. The letter specifically

referred to the requirement that claims must be received within

the policy period and that an insured must provide notice of the

claim to defendant "as soon as practicable." The letter also

stated:

With regard to the notice requirements of
the Policy, it appears that the claims in
the Amended Complaint were reported to
[defendant] on or about August 28, 2006 and,
therefore, the claims were reported to
[defendant] during the period of the Policy.
More than this notice is required to

6 A-4516-12T1
 establish coverage under this claims-made
Policy, however. A covered claim also must
have been "first made" against an insured
during the period of the Policy . . . .

No information has been provided to
[defendant] which evinces when written
notice of the Complaint and Amended
Complaint first was received by any of the
foregoing.

The letter concluded with the following reservation of rights:

If you have any questions concerning this
disclaimer of coverage, or if you have
additional information which you would like
to bring to the attention of [defendant]
with regard to [its] coverage position,
please do not hesitate to contact
[defendant, whose] review of this
information shall be without waiver of
[defendant's] denial of coverage and will be
made under a full reservation of
[defendant's] right to alter or amend the
within disclaimer of coverage.

Finally, on March 30, 2009, defendant sent the insureds a

third letter disclaiming coverage as to three individuals

allegedly associated with First Independent. This letter stated

that the claims were not covered because plaintiffs' amended

complaint did not set forth claims against these individuals in

their role as officers of First Independent. However, defendant

requested additional information concerning one of the officers.

On June 29, 2007, plaintiffs filed a second amended

complaint, adding additional defendants and claims. For the

first time, the complaint noted that Merl was a subsidiary and

7 A-4516-12T1
affiliate of First Independent. On October 2, 2007, plaintiffs

amended their complaint to specifically add First Independent as

a defendant.1

On June 5, 2009, plaintiffs entered into a settlement

agreement with the insureds. The parties agreed that the

insureds were liable to plaintiffs for $3,613,220.52, which

included the expenditures plaintiffs made to acquire the

property; a sum for lost appreciation of the land; and

$2,100,000 "representing the value of the child day care center

[p]laintiffs lost as a result of the" insureds' actions. The

insureds agreed to pay plaintiffs $102,750 of this liability and

assign their claims against defendant for coverage to plaintiffs

for the remaining amount due.

On June 2, 2011, plaintiffs filed a complaint against

defendant seeking a declaratory judgment granting them coverage

under the policy. On December 14, 2012, plaintiffs moved for

partial summary judgment, and defendant filed its own motion for

summary judgment on January 15, 2013. Following oral argument

on February 8, 2013, Judge Patrick Arre issued a thorough

written decision granting defendant's motion for summary

judgment and denying plaintiffs' motion.

1
Plaintiffs subsequently made additional amendments to its
complaint, which are not relevant to the issues presented in
this appeal.

8 A-4516-12T1
 The judge found that the insureds did not provide defendant

with notice of plaintiffs' claim "as soon as practicable" and,

therefore, coverage was barred under the specific terms of the

policy. The policy period ran from January 1, 2006 until

January 1, 2007. The insureds were served with plaintiffs'

first amended complaint on February 21, 2006, but they did not

provide defendant with notice of the claim until August 28,

2006, over six months after plaintiffs served them with the

complaint. No explanation for this lengthy delay was provided.

The judge noted that, in Associated Metals & Minerals Corp.

v. Dixon Chemical & Research, Inc., 82 N.J. Super. 281, 316-17

(App. Div. 1963), certif. denied, 42 N.J. 501 (1964), we held

that a delay of five and one-half months in notifying an insurer

was not "as soon as practicable" under the terms of a similar

policy and, therefore, the insurer properly denied coverage.

The judge stated:

Applying Associated Metals to the facts
of this case, the court has no choice but to
find that the assigning insureds failed to
provide written notice to [defendant] as
soon as practicable, and therefore, were not
entitled to coverage. In the present
case[,] the assigning insureds waited more
than six months from service of the First
Amended Complaint before finally putting
[defendant] on notice of the claims against
them. Additionally, as in Associated
Metals, [plaintiffs have] failed to produce
any evidence for the record explaining or
attempting to justify this delay; and none

9 A-4516-12T1
 of the assigning insureds, nor anyone from
[their law firm] have been deposed. Thus,
the undisputed facts before this court show
that an unexplained six month delay exists
between the time when the claims were first
made (February 21, 2006) and when
[defendant] was [first given] written notice
of the claims (August 28, 2006). And just
as the unexplained five and a half month
delay in Associated Metals was unreasonable,
so too is the six month delay present in
this case. Therefore, this court finds as a
matter of law [that] the assigning insureds
did not provide written notice of the claims
against them to [defendant] as soon as
practicable, and therefore, are not entitled
to coverage. Furthermore, because the
assigning insureds are not entitled to
coverage under the Policy, [plaintiffs] — as
the assignee[s] — [have] no right to
coverage either.

[(Footnote omitted).]

Judge Arre also rejected plaintiffs' argument that

defendant had to show that it was prejudiced by the insureds'

failure to notify them of the claim as soon as practicable

before denying coverage. Relying upon the Supreme Court's

decision in Zuckerman v. National Union Fire Insurance Co., 100

N.J. 304, 324 (1985), the judge held that no prejudice needed to

be shown. On February 27, 2013, the judge issued orders

granting defendant's summary judgment motion, and denying

plaintiffs' motion.

Plaintiffs moved for reconsideration, asserting that the

judge had not considered their argument that defendant should be

10 A-4516-12T1
estopped from denying coverage because it did not specifically

raise the insureds' failure to provide notice of the claim "as

soon as practicable" in its three disclaimer letters. Judge

Arre denied the motion in a thoughtful oral opinion. The judge

found that defendant "responded to the assigning insured[s']

initial claim within three weeks and has continually denied

coverage since that time. [Defendant] has never at any time

through its actions or inactions given [plaintiffs] reason to

believe that coverage existed" and, therefore, estoppel could

not be applied against defendant. This appeal followed.

On appeal, plaintiffs renew the same arguments they

unsuccessfully presented to Judge Arre. They concede there are

no disputed material facts and that, under our holding in

Associated Metals, the insureds did not provide notice of

plaintiffs' claim to defendant "as soon as practicable" under

the policy. Nevertheless, they again assert that defendant can

not rely upon this provision to deny coverage unless it can show

that it was prejudiced by the insureds' delay in providing

notice, and that defendant should be estopped from denying

coverage.

We are not persuaded by plaintiffs' arguments and affirm

substantially for the reasons expressed by Judge Arre. There

was no dispute as to any of the material facts and, therefore,

11 A-4516-12T1
this matter was clearly ripe for summary judgment. Brill v.

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

Moreover, plaintiffs concede that, while the insureds provided

notice of plaintiffs' claim to defendant within the policy

period, they did not do so "as soon as practicable" as required

by the policy. The policy defendants provided to the insureds

clearly required that notice be provided both within the policy

period and as soon as practicable. "'[W]hen the language of an

insurance policy is clear, [appellate courts] must enforce its

terms as written.'" Thompson v. James, 400 N.J. Super. 286, 291

(App. Div. 2008) (second alteration in original) (quoting

Conduit & Found. Corp. v. Hartford Cas. Ins. Co., 329 N.J.

Super. 91, 99 (App. Div.), certif. denied, 165 N.J. 135 (2000)).

Because the insureds did not meet both of the notice

requirements that were unambiguously expressed in the policy, we

conclude that coverage was properly denied to the insureds and,

by extension, to plaintiffs as their assignees.

Like the trial judge, we reject plaintiffs' argument that

defendant can only disclaim coverage if it can demonstrate that

it was prejudiced by the insureds' failure to provide notice as

soon as practicable. There are two different types of insurance

policies: "claims made" and "occurrence" policies, and they

differ based on how coverage is triggered. Under "claims made"

12 A-4516-12T1
policies, coverage depends on when the insured notified the

insurer of the claim. Med. Inter Ins. Exch. of N.J. v. Health

Care Ins. Exch., 278 N.J. Super. 513, 518, 521 (App. Div.),

certif. denied, 140 N.J. 329 (1995). Thus, the policy in this

case, which made coverage dependent on the insureds providing

defendant with notice of the claim within the policy period and

as soon as practicable, was clearly a "claims made" policy.

Under "occurrence" policies, coverage depends on when the

act or omission giving rise to the claim occurred. Id. at 518.

For occurrence policies, when the insured does not provide

timely notice, the insurer must establish prejudice in order to

avoid coverage. Cooper v. Gov't Emps. Ins. Co., 51 N.J. 86, 94

(1968). However, that is not the case for claims made policies,

like the one involved in this case. In Zuckerman, the Supreme

Court distinguished between claims made policies and occurrence

policies, holding that for claims made policies, an insurer need

not show that it was prejudiced by an insured's failure to

provide notice "as soon as practicable." Zuckerman, supra, 100

N.J. at 324. The Court stated that requiring an insurer to

make such a showing would constitute "an unbargained-for

expansion of coverage, gratis, resulting in the insurance

company's exposure to a risk substantially broader than that

expressly insured against in the policy." Ibid.; see also Med.

13 A-4516-12T1
Inter. Ins. Exch., supra, 278 N.J. Super. at 520-21 (citing

Zuckerman and indicating that the appreciable prejudice

requirement does not apply to claims made policies).

Plaintiffs ask us to distinguish Zuckerman or limit it so

that it does not reach the claims made policy involved in this

case. We decline this invitation because we discern no basis

for distinguishing the Court's clear holding in Zuckerman from

the facts in this case. Contrary to plaintiffs' contention, the

Court did not limit its holding to cases where notice first

occurred outside the policy period and it plainly stated that

"[t]he Cooper doctrine" that requires prejudice to be shown for

occurrence policies has "no application whatsoever to a 'claims

made' policy . . . ." Zuckerman, supra, 100 N.J. at 324

(emphasis added). In a subsequent decision, the Court confirmed

"the total inapplicability of the Cooper doctrine to a true

'claims made policy[.]" Sparks v. St. Paul Ins. Co., 100 N.J.

325, 342 (1985) (emphasis added). "[A]s an intermediate

appellate court, we are bound to follow and enforce the

decisions of the Supreme Court." Kaye v. Rosefielde, 432 N.J.

Super. 421, 470-71 (App. Div. 2013). We do so here and

therefore reject plaintiffs' contention that defendant had to

show prejudice in order to invoke the notification requirements

of this claims made policy.

14 A-4516-12T1
 Finally, plaintiffs showed no grounds for estopping

defendant from denying coverage based on the insureds' failure

to provide notice of the claim as soon as practicable after its

receipt. In its disclaimer letters, defendant never conceded

that the insureds met both of the notice requirements of the

policy and gave no indication whatsoever that the claim would

ever be granted. We therefore agree with Judge Arre's decision

to reject this argument for the reasons expressed in his oral

opinion denying plaintiffs' motion for reconsideration.

Affirmed.

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