The Insurable Interest TM
 
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The Insurable Interest TM
 
From The Attorneys Of Powell & Roman, LLC     
The Insurable Interest is a newsletter by the attorneys of Powell & Roman, LLC.  We specialize in Insurance Defense and Insurance Coverage law in New Jersey and New York. We strive to keep ourselves informed of new developments relevant to our practice and the needs of our clients.  This newsletter is our way of sharing this valuable information with our clients and colleagues in the insurance industry. 
It Was Tailor-Made For Our Newsletter: NJ Appellate Court Says Title Holder Has An Insurable Interest
 
Citing case law from as far back as 1871, the Appellate Division of the New Jersey Superior Court denied a challenge by the New Jersey Insurance Underwriting Association (NJIUA) to a trial court ruling compelling it to provide coverage for a first party vandalism claim.
 
The matter, entitled Balentine v. NJIUA, had its genesis in a commercial warehouse which had initially been jointly owned by two childhood friends (Balentine and Gianetta).  When one of the friends became embroiled in a personal bankruptcy (Balentine), he deeded his interest in the building to the other (Gianetta) for the sum of one dollar.  Gianetta, who had become the sole title holder of record, had essentially no active role in the management of the property.  By way of a Power of Attorney, he gave all responsibility for the premises to Balentine.  Balentine remained on the premises and continued to use it as the location of his business.    
 
The building was insured through the NJIUA under a policy that contained coverage for vandalism.  NJIUA is the assigned insurer for high-risk commercial properties in the state.  The named insured listed under the NJIUA policy was "Luke Gianetta c/o William Balentine."  The renewal applications for the policy were signed by Balentine under the terms of the Power of Attorney.
 
During the relevant coverage period, an unlawful entry occurred in the warehouse, resulting in property damage.  A claim was made under the policy and the NJUIA denied it, taking the position that Gianetta had no insurable interest in the property because he was merely Balentine's nominee. Balentine was also not listed as a named insured.
 
Balentine and Gianetta then filed suit, and the trial court granted summary judgment in their favor.  The NJIUA then appealed the trial court's ruling.  The NJIUA argued that the trial court erred by failing to analyze the relationship between Balentine and Gianetta.  It argued that careful analysis would have revealed that Gianetta's interest in the property was merely nominal and therefore, not an insurable interest.
 
The appellate court observed that most denials of coverage based on the "insurable interest" clause are directed at persons or entities that are not title holders of the property underlying the dispute.  The court explained that, historically, it was not necessary to be a title holder to have an insurable interest.  It is enough that the insured derives benefit from the property's continuing existence and that he will suffer a loss by its destruction.
 
The appellate court found that the NJIUA misread the case law it cited in support of its position.  The court explained that the case law does not support the argument that a person who holds title to property can be deemed outside of the zone of an insurable interest.  The court also noted that the plaintiffs did not misrepresent any information regarding their relationship, and that denial of the claim would constitute an improper windfall to the insurer since it collected a premium.
 
In sum, the appellate court held that a title holder of real property has an insurable interest in that property, absent some element of fraud or misrepresentation.

Click here for a complete copy of the court's opinion.

Court Declines To Allow Subrogating Carrier To Assert Broker Malpractice Claim Without An Assignment Of Rights
 
The NJ Appellate Division upheld the dismissal of a malpractice action asserted by a subrogating carrier, Hanover Insurance Company (Hanover), against a retail insurance broker.  The case, Hanover Insurance Co. a/s/o Jill Sorensen v. Guan, was successfully defended by our own Joseph M. Powell and Jose D. Roman. 
 
Hanover's insured, Jill Sorensen, was injured in an automobile accident caused by Yu Guan. Guan was driving a vehicle owned by his employer, S.H. Restaurant Equipment, Inc. (S.H.). Prior to the accident, S.H. procured insurance on its vehicle through the Mulligan Insurance Agency (Mulligan) with National Continental/Progressive Insurance Company (National). National cancelled the policy prior to the accident. Sorensen had an automobile policy at the time of the accident with Hanover.  Hanover paid Sorensen benefits totaling $193,711.23.  Hanover then asserted an insurance broker malpractice claim directly against Mulligan, arguing that Mulligan was negligent in communicating the cancellation to its client, S.H.

The case was dismissed based on the argument that Hanover did not have standing to make a direct claim against Mulligan without an assignment of rights from S.H.  The Appellate Court agreed and affirmed the dismissal.  The Court held that Mulligan owed no duty to Hanover, and that Hanover was not a third-party beneficiary of the relationship between Mulligan and S.H. The Court stressed that there was no public-policy reason to allow an insurance carrier in subrogation to assert an action under a third-party beneficiary theory, particularly where the carrier collected a premium for uninsured motorist coverage.
 
The Court's decision was significant in that it declined to expand an exception to the general rule that a third party may not pursue a direct action against an insurance broker (or carrier) without an assignment of rights or statute conferring such rights.  New Jersey Courts have carved out a narrow exception to this rule that allows innocent injured members of the public to recover against insurance brokers where their negligence results in leaving a tortfeasor without coverage.      

Click here for a complete copy of the court's opinion.
Appellate Court Rules Against Insurer On Applicability Of Pollution Exclusion In Directors & Officers Liability Policy
 
The Appellate Division of the New Jersey Superior Court recently ruled that a Pollution Exclusion in a Directors & Officers (D&O) liability policy should not be broadly interpreted to exclude securities litigation claims.  The case, Sealed Air Corp. v. Royal Indemnity Co., arose from claims against the officers of a publicly traded corporation who were accused of misstating and/or manipulating data concerning future exposure to asbestos lawsuits.  It was alleged that the misstatements caused stock price fluctuations that resulted in losses to shareholders.  Sealed Air Corp., the target of these claims, tendered its defense to Royal Indemnity Co. under a D&O policy.  Royal Indemnity Co. denied coverage, and relied in part on a Pollution Exclusion which stated as follows:
 
     A. Exclusions Applicable to All Insuring Clauses
 
     The Insurer shall not be liable for Loss resulting from any Claim made
     against any Insured Person, or with respect to Insuring Clause C, the
     Company:
 
          (6) based on, arising out of, or in any way involving:
 
               (a) the actual, alleged or threatened discharge, release, 
               escape, seepage, migration or disposal of Pollutants into or on
               real or personal property, water, or the atmosphere; or
 
               (b) any direction or request that the Company or the Insured
               Persons test for, monitor, clean up, remove, contain, treat,
               detoxify or neutralize Pollutants, or any voluntary decision
               to do so:
 
          including without limitation any Claim for financial loss to the
          Company, its security holders or its creditors based on, arising out
          of, or in any way involving the matters described in
          subparts (a) or (b) above
 
Sealed Air Corp. then filed suit against Royal Indemnity Co.  The trial court found that the Pollution Exclusion did not bar coverage to Sealed Air Corp. because the claims against it were more properly characterized as securities litigation claims.
 
Royal Indemnity Co. then filed an appeal and argued that the language "based on, arising out of, or in any way involving" made the exclusion sufficiently broad enough to apply to claims of financial loss asserted by stockholders.  The appellate court disagreed and found that there were "too many intervening events to reasonably find a required 'substantial nexus' between the pollution and the alleged securities holders' damages."  The court further commented that "Royal's interpretation of the pollution exclusion is too broad, unfair, and contrary to the reasonable expectations of the insured."  The appellate court also noted that the policy language must be changed "If insurers seek to exclude misrepresentations in securities cases that have some remote connection with pollution."
 
Both the trial court and the appellate court seem to have properly characterized the underlying claim as one arising from alleged violations of the Securities Exchange Act, and not from the type of pollution claim contemplated by a fair reading of the exclusion.  The opinion's strong language should serve as a reminder that New Jersey courts are not eager to entertain aggressive interpretations of policy exclusions.

Click here for a complete copy of the court's opinion.
 
Volume: I
Issue: VI
April 2009
 
 
In This Issue
It Was Tailor-Made For Our Newsletter: NJ Appellate Court Says Title Holder Has An Insurable Interest
Court Declines To Allow Subrogating Carrier To Assert Broker Malpractice Claim Without An Assignment Of Rights
Appellate Court Rules Against Insurer On Applicability Of Pollution Exclusion In Directors & Officers Liability Policy
 
PLEASE CONTACT US WITH YOUR QUESTIONS AND COMMENTS
 
POWELL & ROMAN, LLC
Attorneys At Law
131 White Oak Lane
Old Bridge, NJ 08857
(732) 679-3777
Fax: (732) 679-6433     www.lawppl.com
 
Joseph M. Powell, Esq.
Managing Partner

Thomas J. Mooney, Esq.
Article Contributor
 
Jose D. Roman, Esq.
Article Contributor,
Layout & Editing
 
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