United States Fire Insurance Company v. MacHane of Richmond, LLC ( 2024 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1918-22
UNITED STATES FIRE
INSURANCE COMPANY,
Plaintiff-Respondent,
v.
MACHANE OF RICHMOND,
LLC,
Defendant.
__________________________
MACHANE OF RICHMOND,
LLC,
Defendant/Third
Party-Plaintiff,
v.
GROSS & CO., LLC,
Third-Party Defendant.
__________________________
ELIYAHU KORENFELD,
Intervenor-Appellant.
__________________________
Argued October 17, 2024 – Decided November 1, 2024
Before Judges Natali and Vinci.
On appeal from the Superior Court of New Jersey, Law
Division, Ocean County, Docket No. L-1465-20.
Bharati O. Sharma argued the cause for appellant
(Weitz and Luxenberg, PC, attorneys; Bharati O.
Sharma, on the briefs).
Kristin V. Gallagher argued the cause for respondent
(Kennedys CMK, LLP, attorneys; Kristin V. Gallagher
and Katrine L. Hyde, of counsel and on the brief).
PER CURIAM
Intervenor Eliyahu Korenfeld appeals from the October 21, 2022 order
granting summary judgment in favor of plaintiff United States Fire Insurance
Company (U.S. Fire) rescinding a policy of insurance it issued to defendant
Machane of Richmond, LLC (Machane).1 We affirm.
I.
1
Machane is not participating in this appeal and did not file a brief. After the
court granted summary judgment, Machane and third-party defendant Gross &
Co., LLC (Gross) settled the third-party claims and filed a stipulation of
dismissal with prejudice. On January 20, 2022, the court entered an order
certifying the October 21, 2022 order as a final judgment.
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In May 2019, Alexander and Sara Guttman 2 formed Machane for the sole
purpose of operating a summer camp for high school boys in Virginia from
August 6, to August 26, 2019. To meet its transportation needs, including
transporting campers to and from the New Jersey/New York area, Machane
intended to rent "larger vans, [twelve] to [fifteen] seaters." Machane did not
own any vehicles and relied exclusively on rental vehicles for its operations.
On May 30, 2019, Alexander contacted Gross to obtain "general liability"
insurance for the camp, as well as "extra insurance for [the] vans." Alexander
was familiar with Gross because he previously worked for a similar camp that
obtained its insurance through Gross. Alexander advised Devora Rosenthal, an
employee of Gross and the "agent [he] was working with . . . getting the
insurance," that he was planning to rent vans to transport campers to and from
activities and events. According to Alexander, Rosenthal advised him that
"there is this extra van policy" he should obtain.
On June 28, Rosenthal emailed Alexander and explained coverage for
"[h]ired & [n]on[-o]wned auto" (HNOA) liability could be added to a general
liability policy to afford coverage for "bodily injury and property damage caused
2
Because Alexander and Sara share a common surname, we refer to Alexander
using his first name. By doing so, we intend no disrespect.
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by a vehicle you hire (including rented or borrowed vehicles) or caused by non-
owned vehicles (vehicles owned by others, including vehicles owned by
[Machane's] employees)."
On July 9, Alexander contacted Hertz Entertainment Services (Hertz) and
arranged for the rental of four "fifteen[-]seater [Ford] [t]ransit vans" from
"Aug[ust] 2[] for the month at the [c]amp monthly rate." On July 10, Hertz
responded with the reservation number for the vans.
On July 30, Gross, on behalf of Machane, submitted a "[s]peciality
[i]nsurance coverage for [s]ports [c]amps, [c]linics[,] and [c]onferences"
application to Francis L. Dean & Associates, LLC (FL Dean), the national
program administrator for U.S. Fire's sports and entertainment insurance
program. The application form noted "$1,000,000 [HNOA] liability coverage"
was "available but subject to additional underwriting[.]" Machane requested
HNOA coverage with a limit of $1,000,000.
In its role as national program administrator, FL Dean underwrote, quoted,
bound, issued, and endorsed policies pursuant to underwriting guidelines
established by U.S. Fire. On July 31, in response to Machane's application,
Kristin Hockemeyer, then an employee of FL Dean, advised Gross that "to
receive a quotation for the $1[,000,000] HNOA" coverage, Machane would need
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to complete a supplemental application, which she provided to Gross as an email
attachment. That same day, Rosenthal emailed the supplemental application to
Machane to complete "so [they could] proceed with [Machane's] quote" for
HNOA coverage. The supplemental application consisted of six questions with
subparts on a single page. Under the heading "[h]ired [a]uto [l]iability," the
form asked:
4. Do you hire or rent vehicles during your
fair/festival/event? □ Yes □ No
If yes, please describe vehicle types, estimated number,
duration[,] and usage:
....
If yes to [number] 4, are any of these vehicles [twelve]
or [fifteen]-passenger vans?
□ Yes (How many? _____)
□ No
On August 1, Alexander completed and signed the supplemental
application with the express intention of securing insurance for the fifteen-seat
vans Machane rented from Hertz. The same day, Gross returned the
supplemental application to FL Dean. In response to the first part of question
four, Machane checked the box "[n]o." It responded "N/A" to the second part
of the question, which requested a description of the vehicle types, estimated
number, duration, and usage. Because Machane answered "no" to the first part
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of question four, it did not answer the final part of the question that asked, "are
any of these vehicles [twelve] or [fifteen]-passenger vans?"
On August 6, FL Dean provided Gross with a price quotation that included
premium quotes for accident liability, general liability, and optional coverages
including HNOA coverage. Under the HNOA coverage options section of the
quote, it stated, "[twelve] and [fifteen plus] [p]assenger [v]ans are excluded."
The same day, Gross requested that FL Dean bind coverage pursuant to the
quote.
Based on the information provided to FL Dean by Gross, U.S. Fire issued
certificate number USP303011 to Machane as a named insured member under a
master policy of insurance issued to the Sports and Recreation Providers
Association Purchasing Group for the effective period August 6, 2019, to August
28, 2019 (the policy). The policy afforded general liability coverage and HNOA
liability coverage subject to a covered autos liability limit of $1,000,000.
Absent the additional HNOA coverage extension, the policy excluded coverage
for liability "arising out of the ownership, maintenance, use or entrustment to
others of any . . . 'auto' . . . owned or operated by or rented or loaned to any
insured."
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On August 15, while being operated by a Machane employee, one of the
fifteen-passenger vans rented by Machane was involved in a single-vehicle
accident in North Carolina. Multiple campers who were in the van, including
Korenfeld, allege injuries caused by the accident and asserted claims against
Machane.
On June 22, 2020, U.S. Fire filed its complaint in this action seeking a
declaration that the policy be rescinded due to Machane's material
misrepresentation made in connection with its application for HNOA coverage.
On June 23, 2020, Korenfeld filed a complaint against Machane in the United
States District Court for the District of New Jersey seeking damages for injuries
sustained in the accident. On February 25, 2021, the court granted Korenfeld's
motion to intervene in this action.
After the close of discovery, U.S. Fire moved for summary judgment. In
support of its motion, U.S. Fire relied on the deposition testimony and affidavit
of Michael Dean, one of the owners of FL Dean. According to Dean, effective
February 1, 2019, U.S. Fire and FL Dean entered into a program administrator
agreement under which FL Dean underwrites, binds, and issues policies on
behalf of U.S. Fire pursuant to underwriting guidelines established by U.S. Fire.
The agreement provides that FL Dean "cannot solicit, underwrite, quote, bind,
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[or] issue . . . policies or certificates which are not in accordance with the
express terms of the . . . [u]nderwriting [g]uidelines."
The U.S. Fire underwriting guidelines provide "[twelve] or [fifteen] plus
passenger vans are ineligible for [the HNOA coverage] program." According to
Dean, FL Dean relied on the information provided by Gross when underwriting
the policy and was never advised Machane intended to use twelve or fifteen
passenger rental vans during the camp. Dean continued, "[h]ad FL Dean been
informed of Machane's intention to use [twelve] or [fifteen]-passenger rental
vans, FL Dean would not have written [HNOA] coverage for Machane" because
"FL Dean was not permitted" to do so "pursuant to the terms of [FL Dean's
agreement with U.S. Fire] and the [u]nderwriting [g]uidelines."
On September 23, 2022, the court heard oral argument on U.S. Fire's
motion. The court rejected defendants' contention that question four on the
supplemental application was ambiguous. It found the question "is not
ambiguous, it is plain on its face." The court explained, "[t]he question was
clear. It was[ not] a trick question. It could[ not] be interpreted in . . . different
ways. The question was[,] do you rent automobiles and [Machane] said no."
The court determined supplemental briefing was required on the question of
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whether U.S. Fire was entitled to rescission if Machane's response to question
four was inaccurate but was not made with an intent to defraud U.S. Fire.
On October 21, 2022, after supplemental briefing was completed, the
court again heard oral argument and granted U.S. Fire's motion in an oral
opinion. The court found Machane's answer to question four "was inaccurate,
and U.S. Fire had [the] right to rely upon the accuracy of the information
provided. They did so to their detriment." It also found "the questions were
specific. They were tailored to this situation. They asked the insured. It was
responded to in the negative." As a result of Machane's material
misrepresentation, the court rescinded the policy. The court rejected as
inequitable defendants' request that it exercise its discretion to reform the policy
to include a $500,000 limit of liability rather than rescind the policy.
On appeal, Korenfeld contends the court erred in finding question four on
the supplemental application was unambiguous. He also argues the court erred
by granting summary judgment because: (1) U.S. Fire failed to establish a
material misrepresentation and reliance by its underwriter; (2) the policy
requires a finding of intentional fraud to void the policy; (3) an exclusion in an
automobile policy must appear on the declarations page to be effective; and (4)
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public policy favors the assurance of financial protection for innocent victims
of automobile accidents. 3
II.
We affirm substantially for the reasons set forth in the court's September
23, and October 21, 2022 oral opinions. We add the following comments.
This court reviews a trial court's grant or denial of a motion for summary
judgment de novo, applying the same standard used by the trial court. Samolyk
v. Berthe, 251 N.J. 73, 78 (2022). We consider "whether the competent
evidential materials presented, when viewed in the light most favorable to the
non-moving party, are sufficient to permit a rational factfinder to resolve the
alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life
Ins. Co. of Am., 142 N.J. 520, 540 (1995).
Likewise, when the issue on appeal involves the trial judge's interpretation
of the law, we engage in a de novo review. See Finderne Mgmt. Co. v. Barrett,
402 N.J. Super. 546, 573 (App. Div. 2008) (noting that an appellate court does
3
U.S. Fire argues Korenfeld does not have standing to pursue this appeal. U.S.
Fire did not cross-appeal from the February 25, 2021 order granting Korenfeld's
motion to intervene and that argument is waived. State v. Walker, 385 N.J.
Super. 388, 410 (App. Div. 2006). "[O]ur courts routinely recognize that a
successful intervenor is a party to the litigation." N.J. Dep't of Env't Prot. v.
Exxon Mobil Corp., 453 N.J. Super. 272, 289 (App. Div. 2018). We, therefore,
decline to dismiss the appeal for lack of standing.
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not "owe any special deference to a trial court's legal conclusion"); see also
Shaler v. Toms River Obstetrics & Gynecology Assocs., 383 N.J. Super. 650,
657 (App. Div. 2006). "A trial court's interpretation of the law and the legal
consequences that flow from established facts are not entitled to any special
deference." Manalapan Realty, L.P. v. Twp. Comm. of Tp. of Manalapan, 140
N.J. 366, 378 (1995).
III.
We are satisfied the court correctly determined question four on the
supplemental application is not ambiguous. "The basic principles of
construction of [an insurance policy] are as relevant and applicable as construing
pertinent provisions of an application . . . ." Fellippello v. Allstate Ins., 172 N.J.
Super. 249, 257 (App. Div. 1979). Because we review the interpretation of an
insurance policy de novo, we too review interpretation of an insurance
application de novo. See Est. of Pickett v. Moore's Lounge, 464 N.J. Super.
549, 554-55 (App. Div. 2020) (citing Abboud v. Nat'l Union Fire Ins. Co. of
Pittsburgh, 450 N.J. Super. 400, 406 (App. Div. 2017)).
A court interpreting an insurance policy "must start with the plain
language of the policy." Hardy ex rel. Dowdell v. Abdul-Matin, 198 N.J. 95,
101 (2009). However, "insurance policies are subject to special rules of
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interpretation." Botti v. CNA Ins., 361 N.J. Super. 217, 224 (App. Div. 2003)
(citing Araya v. Farm Fam. Cas. Ins., 353 N.J. Super. 203, 206 (App. Div.
2002)). "[A]ny ambiguity in an insurance contract must be resolved against the
insurer and in favor of coverage." Ibid. (citing Cruz-Mendez v. ISU/Ins. Servs.
of S.F., 156 N.J. 556, 571 (1999)). "[I]f there is no ambiguity present, an
insurance contract will be enforced as written." Ibid.The plain language of the supplemental application asked Machane if it
hired or rented vehicles during its event. As the court correctly found, the
question was "plain on its face," it "was clear," and "could[ not] be interpreted
in . . . different ways." There is no reasonable dispute that Alexander
understood he rented vans from Hertz during the camp. When he contacted
Hertz to rent the vans, he stated the rental would be from "Aug[ust] 2[] for the
month at the [c]amp monthly rate." He also knew the event referenced in the
supplemental application was the camp. Indeed, Machane was formed for the
sole purpose of operating the camp; there was no other event.
We are unpersuaded by Korenfeld's argument that the question is
ambiguous because Alexander subjectively believed the question applied only
to "hired" vehicles and did not apply to him because he rented the vans before
the camp started. The contention that Alexander did not understand the question
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referred to rented vans is not supportable. The question specifically asked
whether Machane hired or rented vehicles. The question cannot reasonably be
interpreted to apply only to hired vehicles. In addition, before Alexander
completed the application, Gross advised him that HNOA coverage applies to
"bodily injury and property damage caused by a vehicle you hire (including
rented or borrowed vehicles)."
Alexander also understood that he was applying for HNOA coverage for
the vans Machane previously rented from Hertz. That was the very reason Gross
advised him to obtain HNOA coverage. He was applying for the HNOA
coverage and completing the supplemental application specifically to obtain
insurance coverage for the rented vans. The claim that Alexander subjectively
believed question four did not apply to him because he rented the vans before
the camp started is neither reasonable nor plausible. We conclude, based on the
plain language of the supplemental application, the court correctly found
question four is not ambiguous.
IV.
We also conclude the court correctly found U.S. Fire is entitled to
rescission of the policy based on the doctrine of equitable fraud. To establish a
claim for rescission based on material misrepresentation in an insurance
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application, an insurer need only prove equitable fraud, not legal fraud. Ledley
v. William Penn Life Ins., 138 N.J. 627, 635 (1995). A finding of equitable
fraud requires proof of three elements: "'(1) a material misrepresentation of a
presently existing or past fact; (2) the maker's intent that the other party rely on
it; and (3) detrimental reliance by the other party.'" First Am. Title Ins. Co. v.
Lawson, 177 N.J. 125, 136-37 (2003) (quoting Liebling v. Garden State Indem.,
337 N.J. Super. 447, 453 (App. Div. 2001)). The elements of a claim of
equitable fraud must be established by clear and convincing evidence. Daibo v.
Kirsch, 316 N.J. Super. 580, 588 (App. Div. 1998).
Unlike legal fraud, "[t]he elements of scienter, that is, knowledge of the
falsity and an intention to obtain an undue advantage therefrom, are not essential
if plaintiff seeks to prove that a misrepresentation constituted only equitable
fraud." Jewish Ctr. of Sussex Cty. v. Whale, 86 N.J. 619, 625 (1981) (citations
omitted). "In other words, a party seeking rescission based on equitable fraud
need not prove 'knowledge of the falsity and an intention to obtain an undue
advantage . . . .'" Liebling, 337 N.J. Super. at 453 (quoting Jewish Ctr. of
Sussex Cty., 86 N.J. at 625).
A misrepresentation is material if, had it been revealed, the insurer would
either not have issued the policy or would have insured only at a higher
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premium. Palisades Safety & Ins. v. Bastien, 175 N.J. 144, 148-49 (2003). A
material misrepresentation is one that "'naturally and reasonably influence[d]
the judgment of the underwriter in making the contract at all, or in estimating
the degree or character of the risk, or in fixing the rate of premium." Mass. Mut.
Ins. v. Manzo, 122 N.J. 104, 115 (1991) (alteration in original) (quoting
Kerpchak v. John Hancock Mut. Ins., 97 N.J.L. 196, 198 (1922)).
Where an objective question is posed on an application, "[e]ven an
innocent misrepresentation can constitute equitable fraud justifying rescission."
Ledley, 138 N.J. at 635. "Objective questions call for information within the
applicant's knowledge . . . ." Id. at 636.
"The law is well settled that equitable fraud provides a basis for a party to
rescind a contract." First Am. Title, 177 N.J. at 136 (citing Jewish Ctr., 86 N.J.
at 626); Ledley, 138 N.J. at 637-39. "Rescission voids the contract ab initio,
meaning that it is considered 'null from the beginning' and treated as if it does
not exist for any purpose." First Am. Title, 177 N.J. at 136-37 (quoting Black's
Law Dictionary 1568 (7th ed. 1999)).
The court's finding that U.S. Fire is entitled to rescission based on
equitable fraud is amply supported by clear and convincing evidence in the
record. Korenfeld concedes Machane provided inaccurate information in
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response to question four of the supplemental application. That question was
objective because it called for information within the applicant's knowledge. By
responding that it did not rent vans during its event, Machane misrepresented a
presently existing or past fact.
U.S. Fire also established the misrepresentation was material, Machane
intended that U.S. Fire rely on it, and that U.S. Fire did so to its detriment.
Dean's testimony and affidavit, as well as the U.S. Fire underwriting guidelines,
establish FL Dean would not have issued the HNOA coverage to Machane if it
was aware Machane rented the fifteen passenger vans during its camp. The U.S.
Fire underwriting guidelines expressly provide twelve-to-fifteen plus passenger
vans were "ineligible for the [HNOA coverage] program." According to Dean,
this meant FL Dean was not authorized to offer or bind coverage for twelve to
fifteen plus passenger vans. Consistent with Dean's testimony and affidavit, the
August 6, 2019 quote FL Dean sent to Gross advised that "[twelve] and [fifteen
plus] [p]assenger [v]ans are excluded."
U.S. Fire established Machane intended it rely on the misrepresentation
because Machane knew it was completing the supplemental application and
providing the requested information in connection with the underwriting of its
application for insurance coverage. Finally, U.S. Fire established detrimental
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reliance because it issued the policy based on the false information provided by
Machane.
We are satisfied the court appropriately exercised its discretion by
rescinding the policy rather than reforming it to afford a lower limit of liability.
Rescission is "an equitable remedy, which properly depends on the totality of
the circumstances in a given case and resides within the court's discretion." Id.
at 143. In this case, U.S. Fire established it would not have issued the HNOA
coverage if Machane provided accurate information regarding the rented vans.
Under the circumstances, it would be inequitable to reform the policy to provide
coverage U.S. Fire would not have provided. The court did not misapply its
discretion by rescinding the Policy.
We are not persuaded by Korenfeld's argument that U.S. Fire should not
be permitted to invoke the doctrine of equitable fraud based on the
"concealment, misrepresentation, or fraud" provision contained in the policy.
That provision states:
This [c]overage [f]orm is void in any case of fraud by
you at any time as it relates to this [c]overage [f]orm.
It is also void if you or any other "insured", at any time,
intentionally conceals or misrepresents a material fact
concerning:
a. This [c]overage [f]orm;
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b. The covered "auto";
c. Your interest in the covered "auto"; or
d. A claim under this [c]overage [f]orm.
It is well settled that an insured may seek rescission based on equitable
fraud. Upon rescission, the policy is void ab initio. Accordingly, if the policy
is rescinded based on equitable fraud, the "concealment, misrepresentation, or
fraud" provision contained in the policy would be inapplicable.
Moreover, the provision expressly states "[t]his [c]overage [f]orm is void
in any case of fraud by you [Machane] at any time as it relates to this [c]overage
[f]orm." Here, U.S. Fire contends the policy should be rescinded based on
equitable fraud by Machane, as expressly permitted by the policy. The fact that
the next sentence of the provision expands the scope also to include
misrepresentations by Machane or "any other insured at any time" does not
negate the first sentence of the policy provision.
Korenfeld's arguments relating to the interpretation and placement of
exclusions in a policy of insurance and the reasonable expectations of the
insured are inapt. This case does not involve the application of an exclusion ,
nor does it implicate the reasonable expectations of an insured in the face of, for
example, an allegedly ambiguous or misleading policy of insurance. In this
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case, the policy was rescinded based on the insured's material misrepresentation
in response to an unambiguous, objective question on its application for
insurance.
We are unpersuaded by Korenfeld's argument that the policy should not
be rescinded because public policy favors financial protection of innocent
victims of automobile accidents. This case involves optional HNOA coverage,
not mandatory motor vehicle insurance required for owners of motor vehicles.
Here, the vans were owned by Hertz, not Machane. Machane was not obligated
to provide any insurance for vans it did not own.
To the extent we have not addressed any of Korenfeld's remaining
arguments, it is because they lack sufficient merit to warrant discussion in a
written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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