THE ONE JAMES PLAZA CONDOMINIUM ASSOCIATION, INC. v. RSUI GROUP, INC.

Filing 19

OPINION filed. Signed by Judge Joseph H. Rodriguez on 12/1/2015. (drw)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
THE ONE JAMES PLAZA
:
CONDOMINIUM ASSOCIATION, INC.,
Plaintiff,

:

v.

Hon. Joseph H. Rodriguez
Civil Action No. 15-294

:

RSUI GROUP, INC.,

:

Defendant.

OPINION

:

This insurance coverage matter is before the Court on Defendant
RSUI Group, Inc.’s (“RSUI”) Motion [Doc. 9] to Dismiss the Verified
Complaint filed by Plaintiff The One James Plaza Condominium
Association, Inc. (“OJPCA”). The matter was decided on the papers
pursuant to Fed. R. Civ. P. 78(b). For the reasons set forth below, the
motion will be granted.
Background
Plaintiff OJPCA operates condominiums known as One James Plaza
in Wildwood, New Jersey and a non-profit rental business servicing those
condominiums known as the Trylon Motel. From September 17, 2010
through September 17, 2012, OJPCA was insured by Great American
Insurance Group (“Great American”).

1

On September 24, 2010, twenty condominium unit owners 1 sued
OJPCA & its board of directors in Cape May County Superior Court, Law
Division, CPM-L-646-10 (“Lawsuit 1”). They alleged that: 1) OJPCA and
the Trylon Motel failed to allow individual unit owners the opportunity to
inspect financial records; 2) OJPCA made several capital expenditures
without holding meetings or conducting a vote; 3) OJPCA decisions were
announced without following OJPCA bylaws; 4) OJPCA violated its own
governing laws; 5) OJPCA failed to utilize alternative dispute resolution;
and 6) invasion of privacy. The same day, OJPCA filed an insurance claim
with the Great American to recoup losses and the costs of defending
Lawsuit 1. On October 28, 2010, the Complaint in Lawsuit 1 was amended
to remove eighteen of the plaintiffs, leaving only Eugene and Kathy Colsher
as plaintiffs. The Cape May County Superior Court transferred Lawsuit 1
from the Law Division to the Chancery Division, as CPM-C-60-10, on
December 3, 2010.2

James Klapmuts, Bruce & Fran Barlow, James & Sherry Gallo, Eugene &
Kathy Colsher, Elaine & Paul Midiri, Victor & Donna Molinari, Peter &
Eileen Jaskelewicz, Paul & Lucille Stanziale, Anthony & Diana Buono,
Richard & Kathy Finn Allen, Mike McFadden.
2
OJPCA filed another claim with Great American on May 12, 2012 seeking
coverage for all losses and costs of defense associated with Lawsuit 1. This
claim was denied because the policy was a claims-made policy and the
actual claim related back to the policy in effect September 17, 2010-11.
1

2

The Colshers & OJPCA signed and filed a Stipulation of Settlement
dismissing Lawsuit 1 with prejudice on January 23, 2013. The Stipulation
stated, in part, “As set forth in Paragraph 6 of the Order dated August 11,
2011, each party shall continue the right to assert claims which have arisen
since the filing of the most recent amended complaint in subsequent
litigation [so any claim that arose after 10/28/2010].” Great American
closed the claim in March of 2012, having spent approximately $57,000 in
defense fees.
From September 17, 2012 to September 17, 2013, Defendant RSUI
insured OJPCA via a claims made Directors and Officers Liability Policy,
NHP648145. The Policy included a Specific Litigation exclusion, which
stated “The Insurer shall not be liable to make any payment for Loss arising
out of or in connection with any Claim made against any Insured alleging,
arising out of, based upon or attributable to, directly or indirectly, in whole
or in part, the following litigation: Gene and Kathy Colsher.” 3
On April 4, 2013, eight unit owners 4 including Eugene and Kathy
Colsher, “individually and derivatively on behalf of” OJPCA, sued seven

The Colshers were the only remaining plaintiffs in the Lawsuit 1 when it
settled on January 18, 2013.
4
Pete & Eileen Jaskelewicz, Elaine & Paul Midiri, Paul & Lucille Stanziale,
and Eugene & Kathy Colsher.
3

3

OJPCA board members and managers of the Trylon Motel, again in Cape
May County, CPM-C-21-13 (“Lawsuit 2”).5, 6 They alleged that the
defendants were maintaining a for-profit rental business within OJPCA
which was detrimental to the non-profit status of OJPCA, and that rental
funds and managerial responsibilities of the Trylon Motel were
commingled with those of OJPCA. Lawsuit 2 seeks: 1) judgment declaring
OJPCA usage fees invalid and declaring that the plaintiffs were in good
standing regarding all outstanding fees and dues owed; 2) a permanent
injunction barring the defendants and OJPCA from participating in their

The same day, OJPCA filed a claim with Great American seeking coverage
for all losses and defense costs associated with Lawsuit 2. Great American
denied coverage September 13, 2013, finding that the “Claim” contained in
the suit was first made against its Insureds when the Complaint was served
on May 3, 2013, outside of the Great American policy period.
6
The Complaint in Lawsuit 2 was amended May 14, 2013 to name OJPCA as
a Defendant and again August 14, 2013 to add the Trylon Motel as a
Defendant. On October 15, 2013, the Complaint in Lawsuit 2 was amended
a third time to include additional allegations and documents regarding the
rental business operated by the Trylon Motel at The One James Plaza. On
December 5, 2013, the Presiding Judge, Chancery Division, after receiving
submissions from the parties and hearing oral argument, entered an Order
in Lawsuit 2: 1) vacating a 11/15/2014 Order “entered in error”; 2) granting
in part and denying in part the plaintiffs’ motion to amend their pleadings;
3) denying the plaintiff’s application for appointment of receiver; 4)
denying the plaintiff’s application to invalidate 2012 “assessment” or usage
fee; 5) granting in part and denying in part the defendants’ motion to
dismiss plaintiffs’ pleading; 6) dismissing Jay and Louise Meehan as
defendants; 7) deeming the plaintiffs in good standing provided they
deposited into their attorney’s trust account “the sums of the disputed
assessments.”
5

4

for-profit unlicensed rental activities; 3) appointment of a receiver to wind
down the rental business; and 4) award of costs and fees for plaintiffs but
denial of such for defendants.
In August 2013, OJPCA submitted a claim seeking coverage by the
RSUI policy for all losses and costs of defense associated with Lawsuit 2.
RSUI denied coverage August 21, 2013 and again September 11, 2013, citing
the Specific Litigation Exclusionary Provision, and finding that the Insured
knew or should have known that the RSUI Policy excluded any litigation
related to the Colsher’s original action, Lawsuit 1. 7 In essence, RSUI
determined that Lawsuit 2 arose out of, was based upon, and attributable to
Lawsuit 1, and therefore is excluded under the Specific Litigation exclusion
of the RSUI Policy. In a letter dated August 21, 2013, RSUI explained:
Prior to the filing of [Lawsuit 2], the Association settled a prior
suit [Lawsuit 1] with Association members Gene and Kathy
Colsher, who are named Plaintiffs in [Lawsuit 2]. The Colshers
filed [Lawsuit 1] in September 2010, alleging that the
Association intended to present financial records to all
Association members, but never offered the records for review.
The complaint in [Lawsuit 1] details the Colshers’ attempts to
review the documents, in addition to the efforts of Pete and
Eileen Jaskelewicz, Paul and Elaine Midiri, and Paul and Lucille
Stanziale (all named Plaintiffs in [Lawsuit 2]) to review the
documents.
RSUI also referenced Lawsuit 1 as a pending claim on OJPCA’s
supplemental claims application, the inclusion of which resulting in the
claim having been made under the expiring policy and therefore not subject
to coverage by RSUI.

7

5

The [Lawsuit 1] complaint states that the Colshers attended a
meeting in October 2005, which the Association board called to
present financial documents to finalize the separation of the
Association’s business from the Trylon rental business. Both
businesses were operating on the same property and the
Colshers alleged that the Association directors created a conflict
of interest by operating both the Trylon rental business and the
Association. According to the [Lawsuit 1] complaint, the
Colshers renewed their requests verbally and via email several
times in the years following. To this day, the businesses have
not been separated.
In [Lawsuit 1], the plaintiffs were concerned about whether the
board was comingling the assets of the two businesses. The
plaintiffs were concerned that their Association fees were
subsidizing the rental business, which was an even greater
concern when the Association imposed a higher assessment on
owners to make up for a $42,000 shortfall. The plaintiffs were
suspicious of the increased assessment because the Association
failed to adequately describe how the shortfall developed. The
inability to access records made the Colshers question whether
expenses that should be charged to the Trylon rental business
were actually being charged to the Association. The Colshers
also complained that the Association was allowing Trylon guests
to use Association common areas at the expense of the
Association members, further putting at issue the directors’
conflicting interests. The conflicts of interests are still
prevalent, as [Lawsuit 2] alleges that the “individuals in control
have favored putting the guests into their units at the expense of
other owners participating in the rental program.”
*

*

*

The same core allegations run through both [Lawsuit 2] and
[Lawsuit 1]. The first core allegation is the Plaintiffs’ concerns
that the Association’s directors were co-mingling the assets of
the Association and the Trylon rental business. [Lawsuit 1]
expresses these concerns and contains a detailed account of the
Colshers’ attempt to obtain relevant records to show separate
accounting between the Association and the Trylon rental
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business. The second core allegation is the use of common
areas by renters, to the detriment of owners, and the use of
Association fees to support the rental business and
improvements to the common areas. Finally, the third core
allegation detailed the Association’s directors’ discrimination
against those owners who do not participate in the rental
program, specifically by noting that rental units received
improvements, presumably with common Association funds,
where non-rented units did not receive the improvements.
Specifically, both lawsuits allege that the Association’s directors
were unable to put the best interests of the owners ahead of the
directors’ personal profits.
OJPCA filed this declaratory judgment action against RSUI in Cape
May County, CPM-L-623-14, seeking coverage for Lawsuit 2. The case was
subsequently removed to this Court based upon diversity jurisdiction.
Count I seeks a declaration: 1) that the Specific Litigation exclusionary
provision in the RSUI policy is inapplicable (as is the Prior and Pending
Litigation exclusion) because it is overbroad, and 2) compelling specific
performance to require RSUI to extend coverage to OJPCA for all claims
made regarding all litigation having commenced after April 4, 2013, when
Lawsuit 2 was filed. Count II alleges unjust enrichment in that RSUI
wrongly retained premiums paid by OJPCA but denied coverage and Count
III asserts bad faith arising from RSUI’s alleged breach of the implied
covenant of good faith and fair dealing in denying coverage.

7

Jurisdiction
The Court has subject matter jurisdiction over this matter pursuant
to 28 U.S.C. § 1332, the diversity jurisdiction statute, which provides that:
“[t]he district courts shall have original jurisdiction of all civil actions where
the matter in controversy exceeds the sum or value of $ 75,000, exclusive of
interest and costs, and is between [c]itizens of different States[.]” 28 U.S.C.
§ 1331(a)(1). Plaintiff The One James Plaza Condominium Association is a
New Jersey non-profit corporation with its principal place of business
located in Wildwood, New Jersey. Defendant RSUI Group, Inc. is a
Delaware corporation with its principal place of business located in Atlanta,
Georgia. As such, complete diversity exists between the parties. Moreover,
the amount in controversy in this dispute is alleged to exceed $75,000.
Legal Standard
When considering a motion to dismiss a complaint under Rule
12(b)(6) for failure to state a claim, “[f]irst, the court must take note of the
elements a plaintiff must plead to state a claim.” Malleus v. George, 641
F.3d 560, 563 (3d Cir. 2011) (citation and internal quotation marks
omitted). Then the court must determine if a claim has facial plausibility, a
threshold that can be reached only when a plaintiff pleads factual content—
as opposed to mere conclusions—allowing the court to “draw the

8

reasonable inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although the court
“must accept the allegations in the [c]omplaint as true, [it is] not compelled
to accept unsupported conclusions and unwarranted inferences, or a legal
conclusion couched as a factual allegation.” Morrow v. Balaski, 719 F.3d
160, 165 (3d Cir. 2013) (quoting Baraka v. McGreevey, 481 F.3d 187, 195
(3d Cir. 2007)) (internal quotation marks omitted).
“Although a district court may not consider matters extraneous to the
pleadings, a document integral to or explicitly relied upon in the complaint
may be considered without converting the motion to dismiss into one for
summary judgment.” U.S. Express Lines, Ltd. v. Higgins, 281 F.3d 383,
388 (3d Cir. 2002) (internal quotation marks and citations omitted)
(emphasis deleted). That is, “a court may consider an undisputedly
authentic document that a defendant attaches as an exhibit to a motion to
dismiss if the plaintiff's claims are based on the document.” Pension
Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir.
1993) (internal citations omitted). In addition, a court may take judicial
notice of public records. M & M Stone Co. v. Pa. Dept. of Envt’l Prot., 388
F. App'x 156, 162 (3d Cir. 2010). As such, the Court need not convert
Defendant’s motion to dismiss into a summary judgment motion here.

9

Discussion
Through the instant motion, Defendant moves to dismiss the entirety
of Plaintiff’s Complaint. In Count I, Plaintiff OJPCA requests the Court to
declare that Defendant RSUI was required to provide it with insurance
coverage for Lawsuit 2 in New Jersey state court. As stated above, Count II
alleges unjust enrichment that RSUI retained premiums paid by OJPCA yet
denied coverage and Count III asserts bad faith arising from RSUI’s alleged
breach of the implied covenant of good faith and fair dealing when it
declined to provide coverage for the civil suit. RSUI bases its motion on the
premise that, under the express terms of the Policy, it was not required to
provide coverage for Lawsuit 2 because Lawsuit 2 essentially is a
continuation of Lawsuit 1, thereby precluded by the Specific Litigation
exclusion contained in the Policy. OJPCA opposes the motion, and argues
that the claims asserted against it in Lawsuit 2 are new claims, separate and
apart from those previously litigated. According to OJPCA, Lawsuit 1 was
directed at its Association for the type of common disputes that arise
between condominium associations and unit owners regarding daily
operations, whereas Lawsuit 2 targets the Trylon Motel’s “illegal rental
activities” sanctioned by OJPCA.

10

Under New Jersey law, “[i]nsurance coverage is a matter of contract
law determined by the language of insurance agreements.” Ayala v. Assured
Lending Corp., 804 F. Supp. 2d 273, 281 (D.N.J. 2011) (citing Longobardi v.
Chubb Ins. Co. of N.J., 582 A.2d 1257, 1260 (N.J. 1990)). When the policy’s
language is clear and unambiguous, the court is bound to enforce it
according to its plain and ordinary meaning. Stafford v. Scottsdale Ins.
Co., 416 F. App’x 191, 194 (3d Cir. 2010) (citing Voorhees v. Preferred Mut.
Ins. Co., 607 A.2d 1255, 1260 (N.J. 1992)). If there is any ambiguity with
regard to wording in the policy, however, the language should be
“construed liberally in the insured’s favor.” Ayala, 804 F. Supp. 2d at 281
(citing Longobardi, 582 A.2d at 1260); see also Zurich Am. Ins. Co. v.
Keating Bldg. Corp., 513 F. Supp. 2d 55, 64 (D.N.J. 2007). “A provision of
an insurance policy is ambiguous if reasonably intelligent [persons] on
considering it in the context of the entire policy would honestly differ as to
its meaning.” Vlastos v. Sumitoma Marine Fire Ins. Co., 707 F.2d 775, 778
(3d Cir. 1983). Moreover, when analyzing an insurance policy, the court
must view it from the perspective of an average policyholder. Zurich, 513 F.
Supp. 2d at 69; Morrison v. Am. Int’l Ins. Co. of Am., 887 A.2d 166, 169
(N.J. Super. Ct. App. Div. 2005).

11

Here, the insurance policy agreement between RSUI and OJPCA,
Policy Number NHP648145, begins by stating:
THIS IS A CLAIMS MADE AND REPORTED POLICY THAT
APPLIES ONLY TO THOSE CLAIMS FIRST MADE AGAINST
THE INSURED DURING THE POLICY PERIOD THAT ARE
REPORTED TO THE INSURER DURING THE POLICY
PERIOD OR WITHIN SIXTY (60) DAYS THEREAFTER . . . .
PLEASE READ YOUR POLICY CAREFULLY.
In New Jersey, “the event that invokes coverage under a ‘claimsmade’ policy is the transmittal of notice of the claim to the insurance
carrier.’” Zuckerman v. Nat'l Union Fire Ins. Co., 495 A.2d 395, 406 (N.J.
1985). The Declarations Page of the Policy here indicates that the Policy
Period spanned from September 17, 2012 through September 17, 2013.
Loss is defined by the Policy to include both damages and Defense
Expenses, but the Policy also clarifies that RSUI has a duty “to defend any
Claim against the Insured for which coverage applies.” (Emphasis added.)
Further, the Policy provides “[t]he Insurer shall not be liable to make any
payment for Loss in connection with any Claim made against any Insured”:
Alleging, arising out of, based upon or attributable to, directly
or indirectly, the same or essentially the same facts underlying
or alleged in any matter which, prior to the inception date of
this policy, has been the subject of notice to any insurer of a
Claim, or a potential or threatened Claim or an occurrence or
circumstance that might give rise to a Claim under any policy of
which this insurance is a renewal or replacement or which it
may succeed in time. [Claims Reported to a Prior Carrier
Exclusion.]
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Alleging, arising out of, based upon or attributable to, in whole
or in part, any litigation involving any Insured that was
commenced or initiated prior to, or was pending at the
inception date of this policy, or arising out of or based upon, in
whole or in part, any facts or circumstances underlying or
alleged in any such prior or pending litigation.
Further,
The Insurer shall not be liable to make any payment for Loss
arising out of or in connection with any Claim made against any
Insured alleging, arising out of, based upon or attributable to,
directly or indirectly, in whole or in part, the following
litigation: Gene and Kathy Colsher. [Specific Loss Exclusion.]
RSUI argues that coverage for Lawsuit 2 was barred by these exclusion
provisions.
Exclusion provisions in insurance policies should be strictly
construed against the insurer. Flomerfelt v. Cardiello, 997 A.2d 991, 99697 (N.J. 2010). Coverage should only be excluded if the insurer can show a
substantial overlap between the facts and claims alleged in prior and
subsequent actions. See Federal Ins. Co. v. Raytheon Co., 426 F.3d 491,
499 (1st Cir. 2005) (For claims “based upon, arising from, or in
consequence of any demand, suit or other proceeding pending” prior to the
effective date, “or the same or any substantially similar fact, circumstance
or situation underlying or alleged therein” it was not required that the first
action provide the sole support for the second,” but rather that “the

13

allegations in the second complaint find substantial support in the first
complaint,” meaning that “the allegations of the second complaint
substantially overlap with those of the first.”)
RSUI has argued that the parties are common to both matters, as are
certain core allegations. For instance, the plaintiffs in both actions allege
that OJPCA failed to disclose financial information to its members upon
request. Plaintiffs in both actions allege that OJPCA maintains the Trylon
Motel rental business to the detriment of owners who did not rent out their
units. The plaintiffs in both cases allege unsuccessful attempts at
separating the business of OJPCA from the rental business of the Trylon
Motel. Both actions complain of the commingling of assets and improper
use of the property, further asserting the illegality of the rental business to
the detriment of non-renting owners.
A review of the complaints filed in both actions indicates that Lawsuit
2 arose from and was based upon the same set of factual allegations and
claims made in Lawsuit 1. Both suits involved the same parties and similar
claims. The overlap of factual allegations between the two lawsuits is
substantial enough to find that Lawsuit 1 served as a “foundation and
logical basis” for the Lawsuit 2. The pleadings in both underlying actions
need not have been identical to preclude coverage.

14

Given the substantial overlap of factual allegations and causes of
action in the two underlying suits, the Court finds that, based on the
express language of the Specific Loss exclusion provision, Lawsuit 2 arose
out of or in connection with claims made against OJPCA “alleging or arising
out of, based upon or attributable to, directly or indirectly, in whole or in
part,” Lawsuit 1 that took place prior to the start of the Policy Period. 8 As
such, RSUI was not required to provide OJPCA with coverage for Lawsuit 2.
Further, the Claims in the two lawsuits are sufficiently interrelated to
trigger exclusion from coverage pursuant to other exclusions contained in
the Policy. Accordingly, Defendant’s request to dismiss Count I of
Plaintiff’s Complaint will be granted.
Next, as to Count II, “[t]o establish a claim for unjust enrichment, ‘a
plaintiff must show both that defendant received a benefit and that
retention of that benefit without payment would be unjust.’ That quasicontract doctrine also ‘requires that plaintiff show that it expected
remuneration from the defendant at the time it performed or conferred a

The phrase “arising out of” “which appears frequently in insurance
policies, has been interpreted expansively by New Jersey courts in
insurance coverage litigation.” American Motorists Ins. Co. v. L-C-A Sales
Co., 713 A.2d 1007, 1010 (N.J. 1998). “Arising out of” means “conduct
‘originating from,’ ‘growing out of’ or having a ‘substantial nexus’ with the
activity for which coverage is provided.” Id. (citations omitted).
8

15

benefit on defendant and that the failure of remuneration enriched
defendant beyond its contractual rights.’” Iliadis v. Wal-Mart Stores, Inc.,
922 A.2d 710, 723 (N.J. 2007) (quoting VRG Corp. v. GKN Realty Corp.,
641 A.2d 519 (N.J. 1994)).
Accordingly, to state a claim for unjust enrichment under New Jersey
law, OJPCA must plead that RSUI was enriched in an unjust manner not
governed by any enforceable contract. The parties’ rights and obligations in
this case, however, are governed by their valid insurance contract. OJPCA
does not allege that it conferred any benefit on RSUI other than by paying
its policy premiums. As such, OJPCA has not adequately pled a benefit that
is unjust; rather, as pled, OJPCA received the benefit of its bargain, despite
that its insurance claim was denied. The Court is mindful that federal law
permits alternative pleading of claims; however, Plaintiff’s unjust
enrichment claim fails as a matter of law and must be dismissed.
Regarding Count III, to state a claim for bad faith denial of insurance
coverage, Plaintiff must show: (1) the insurer lacked a reasonable basis for
its denying benefits, and (2) the insurer knew or recklessly disregarded the
lack of a reasonable basis for denying the claim. Pickett v. Lloyd’s, 621 A.2d
445 (N.J. 1993). Such bad faith claims are to be analyzed in light of a “fairly
debatable” standard, which posits that “[i]f a claim is ‘fairly debatable,’ no

16

liability in tort will arise.” Pickett, 621 A.2d at 453. The “fairly debatable”
standard will be met if the claimant could have established as a matter of
law a right to summary judgment on the substantive claim. Id. As a matter
of law, a claim of bad faith must fail if there is an issue of material fact as to
the underlying claim regarding Plaintiff’s entitlement to insurance benefits.
See Tarsio v. Provident Ins. Co., 108 F. Supp. 2d 397, 401 (D.N.J. 2000).
Thus, when the insured’s complaint presents issues of material fact as to
the underlying claim, dismissal of a related bad faith claim is proper.
Fuscarello v. Combined Ins. Group, Ltd., 2011 WL 4549152, at *5 (D.N.J.
Sept. 29, 2011) (dismissing plaintiff’s bad faith claim on a motion to dismiss
where insurer’s reason for refusing to pay, as alleged in the complaint,
presented disputed issues of material fact as to the underlying substantive
claim); Dare Inv., LLC v. Chicago Title Ins. Co., 2011 WL 2600594, at * 12
(D.N.J. June 29, 2011) (dismissing plaintiffs bad faith claim because
plaintiff could not prevail on summary judgment for the underlying
insurance claim due to the ambiguity of the title policy at issue and the
plaintiff’s reasonable expectations thereunder).
Here, RSUI’s denial of coverage, as evidenced in the denial letter
dated August 21, 2012 and quoted above, provided an extensive explanation
as to why OJPCA’s claim did not fall within the coverage of the RSUI Policy.

17

Such explanation provides plausible reasons for the denial of coverage and
demonstrates that there are, at the very least, genuine questions regarding
whether Plaintiff’s claims fell within the coverage provided. Accordingly,
OJPCA’s claim under the Policy was fairly debatable and cannot form the
basis of a bad faith claim. RSUI’s motion to dismiss Count III will be
granted.
An appropriate Order will issue this date.

Dated: December 1, 2015

/s/ Joseph H. Rodriguez
JOSEPH H. RODRIGUEZ
U.S.D.J.

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