KENNEDY UNIVERSITY HOSPITAL v. DARWIN NATIONAL ASSURANCE COMPANY
OPINION. Signed by Judge Robert B. Kugler on 4/7/2017. (TH, )
NOT FOR PUBLICATION
(Doc. Nos. 19, 21)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
KENNEDY UNIVERSITY HOSPITAL,
Civil No. 16-2494 (RBK/JS)
KUGLER, United States District Judge:
This matter comes before the Court on Plaintiff Kennedy University Hospital’s
(“Plaintiff”) Complaint against Defendant Darwin National Assurance Company (“Defendant”)
asserting breach of an insurance contract. Currently before the Court is Defendant’s Motion for
Summary Judgment (Doc. No. 19) and Plaintiff’s Motion for Summary Judgment (Doc. No. 21).
For the reasons stated herein, Defendant’s Motion is GRANTED and Plaintiff’s Motion is
The parties do not dispute the relevant facts. Defendant is an insurance carrier. Stipulated
Statement of Undisputed Material Facts (“SSMF”) ¶ 1. It issued Policy No. 0305-0246
(“Policy”) to Plaintiff, a healthcare organization and non-profit, for the period of October 15,
2011 to October 15, 2012. Id. Plaintiff received first layer excess coverage from Defendant and
primary coverage from another insurer with a policy limit of $1,000,000. Id. ¶¶ 12, 22. On May
12, 2012, a patient, Tony Fleming (“Fleming”), was admitted by Plaintiff. Id. ¶ 5. While in the
hospital, he allegedly suffered second degree burns as a result of Plaintiff’s negligence. Id. ¶ 6.
Plaintiff reported this incident to Defendant in a Notice of Alert/Loss/Claim Reporting
Guidelines form dated May 16, 2012. Id. ¶ 7. On the same day, Defendant acknowledged receipt
in a letter, wherein it also stated it was not investigating the incident and reserved its rights. See
id. ¶ 8; SSMF Ex. D. Specifically, the letter stated: “[I]t appears no claim has been made . . . .
Accordingly, we will not be investigating this matter.” and, “Please understand that this
acknowledgment should not be construed or relied upon as confirmation of coverage, and that
Darwin reserves all rights and defenses under the Policy and applicable law.” Id.
Fleming filed an action against third parties in the Superior Court of New Jersey, Camden
County on August 22, 2012, seeking recovery for his injuries. SSMF ¶ 9. A party to the lawsuit
filed a third party complaint against Plaintiff on October 4, 2013 and served the summons and
complaint on November 20, 2013. Id. ¶¶ 10–11. At some point in 2013, Fleming made a
$1,700,000 settlement demand to Plaintiff in that matter. Id. ¶ 13. Fleming also brought a
malpractice suit against Plaintiff and other parties in the Superior Court of New Jersey, Camden
County on April 8, 2014 and served Plaintiff on April 8, 2014. Id. ¶¶ 15–16. In both lawsuits
(“Fleming Actions”), Plaintiff’s primary carrier undertook the defense. Id. ¶ 17. The primary
carrier, and not Plaintiff, eventually informed Defendant of the Fleming Actions on July 29,
2015. See id. ¶¶ 12, 18.
Defendant denied coverage for both Fleming Actions on August 28, 2015. Id. ¶ 19.
Plaintiff challenged Defendant’s denial, but Defendant maintained its decision. Id. ¶¶ 20–21. The
Fleming Actions eventually settled for $1,400,000. Id. ¶ 22. The primary carrier paid $1,000,000,
another insurer contributed $100,000, and Plaintiff paid $300,000. Id.
Plaintiff filed a Complaint in the Superior Court of New Jersey, Camden County, Law
Division on February 22, 2016. Defendant timely removed the matter to this Court on May 3,
2016 (Doc. No. 1). Defendant filed an Answer and Counterclaim on May 10, 2016 (Doc. No. 5).
On November 9, 2016, Plaintiff and Defendant filed respective Motions for Summary Judgment
(Doc. Nos. 21, 19).
The Court should grant a motion for summary judgment when the moving party “shows
that there is no genuine dispute as to any material fact and that the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). An issue is “material” to the dispute if it could alter the
outcome, and a dispute of a material fact is “genuine” if “a reasonable jury could return a verdict
for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986);
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (“Where the
record taken as a whole could not lead a rational trier of fact to find for the non-moving party,
there is no ‘genuine issue for trial.’”) (quoting First Nat’l Bank of Az. v. Cities Serv. Co., 391
U.S. 253, 289 (1968)). In deciding whether there is any genuine issue for trial, the court is not to
weigh evidence or decide issues of fact. Anderson, 477 U.S. at 248. Because fact and credibility
determinations are for the jury, the non-moving party’s evidence is to be believed and
ambiguities construed in its favor. Id. at 255; Matsushita, 475 U.S. at 587.
Although the movant bears the burden of demonstrating that there is no genuine issue of
material fact, the non-movant likewise must present more than mere allegations or denials to
successfully oppose summary judgment. Anderson, 477 U.S. at 256. The non-moving party must
at least put forth probative evidence from which the jury might return a verdict in his favor. Id. at
257. Where the non-moving party fails to “make a showing sufficient to establish the existence
of an element essential to that party’s case, and on which that party will bear the burden of proof
at trial,” the movant is entitled to summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317,
Plaintiff argues that Defendant breached the Policy by denying coverage for the Fleming
Actions; Defendant responds that Plaintiff failed to satisfy the notice and reporting requirements.
The Policy states that the insurer will pay on a claim provided that “notice of such Claim is given
to the Insurer in accordance with Section IV.D. of this Policy.” Section IV.D.1, as replaced by
Endorsement No. 9, sets forth notice requirements: “as a condition precedent to any right to
coverage under this Policy . . . [t]he Named Insured must provide the Insurer with prompt notice
of any Claim, or any circumstances that could give rise to a Claim.” SSMF Ex. B. Section
IV.D.2 obligates the insured to continuing reporting duties in the form of quarterly reports that
summarize “[a]ll Claims and circumstances,” even after expiration of the Policy. Id. Section
IV.D.3 requires the Insured provide notice of “any offer or demand that may implicate coverage
under this Policy.” Id. The parties do not dispute that Plaintiff notified Defendant of the
circumstances surrounding Fleming’s injury on May 16, 2012 but not the Fleming Actions and
The Court finds that it need not resolve whether Plaintiff’s May 16, 2012 notice fulfills
Section IV.D.1’s notice provisions, because Plaintiff failed to satisfy the conditions of Sections
IV.D.2 and IV.D.3. Plaintiff appears to concede that it failed to provide a quarterly report and
notice of Fleming’s settlement demand as required to obtain coverage under the Policy.
Plaintiff contends that the Court should excuse such failures because Defendant’s conduct estops
it from denying Plaintiff’s claims. In particular, Plaintiff argues that Defendant had a duty to
investigate after receiving notice of the Fleming incident.
New Jersey courts have recognized some instances in which insurers are estopped from
asserting that a policy does not cover a claim, even if the claim falls outside the terms of the
policy. See Fed. Home Loan Mortg. Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 446–47 (3d Cir.
2003) (citing Griggs v. Bertram, 443 A.2d 163, 167 (N.J. 1982)). One such instance is where the
insurer does not notify the insured within a reasonable amount of time that it may possibly
disclaim coverage of a claim. Id. To show estoppel, “undoubtedly prejudice is an essential
ingredient.” Merchants Indem. Corp. v. Eggleston, 179 A.2d 505, 512 (N.J. 1962). Prejudice is
presumed where “there has been a long lapse of time without any indication by the insurance
carrier of a loss or rejection of coverage, during which the insured justifiably expects to be
protected by the carrier and cannot, except at the risk of forfeiting coverage, act for itself under
the policy.” Griggs, 443 A.2d at 170–71.
However, “[t]he imputation of prejudice is not an absolute rule.” Selbst v. Certain
Underwriters at Lloyd’s London, 2005 WL 2447879, at *6 (N.J. Super. Ct. App. Div. Sept. 21,
2005). In Reliance Ins. Co. v. Armstrong World Indus., Inc., the insurance company sent a letter
that stated, “We are presently reviewing our obligation to [you]. We will notify you within a
reasonable time of our decision in this matter.” 678 A.2d 1152, 1157 (N.J. Super. Ct. App. Div.
July 22, 1996). The New Jersey Superior Court, Appellate Division found that the insured did
not suffer prejudice where there was no indication the insurer’s actions prevented the insured
from conducting an investigation or assuming defense of the suit, and the insured engaged
counsel. Id.; see also Liberty Ins. Corp. v. Tinplate Purchasing Corp., 743 F. Supp. 2d 406, 418
(D.N.J. 2010) (no prejudice where the insurer reserved its rights to disclaim coverage in a letter
confirming receipt of the claim and the insured assumed total control of the settlement
negotiations and defense).
This case resembles the facts of Armstrong World Indus., Inc., and the Court finds that
Plaintiff fails to show it suffered the prejudice necessary to invoke estoppel. After Plaintiff sent
notice of a potential claim involving Fleming, Defendant’s response stated that it would not be
investigating the matter and reserved all rights and defenses. Although the letter did not state that
it potentially may disclaim coverage, there is no evidence that Plaintiff “justifiably expect[ed]” to
be protected by Defendant. Plaintiff does not state, at any point in its papers, that it was
prevented from taking action in its settlement negotiations or defense at large. Thus, the Court
does not find that Plaintiff suffered prejudice, and it does not hold that Defendant is estopped
from rejecting the claims for the Fleming Actions.
Plaintiff also asserts that Defendant waived the right to deny coverage. Waiver is a
“voluntary and intentional relinquishment of a known right.” Shotmeyer v. N.J. Realty Title Ins.
Co., 948 A.2d 600, 609 (N.J. 2008). Plaintiff appears to contend that the Defendant relinquished
its rights because it “chose not to act.” Pl.’s Mot. Summ. J. 32. However, it cites no authority to
support the suggestion that a lack of action constitutes voluntary and intentional relinquishment.
Indeed, where the New Jersey Supreme Court has found that an insurance carrier waived its
rights, the carrier was aware of information suggesting fraud and also maintained control of the
defense of the lawsuit. See Eggleston, 179 A.2d at 512. Such a situation is not the one at hand,
and the Court does not find waiver in this case.
For the reasons expressed above, Defendant’s Motion for Summary Judgment is
GRANTED and Plaintiff’s Motion for Summary Judgment is DENIED.
s/ Robert B. Kugler
ROBERT B. KUGLER
United State District Judge
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