FIRST UNITED MORTGAGE COMPANY, INC. v. MORTGAGE BANKERS/BROKERS PROFESSIONAL INDEMNITY

Filing 26

OPINION. Signed by Judge William J. Martini on 8/17/10. (gh, )

Case 2:08-cv-02754-WJM-MF Document 26

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UNITED STATES DISTRICT COURT D I S T R IC T OF NEW JERSEY

F IR S T UNITED MORTGAGE COMPANY, I N C ., Plaintiff, v. C H A U C E R HOLDINGS PLC, Defendant.

C iv il Action Number: 2:08-2754

O P IN IO N H O N . WILLIAM J. MARTINI

O P IN IO N I. IN T R O D U C T IO N

Plaintiff First United Mortgage Company, Inc. ("FUMC"), the insured, brought a state c o u rt action, which was subsequently removed to this Court, against its insurer, Defendant C h a u c e r Holdings PLC ("Chaucer"), seeking a declaratory judgment for coverage, breach o f contract, and breach of the implied covenant of good faith and fair dealing. Defendant has m o v e d for summary judgment, and Plaintiff has cross moved for summary judgment. This matter is a straight forward coverage dispute rooted in the language of the policy a g re e m e n t, and for the reasons which will be elaborated below, the Court will GRANT D e f e n d a n t's Motion for Summary Judgment; the Court will DENY Plaintiff's Cross Motion f o r Summary Judgment; and this action will be TERMINATED. II. F A C T S AND PROCEDURAL POSTURE

Plaintiff FUMC is a New Jersey corporation, whose principal place of business is, a p p a re n tly, in New Jersey. Defendant Chaucer Holdings PLC is incorporated in the United K in g d o m , and its principal place of business is, apparently, in England. Plaintiff holds an in s u ra n c e policy ­ certificate number B066446579A07 ­ which was provided by Mortgage B a n k e rs /B ro k e rs Professional Indemnity. Defendant was the lead underwriter, underwriting 3 5 % of a one million dollar policy. Thus, the amount in dispute is over $75,000. Diversity ju ris d ic tio n is not contested.

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Plaintiff has made two claims against the policy, the "Forman Action" and the " W a s h in g to n Mutual Action." Compl. ¶ 4. However, in its opposition brief, Plaintiff has d e te rm in e d not to pursue the Washington Mutual Claim. Opp'n Br 9. The Forman Action, th e remaining claim, took shape when Charles M. Forman, the Chapter 7 Trustee for New J e rs e y Affordable Homes Corporation ("NJAH") filed an adversarial proceeding against J o s e p h D. Natale (the president and chief executive officer of FUMC) and against FUMC in the United States Bankruptcy Court for the District of New Jersey on September 28, 2007. T h e Trustee alleges in the bankruptcy court action that FUMC and NJAH conspired to d e f ra u d NJAH's investors, where NJAH owned properties which it renovated and sought m o rtg a g e loans from FUMC. The Trustee alleges that FUMC and NJAH used inflated real e s ta te appraisals, thereby fraudulently inducing investors to invest in NJAH properties. N J A H subsequently collapsed in 2005, when it was taken over by an SEC appointed receiver, N ic h o la s Politan, Esq. After the Forman Action was filed by the Trustee, in September 2007, FUMC sent its in s u re r a notice of claim on October 2007. The insured's policy is a claims-made policy in w h ic h notice of claim must be made between May 10, 2006 and May 10, 2008. The claim w a s made during the appropriate period, however, the Defendant denied the claim, asserting a variety of defenses, including that the claim was not covered because it arises out of " w ro n g f u l acts" which took place before May 10, 2006. Defendant argues that the policy o n ly covers claims arising out of wrongful acts which took place after May 10, 2006. After c o v e ra g e was denied, this suit followed. III. S T A N D A R D OF REVIEW

Summary judgment is appropriate "if the pleadings, the discovery [including, d e p o s itio n s , answers to interrogatories, and admissions on file] and disclosure materials on f ile , and any affidavits show that there is no genuine issue as to any material fact and that the m o v a n t is entitled to judgment as a matter of law." Fed. R. Civ. P. 56; see also Celotex Corp. v . Catrett, 477 U.S. 317, 322-23 (1986); Turner v. Schering-Plough Corp., 901 F.2d 335, 340 (3 d Cir. 1990). A factual dispute is genuine if a reasonable jury could find for the nonm o v in g party, and is material if it will affect the outcome of the trial under governing s u b s ta n tiv e law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). At the summary ju d g m e n t stage, "the judge's function is not himself to weigh the evidence and determine the tru th of the matter but to determine whether there is a genuine issue for trial." Anderson, 477, U .S . at 249; see also Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (a court m a y not weigh the evidence or make credibility determinations). Rather, the court must c o n s id e r all evidence and inferences drawn therefrom in the light most favorable to the nonm o v in g party. Andreoli v. Gates, 482 F.2d 641, 647 (3d Cir. 2007). 2

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To prevail on summary judgment, the moving party must affirmatively identify those p o rtio n s of the record which demonstrate the absence of a genuine issue of material fact. C e lo te x , 477 U.S. at 323-24. The moving party can discharge the burden by showing that "on a l l the essential elements of its case on which it bears the burden of proof at trial, no re a s o n a b le jury could find for the non-moving party." In re Bressman, 327 F.3d 229, 238 (3d C ir. 2003); see also Celotex, 477 U.S. at 325. If the moving party meets this initial burden, th e non-moving party "must do more than simply show that there is some metaphysical doubt a s to material facts," but must show sufficient evidence to support a jury verdict in its favor. B o y le v. County of Allegheny, 139 F.2d 386, 393 (3d Cir. 1998) (quoting Matsushita Elec. In d u s . Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). However, if the non-moving p a rty "fails to make a showing sufficient to establish the existence of an element essential to [the non-movant's] case, and on which [the non-movant] will bear the burden of proof at tria l," Rule 56 mandates the entry of summary judgment because such a failure "necessarily re n d e rs all other facts immaterial." Celotex Corp., 477 U.S. at 322-23; Jakimas v. HoffmanL a Roche, Inc., 485 F.3d 770, 777 (3d Cir. 2007). IV. ANALYSIS

The parties do not contest that New Jersey substantive law controls this litigation. " T h e interpretation of an insurance contract is a question of law for the court to determine, a n d can be resolved on summary judgment." Adron, Inc. v. Home Ins. Co., 679 A.2d 160, 1 6 5 (N.J. Super. App. Div. 1996). "In a dispute, over insurance coverage, a plaintiff bears th e initial burden of establishing that coverage exists under the policy." Cmty. Credit C o u n s e lin g Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 2009 WL 900984, at *3 (D.N.J. M a r. 31, 2009) (citing Reliance Ins. Co. v. Armstrong World Indus., Inc., 678 A.2d 1152 (N .J. Super. App. Div. 1996)). "Defendants ha[ve] the burden of establishing that any matter f [ a ]ll[ s ] within the exclusionary provisions of the policy ... For purposes of obtaining s u m m a ry judgment, defendants' burden was to show that, factually, plaintiff had failed to m e e t its prima facie case ... or that as a matter of law, defendants had demonstrated the a p p lic a b ility of an exclusion, thereby negating coverage." Adron, 679 A.2d at 165. The policy provides that "the Underwriters agree to indemnify the Insured for all sums th a t the Insured shall become legally obligated to pay as Damages and Defense Expenses re s u ltin g from any Claim arising out of any Wrongful Act taking place on or subsequent to th e Retroactive Date [that is, May 10, 2006] ...." Ex. 2, Part I, at 10 (bold omitted). The p o lic y defines "Wrongful Act" as "any negligent act, negligent error or negligent omission." E x . 2, Part II(L), at 12.1 Defendant argues that all the alleged underlying wrongful acts ­ The Court is mindful that coverage would not appear to extend to allegations connected to intentional fraud. 3
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described in the Trustee's complaint in the Forman Action, for which FUMC seeks coverage, o c c u rre d prior to the retroactive date. Defendant is not relying on an exclusion; rather, D e f e n d a n t is arguing that Plaintiff has failed to establish its prima facie case, i.e., that the a lle g a tio n s it puts forward are covered under the policy. In response, Plaintiff points to language in a letter from the Trustee's attorney stating: " [ i]n or about July 2006, the Trustee commenced 47quiet title adversary proceedings against F U M C and others to resolve title and mortgage issues relating to each of the 47 properties id e n tif ie d in the Trustee's complaints.... If th[e] [Forman] matter is not resolved, the trustee in te n d s to amend his complaint against FUMC to include demands related to FUMC's n e g lig e n t failure to remove the mortgages of record." McKenna Decl., Ex. 2, at 1. Plaintiff's s h o w in g is not sufficient. The quiet title actions began on or about July 2006. It follows that P la in tif f 's alleged negligence must have happened before that time (assuming Plaintiff's c o n d u c t was negligent, rather than wilful). The insurance agreement only extends coverage in regard to wrongful acts occurring after May 10, 2006, but Plaintiff makes no showing that a n y such alleged negligence occurred in the narrow window between May 2006 and July 2 0 0 6 . As no exception or exclusion from coverage is at issue here, and as this is part of P la in tif f 's prima facie case, it would appear that the burden is on Plaintiff to make this s h o w in g . Plaintiff has not done so and so its case fails. T h e Court does not reach Defendant's remaining defenses. Nor does the Court discuss P la in tif f 's argument in regard to the insurance agreement's "interrelated wrongful acts" p ro v is io n or lack thereof, as that argument relates primarily to these latter defenses. V. C O N C L U S IO N

For the reasons elaborated above, Defendant's Motion for Summary Judgment is G R A N T E D ; Plaintiff's Cross Motion for Summary Judgment is DENIED; and this a c tio n is TERMINATED. An appropriate order follows. s/ William J. Martini William J. Martini, U.S.D.J.

DATE: August 17, 2010

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