ALLSTATE NEW JERSEY INSURANCE COMPANY v. AVALON BAY COMMUNITIES, INC.
AMENDED OPINION. Signed by Judge William H. Walls on 3/22/17. (sr, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
ALLSTATE NEW JERSEY INSURANCE
Civ. No. 16-5441 (WHW-CLW)
AVALONBAY COMMUNITIES, INC.,
Walls, Senior District Judge
Defendant AvalonBay Communities, Inc. (“AvalonBay”) moves to dismiss the
Complaint of Plaintiff Allstate New Jersey Insurance Company (“Allstate New Jersey”) under
Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. ECF No. 4. Decided without
oral argument under Federal Rule of Civil Procedure 78, Defendant’s motion is denied.
FACTUAL AND PROCEDURAL HISTORY
Plaintiff Allstate New Jersey, an Illinois corporation with its principal place of business
in Illinois, brings this tort action against AvalonBay, a Maryland corporation with its principal
place of business in Virginia, for negligence related to a January 21, 2015 fire at the residential
apartment complex known as Avalon Edgewater. ECF No. 1
¶J 1—9. The Complaint alleges that
Avalon’ s “unsupervised, untrained, and unlicensed maintenance workers” “accidently ignited
building materials while using an acetylene torch to perform plumbing repairs behind a wall
inside one of the [Avalon Edgewater] apartment units.” Id.
¶J 10—11. Instead of calling 911
report the fire, the maintenance workers allegedly allowed the fire to spread “through the
building’s interstitial wall space,” causing the fire to spread laterally and destroy the entire
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¶ 12. Allstate contends that the fire damaged or destroyed all of the personal
property of its Insureds, who made claims against their policies totaling $709,310.07. Id.
15, Ex. A at 2. Allstate indemnified its Insureds for certain real and personal property damages
as well as expenses incurred as a result of having to find alternative housing. Id.
On September 6, 2016, Allstate filed the above-captioned subrogation action in the
District of New Jersey. Id. The Complaint charges AvalonBay with negligently causing the
January 21, 2015 fire and seeks damages totaling over $700,000. Id.
¶J 16—21. AvalonBay
moved to dismiss the Complaint on September 22, 2016. ECF No. 4. AvalonBay argues that
each Insured waived his or her rights of subrogation against AvalonBay in his or her Avalon
Edgewater lease agreement. Id. at 1_2.1 Because Allstate stands in the position of the Insureds
for the purposes of this subrogation action, Allstate is bound to this subrogation waiver. Id.
Allstate responds that the subrogation waiver is unenforceable because it contravenes public
policy and is vague and ambiguous. ECF No. 14-1 at 4—16.
The text of the lease paragraph containing the alleged subrogation waiver reads:
32. Am I required to purchase renter’s insurance?
Yes. You acknowledge that we have not purchased insurance coverage for your personal belongings or any personal
property located in your Apartment or anywhere at the Community or for any personal liabilities that may be
suffered or incurred by you or your family, guests, invitees or any other occupants or visitors to your Apartment.
You waive and release us from all claims against us that you may have, now or in the future, with respect to any loss
of or damage to personal property kept in the Community. You are not required to maintain insurance for your
personal property, but it is available and we recommend that you maintain such insurance in an amount equal to the
value of your personal property. During the term of this lease, you agree to purchase and maintain, at your sole cost
and expense, a comprehensive personal liability policy or its equivalent, issued by a licensed insurance company
that you select which provides limits of liability of at least $100,000 per occurrence. All policies shall waive rights
of subrogation against the Owner and Manager. You agree to provide a copy of these insurance policies or
certificates evidencing these insurance policies in form and content reasonably acceptable to us at the time you
obtain the policies and on each annual renewal date for such insurance policies. You agree to maintain these
insurance policies during the entire term of your residency at the Community, but you may choose any insurance
company authorized or admitted to do business on the state where the Community is located.
Giller DecI., ECF No. 4-3, Exs. 2—25 at ¶ 32.
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STANDARD OF REVIEW
Rule 12(b)(6) allows for dismissal where the non-moving party fails to state a claim upon
which relief can be granted. Under federal Rule of Civil Procedure 8(a)(2), a pleading must
contain a “short and plain statement of the claim showing that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a)(2). “To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.” Ashcrofl
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007)). A claim is plausible on its face “when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a
cause of action will not do. Nor does a complaint suffice if it tenders naked assertions devoid of
further factual enhancement.” Id. (internal quotation marks omitted). “[W]here the well-pleaded
facts do not permit the court to infer more than the mere possibility of misconduct, the complaint
has alleged—but it has not ‘shown’—that the pleader is entitled to relief.” Id. at 679. It is well
settled that “documentts] integral or explicitly relied upon in the complaint” may be considered
at the motion to dismiss stage “without converting the motion into one for summary judgment.”
In re Burlington Coat factory Sec. Litig., 114 F.3 d 1410, 1426 (3d Cir. 1997).
AvalonBay argues that each of Allstate New Jersey’s insured’s signed an Avalon
Edgewater lease agreement containing a waiver of subrogation rights, which acts as an absolute
bar to Plaintiffs claims. ECF No. 4-2 at 3—6. Allstate argues that the subrogation waiver is
unenforceable since it contravenes public policy and is vague and ambiguous. ECF No. 14-1 at
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4—16. Because the Court agrees that the waiver of subrogation rights is unenforceable, Plaintiffs
motion to dismiss is denied.
Subrogation is the “principle under which an insurer that has paid a loss under an
insurance policy is entitled to all the rights and remedies belonging to the insured against a third
party with respect to any loss covered by the policy.” Black’s Law Dictionary 1440 (7th
ed. 1999). An insurer who indemnifies its insured for a loss caused by a third party is subrogated
to whatever rights the insured may have had against the third party. Standard Accident Ins. Co. v.
Fellecchia, 15 N.J. 162, 171 (1954).
The right to subrogation is not absolute, and parties may agree to waive or limit it. LIG
Ins. Co. v. Bonanno Real Estate Grp. II, L.P., No. A-4489-1 1T4, 2013 WL 3329746, at *3 (N.J.
Super. Ct. App. Div. July 3, 2013). “A third party may assert any defenses against the insurer
that it would have had against the insured, including that any claim for recovery was waived by
contract. Id. (citing Culver v. Ins. Co. ofN. Am., 115 N.J. 451, 456 (1989)) (“[$]ubrogation is not
applicable where its enforcement would be inconsistent with the terms of a contract or when the
contract, either expressly or by implication, forbids its application.”) (internal quotation marks
omitted)); see also Skuiskie v. Ceponis, 404 N.J. Super 510, 513 (App.Div. 2009) (right of
subrogation may be “waived or limited by agreement”). In Continental Insurance Company v.
Boraie, 288 N.J. Super. 347 (Law. Div. 1995), the court recognized that an insured can waive the
subrogation rights of his or her insurance company without its knowledge. Id. at 35 1—52. The
Boraie Court explained that this outcome was consistent with “New Jersey decision law.. that
business people have the right to determine that the risks of a transaction shall be borne by
insurance.” Id. at 352.
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Plaintiff argues that a waiver of subrogation rights is simply an exculpatory clause, and
should be invalidated for violating public policy. ECF No. 14-1 at 10 (citing Kuzmiak v.
Bookchester, Inc., 33 N.J. 575, 588 (App. Div. 1955)). Defendant answers that it is only trying to
enforce a straightforward waiver of subrogation rights, which “Allstate could have guarded
against by increasing its premiums or by voiding a policy if the subrogation rights were waived.”
ECF No. 15 at 2—3. Even if the waiver of subrogation clause is not exculpatory, the Court finds
that it is void in this instance.
In New Jersey, courts enforce subrogation waivers based on the rationale that courts
should not get in the way if parties waive their rights to subrogation because they “intended to
shift the risks of loss to insurance policies which they undertook to procure.” Borale, 288 N.J.
Super. At 347; see also Mayfair Fabrics v. Henley, 48 N.J. 483, 488 (1967) (“[T]he lease
reflected a studied attempt to spell out the distribution of the risks and that its practical effect was
to specify who was to obtain and to bear the cost of insurance to indemnify against loss or
damage occurring to property within the demised premises.”) (internal quotation marks and
citations omitted). The rationale behind the validity of these waivers depends on the contracting
parties having a meaningfiil choice in how to distribute liability. See Id. The subrogation waivers
at issue in this matter were so submerged in the leases at issue as to raise serious questions about
the choice afforded the Insureds in this matter. These questions challenge the very validity of the
subrogation waivers in this case.
Furthermore, the Court is not persuaded by Defendant’s comparisons to subrogation
waivers in commercial transactions or Defendant’s argument that the Court should simply follow
a New Jersey Superior Court’s unreasoned granting of an unopposed motion to dismiss based on
the same subrogation waiver. ECF No. 4-2 at 1; Giller Dccl., ECF No. 4-3, Ex. 1. All twenty
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four leases at issue are residential leases consisting of a standardized printed form. See Giller
Decl., ECF No. 4-3, Exs. 2—25. The relevant subrogation provision is buried in an
unconventional question-and-answer formatted lease provision about a variety of insurance
options and requirements. See Giller Deci., ECF No. 4-3, Exs. 2—25 at ¶ 32. AvalonBay’s casual
inclusion of the subrogation waiver deep in a long paragraph about insurance options and
obligations is markedly different from the clearly identified subrogation waivers in cases
advanced by AvalonBay, all of which involved apparently more sophisticated parties engaged in
commercial transactions. See, e.g., LIG Ins. Co., 2013 WL 3329746, at *1_2 (identifying the
waiver of subrogation in a commercial lease with a bold and capitalized header reading
“DAMAGES TO BUILDING! WAIVER OF SUBROGATION”); Kramer ex rel. Pub. Serv.
Mut. v. Fokis, Inc., No. A-5833-05T5, 2007 WL 1461267, at *1 (N.J. Super. Ct. App. Div. May
21, 2007) (identifying the waiver of subrogation in its own lease paragraph titled “Waiver of
Subrogation.”); Hunt Const. Grp., Inc. v. Hun Sch. ofPrinceton, No. CIV.A. 08-3550, 2010 WL
3724279, at *3 (D.N.J. Sept. 16, 2010) (noting that the commercial lease contained several
waiver of subrogation provisions, at least one of which had been customized by the parties).
Given the form leases and the buried waiver, Allstate may be able to show that the
contract constituted a contract of adhesion if it can show that the Insureds lacked a meaningful
choice in the acceptance of the subrogation waiver. See Stelluti v. Casapenn Enterprises, LLC,
203 N.J. 286, 301 (2010); see also Rudbart v. North Jersey Dist. Water Supply Comm ‘n, 127 N.J.
344, 353 (1992). If an agreement is determined to be a “contract of adhesion,” non-enforcement
of its terms may be justified if they are unconscionable. See Stelluti, 203, N.J. at 302. To make
this determination, “courts have looked not only to the take-it-or-leave-it nature or the
standardized form of the document but also to the subject matter of the contract, the parties’
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relative bargaining positions, the degree of economic compulsion motivating the ‘adhering’ party,
and the public interests affected by the contract.” Rudbart, 127 N.J. at 356; see also Delta
funding Corp. v. Harris, 189 N.J. 28, 39—40 (2006). As previously discussed, the twenty-four
identical, form, residential leases with hidden subrogation waivers suggest the Insureds may not
have had a meaningful choice about whether to waive their subrogation rights and may not have
chosen to distribute liability through a limitation on subrogation. Additionally, on its face, the
submerged subrogation waiver appears to waive the tenants’ subrogation rights, but not the
landlord’s. These details could lead the Court to conclude that the parties had unequal bargaining
positions, and that the subrogation waiver is so one-sided that it violates the public interest.
Based on the allegations in the complaint and the facts adduced through the residential leases, the
Plaintiff could plausibly demonstrate that the subrogation waiver is unenforceable.
Defendant’s motion to dismiss is denied. An appropriate order follows.
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