THE HANOVER INSURANCE COMPANY v. RETROFITNESS LLC et al

Filing 21

OPINION filed. Signed by Judge Brian R. Martinotti on 9/29/2017. (km)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
THE HANOVER INSURANCE
COMPANY,
Plaintiff,
v.
RETROFITNESS, LLC,
Defendant.

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Civil Action No. 16-1751-BRM-TJB

OPINION

MARTINOTTI, DISTRICT JUDGE
Before the Court is Plaintiff The Hanover Insurance Company (“Hanover Insurance”)
Motion for Partial Judgment on the Pleadings, pursuant to Federal Rule of Civil Procedure 12(c).
(ECF No. 14.) Defendant Retrofitness, LLC (“Retrofitness”) opposes the motion. (ECF No. 18.)
Pursuant to Federal Rule of Civil Procedure 78(b), the Court did not hear oral argument. For the
reasons set forth below, Hanover Insurance’s Motion is GRANTED.
I.

BACKGROUND
For the purpose of this Motion, the Court reviews “the facts presented in the pleadings and

the inferences to be drawn therefrom in the light most favorable to the nonmoving party.” See
Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008); Jablonski v. Pan Am. World Airways,
Inc., 863 F.2d 289, 290-91 (3d Cir. 1988).
This dispute arises out of a claim by Retrofitness for insurance benefits arising out of an
underlying lawsuit.1 Hanover Insurance issued two identical
1

claims-made-and-reported

The underlying lawsuit initiated originally in the Superior Court of New Jersey, Essex County,
and after being dismissed without prejudiced was re-filed in Middlesex County as the current
1

Miscellaneous Professional Liability Policies (the “Hanover Policies”) to Retrofitness: (1) No.
LH4 8902745 02, with a policy period of October 10, 2012 to October 10, 2013; and (2) LH4
8902745 03, with a policy period of October 10, 2013 to October 10, 2014. (ECF No. 5 ¶¶ 31-32;
Hanover Policy 2012-2013 (ECF No. 14-8); Hanover Policy 2013-2014 (ECF No. 14-9) and ECF
No. 18 at 4.) The Hanover Policies provide:

(ECF Nos. 14-8 and 14-9 at 2 of 11.) Professional services is defined as “those services described
in Item 6. of the Declaration which you perform for others for a fee.” (Id. at 6 of 11.) Item 6 defines
professional services as “Franchisor of Retro Fitness Health Clubs.” (Id. at 1 of 2.) Wrongful act
is defined as “any actual or alleged negligent act, error, omission, or misstatement committed in
your professional services.” (Id. at 6 of 11.) However, the Hanover Policies do not apply to, in
part, claims “[a]rising out of false advertising, misrepresentation in advertising, antitrust, unfair
competition, restraint of trade, unfair or deceptive business practices, including but not limited to,
violations of any local, state or federal consumer protection laws.” (“Exclusion 11”). (Id. at 7 of
11.) The policy further provides:

underlying lawsuit (“Underlying Lawsuit”). (Am. Compl. (ECF No. 5) ¶¶ 18-21, ECF No. 18 at 5
n.1, Underlying Lawsuit Compl. (ECF No. 5-3).) This lawsuit will be explained in greater detail
below.

2

We have the right to investigate and the exclusive right to defend
any claim made under this policy, even if the allegations are
groundless, false or fraudulent until there is a final adjudication
against you. We are not obligated to defend any criminal
investigation, criminal proceeding or prosecution against you. If a
claim is not covered under this policy, we will have no duty to
defend it.
(Id. at 3 of 11.)
On approximately January 16, 2014, Joseph Ardino, Samantha Ardino, Krista DeFazio,
Scott Rticher, James Heaney and Phillip Mazucco (the “Underlying Plaintiffs”) filed a class action
complaint in the Superior Court of New Jersey, Middlesex County (the Underlying Lawsuit),
against Retrofitness, ABC Financial Services Company, Inc., Z Times Three LLC d/b/a
Retrofitness of Kenilworth, Britcarianna, LLC d/b/a Retrofitness Fairfield, PJ’s Fitness Express,
Inc. d/b/a Retrofitness of Bordentown; PRJ Holdings, LLC d/b/a Retrofitness of Wall, John/Jane
Does 1-100, Defendant Retrofitness Franchises 1-75, and XYZ Corporation 1-10 (the “Underlying
Defendants”). (ECF No. 5 ¶ 22 and ECF No. 5-3.) The complaint alleges the Underlying
Defendants violated the: (1) New Jersey Truth-in-Consumer Contract, Warranty and Notice Act
(“TCCWNA”); (2) New Jersey Retail Installment Sales Act (“RISA”); (3) New Jersey Consumer
Fraud Act (“NJCFA”); and (4) New Jersey Health Club Services Act (“HCSA”). (ECF No. 5 ¶ 23
and ECF No. 5-3.) Hanover Insurance alleges the Underlying Plaintiffs did not tender its defense
to and demand indemnification from Hanover Insurance for the Underlying Lawsuit. (ECF No. 5
¶ 30.)2

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Hanover Insurance was allegedly notified of the Essex County action and Retrofitness formally
tendered its defense to and demanded indemnification from Hanover Insurance under the Hanover
Policies. Hanover allegedly accepted the defense under a reservation of rights and acceded to
Retrofitness’ choice of independent counsel. (ECF No. 5 ¶ 29.)
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On March 30, 2016, Hanover Insurance commenced this action seeking declaratory relief
contending generally Hanover Insurance has no duty to defend or indemnify Retrofitness and other
defendants in connection with the Underlying Lawsuit. (See ECF No. 1.) On July 25, 2016,
Hanover Insurance filed an Amended Complaint dismissing all defendants but Retrofitness, still
seeking declaratory relief. (See ECF No. 5.) Specifically, the Amended Complaint contains eight
counts seeking declaratory judgment, only two of which are relevant to this Motion3: (1)
declaratory judgment based on the absence of “Wrongful Acts”; and (2) declaratory judgment
based on the Hanover Policies Exclusion 11. (ECF No. 5.)
On December 21, 2016, Hanover Insurance filed a Motion for Partial Judgment on the
Pleadings. (ECF No. 14.) Retrofitness opposes the Motion. (ECF No. 18.)
II.

LEGAL STANDARD
Federal Rule of Civil Procedure 12(c) provides: “After the pleadings are closed – but early

enough not to delay trial – a party may move for judgment on the pleadings.” Fed. R. Civ. P. 12(c).
Pursuant to Rule 12(c), the movant for judgment on the pleadings must establish: (1) that no
material issue of fact remains to be resolved; and (2) the entitlement to judgment as a matter of
law. See Rosenau, 539 F.3d at 221 (citing Jablonski, 863 F.2d at 290–91). In resolving a motion
made pursuant to Rule 12(c), the Court must view the facts in the pleadings and the inferences
therefrom in the light most favorable to the non-movant. See Rosenau, 539 F.3d at 221.

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Hanover Insurance only seeks partial judgment on the pleadings declaring it is not obligated to
defend Retrofitness based on two of the eight counts of its Amended Complaint, Count I and Count
IV. (See ECF No. 14-1 at 4 n.3.) Count I asks this Court to declare Hanover Insurance has no duty
to defend or indemnify Retrofitness in connection with the Underlying Lawsuit for acts that are
not “Wrongful Acts.” (ECF No. 5 ¶¶ 39-42.) Count IV asks this Court to declare Hanover
Insurance has no duty to defend or indemnify Retrofitness in the Underlying Lawsuit because all
of the underlying allegations arise out of violations of consumer protection laws, which are
excluded under Exclusion 11. (Id. ¶¶ 51-54.)
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Furthermore, even though a motion for judgment on the pleadings is appropriate after the
pleadings have been closed, such a motion is reviewed under the same standards that apply to a
motion to dismiss made under Rule 12(b)(6). See Szczurek v. Prof’l Mgmt. Inc., 627 F. App’x 57,
60 (3d Cir. 2015) (citing Revell v. Port Auth. of N.Y. & N.J., 598 F.3d 128, 134 (3d Cir. 2010));
see also Muhammad v. Sarkos, 2014 WL 4418059 (D.N.J. Sept. 8, 2014) (“Where a defendant’s
motion is one for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), it
is treated under the same standards as a Rule 12(b)(6) motion where it alleges that a plaintiff has
failed to state a claim.”) (citing Turbe v. Gov’t of V.I., 938 F.2d 427, 428 (3d Cir. 1991); Gebhart
v. Steffen, 574 F. App’x 156, 157 (3d Cir. 2014)).
“While a complaint attacked by a Rule 12[] motion . . . does not need detailed factual
allegations,” Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007), the “plaintiff’s obligation to
provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and
a formulaic recitation of the elements of a cause of action will not do.” Id. (citing Papasan v.
Allain, 478 U.S. 265, 286 (1986)). A court is “not bound to accept as true a legal conclusion
couched as a factual allegation.” Papasan, 478 U.S. at 286. Instead, assuming the factual
allegations in the complaint are true, those “[f]actual allegations must be enough to raise a right to
relief above the speculative level.” Twombly, 550 U.S. at 555.
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 570). “A claim has facial plausibility when the
pleaded factual content allows the court to draw the reasonable inference that the defendant is
liable for misconduct alleged.” Id. This “plausibility standard” requires the complaint allege “more
than a sheer possibility that a defendant has acted unlawfully,” but it “is not akin to a ‘probability

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requirement.’” Id. (citing Twombly, 550 U.S. at 556). “Detailed factual allegations” are not
required, but “more than ‘an unadorned, the defendant-harmed-me accusation” must be pled; it
must include “factual enhancements” and not just conclusory statements or a recitation of the
elements of a cause of action. Id. (citing Twombly, 550 U.S. at 555, 557).
“Determining whether a complaint states a plausible claim for relief [is] . . . a contextspecific task that requires the reviewing court to draw on its judicial experience and common
sense.” Iqbal, 556 U.S. at 679. “[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
‘show[n]’—‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
III.

DECISION
A. Rules of Insurance Policy Construction
The parties agree the Hanover Policies are to be construed under New Jersey law. (See ECF

No. 14-1 at 8 and ECF No. 18 at 7-10.) Under New Jersey law, the interpretation of an insurance
contract is a question of law. Simonetti v. Selective Ins. Co., 859 A.2d 694, 698 (N.J. Super. Ct.
App. Div. 2004).
“[W]hen interpreting an insurance contract, the basic rule is to determine the intention of
the parties from the language of the policy, giving effect to all parts so as to give a reasonable
meaning to the terms.” Id. (citing Stone v. Royal Ins. Co., 511 A.2d 717, 718 (N.J. Super. Ct. App.
Div. 1986); Tooker v. Hartford Acc. & Indemn. Co., 319 A.2d 743, 745-746 (N.J. Super. Ct. App.
Div. 1974)). Generally, “insurance policies are liberally construed to afford coverage that any fair
interpretation will allow.” Am. Wrecking Corp. v. Burlington Ins. Co., 946 A.2d 1084, 1088 (N.J.
Super. Ct. App. Div. 2008) (citing Longobardi v. Chubb Ins. Co. of N.J., 582 A.2d 1257, 1260
(N.J. 1990) (citation omitted)). “Consistent with that principle, courts also endeavor to interpret

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insurance contracts to accord with the objectively reasonable expectations of the insured.” Sealed
Air Corp. v. Royal Indem. Co., 961 A.2d 1195, 1203 (N.J. Super. Ct. App. Div. 2008) (citations
omitted).
Nevertheless, “the words of an insurance policy should be given their ordinary meaning,
and in the absence of ambiguity, a court should not engage in a strained construction to support
the imposition of liability.” Longobardi, 582 A.2d at 1260 (citation omitted); Simonetti, 859 A.2d
at 698 (“When the terms of the contract are clear and unambiguous, the court must enforce the
contract as it is written; the court cannot make a better contract for parties than the one that they
themselves agreed to.”) (citations omitted). The Court’s role is not to write for the insured “a better
policy of insurance than the one purchased.” Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 562
A.2d 208, 214 (N.J. 1989) (citation omitted). However, “[w]hen the provisions of the text, read
literally, would largely nullify the protections afforded by the policy, we restrict their meaning ‘so
as to enable fair fulfillment of the stated policy objective.’” Auto Lenders Acceptance Corp. v.
Gentilini Ford, Inc., 854 A.2d 378, 397 (N.J. 2004) (citation omitted).
However, where a genuine ambiguity exists, it must be resolved against the insurer. DiOrio
v. N.J. Mfrs. Ins. Co., 398 A.2d 1274, 1280 (N.J. 1979). If the language of the policy supports two
meanings, one favorable to the insurer and one favorable to the insured, the interpretation
supporting coverage must be applied. Corcoran v. Hartford Fire Ins. Co., 333 A.2d 293, 298 (N.J.
Super. Ct. App. Div. 1975). Nevertheless, an insurance policy is not ambiguous simply because
two conflicting interpretations have been offered by the parties. Rosario ex rel. v. Haywood, 799
A.2d 32, 37-38 (N.J. Super. Ct. App. Div. 2002) (citing Powell v. Alemaz, Inc., 760 A.2d 1141,
1147 (N.J. Super. Ct. App. Div. 2000)). “[I]n establishing ambiguity, the insured must do more
than suggest a possible alternative reading of the contract; it must also offer an ‘objectively

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reasonable reading of the disputed passage.’” Pittston Co. Ultramar Am. v. Allianz Ins. Co., 124
F.3d 508, 520 (3d Cir. 1997). A clear ambiguity exists when the “phrasing of the policy is so
confusing that the average policyholder cannot make out the boundaries of coverage.” Lee v. Gen.
Accident Ins. Co., 767 A.2d 985, 987 (N.J. Super. Ct. App. Div. 2001).
When exclusionary provisions are involved, it is well settled that the court should broadly
read coverage provisions, and narrowly read exclusionary provisions. Search EDP v. Am. Home
Assur., 632 A.2d 286, 289 (N.J. Super. Ct. App. Div.), certif. denied, 640 A.2d 848 (N.J. 1994);
Aviation Charters, Inc. v. Avemco Ins. Co., 763 A.2d 312, 314 (N.J. Super. Ct. App. Div. 2000),
aff’d as modified, 784 A.2d 712 (N.J. 2001). “However, exclusions are presumptively valid and
will be given effect if ‘specific, plain, clear, prominent, and not contrary to public policy.’”
Princeton Ins. Co. v. Chunmuang, 698 A.2d 9, 17 (N.J. 1997) (quoting Doto v. Russo, 1659 A.2d
1371, 1378 (N.J. 1995)). Therefore, “where the words of an exclusionary clause are clear and
unambiguous, ‘a court should not engage in a strained construction to support the imposition of
liability.’” Aviation Charters, Inc., 763 A.2d at 314 (quoting Longobardi, 582 A.2d at 1260; Cobra
Prods., Inc. v. Fed. Ins. Co., 722 A.2d 545, 549 (N.J. Super. Ct. App. Div. 1998), certif. denied,
733 A.2d 494 (N.J. 1999)).
Accordingly, the first step in examining an insurance policy is determining whether
ambiguity exists. Pittston Co. Ultramar Am., 124 F.3d at 520.
B. Analysis
Hanover Insurance argues it has no duty to defend Retrofitness in the Underlying Lawsuit
because the complaint in the Underlying Lawsuit does not state claims covered under the Hanover
Policies. (See ECF No. 14-1.) Specifically, Hanover Insurance argues (1) Exclusion 11 of the
Hanover Policies is “clear and unambiguous in excluding consumer protection claims, (2) the

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exclusion also precludes coverage for claims ‘arising out of’ consumer protection claims,” and (3)
the Underlying Lawsuit only alleges breaches of New Jersey consumer protection laws. (ECF No.
14-1 at 10.) It also argues there is no coverage for the NJCFA allegations in the Underlying
Complaint because “intent is an element of” the NJCFA and the Hanover Policies are limited to
claims arising from “Wrongful Acts,” which “is defined to mean only any actual or alleged
negligent act, error, omission, or misstatement committed in your professional service.” (Id. at 14
(citation omitted).)
Retrofitness does not dispute the claims in the Underlying Lawsuit are consumer protection
claims. (ECF No. 18 at 9.) However, it argues it had an objectively reasonable expectation the
Hanover Policies covered the claims in the Underlying Litigation, and as such Hanover Insurance’s
Motion should fail. (Id. at 7-10.) Retrofitness also argues coverage is not precluded under
Exclusion 11 or the definition of “Wrongful Act” because
[a]ny viable theory of liability attached to Retrofitness as a
franchisor in the Underlying Lawsuit would be based on a theory of
negligence or vicarious liability because, as franchisor, Retrofitness
does not engage directly with consumers, sell products or services
to consumers, or enter into any contractual agreements with
consumers. Notably, [the Underlying Plaintiffs] present a theory of
negligence in the Underlying Lawsuit, alleging that Retrofitness,
“prepared, drafted, dictated and/or controlled” the Membership
Agreements used by Retrofitness franchisees.
(Id. at 11.) Essentially, Retrofitness argues that because the Underlying Plaintiffs are by default
alleging Retrofitness was negligent in its duties as a franchisor, the allegations against Retrofitness
in the Underlying Lawsuit are covered under the Hanover Policies’ definition of “Wrongful Act”
and not excluded under Exclusion 11. (Id. at 11-12.) Lastly, Retrofitness argues determination on
the pleadings is premature because there are outstanding questions of material fact. (Id. at 17-18.)

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The Court recognizes the well-settled principles governing the interpretation of insurance
policies that mandate a broad reading of coverage provisions, narrow reading of exclusionary
provisions, resolution of ambiguities in the insured’s favor, and construction consistent with the
insured’s reasonable expectations. However, none of these principles warrant a finding that
Hanover Insurance is obligated to defend Retrofitness in the Underlying Lawsuit. The Hanover
Policies clearly state, “If a claim is not covered under this policy, we will have no duty to defend
it.” (ECF Nos. 14-8 and 14-9 at 3 of 11.) See Voorhees v. Preferred Mut. Ins. Co., 607 A.2d 1255,
1259 (N.J. 1992) (“[T]he duty to defend comes into being when the complaint states a claim
constituting a risk insured against. Whether an insurer has a duty to defend is determined by
comparing the allegations in the complaint with the language of the policy. When the two
correspond, the duty to defend arises, irrespective of the claim’s actual merit.” (citations omitted)).
Exclusion 11 is unambiguous and unequivocal and there is no inherent inconsistency between the
scope of the included risks and the excluded risks, and there is no indication that reading the
exclusion as written frustrates the insured’s reasonable expectations.
Exclusion 11 unambiguously and unequivocally provides the policy does not apply to
claims “[a]rising out of false advertising, misrepresentation in advertising, antitrust, unfair
competition, restraint of trade, unfair or deceptive business practices, including but not limited to,
violations of any local, state or federal consumer protection laws.” (ECF. No. 14-9 at 7 of 11
(emphasis added).) The phrase “arising out of”
which frequently appears in insurance policies, has been interpreted
expansively by New Jersey courts in insurance coverage litigation.
“The phrase ‘arising out of’ has been defined broadly in other
insurance coverage decisions to mean conduct ‘originating from,’
‘growing out of’ or having a ‘substantial nexus’ with the activity for
which coverage is provided.”

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Am. Motorists Ins. Co. v. L-C-A Sales Co., 713 A.2d 1007, 1010 (N.J. 1998) (citing Records v.
Aetna Life & Cas. Ins., 683 A.2d 834, 837 (N.J. Super. Ct. App. Div. 1996) (quoting Westchester
Fire Ins. Co. v. Cont’l Ins. Cos., 312 A.2d 664, 669 (N.J. Super. Ct. App. Div. 1973), aff’d o.b.,
319 A.2d 732 (N.J. 1974)), certif. denied, 700 A.2d 876 (N.J. 1997); see also Allstate Ins. Co. v.
Moraca, 581 A.2d 510, 514 n. 1 (N.J. Super. Ct. App. Div. 1990) (noting the exclusionary language
in the homeowner’s policy barring coverage for injuries “arising out of” ownership or use of motor
vehicle was enforceable if “accident or injury ‘was connected with,’ ‘had its origins in,’ ‘grew out
of,’ ‘flowed from,’ or ‘was incident to’ the use of an automobile”) (citation omitted)). Therefore,
Exclusion 11 excludes coverage for claims alleging direct violations of consumer protection laws
and claims of negligence “arising out of” violations of consumer protection laws.
In the Underlying Lawsuit, the Underlying Plaintiffs allege the franchisees and
Retrofitness violated the: (1) TCCWNA; (2) RISA; (3) NJCFA; and (4) HCSA. (ECF No.5-3 ¶¶
182-214.) All statutes are New Jersey consumer protection laws. The NJCFA “was intended to be
‘one of the strongest consumer protection laws in the nation.’” Smith v. Citimortgage, Inc., No.
15-7629, 2015 WL 12734793, at *6 (D.N.J. Dec. 22, 2015) (quoting Governor’s Press Release for
Assembly Bill No. 2402, at 1 (June 29, 1971); see also Gennari v. Weichert Co. Realtors, 691
A.2d 350, 364 (N.J. 1997) (“The history of the [NJCFA] is one of constant expansion of consumer
protection.”). “The TCCWNA, like NJCFA, is a statue consumer protection statute.” Gordon v.
United Cont’l Holding, Inc., 73 F. Supp. 3d 472, 480 (D.N.J. 2014); see N.J.S.A. § 56:12–16. It
was enacted “to prevent deceptive practices in consumer contracts by prohibiting the use of illegal
terms or warranties in consumer contracts.” Shelton v. Restaurant.com, Inc., 70 A.3d 544, 549
(N.J. 2013). The New Jersey Supreme Court in Perez v. Rent-A-Ctr., Inc., 892 A.2d 1255 (2006),
clarified on denial of reconsideration, 188 902 A.2d 1232 (N.J. 2006), characterized RISA as

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a

“consumer protection statute[].” Id. at 1257. The HCSA states, “[a] health club services contract
shall specifically set forth in a conspicuous manner on the first page of the contract the buyer’s
total payment obligation for health club services to be received pursuant to the contract.” N.J.S.A.
§ 56:8–42. It was enacted in 1987 to supplement the NJCFA, and thus is also a consumer protection
statute. Martina v. LA Fitness Int’l, LLC, No. 12-2063, 2012 WL 3822093, at *3 (D.N.J. Sept. 4,
2012); Truglio v. Planet Fitness, Inc., No. 15-7959, 2016 WL 4084030, at *4 (D.N.J. July 28,
2016), reconsideration denied, 2017 WL 1197813 (D.N.J. Mar. 31, 2017) (holding “HCSA is one
of several expansions to the [NJCFA] made by New Jersey’s Legislature, which were added ‘to
address particular areas of concern and to include them specifically within [the NJCFA’s]
protective sweep.’” (quoting Czar, Inc. v. Heath, 198 N.J. 195, 201 (2009))). Indeed, Retrofitness
does not dispute the claims in the Underlying Lawsuit are consumer protection claims. (ECF No.
18 at 9.) Because the allegations in the Underlying Lawsuit are for violations of New Jersey
consumer protection laws, the Court finds Hanover Insurance is not obligated to defend
Retrofitness in the Underlying Lawsuit.
Retrofitness’ argument that coverage is not precluded under Exclusion 11 because the
Underlying Plaintiffs are by default alleging Retrofitness was negligent in its duties as a franchisor,
and therefore the allegations against Retrofitness in the Underlying Lawsuit are covered under the
Hanover Policies’ definition of “Wrongful Act” and not excluded under Exclusion 11 (ECF No.
18 at 11-12), is without merit. Retrofitness’ argument that because it does not offer membership
agreements to the general public the allegations in the Underlying Lawsuit could only be for
negligence or vicarious liability, is also without merit. (Id. at 11.) Nowhere does the Underlying
Lawsuit seek relief on the basis of negligence against Retrofitness or allege negligence on the part
of Retrofitness. Instead, the Underlying Plaintiffs only seek the relief afforded by the four

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consumer protection statutes. Nonetheless, even if the Underlying Lawsuit alleged Retrofitness
was negligent or vicarious liable for actions “arising out of” the franchisees violations of the
consumer protection statutes, that too is excluded under Exclusion 11.
Retrofitness also argues that regardless of the exclusion, it had an objective reasonable
expectation the Hanover Policies covered the claims. (Id. at 7-10.) It further argues:
As a franchisor, Retrofitness may be subject to liability
arising out of the ‘special risk’ inherent in a franchisor/franchisee
relationship, i.e. the risk of being sued for its franchisees alleged bad
acts. This is precisely the risk against which Retrofitness sought to
protect itself by purchasing the Hanover Policies, and this is
precisely the type of cost for which it currently seeks coverage.
Accordingly, a reasonable interpretation of the Policies would
provide coverage, and as such, [Hanover Insurance’s] Motion for
Judgment on the Pleadings should fail.
(Id. at 10.) It also contends because the Hanover Policies provide coverage for claims “arising from
a wrongful act in the rendering or failure to render professional services by [Retrofitness]” and
professional services is defined as “Franchisor of Retro Fitness health Clubs,” Hanover Insurance
“cannot limit the scope of its coverage to a narrow definition of Retrofitness’ professional services
while simultaneously and conveniently attributing to Retrofitness a range of services so broad that
coverage does not apply in this instance.” (Id. at 11.) Retrofitness contends its expectation is
reasonable because this matter is analogous to Search EDP, Inc.. The Court does not agree.
First, Exclusion 11 is unambiguous and unequivocal and could be understood by anyone
who picked up the document and was able to read it. Morrison v. Am. Int’l Ins. Co. of Am., 887
A.2d 166, 170 (N.J. Super. Ct. App. Div. 2005) (stating that “[w]hen an insured purchases an
original policy of insurance he may be expected to read it and the law may fairly impose upon him
such restrictions, conditions and limitations as the average insured would ascertain from such

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reading”); see Edwards v. Prudential Prop. & Cas. Co., 814 A.2d 1115, 1120 (N.J. Super. Ct. App.
Div. 2003) (stating “an insured is chargeable with knowledge of the contents of an insurance policy
in the absence of fraud or inequitable conduct on the part of the carrier”) (citing Merchants Indem.
Corp. v. Eggleston, 179 A.2d 505, 508 (N.J. 1962)), certif. denied, 822 A.2d 608 (N.J. 2003)).
Even though Retrofitness alleges it procured the Hanover Policies to shield itself from the liability
arising out of the “special risk” inherent in a franchisor/franchisee relationship, coverage is
determined by what Retrofitness actually purchased and is what is written in the policy, not what it
hoped to purchase. Morrison, 887 A.2d at 170 (“[I]t is . . . well settled that notwithstanding the
unequal bargaining power between an insurance company an insured, [i]f the policy language is
clear, the policy should be interpreted as written.” (citations omitted)). There are countless of
causes of actions that may flow from the franchisor/franchisee relationship and may be covered,
however, consumer protection claims are explicitly excluded from coverage. Therefore, it was not
objectively reasonable for Retrofitness to expect the Hanover Policies to cover the Underlying
Lawsuit.
Second, in Search EDP, Inc., the insurance policy in dispute was an errors and omissions
policy that covered professional negligence, but excluded coverage for bodily injury. Search EDP,
Inc., 632 A.2d at 289-290. The plaintiff, who was insured under both a general liability insurance
policy and an errors and omissions policy issued by the defendant, hired an employee without
performing an adequate background check. Id. at 288. That employee subsequently committed an
assault against a co-worker, who sued, asserting her injuries were directly attributable to the
agency’s professional negligence. Id. The court concluded the agency had been professionally
negligent in failing to perform a background check, and that such negligence was the proximate
cause of the victim’s injuries. Id. at 289-90. The purpose of the errors and omissions policy was to

14

protect an insured who commits an act of professional negligence, but excluded coverage for
bodily injury arising from such negligence. Id. at 290. Thus, the court stated “[i]f an act of
professional negligence causes actionable damage to another, but if the insured’s right to protection
depends not on the nature of the act but rather on the nature of the resulting damage, we believe that
the stated policy objective would be substantially nullified.” Id. Therefore, the Search EDP, Inc.
court concluded the errors and omissions policy would “fulfill its stated objective only by reading
the bodily injury exclusion as excepting bodily injury claims alleged to have resulted from an act
of professional wrongdoing.” Id. Accordingly, the court found the victim’s damages were caused
by the agency’s professional negligence, and coverage was justified pursuant to the proximate cause
doctrine, notwithstanding a policy exclusion for bodily injury. Id. at 290-91.
Here, unlike Search EDP, Inc., at issue in the Underlying Lawsuit are alleged statutory
violations of consumer protection laws—not covered claims of professional negligence. This case
is more akin to Sherwood v. Kelido, Inc., No. A-1585-07T3, 2009 WL 1010988, at *1 (N.J. Super.
Ct. App. Div. Apr. 15, 2009) at *4-5, in which the court concluded the insured’s reliance on Search
EDP, Inc. was misplaced because in Search EDP, Inc. the court determined the victim’s damages
were caused by the agency’s professional negligence. In Sherwood, the peril that caused Daniel
Sherwood’s injuries was expressly excluded from coverage. Id. at *4. Therefore, the Court
concluded the actions that led to the peril were not covered under the policy. Id. Here, even
assuming Retrofitness was negligent in its oversight of the franchisees, the peril that caused the
alleged claims and damages of the Underlying Plaintiffs is expressly excluded from coverage
under Exclusion 11, unlike in the Search EDP, Inc. matter. Notably, there is no claim by the
franchisees for negligent supervision.

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The Court finds Exclusion 11 is unambiguous and unequivocal, there is no inherent
inconsistency between the scope of the included risks and the excluded risks, and there is no
indication that reading the exclusion as written frustrates the insured’s reasonable expectations.
Because the interpretation of an insurance contract is a question of law, Simonetti, 859 A.2d at
698, and the Court finds Exclusion 11 is unambiguous and unequivocal, no material issues of fact
remain to be resolved and Hanover Insurance is entitled to judgment as a matter of law. See
Rosenau, 539 F.3d at 221 (citing Jablonski, 863 F.2d at 290–91). Pursuant to Exclusion 11,
Hanover Insurance is not obligated to defend Retrofitness in the Underlying Lawsuit and therefore
Hanover Insurance’s Motion is GRANTED.4
IV.

CONCLUSION
For the reasons set forth above, Hanover Insurance’s Motion for Partial Judgment on the

Pleadings is GRANTED.

Date: September 29, 2017

/s/ Brian R. Martinotti
HON. BRIAN R. MARTINOTTI
UNITED STATES DISTRICT JUDGE

4

Hanover Insurance currently seeks partial judgment on the pleadings declaring it is not obligated
to defend Retrofitness based on two counts of its Amended Complaint, Count I and Count IV. (See
ECF No. 14-1.) Count I asks this Court to declare Hanover Insurance has no duty to defend
Retrofitness in connection with the Underlying Lawsuit for acts that are not “Wrongful Acts.”
(ECF No. 5 ¶¶ 39-42.) In its Motion, Hanover Insurance argues the NJCFA allegations in the
Underlying Lawsuit are not “Wrongful Acts” because they require intent. (ECF No. 14-1 at 1415.) Because the Court find’s Hanover Insurance is not obligated to defend Retrofitness pursuant
to Exclusion 11 (Count IV), it need not determine whether the NJFA falls within “Wrongful Acts”
(Count I). Indeed, Hanover Insurance admits “the affirmance of Hanover’s coverage position
merely on Count IV will dispose of this entire coverage action.” (ECF No. 14-1 at 4.)
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