Insurance Policy Equitably Reformed – Coverage Denial Not Bad Faith

In a recent unreported decision, Rodriguez v. New Jersey Underwriting Ass’n, the New Jersey Appellate Division affirmed a decision reforming a homeowner’s insurance policy on equitable grounds. In the case, Diomedes Gonzales deeded his home to his former non-marital partner, Rosa Rodriguez. Prior to the transfer, Gonzalez had purchased insurance from NJUIA. Although neither the mortgage holder nor the insurer were informed of the transfer, all payments were made on both from February 2000 until the time of an accidental fire which destroyed the house on September 2004. NJUIA denied coverage on the basis that Gonzalez did not have an insurable interest in the home. Plaintiffs, Gonzalez and Rodriguez, instituted a declaratory judgment action seeking reformation of the policy and payment of the loss. The trial judge held that reformation was appropriate on equitable grounds, finding that NJUIA’s collection of premiums coupled with its failure to refund the premiums after declining the claim made it an appropriate case for policy reformation. The Court also justified the decision by concluding that NJUIA’s actions constituted unjust enrichment, and that there was no “gamesmanship” or fraud by the plaintiffs. After the trial and award of coverage, plaintiffs filed a motion to be able to assert a claim against NJUIA for breach of the covenant of good faith and fair dealing. In affirming the denial of the motion, the Court restated the reasoning of Picket v. Lloyds, 131 N.J. 457, 67 (1993) that a finding of bad faith requires there to be no “fairly debatable” reason for denial of a claim or where there is an unreasonable delay in processing a claim. Since the decision of NJUIA to deny the claim was “fairly debatable” there was no basis for a claim of bad faith to be sustained; therefore the denial of the motion was affirmed. DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis & Lehrer, PC is a full service law firm in New Jersey which provides a broad range of legal services, including the representation of insurance companies in coverage matters. For additional information about the matters in this bulletin or in the firm’s Insurance Coverage Practice, please contact Steven A. Kunzman, Esq.

CATEGORIES: Insurance Law

DiFrancesco, Bateman, Kunzman, Davis, Lehrer & Flaum PC ( is a full service law firm in New Jersey which provides a broad range of legal services. For additional information about the matters in this bulletin or in the firm’s Employment Practice, please contact Richard P. Flaum, Esq.

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