New Jersey Law

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It is Not Bad Faith For Insurer to Sue to Rescind Policy Due to Material Misrepresentation in Insurance Application After Defending Underlying Case for Two Years.

On January 19, in Nova Casualty Company v. Col-Mor Apartments the court granted summary judgment to the plaintiff insurer on the counter-claim which alleged bad faith. The court concluded that there was legitimate basis for the suit for rescission, and therefore, even though there might be a question whether the insurer might be estopped from asserting its claim after having defended the case for over two years, the claim did not amount to bad faith. In the suit, Nova Casualty Company sought rescission of a property and liability insurance policy issued to Defendant Col-Mor Apartments, Inc. Nova had been funding part of Col-Mor’s defense costs in a state court action in which a group of tenants alleged that the defendant “knowingly provided drinking water contaminated with uranium and radium” to them. Nova alleged in this action that Col-Mor made material misrepresentations as to its knowledge of the uranium contamination in its application for insurance coverage. Accordingly, Nova alleges that misrepresentation provides them the right to rescind its policies or allows them to reform the agreements so that Plaintiff bears no obligation to continue to defend or to indemnify the defendant in the state court lawsuit. In a counter-claim, Col-Mor asserted that Nova was acting in bad faith by suing for rescission after providing for part of Defendant’s defense over two years of litigation. In its motion to dismiss the counterclaim Nova argued that if its allegations are true, and Defendant lied in its application to obtain liability coverage, Defendant was never entitled to those funds. In ruling for the Plaintiff insurer, the Court stated: “Defendant’s argument – that Plaintiff violated its rights by suing it for injunctive relief – is a position unmoored from both New Jersey law and from common sense.” The Court concluded that the New Jersey Supreme Court would not deny an insurance company its due process rights to sue for a declaration rescinding an insurance agreement where there is a basis to seek such relief. The Court went on to note, however, that the two years of funding the defense of the underlying litigation may be relevant to an estoppel defense, it does not amount to bad faith under New Jersey law. The counter claim was, therefore, dismissed. DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis, Lehrer & Flaum, PC is a full service law firm in New Jersey which provides a broad range of legal services, including the representation of clients in insurance coverage matters. For additional information about the matters in this bulletin or in the firm’s insurance practice, please contactSteven A. Kunzman, Esq. who heads our Insurance Coverage Group. The information contained in this blog is intended solely for informational purposes; it is a advertising publication of DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis, Lehrer & Flaum P.C.This publication is intended to alert recipients of developments in the law and is not intended to provide legal counsel, advice or opinion on any specific facts or circumstances. The contents are intended as general information only. You are urged to consult a member of this firm or your own attorney concerning your particular situation and any specific legal questions you might have.

CATEGORIES: Insurance Law

DiFrancesco, Bateman, Kunzman, Davis, Lehrer & Flaum PC (http://www.dbnjlawblog.com) 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.

The information contained in this blog is intended solely for informational purposes; it is a advertising publication of DiFrancesco, Bateman, Kunzman, Davis, Lehrer & Flaum P.C.This publication is intended to alert recipients of developments in the law and is not intended to provide legal counsel, advice or opinion on any specific facts or circumstances. The contents are intended as general information only. You are urged to consult a member of this firm or your own attorney concerning your particular situation and any specific legal questions you might have.