Longobardi v. Chubb Ins. Co. of New Jersey

• Decision Date: 18 December 1990
• Citation: 121 N.J. 530,582 A.2d 1257
• Parties: George E. LONGOBARDI, Jr., Plaintiff-Respondent, v. CHUBB INSURANCE COMPANY OF NEW JERSEY, Chubb & Son, Inc., and Federal Insurance Company, Defendants-Appellants.
• Court: New Jersey Supreme Court

Page 530

121 N.J. 530

582 A.2d 1257

George E. LONGOBARDI, Jr., Plaintiff-Respondent, v. CHUBB INSURANCE COMPANY OF NEW JERSEY, Chubb & Son, Inc. and Federal Insurance Company, Defendants-Appellants.

Supreme Court of New Jersey.

Argued Sept. 24, 1990.

Decided Dec. 18, 1990.

Harry Robinson, III argued the cause for defendants-appellants (Gennet and Kallmann, Roseland, attorneys).

Leo B. Mazer, Closter, argued the cause for plaintiff-respondent.

Elmer M. Matthews, Newark, submitted a brief on behalf of amicus curiae, American Ins. Ass'n.

The opinion of the Court was delivered by

POLLOCK, J.

This case requires us to determine whether an insured's post-loss misrepresentation to his personal-property insurer justifies its denial of coverage. Based on a jury finding that the insured, George E. Longobardi, Jr. ("Longobardi" or "the insured"), had made such misrepresentations, the Law Division dismissed his complaint against the insurers, Chubb Insurance Company of New Jersey, Chubb & Son, Inc., and Federal Insurance Company (collectively referred to as "Chubb" or "the insurer"). The Appellate Division reversed and remanded, holding that a post-loss misstatement allows an insurer to avoid liability only if the insured made the misstatement with fraudulent intent, the misstatement meets a stringent test of materiality, and the insurer was in fact prejudiced. 234 N.J.Super. 2, 560 A.2d 68 (1989). We granted certification, 118 N.J. 178, 570 A.2d 949, and now reverse the judgment of the Appellate Division and reinstate the judgment of the Law Division. We hold that when an insurance policy clearly states that material misrepresentations will void the policy, the insurer need not pay the insured for an alleged loss if the insured makes a material misrepresentation to the insurer while it is investigating the claim.

-I-

For years Longobardi had collected objects of art, including a collection of Hummel figurines. Before insuring his collection with Chubb, he tried to insure it with two other insurance companies. At one point, Aetna Insurance Company (Aetna) issued a renter's policy with a personal articles floater. Later Aetna declined to continue coverage "due to the type of property and the high value," referring to Longobardi's jewelry. Longobardi then secured coverage from St. Paul Insurance Company (St. Paul), which issued a renter's policy and a "floater" covering plaintiff's jewelry. Later St. Paul insured part of Longobardi's fine-art and Hummel collections. He provided St. Paul with appraisals he had obtained from Steven Kitsakos, to whom he had been introduced by Frank Isgro, a fellow teacher at the high school where Longobardi taught English.

St. Paul subsequently notified Longobardi that it would not continue coverage on the Hummel figurines, but continued the renter's policy and the floater on the men's jewelry. On renewal, St. Paul increased the premium, and Longobardi discontinued the policy.

Through an insurance agent, plaintiff obtained a policy from Chubb in 1983. The policy contained a "concealment or fraud" provision that stated:

Concealment or Fraud: We do not provide coverage for any insured who has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance.

In early April 1984, Longobardi's home was burglarized while he was out of town. He reported the burglary to the police department and to the insurance agent. Thereafter, he submitted to the police a list of missing jewelry, fine-art objects, and Hummel figurines. About a week later, a Chubb claims adjuster interviewed Longobardi. Subsequently, Longobardi submitted a signed statement averring that he had "never made application to any insurance company, other than Chubb & Son, for my fine arts collection or my Hummel collection." This statement was false, as he had previously applied to St. Paul for such insurance.

On August 27, 1984, plaintiff submitted to an examination under oath conducted by Chubb's attorneys. He denied that he knew Kitsakos and that Kitsakos had ever provided him with a written appraisal. He also denied knowing Isgro. When Chubb's attorney confronted him with the fact that Isgro taught at Longobardi's school, Longobardi admitted that he knew of Isgro but stated that he did not know him personally. Those statements were false. In fact, Longobardi knew both men personally, and Isgro had introduced Longobardi to Kitsakos. Furthermore, Kitsakos had appraised Longobardi's collection in connection with the St. Paul application.

Longobardi further lied in denying that he had ever attempted to insure or had ever insured his Hummel figurines with St. Paul. He also lied by denying that he had ever had appraisals performed on the Hummel or fine-art collections before obtaining the appraisals submitted to Chubb. Longobardi sought to excuse those lies by saying that he felt Chubb had an accusatory "hidden agenda" at the examination and that he wanted to disassociate himself from Kitsakos and Isgro, whom he had come to consider "shady."

Chubb had good reason to be concerned about Longobardi's connection with Kitsakos and Isgro. To its knowledge, Kitsakos and Isgro had been involved in a series of schemes, for which they were later convicted of insurance fraud. The fraud consisted of preparing phony appraisals for procuring insurance on jewelry, fine art, and Hummel figurines. Kitsakos and Isgro would then assist the insureds in staging bogus burglaries to collect on the insurance. According to Chubb, it had already been "hit" with one of those fraudulent claims.

Chubb declined payment on Longobardi's policy. Longobardi then sued Chubb, seeking compensatory and punitive damages. Chubb denied liability on the policy, and asserted as an affirmative defense that Longobardi had made material misrepresentations of fact during his examination under oath. It also denied that a burglary had taken place, and asserted that Longobardi had made material misrepresentations in his application for insurance.

The jury found in answer to special interrogatories that Longobardi had been burglarized and had not conspired to defraud the insurance company. It further found that in his application for insurance, Longobardi had not made a material false statement. The jury found, however, that he had made "a material false statement during the examination under oath conducted by defendant, or the written statement * * * in an effort to or for the purpose of hindering, deflecting or misleading defendant in the course of its investigative process." Based on the jury's finding that Longobardi had made a material post-loss misstatement, the Law Division dismissed the complaint.

The Appellate Division reversed, entered a judgment on liability for Longobardi, and remanded for trial on damages. 234 N.J.Super. at 36, 560 A.2d 68. Finding the "concealment or fraud" clause ambiguous, the court construed the ambiguity in favor of coverage. Id. at 25, 560 A.2d 68. Further, the Appellate Division stated that a statement is material not if it is merely pertinent or germane, as the trial court stated in its charge, but only if it has "real importance or great consequences." Id. at 21-22, 560 A.2d 68. The court stated that Chubb could be excused from paying Longobardi only if his misrepresentations were prejudicial. Id. at 31, 560 A.2d 68. It then determined that Longobardi's misstatements were neither material nor prejudicial. Contrary to the Appellate Division, we find the policy not to be ambiguous, the insured's misstatements to be material, and proof of prejudice unnecessary.

-II-

Because of the jury's finding that Longobardi had not made a material false statement in his application for insurance, the only ground for denying coverage is his misstatements in the post-loss investigation.

-A-

We begin with an overview of the fundamental rules for interpreting insurance policies. As contracts of adhesion, such policies are subject to special rules of interpretation. Meier v. New Jersey Life Ins. Co., 101 N.J. 597, 611, 503 A.2d 862 (1986). Thus, we have said that "policies should be construed liberally in [the insured's] favor to the end that coverage is afforded 'to the full extent that any fair interpretation will allow.' " Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482, 170 A.2d 22 (1961) (quoting Danek v. Hommer, 28 N.J.Super. 68, 76, 100 A.2d 198 (App.Div.1953), aff'd, 15 N.J. 573, 105 A.2d 677 (1954)). Notwithstanding that premise, the words of an insurance policy should be given their ordinary meaning, and in the absence of an ambiguity, a court should not engage in a strained construction to support the imposition of liability. Brynildsen v. Ambassador Ins. Co., 113 N.J. Super. 514, 518, 274 A.2d 327 (Law Div.1971); see also Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 247, 405 A.2d 788 (1979) (ambiguity genuine if "phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage"). Although courts should construe insurance policies in favor of the insured, they "should not write for the insured a better policy of insurance than the one purchased." Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529, 562 A.2d 208 (1989).

With these principles in mind, we turn to the interpretation of the subject "concealment or fraud" clause, which mandates forfeiture by an "insured who has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance." Because the law disfavors forfeitures, Hampton v. Hartford Fire Ins. Co., 65 N.J.L. 265, 267, 47 A. 433 (E. & A. 1900), such clauses should be construed if possible to sustain coverage.

Before the 1980's, "concealment or fraud" clauses in New Jersey tracked the language of the standard fire policy mandated by N.J.S.A. 17:36-5.20, which provided:

This entire policy shall be void if, whether before or after a loss, the insured had wilfully concealed or...