RSI Bank v. Providence Mut. Fire Ins. Co.
| Decision Date | 07 August 2018 |
| Docket Number | A-68 September Term 2016,079116 |
| Citation | 234 N.J. 459,191 A.3d 629 |
| Parties | RSI BANK, a New Jersey Banking Corporation, Plaintiff, v. The PROVIDENCE MUTUAL FIRE INSURANCE COMPANY, Defendant Third-Party Plaintiff-Respondent, v. Dr. George Likakis, Third-Party Defendant-Appellant. |
| Court | New Jersey Supreme Court |
Allen N. Papp, Woodbridge, argued the cause for appellant (Adams, Cassese & Papp, attorneys; Allen N. Papp, on the briefs).
Marc L. Dembling, Edison, argued the cause for respondent (Methfessel & Werbel, attorneys; Marc L. Dembling, of counsel and on the brief, and Danielle N. Singer, on the brief).
When a criminal defendant is admitted into pretrial intervention (PTI), the court may impose on that defendant the obligation to pay restitution to the victim of his or her alleged offense as a condition of PTI. In accordance with the PTI program's rehabilitative goal, the PTI court holds a hearing to determine the participant's ability to pay and orders the participant to pay a specific amount. Evidence of a restitution obligation imposed as a condition of PTI is inadmissible in any subsequent civil or criminal proceeding against the defendant.
This appeal arises from the trial court's reliance on an indemnification obligation, designated by a PTI court as a condition of PTI, as dispositive evidence in a civil dispute. Third-party defendant Dr. George Likakis was charged with aggravated arson and insurance fraud after a fire destroyed a residential building that he owned. When Likakis was admitted into PTI, the PTI court required him to pay a specific amount in restitution to his insurer, defendant/third-party plaintiff The Providence Mutual Fire Insurance Company (Providence), based on Providence's prior insurance payments to plaintiff RSI Bank, holder of a mortgage on the property. The PTI court also ordered Likakis to indemnify Providence and hold it harmless for its undetermined future liability to RSI Bank arising from the fire. The PTI court thus imposed on Likakis an unquantified restitution requirement, without first determining that Likakis could meet such an obligation.
During his one-year period of PTI supervision, Likakis paid Providence the specified restitution amount but did not indemnify Providence or hold it harmless for any additional liability to RSI Bank. With the prosecutor's consent and with no discussion of the indemnification provision, the PTI court terminated Likakis's PTI supervision and dismissed his indictment.
In this insurance coverage litigation, Providence relied on the indemnification provision of Likakis's PTI agreement in its third-party complaint against Likakis. It settled its claims with RSI Bank for $353,536.90, and sought to recover $243,890.60 from Likakis on the basis of the indemnification provision. The trial court enforced the provision and entered judgment in Providence's favor against Likakis. An Appellate Division panel affirmed that determination.
In appropriate settings, a PTI court's imposition of restitution as a condition of PTI furthers the participant's rehabilitation as it compensates the victim of the alleged offense. A PTI court, however, may include a restitution condition in a PTI agreement only if it can quantify the financial obligation and assess the participant's current and prospective ability to meet that obligation. An open-ended agreement to indemnify the victim of the participant's alleged offense for unspecified future losses is not an appropriate condition of PTI. Moreover, a restitution condition of PTI is inadmissible as evidence in a subsequent civil proceeding against the PTI participant. The indemnification provision of Likakis's PTI agreement should have played no role in this civil litigation.
Accordingly, we hold that the trial court erred when it entered judgment in favor of Providence. We reverse the Appellate Division's judgment and remand the matter to the trial court for further proceedings.
We derive our summary of the facts from the record presented to the trial court in this matter.
Pursuant to a Mortgage and Security Agreement dated October 14, 2003, RSI Bank held a first-priority mortgage on several properties as collateral for a $700,000 loan to Perth Amboy Professional Center, LLC, a limited liability corporation owned by Likakis. One of the properties subject to the mortgage was a residential property located at 519 New Brunswick Avenue in Perth Amboy (the Property).
On June 21, 2011, Providence issued a commercial liability policy to Likakis and Perth Amboy Professional Center, LLC, which covered the Property. The policy, in effect from August 20, 2011 to August 20, 2012, named RSI Bank as first mortgagee/loss payee. The policy obligated Providence to "pay for covered loss of or damage to buildings or structures to each mortgageholder shown in the Declarations in their order of precedence, as interests may appear." It included the following provision:
On August 28, 2011, Hurricane Irene caused a flood that substantially damaged the roof and basement of the residential building on the Property. On January 6, 2012, the building was virtually destroyed in a fire. It was eventually condemned and demolished. Witnesses told investigators that they had seen Likakis, wearing latex gloves and carrying a heavy package, on the Property the day before the fire. Investigators attributed the fire to arson.
Following the fire, Likakis submitted insurance claims to Providence based on flood and fire damage to the Property. RSI Bank, in its capacity as mortgage holder and loss payee, also submitted claims to Providence for flood and fire damage to the Property. Following a "thorough investigation," Providence denied both sets of claims.
Providence's denial of coverage prompted the filing of two actions in the Law Division. The first was filed by Likakis's dental practice, Dr. George Likakis, DDS, and Perth Amboy Professional Center, LLC. In that action, the plaintiffs alleged that Providence had denied coverage in bad faith.
The second action was the lawsuit that gave rise to this appeal. In that case, RSI Bank asserted against Providence claims for breach of contract, fraudulent misrepresentation, violations of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -210, and bad faith. Providence filed a third-party complaint against Likakis, alleging claims based on both common law and contractual indemnification.
Both civil lawsuits -- Likakis's action against Providence, and RSI Bank's action against Providence in which Likakis was named as a third-party defendant -- were pending when the Middlesex County Prosecutor's Office commenced criminal proceedings against Likakis.
On May 23, 2013, a Middlesex County grand jury indicted Likakis on one count of second-degree aggravated arson, N.J.S.A. 2C:17-1(a), one count of third-degree insurance fraud based on false statements of material fact, N.J.S.A. 2C:21-4.6(a)(1), and one count of third-degree insurance fraud based on omission of material facts, N.J.S.A. 2C:21-4.6(a)(1).
Likakis applied for admission into the Middlesex Vicinage's PTI program. On April 30, 2014, the PTI Director recommended that Likakis be admitted into PTI. In the PTI Recommendation, the Director noted the fire investigator's conclusion that the fire resulted from arson and stated that witnesses implicated Likakis in that arson. The PTI Director stated, however, that the incident represented the only charge for an indictable offense in Likakis's history, and deemed the fire to be an "isolated event."
The PTI Director concluded that Likakis would benefit from supervised treatment. She told the PTI court that although Likakis was indicted for a second-degree offense, "the victim, [Providence], does not object to the defendant's enrollment into PTI as long as" Likakis satisfied three conditions: restitution in the amount of $11,321.89, representing the insurance proceeds already paid to RSI Bank; Likakis's commitment to "protect/compensate [Providence] from any and all claims that may be brought against [Providence] by RSI Bank as the result of the ... fire"; and the dismissal with prejudice of Likakis's lawsuit against Providence. The prosecutor consented to those terms.
The PTI court approved Likakis's admission into PTI. On May 14, 2014, the court entered an order postponing further proceedings in Likakis's criminal matter for a period of one year, and setting forth the standard and special conditions of his PTI supervision.1 With Likakis's consent -- but no assessment of his ability to pay -- the court also imposed the three conditions of PTI that Providence had requested. First, Likakis was required to pay Providence $11,321.89 in monthly installments of $1000 per month. Second, Likakis was ordered to "[p]rotect/compensate, indemnify and hold harmless [Providence] from any and all claims that may be brought against [Providence] by RSI Bank."2 Third, Likakis was required to dismiss his civil action against Providence with prejudice.
At a hearing before the PTI judge, at which Providence was not represented, the prosecutor confirmed Likakis's agreement to those terms. The prosecutor stated that the terms "indemnify, hold harmless, compensate" meant that Likakis would not "pursue now or ever any claim against [Providence] regarding the loss and the...
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