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New Jersey Appellate Division Affirms That Insured Cannot Sue Title Agent for Allegedly Negligent Title Search Banner Image

New Jersey Appellate Division Affirms That Insured Cannot Sue Title Agent for Allegedly Negligent Title Search

Month: July 2017

New Jersey Appellate Division Affirms That Insured Cannot Sue Title Agent for Allegedly Negligent Title Search

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The New Jersey Appellate Division recently affirmed that an insured who received only a title commitment and title insurance policy did not have a cause of action against the policy-issuing agent for negligence or breach of contract if the agent omitted a prior mortgage.  See Russo v. PPN Title Agency, LLC, 2017 WL 3081709 (N.J. Super. Ct. App. Div. July 20, 2017).  In the case, the insured contracted to purchase a property and ordered a title commitment from defendant title agent.  Defendant ordered a title search from an abstractor, and the resulting report indicated that there were no mortgages on the property.  The insured then purchased the property and obtained a title insurance policy insuring title up to the amount of $275,000.  One year later, the insured contracted to sell the property but discovered that the prior owner had encumbered the property with a mortgage that had not been disclosed.  The outstanding balance on the prior mortgage was $341,017.76.  The insured made a claim, and the title insurance company paid him $275,000, which was the full amount of the policy but not enough to satisfy the prior mortgage.  The insured then brought an action against defendant for negligence in performing the title search and breach of contract.  The parties cross-moved for summary judgment and the trial court granted defendant’s motion.

On appeal, the Appellate Division affirmed the lower court’s decision, citing to the New Jersey Supreme Court decision in Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517 (1989).  There, the Supreme Court held that “a title company’s liability is limited to the policy and that company is not liable in tort for negligence in searching records. . . . If, however, the title company agrees to conduct a search and provide the insured with an abstract of title in addition to the policy, it may expose itself to liability for negligence as a title searcher in addition to its liability under the policy.”  In this matter, the insured had asked for a title commitment and title insurance policy, not an abstract of title, “and a negligent title search cannot be the basis of suit to recover damages beyond the policy limits.”  Instead, the Court found that defendant conducted the search for its own benefit and could not be held liable for the same.  Finally, the Court held that defendant’s duties were specifically controlled by the terms of the policy.  “The remedy available to plaintiff was for breach of contract.  Plaintiff received the full proceeds of the policy to compensate him for the negligent title search.  He is entitled to nothing more.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Kentucky Federal Court Rejects CFPB’s Kickback Claim Against Affiliated Business Arrangement

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The United States District Court for the Western District of Kentucky recently granted a law firm’s motion for summary judgment and held that its referrals of business to title agents it partially owned did not violate the Real Estate Settlement Procedures Act (“RESPA”).  See Consumer Fin. Prot. Bureau v. Borders & Borders, PLC, 2017 WL 2989183 (W.D. Ky. July 13, 2017).  There, a law firm established nine joint ventures with other real estate service providers.  When the firm closed on a transaction with a lender that did not have an affiliated title agency, the firm would refer the title insurance business to the joint venture affiliated with the transaction’s real estate agent.  The firm would disclose its relationship with the joint ventures at the time of the referral, inform borrowers that they could use other agencies, and did not receive any compensation other than income distributions given to the joint venture’s owners.  Nonetheless, HUD, and then the CFPB, began investigating the firm for violating RESPA’s anti-kickback provisions relating to these referrals.  See 12 U.S.C. 2607.  The CFPB then brought an action against the firm.

Both the firm and the CFPB moved for summary judgment.  The firm argued, among other things, that it did not violates RESPA’s prohibition on giving or receiving “any fee, kickback, or thing of value pursuant to any agreement or understanding . . . that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred in any person,” and that even if it did, it was protected by RESPA’s safe harbor for referrals to affiliated entities.  First, the Court rejected the firm’s argument that it did not receive a kickback or thing of value in exchange for referrals.  Testimony from both the firm’s attorneys and their partners in the joint ventures demonstrated that the joint venture partners received compensation in the form of ownership interest each time a referral was made to one of the jointly-owned title agents.

Second, the Court held that the firm nonetheless was protected by RESPA’s safe harbor provision, which protects referrals affiliated business arrangements so long as (i) a disclosure is made of the existence of the arrangement; (ii) the borrower is not required to use the affiliated entity; and (iii) the only thing of value received, other than payments expressly allowed by RESPA, are returns on the ownership interest.  See 12 U.S.C. 2607(c)(4)  The Court found that the firm’s arrangement with its joint ventures met all three parts of this test, and the referrals fell into RESPA’s safe harbor.

Notably, the Court in this matter did not apply the ten-factor test set forth by HUD in its 1996 Policy Statement regarding sham entities, which set the factors that should be considered in determining whether a joint venture is a “bona fide provider” of settlement services or a sham entity set up to avoid RESPA liability.  In 2013, the United State Court of Appeals for the Sixth Circuit—which includes Kentucky—held that it did not need to give this Policy Statement any deference and courts only need to look at the aforementioned three-part test found in RESPA.  See Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722 (6th Cir. 2013).  Accordingly, settlement service providers outside the Sixth Circuit should be aware that the ten-factor sham entity test may be applied in other jurisdictions.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Is Good Faith Retirement Enough to Terminate your Alimony Obligation?

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Not necessarily. In the recent case Henneberry v. Henneberry, the Appellate Division addressed whether an alimony obligor’s good faith retirement was sufficient to terminate or reduce his alimony obligation to his ex-wife.  Considering other factors such as the ex-husband’s assets and his lack of candor to the court, the court found that despite the fact that his retirement was made in good faith and his income would drastically decrease, the circumstances warranted maintaining his alimony at the original amount and continuing his obligation to maintain the full amount of life insurance coverage required by their settlement agreement.

In Henneberry, the ex-husband/alimony obligor appealed a July, 2015 Order which denied his request to eliminate alimony or, in the alternative, to conduct a plenary hearing to determine how much his obligation should be reduced.  The parties in the matter were married for 37 years and had two adult children. They divorced in 2007 and, as part of their settlement agreement, the ex-husband agreed to pay $1,750 in monthly alimony on a permanent basis.  He also agreed to maintain $300,000 in life insurance coverage as security for the alimony. If the alimony terminated, his insurance obligation would be reduced to $225,000 until either party died, per the terms of the agreement. The agreement further addressed retirement, and designated 63 as the agreed-upon “good faith retirement age” for the parties.

At the time of the divorce, the ex-husband, a fireman, was making $95,000 per year.  The ex-wife, a teacher, made $52,000.  Upon retirement at 65, he was making $125,000 and the ex-wife, who retired later that same year, was making $63,000.  Though 63 was designated in the agreement as a “good faith retirement age,” the ex-husband waited until he was 65 years old to stop working, which was the mandatory retirement age in the fire department at which he was employed.

Upon retirement, the ex-husband unilaterally reduced his life insurance coverage to $225,000 on the erroneous belief that alimony would automatically terminate upon his retirement.  He thereafter filed a motion to terminate his alimony.  As the ex-husband failed to provide prior and current Case Information Statements, the motion was denied without prejudice.  On a second attempt, the ex-husband supplied a current CIS, but failed to provide the prior ones.  Instead, the ex-wife attached them to her motion papers.

The Case Information Statements supplied by the ex-wife demonstrated that the ex-husband was not forthcoming with his full portfolio of assets.  For example, it showed that he had additional undisclosed properties and other assets, as well as additional streams of income from pension and Social Security benefits.

In denying the ex-husband’s motion, the trial court looked at the “central issue” of the obligor’s ability to pay.  Moreover, the trial court found that the ex-wife would not be able to meet her expenses, absent receipt of alimony.  Finding the ex-wife to be more credible, the court denied the ex-husband’s motion without ordering a plenary hearing.

On appeal, the ex-husband argued that the court erroneously considered his equitable distribution assets, that he demonstrated a good faith basis for his retirement and that, at a minimum, the trial court should have conducted a plenary hearing. In affirming the trial court’s ruling, the Appellate Division found there was no abuse of discretion.  The court further stated that a plenary hearing is not always required in the case of a good faith retirement, but only where the circumstances warrant one. Applying the Lepis v. Lepis standard, the court found that where there is a prima facie showing of changed circumstances, the court has the discretion to order a plenary hearing, but is not required to do so.  Moreover, the court found that the statute does not mandate a plenary hearing in all instances, further buttressing its conclusion.

In light of the court’s decision not to modify alimony based on good faith retirement, the court upheld the ex-husband’s obligation to maintain at least $300,000 in life insurance coverage. The court also affirmed the award of counsel fees, in part due to the ex-husband’s lack of candor to the court.

Had the ex-husband been forthcoming about his assets and income and supplied his Case Information Statements, would this case have had a different result? It is hard to say. What is clear is that even a retirement made in good faith may be insufficient to eliminate your alimony obligation.  The alimony statute provides a rebuttable presumption that good faith retirement shall terminate an alimony obligation, but that presumption was evidently rebutted here by the ex-husband’s extensive other assets. Surprisingly, the ex-husband’s presence in the workforce for 2 years beyond the agreed-upon “good faith retirement age” did not save his application.  Moreover, an applicant is not automatically entitled to a plenary hearing. This may be frustrating for applicants who are denied their “day in court” to demonstrate why alimony should be modified. The uncertainty produced by the case law on this issue can, however, be mitigated with a carefully crafted settlement agreement. Divorcing parties who are approaching retirement age should be especially cognizant of these issues.

 

Pennsylvania Superior Court Finds Ambiguity in Title Insurance Policy’s Description of the Insured Property Precludes Summary Judgment

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In an action arising out of a failed real estate transaction, the Superior Court of Pennsylvania vacated an order from the Court of Common Pleas denying appellant-insured’s motion for partial summary judgment and granting a cross-motion for summary judgment by appellee-title insurance company on appellant’s claims.  See Michael v. Stock, 2017 PA Super 99 (Super. Ct. 2017), reargument denied (June 13, 2017).  In Stock, the insured purchased what she believed were two lots (A and B).  However, the metes and bounds set forth in the insured’s title insurance commitment and deed only described Lot A.  She then attempted to sell both lots to a potential buyer.  Before closing, the potential buyer discovered that the insured did not have title to Lot B.  The buyer then withdrew from the transaction and sued the insured, who then filed a third-party complaint against the title insurance company that issued her a title insurance policy, alleging breach of the insurance policy and commitment (Count I); bad faith (Count II); breach of a contract to provide professional services (Count III); negligence (Count IV); and indemnification (Count V).  The insured filed a motion for partial summary judgment with respect to Counts I and II.  The title insurance company filed a cross-motion with respect to all five claims brought against it.  In denying the insured’s motion and granting the title insurance company’s cross-motion, the trial court found that the title insurance company did not have any obligation to the insured to indemnify or defend her title to Lot B because the policy insured only Lot A, and further, the insured could not recover on her claims for negligence and bad faith because the title insurance company had no duty to insure the title to Lot B.

On appeal, the insured argued that even though the commitment’s metes and bounds description covered only Lot A, there were ambiguities in the property descriptions in the policy.  Specifically, the insured noted the references in the enclosed schedules to “County Parcel Number 4-18-28” because, at the time the policy was issued, Tax Parcel Number 4-18-28 included both Lots A and B.  The appellate court found that the trial court’s rejection of the insured’s ambiguity argument regarding the import of “Parcel Number 4-18-28” did not, as the trial court conceded, completely resolve the question of coverage under the policy because “descriptions of property in an insurance policy must be construed with reference to the insured’s reasonable expectations regarding the coverage being purchased.”  The appellate court further noted that the title insurance company’s argument did not refute or otherwise address the insured’s argument that the title insurance company is estopped from denying coverage based on the metes and bounds because the erroneous description in the policy resulted from the title insurance company’s failure to discover that the two lots had merged into one tax parcel.  The appellate court held that the trial court erred in entering summary judgment on Count I in favor of the title insurance company, noting that there remained material issues of fact relating to the insured’s estoppel argument.

With respect to Count II, the trial court found that the title insurance company had a reasonable basis for denying the insured benefits because it had no duty to defend the insured for title discrepancies related to Lot B.  However, the appellate court found that the trial court misperceived the scope of the insured’s bad faith claim, because the insured’s claim was not limited to the title insurance company’s denial of coverage and refusal to provide policy benefits, but also complained regarding the alleged delay in the claims process before the title insurance company denied coverage.  Finally, the appellate court held that, because it vacated the trial court’s entry of summary judgment on the policy issue (Count I), the trial court must also further examine the insured’s claim that the title insurance company breached its duty to defend the insured in the lawsuit filed by the buyer.  This case serves as a warning to all underwriters just how far courts will go to find coverage, as well as a reminder of the need to be precise in property descriptions.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New Jersey Appellate Division Affirms That Refinancing Mortgage Should Be Granted Priority Over Life Estates Under the Principles of Replacement and Modification

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In a decision approved for publication on July 10, 2017, New Jersey’s Appellate Division held that if a lender holds a priority lien on a property and replaces it with a new mortgage via a refinancing, that new mortgage is entitled to priority regardless of the lender’s knowledge of other encumbrances so long as the intervening lienors are not materially prejudiced. See Ocwen Loan Servs., LLC v. Quinn, 2016 WL 6156209 (N.J. Super. Ct. App. Div. Oct. 24, 2016), cert. denied, 2017 WL 658798 (N.J. Feb. 13, 2017). There, defendants sold their property to their daughter in 2004 but retained life estates. In 2005, defendants and their daughter then entered into a $260,000 mortgage loan with IndyMac Bank, F.S.B. (“IndyMac”). In 2007, the daughter refinanced the 2005 mortgage and executed a $380,000 mortgage with IndyMac. However, defendants did not execute the 2007 mortgage. $265,269.45 of the proceeds from the 2007 mortgage satisfied the 2005 mortgage, and another $57,305.59 satisfied an unrelated 2006 mortgage.

In 2009, IndyMac filed a foreclosure action against the daughter. IndyMac later assigned the 2007 mortgage to plaintiff and plaintiff amended the complaint to add defendants. Among other things, plaintiff sought to equitably subrogate defendants’ life estate interests to the 2007 mortgage. The trial court granted plaintiff’s motion for summary judgment and held that defendants’ life estates were subject and subordinate to $260,000 of the 2007 mortgage.

On appeal, the Appellate Division affirmed the trial court’s decision. First, the Court held that the principles of replacement and modification, which are “technically distinguishable” from equitable subrogation, applied because the new mortgage was to the same lender as the prior mortgage. Accordingly, and unlike with equitable subrogation, “if a lender who holds a priority lien replaces it with a new mortgage via a refinancing, this replacement lien is given priority regardless of the lender’s knowledge of other encumbrances.” Instead, the relevant determination is whether the intervening lienor would be materially prejudiced by the replacement. Here, defendants previously had agreed to encumber the property with a $260,000 mortgage, and establishing the priority of the 2007 mortgage up to that amount would not prejudice them.

Second, the Court determined that a life estate should not be treated differently than a mortgage for purposes of equitable subrogation or replacement and modification. It affirmed that there is not a “meaningful distinction” between the types of encumbrances and that the presence or absence of material prejudice likewise should determine whether a mortgage should have priority over a life estate.

This decision continues a trend in recent years of courts expanding the doctrines of equitable subrogation and replacement and modification to protect lenders who pay off prior loans and mistakenly fail to gain priority. See Sovereign Bank v. Gillis, 432 N.J. Super. 36 (App. Div. 2013); In re Ricchi, 470 B.R. 715 (Bankr. D.N.J. 2012); HSBC Bank USA, N.A. v. Jasnic, 2011 WL 2410245 (N.J. Super. Ct. App. Div. May 20, 2011).

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

NJDEP Offers Relief from Strict Compliance with Direct Oversight Requirements for those Willing to Enter into Administrative Consent Orders

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The Site Remediation Reform Act (“SRRA”) authorizes Licensed Site Remediation Professionals (“LSRPs”) to oversee the remediation of contaminated sites, including selecting and implementing appropriate remedial actions based upon their own professional judgment.  However, if the party responsible for conducting remediation fails to complete the cleanup within mandatory timeframes, and in other limited circumstances, the SRRA authorizes the New Jersey Department of Environmental Protection (the “NJDEP” or “Department”) to undertake “Direct Oversight” of the work.   Although the Direct Oversight program imposes onerous requirements on remediating parties, it is our understanding that the Department may exercise discretion to provide relief for parties that come forward and demonstrate a willingness to come into compliance and move forward with remediation.

Representatives of the Department have said since the beginning of the LSRP Program that “being in Direct Oversight is not a place you want to be.”  Those remediating parties that find themselves in Direct Oversight are subject to additional regulatory requirements, financial obligations and potentially significant penalties.  Furthermore, parties in Direct Oversight lose the ability to choose their own remedies as the NJDEP has the ultimate right to select the remedial action for the site, which could result in a more costly and involved remediation.  During Riker Danzig’s annual Site Remediation Seminar earlier this year, Assistant Commissioner Mark Pedersen encouraged those parties that find themselves subject to Direct Oversight to proactively contact the Department to initiate discussions regarding how the subject site will be managed.  He noted that remediating parties may “earn” adjustments to the Direct Oversight requirements through demonstrating the willingness and ability to comply with the agency’s requirements.  Assistant Commissioner Pedersen also noted the Department’s willingness to enter into “pre-purchase Administrative Consent Orders (“ACOs”)” with potential purchasers of contaminated sites subject to Direct Oversight to reduce the requirements for these parties that agree to remediate the site.  This poses a win-win situation in that the potential purchaser receives leniency from the rather draconian Direct Oversight rules and the NJDEP obtains compliance and comfort that the contaminated site will be remediated appropriately.

More recently, we have learned that the Department may enter into ACOs with qualifying responsible parties, wherein the responsible party will agree to remediate under relaxed Direct Oversight requirements.  Prior to entering into the ACO, the responsible party must prepare and submit to the Department a public participation plan, establish a remediation funding source (“RFS”) in the form of a Remediation Trust Fund and agree to pay a penalty.  If the responsible party meets particular timeframes set forth in the ACO, the Department then adjusts the Direct Oversight requirements.  These adjustments may include 1) the ability to use any form of RFS except for a self-guarantee, 2) no requirement to perform a remedial action feasibility study, and 3) the ability for an LSRP, as opposed to NJDEP, to select the remedy for the site.  These adjustments could significantly reduce the costs associated with Direct Oversight and put the decision-making back into the hands of the responsible party through its LSRP.  As such, responsible parties subject to Direct Oversight should consider a proactive approach to compliance and seeking a favorable ACO with the Department.

For more information, please contact the author Jaan Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.

New Jersey Chancery Division Holds That Courts Cannot Appoint Custodial Receivers in Foreclosure Actions of Single-Family Residential Dwellings

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In a noteworthy decision that was approved for publication on June 29, 2017, the New Jersey Chancery Division held that the appointment of a custodial receiver in a foreclosure action of a single-family home or condominium would run counter to the purpose of the Fair Foreclosure Act (“FFA”) (N.J.S.A. 2A:50-03 et seq.) and the FFA’s required notices and other procedures providing homeowners with opportunities to cure foreclosure defaults and keep their homes. See Wilmington Savings Fund Society v. Zimmerman, 2017 WL 2806292 (N.J. Super. Ct. App. Div. Mar. 6, 2017).

In the case, Wilmington Savings Fund Society (“Wilmington Savings”) sought to have a custodial receiver appointed in its foreclosure of a single-family residence. In support of its motion for the appointment, the lender asked the Court to apply a five-factor test. See Scott T. Tross, New Jersey Foreclosure Law & Practice, § 8-4:1 at 146 (2001 ed.). The factors were 1) the inadequacy of the security to satisfy the debt; 2) the inability of the mortgagor to satisfy any deficiency or the absence of personal liability on the part of the mortgagor in connection with the mortgage debt; 3) the failure by the mortgagor to pay taxes or insurance premiums; 4) evidence of waste or misappropriation of rents; and 5) the mortgagor’s failure to make interest payments. The Court concluded that even if it chose to apply the five factors, the first four did not weigh in favor of appointing a receiver in this case and, therefore, the appointment of a receiver would be improper.

The Court further held that it was not equitable to appoint a custodial receiver in this case. Wilmington Savings was assigned this mortgage seven years after the loan went into default. Therefore, the Court found that Wilmington Savings knew or should have known that the security was inadequate to satisfy the debt. Wilmington Savings was not the original mortgagee and therefore not entitled to the same equitable expectation of repayment that the original party would have been entitled. The Court also cited Kaufman v. 53 Duncan Investors, L.P., 368 N.J. Super. 501 (App. Div. 2004) to illustrate that the basis for the appointment of a receiver is a written contractual agreement. The Court found in this case that the mortgagor never agreed in writing to a custodial receiver.

Finally, the most significant holding for lenders was that, although the Court stated that a “homeowner must have agreed to the appointment of a custodial receiver as evidenced by a written statement in the mortgage documents before a custodial receiver can be appointed,” it then proceeded to hold that any such appointment of a custodial receiver nonetheless would be barred by the FFA for single-family homes or condominium units. The Court stated that the appointment of a custodial receiver in a residential foreclosure action would restrict homeowners from saving their homes, which would undermine the very purpose of the Act. While the Court noted that the FFA does allow for an accelerated procedure for properties in foreclosure that are abandoned or have an aggregate amount of liens that exceed 92% of the fair market value of the property, the Court did not determine whether Wilmington Savings had the right to this procedure. This case is a cautionary tale for lenders that they need to act promptly to protect their rights to collateral and use proper statutory remedies.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Illinois Federal Court Denies Bad Faith Claim Against Title Insurance Company and Holds Exclusion 3(a) May Apply to Bar Breach of Contract Claim

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The United States District Court for the Northern District of Illinois recently dismissed an insured lender’s bad faith claim against a title insurance company and held that Exclusion 3(a) of the policy may bar the lender’s breach of contract claim.  See Bank of Am., N.A. v. Chicago Title Ins. Co., 2017 WL 2215012 (N.D. Ill. May 18, 2017).  In the case, a developer purchased property to build a shopping center.  As part of the transaction, it sold land to an anchor tenant and entered into an agreement whereby it agreed to reimburse the tenant for a portion of the tenant’s property tax.  The agreement further provided the tenant with lien rights if the developer failed to pay the reimbursement, and that this obligation “shall be a covenant which shall run with the land and bind [the developer’s] grantees, successors and assigns including provisions regarding the . . . tax.”  A separate agreement provided that this lien would be subordinate to any first mortgage on the property.  These agreements were recorded before plaintiff lender’s mortgage on the property, and defendant title insurance company issued a title policy to plaintiff.  After the developer defaulted on its loan with plaintiff, plaintiff initiated a foreclosure action in which it sought to extinguish the tenant’s lien.  Although the trial court granted plaintiff’s motion for summary judgment, an appellate court held that plaintiff’s mortgage had priority over the tenant’s lien but that tenant’s lien was not extinguished by the action and ran with the land because plaintiff had actual knowledge of it before it recorded its mortgage.

Plaintiff then initiated this action against defendant title insurance company, claiming that the existence of the tenant’s lien reduced the value of the property by $1,780,000.  It alleged both breach of contract and bad faith against defendant.  Defendant moved to dismiss the bad faith claim, and plaintiff cross-moved to dismiss defendant’s counterclaim and affirmative defense, both of which alleged that plaintiff’s breach of contract claim is barred by Exclusion 3(a) of the policy, which excludes coverage for defects “created, suffered, assumed or agreed to by the insured claimant.”  First, the Court granted defendant’s motion to dismiss the bad faith claim.  Although Illinois’s Insurance Code has a bad faith provision, the Code specifically exempts title insurance companies, and Illinois’s separate title insurance act does not provide for bad faith claims.  Thus, plaintiff was required to “allege a tort independent from a breach of the policy” but did not do so.  Second, the Court denied plaintiff’s motion to dismiss defendant’s 3(a) counterclaim and affirmative defenses.  The Court held that plaintiff was aware of the developer’s agreements with the tenant and agreed to record its mortgage after the agreements so long as the mortgage had priority.  “[H]owever, priority does not equal extinguishment.”  Moreover, the Court rejected plaintiff’s claim that 3(a) only excludes intentional or wrongful acts, holding that at least one of the cases cited by plaintiff in its cross-motion applied 3(a) when the insured “either expressly or impliedly assumed or agreed to the defects or encumbrances[.]”  Accordingly, defendant pled enough facts to survive the motion to dismiss.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

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