BAYSHORE RECYCLING CORPORATION v. ACE AMERICAN INSURANCE COMPANY complaint
Content
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UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
____________________________________
:
BAYSHORE RECYCLING
:
CORPORATION,
:
:
Plaintiff,
:
:
CIVIL ACTION NO.:
vs.
:
:
JURY TRIAL DEMANDED
ACE AMERICAN INSURANCE
:
COMPANY,
:
:
Defendant.
:
____________________________________:
COMPLAINT
Plaintiff Bayshore Recycling Corporation (“Bayshore”), by its undersigned counsel,
brings this action against Defendant ACE American Insurance Company (“ACE”), and in
support therefor, alleges as follows:
THE NATURE OF THIS ACTION
1.
Bayshore brings this insurance coverage action against ACE for declaratory
judgment, damages for breach of contract, and punitive damages for bad faith claims handling.
Bayshore seeks to have this Court declare Bayshore’s rights under ACE Policy EPR N05110713
(the “ACE Policy”) for loss and damage caused by Named Storm Sandy at the Bayshore Facility.
Specifically, Bayshore seeks a declaration of its rights under the (i) Property Damage (ii)
Demolition and Increased Cost of Construction and (iii) Loss Adjustment Expenses coverages of
the ACE Policy. Bayshore also seeks damages for breach of contract for ACE’s refusal to pay
and affirmative renouncement of its obligation to pay amounts owed under the ACE Policy, and
punitive damages for ACE’s bad faith claims handling.
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2.
The Bayshore Facility is a 55 acre complex in Keasbey, New Jersey, at which
Bayshore engages in a number of operations, primarily involving recycling of construction
materials and debris.
3.
Flooding from Named Storm Sandy damaged buildings at the Bayshore Facility,
and damaged various electrical equipment in those buildings. On October 29, 2012, fire
destroyed the Maintenance Shop. The damage from Named Storm Sandy at the Bayshore
Facility will be referred to as the “Sandy Damage.”
4.
Bayshore gave ACE timely notice of the Sandy Damage and sought full coverage
for all loss and damage caused by Named Storm Sandy.
5.
Over the course of the next 26 months, ACE purported to investigate Bayshore’s
loss. During that period, the parties disagreed as to elements of Bayshore’s claim, including the
cost to replace the electrical equipment and the Maintenance Shop.
6.
The ACE Policy obligates ACE to pay the Actual Cash Value of destroyed
property to permit Bayshore to finance rebuilding, and then obligates ACE to pay the
Replacement Cost of rebuilt property if Bayshore rebuilds within two years of the date of loss.
7.
ACE, having failed to agree throughout 2013 on the amount of damage to the
Maintenance Shop, eventually agreed to submit that issue to an appraisal panel, which issued its
ruling on December 2, 2013. The panel reached conclusions as to the amount of the Actual Cash
Value as well as the Replacement Cost of the Maintenance Shop.
8.
In January 2014, ACE advanced monies representing the Actual Cash Value of
the Maintenance Shop and, in February 2014, gave Bayshore permission to demolish the
Maintenance Shop.
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9.
Throughout 2013, the parties also disagreed on the cost to replace damaged
electrical equipment, with their estimates of the repair cost differing by about $1,500,000. By
early 2014, ACE had advanced only its, much lower, estimate of the cost to replace this
equipment.
10.
The ACE Policy also obligates ACE to pay for the increased cost of
reconstruction of property on account of the enforcement of any law or ordinance regulating the
construction, repair, or use of property (“Demolition and Increased Cost of Construction
coverage”). The Federal Emergency Management Agency (“FEMA”) has indicated that its rules
require changes to the Maintenance Shop when reconstructed, which will cause Bayshore to
incur substantial additional reconstruction costs.
11.
Through 2014, the parties continued to differ on the cost to replace electrical
equipment, whether ACE would pay to bring the rebuilt Maintenance Shop up to code under the
Demolition and Increased Cost of Construction coverage, the proper application of the
Deductibles provision of the ACE Policy, and other elements of the Sandy Damage.
12.
On April 25, 2014, there was another, far more massive fire at the Bayshore
Facility. The loss and damage from that fire is also insured by ACE, under another policy. After
the April 25, 2014 fire, ACE’s coverage positions in relation to Bayshore’s rights to insurance
coverage for the Sandy Damage under the ACE Policy hardened, and ACE became increasingly
unwilling to pay anything, or commit to paying anything, for the outstanding elements of
Bayshore’s claim.
13.
In December 2014, ACE informed Bayshore that, as more than 2 years had
elapsed from the date of Named Storm Sandy, ACE was denying coverage for the Replacement
Cost of the Maintenance Shop. ACE further refused to agree that it would pay the increased cost
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to bring the Maintenance Shop in compliance with FEMA rules under the Demolition and
Increased Cost of Construction coverage, reiterated its continued refusal to pay for the electrical
equipment, and reaffirmed its improper application of the Deductibles provision.
14.
ACE’s December 2014 denial of coverage for Replacement Cost is a breach of
the ACE Policy because replacement of the Maintenance Shop was impossible at least until ACE
paid Actual Cash Value and permitted demolition of the Maintenance Shop. Further, ACE’s
coverage positions have made it commercially impossible for Bayshore to reconstruct the
Maintenance Shop, as Bayshore would risk incurring millions of dollars which ACE has not
agreed to pay. Indeed, replacement of the Maintenance Shop will remain impossible for
Bayshore until ACE commits to paying what it owes under the Demolition and Increased Cost of
Construction coverage and agrees to the proper interpretation of the Deductibles provision.
15.
Bayshore has brought this Complaint for declaratory relief as to its rights under
the ACE Policy to recover Replacement Cost and Demolition and Increased Cost of Construction
coverage, full coverage for the electrical equipment and other property, Loss Adjustment
Expenses incurred to measure the scope of damage to the electrical equipment, and the proper
application of the Deductibles provision. Bayshore further seeks declaratory relief that ACE, on
account of its conduct, is precluded from arguing that its obligation to pay any of those amounts
is relieved by any putative time limits in the ACE Policy. Bayshore also seeks damages for
ACE’s breach of the ACE Policy, and exemplary damages for ACE’s bad faith claims handling.
THE PARTIES
16.
Bayshore is a New Jersey company with its principal place of business in
Keasbey, New Jersey.
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17.
Upon information and belief, ACE is an insurance company incorporated under
the laws of Pennsylvania with its principal place of business in Philadelphia, Pennsylvania.
JURISDICTION AND VENUE
18.
This Court has jurisdiction over this matter under 28 U.S.C. § 1332 as there is
complete diversity of citizenship between the parties and the amount in controversy exceeds
$75,000.
19.
Venue is proper in this District under 28 U.S.C. § 1391 because a substantial
portion of the events giving rise to this lawsuit took place within this District and the property
which is the subject matter of this litigation is located in this District.
FACTUAL BACKGROUND
A.
The ACE Policy
20.
The ACE Policy provides $40,000,000 in insurance coverage “per occurrence
excess of deductibles” for loss and damage arising from occurrences in the policy period
February 16, 2012 through February 16, 2013. ACE Policy, at Declarations. A copy of the ACE
Policy is attached as Exhibit A hereto.
21.
Bayshore paid $192,709 for the ACE Policy (ACE Policy, at Declarations), which
constitutes all premium due under the ACE Policy.
1.
22.
Deductibles
The Deductibles provision in the ACE Policy states as follows:
A.
Each claim for loss, damage, or expenses arising out of one occurrence
shall be adjusted separately and from the amount of such adjusted claim shall be
deducted the sum of:
PROPERTY DAMAGE:
…. Flood Peril – Zone
A, V and Subzones
$25,000 except:
2% of the total insurable values at risk per location
subject to a minimum of $100,000
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…. B. As respects FEMA Zones A or V or 100 Year Flood Zones (including all
subzones), the deductible amounts specified in Clause A. above shall be excess of
available National Flood Insurance Program (NFIP) coverage, whether purchased
or not, being $500,000 for Buildings, $500,000 for Contents and $100,000 for
Business Interruption.
C.
If two or more deductible amounts in this policy apply to a single
occurrence, the total to be deducted shall not exceed the largest deductible
applicable, however, Property Damage and Time Element deductibles shall be
applied separately.
ACE Policy, at § 5.
2.
23.
Property Damage
The Property Damage provision for Real and Personal Property in the ACE Policy
states:
The interest of all real and personal property (including improvements and
betterments) owned, used, or intended for use by the Insured included Personal
property of Others in the insured’s Care Custody and Control, or hereafter
acquired and including Property owned by the Insured while in course of
construction, erection, installation and assembly, all while at locations insured
hereunder as per schedule on file with the Company.
ACE Policy, at § 8.A.
3.
24.
Valuation
The Valuation provision of the ACE Policy states:
B.
Buildings and structures, buildings equipment, plant equipment,
machinery, machinery parts, tools, dies, patterns, office furniture, fixtures, and
equipment and improvements and betterments.
The amount actually expended by or in behalf of the Insured to repair, rebuild or
replace, within a reasonable time, at the same or at another site, such property
which as [sic] been damaged or destroyed by an insured peril, subject to the
following conditions.
Liability hereunder shall not exceed the smallest of the following:
The costs to repair, rebuild or replace on the same site with new materials of like
kind and quality, whichever is the smallest;
The actual expenditures incurred in repairing, rebuilding or replacing on the same
or another site within the same country, whichever is smallest;
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In the event of loss or damage to such property that is not repaired, rebuilt or
replaced within (2) years from original date of loss, the basis of recovery shall be
the actual cash value of the property at the time of loss with proper deduction for
depreciation, and shall in no event exceed what it would then cost to repair or
replace the property with material of like kind and quality within a reasonable
time after such a loss.
It is agreed, however, that the damaged or destroyed property has been replaced
for the purpose of this valuation basis whenever the Insured expends an
equivalent amount for any such property (other than maintenance) for use in the
Insured’s business.
ACE Policy, at § 12.B.
4.
25.
Demolition and Increased Cost of Construction
The Demolition and Increased Cost of Construction provision in the ACE Policy
reads as follows:
In the event of loss or damage under this policy that causes the enforcement of
any law or ordinance regulating the construction, repair, or use of property, the
Company shall be liable for:
…C. increased cost of repair or reconstruction of the damaged and undamaged
property on the same or another site within the same country and limited to the
minimum requirements of such law or ordinance regulating the repair or
reconstruction of the damaged property on the same site. However, this Company
shall not be liable for any increased cost of construction loss unless the damaged
facility is actually rebuilt and repaired.
ACE Policy, as § 19. The ACE Policy provides a $5,000,000 limit for Demolition and Increased
Cost of Construction. ACE Policy, as § 3.
5.
Loss Adjustment Expenses
26.
The Loss Adjustment Expenses provision in the ACE Policy reads as follows:
31.
LOSS ADJUSTMENT EXPENSES
This policy is extended to include expenses incurred by the Insured, or by the
Insured’s representatives for preparing and certifying Company requested details
of a claim resulting from a loss which would be payable under this policy. Public
Adjuster’s fees and legal fees are not covered.
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A CE Policy, as § 31. The ACE Policy provides a $500,000 limit for Loss Adjustment
Expenses. ACE Policy, as § 3.
6.
Underlying Insurance
27.
The ACE Policy contains the following Underlying Insurance provision:
22.
UNDERLYING INSURANCE
A.
Underlying insurance is insurance on all or any part of the deductible and
against all or any of the perils covered by this policy including declarations of
value to the carrier for hire. The existence of such underlying insurance shall not
prejudice or affect any recovery otherwise payable under this policy.
B.
If the limits of such underlying insurance exceed the deductible amount
which would apply in the event of loss under this policy, then that portion which
exceeds such a deductible amount shall be considered “other insurance.”
ACE Policy, as § 22.
7.
28.
Other Insurance
The Commercial Property Conditions in the ACE Policy contain the following
“Other Insurance” condition:
This Coverage Part is subject to the following conditions, the Common Policy
Conditions and applicable Loss Conditions and Additional Conditions in
Commercial Property Coverage Forms.
…. G. OTHER INSURANCE
1.
You may have other insurance subject to the same plan, terms, conditions
and provisions as the insurance under this Coverage Part. If you do, we will pay
our share of the covered loss or damage. Our share is the proportion that the
applicable Limit of Insurance under this Coverage Part bears to the Limits of
Insurance of all insurance covering on the same basis.
2.
If there is other insurance covering the same loss or damage, other than
that described in 1. above, we will pay only for the amount of covered loss or
damage in excess of the amount due from that other insurance, whether you can
collect on it or not. But we will not pay more than the applicable Limit of
Insurance.
ACE Policy, at Commercial Property Conditions, G.
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29.
The ACE Policy contains another “Other Insurance” provision which states as
follows:
23.
OTHER INSURANCE
This policy may be issued in conjunction with certain other insurance policies
written by or provided by the Company. In the event such other insurance
policies provide coverage for loss or damage also covered under this policy,
coverage hereunder shall be excess and the limits of liability stated herein shall be
inclusive of the limits provided by such other insurance policies and not in
addition thereto.
ACE Policy, as § 23. In contrast to the former provision, this provision is limited to coverage
sold by “the Company” – i.e., ACE.
8.
Suit Limitation
30.
The ACE Policy contains the following suit limitation:
D.
LEGAL ACTION AGAINST US
No one may bring a legal action against us under this Coverage Part unless:
1.
and
There has been full compliance with all of the terms of this Coverage part;
2.
The action is brought within 2 years after the date on which the direct
physical loss or damage occurred.
ACE Policy, at Commercial Property Conditions, D.
31.
Further, Section 43 of the ACE Policy provides:
43.
LEGAL ACTION AGAINST THE COMPANY
No suit or action on this policy for the recovery of any claim shall be sustainable
in any court of law or equity unless the Insured shall have fully complied with all
the requirements of this policy. The Company agrees that any action or
proceeding against it for recovery of any loss under this policy shall not be barred
if commenced within the time prescribed therefor in the statutes of the state of
New York.
ACE Policy, as § 43. Under New York law, the suit limitation in a property policy is deemed to
be two years unless a longer period is provided.
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B.
Bayshore’s Claim and ACE’s Bad Faith Refusal To Pay
32.
Named Storm Sandy damaged buildings and equipment in buildings, at the
Bayshore Facility and completely destroyed the Maintenance Shop. Immediately after Named
Storm Sandy, it was obvious to all parties that it would cost many millions of dollars for
Bayshore to replace the destroyed property. Indeed, despite wrongfully denying its obligations
to pay millions of dollars from Bayshore, ACE has valued the loss at more than $5,000,000.
33.
Bayshore gave timely notice to ACE of the Sandy Damage.
34.
At all times after Named Storm Sandy, Bayshore was intent on rebuilding the
Maintenance Shop as quickly as possible, as soon as the insurance issues were resolved and
Bayshore could have certainty as to what costs it incurred in such reconstruction would be paid
by ACE.
35.
ACE hired Adam Eggleston of Crawford and Company, in Schaumberg Illinois,
to adjust the loss. In turn, Mr. Eggleston hired experts from Chicago, Illinois to analyze and
measure the damage. These experts visited the site and inspected the damage on multiple
occasions.
36.
ACE advanced $450,000 on December 3, 2012.
37.
On December 6, 2012, Bayshore, through its public adjuster Phil Melillo,
provided Crawford with estimates to repair and replace the buildings damaged by Named Storm
Sandy. The total was approximately $2,000,000. Bayshore’s construction expert was CMR
Construction Corporation of Kinnelon, NJ.
38.
In December 2012, FEMA ruled that the Maintenance Shop, when rebuilt, would
need to be raised 5 feet to comply with FEMA’s rules and regulations.
39.
On December 20, 2012, Crawford provided the estimate of its contractor –
Technacon, of Mundelein, Illinois – to repair and rebuild buildings damaged by Named Storm
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Sandy: approximately $900,000. This estimate was artificially low in that Crawford’s Illinois
builder did not incorporate terms and conditions upon which New Jersey contractors would
insist.
40.
Crawford submitted a revised estimate of the costs to repair and replace damaged
buildings on February 26, 2013, of approximately $1,000,000.
41.
As this amount was still unacceptable, in March 2013, Bayshore suggested the
parties appraise the amount of the loss due to damage to the buildings. ACE rejected this
proposal.
42.
ACE advanced an additional $500,000 on May 7, 2013, for a total of $950,000.
43.
The parties continued to debate the value of the damage through the summer of
2013. On August 13, 2013, Bayshore demanded appraisal of the damage to the Maintenance
Shop. ACE rejected the demand on a technical ground, demanding that Bayshore first submit a
proof of loss. Bayshore submitted the proof of loss, ACE rejected it, and, finally, the parties
went to appraisal in late 2013.
44.
ACE advanced an additional $740,982.09 on August 12, 2013, for a total of
$1,690,982.09.
45.
In October 2013, Bayshore submitted the estimate of a Little Falls, New Jersey
firm to replace the electrical equipment, which was approximately $4,375,000.
46.
ACE advanced an additional $418,680.55 on October 28, 2013, for a total of
$2,109,662.64.
47.
In November 2013, Crawford submitted its estimate of the damage to electrical
equipment, done by a firm in Greenwich, Connecticut, which was approximately $1,877,000.
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48.
On December 2, 2013, the Appraisal Panel issued an Award on the Building
damage to the Maintenance Shop, finding the Actual Cash Value of the Maintenance Shop to be
$815,009 and the Replacement Cost to be $1,004,417.
49.
Reflecting that Award, ACE provided another advance in January 2014, of
$989,836.83, bringing its total payment to just over $3,099,499.47.
50.
With the Actual Cash Value of the Maintenance Shop settled by the appraisal
Award, in February 2014, Bayshore repeatedly tried to get ACE to permit it to demolish that
building, by informing Bayshore whether ACE, prior to demolition, wanted to salvage the burnt
equipment therein. On February 7, 2014, ACE confirmed that it would permit demolition of the
Maintenance Shop.
51.
In February 2014, Bayshore revised its estimate for electrical equipment to
approximately $3,481,765.92.
52.
ACE provided an additional advance on April 8, 2014 of $50,991.81, for a total of
$3,150,491.28.
53.
On April 25, 2014, Bayshore suffered another fire at its complex. The damage
from this fire, which is covered under another policy sold by ACE, will cost tens of millions of
dollars to repair.
54.
ACE provided an additional advance on August 12, 2014 of $157,270.16 for a
total of $3,307,761.44.
55.
Through 2014, the parties exchanged a number of emails regarding the proper
application of the Deductibles provision in the ACE Policy.
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56.
By letter of August 26, 2014, Mr. Eggleston reaffirmed ACE’s position that
Section A and Section B of the Deductibles provision in the ACE Policy were cumulative, and
that Bayshore’s total property damage deductible was $1,952,123.
57.
In August 2014, Bayshore obtained an estimate of the cost to bring the
Maintenance Shop up to code; that estimate was $1,354,386.05. That estimate provided:
According to FEMA most recent flood hazard data the above referenced rebuilding site
has current effective flood elevation 9 ft. (NAVD88), and lies in flood zone ‘AE’, the
proposed Base Flood elevation (BFE) by FEMA is 13 ft. (NAVD), in addition to that the
new construction should have 1 foot of freeboard for flood protection. The existing
building site will be raised 5 feet as per FEMA’s current guidelines.
58.
In early September, Mr. Melillo sought an extension of “the 2 year time limit” in
the ACE Policy. Hearing nothing, Mr. Melillo followed up later in the month.
59.
After receiving a September 15, 2014 email forwarding an opinion of David B.
Miller of Harbor Companies which took the position that the ACE Policy applies only the higher
of two separate deductibles set forth in Sections 5.A and 5.B, Vince Milligan of Starr Technical
Risks Agency (“Starr”) reaffirmed that ACE viewed those sections of the Deductibles provision
as cumulative and not alternative.
60.
In October, Mr. Eggleston finally responded to Bayshore’s request for an
extension of time, stating “I have received communication from the insurer, granting a six
month extension of time to file- and they will consider a possible further extension if needed at
that time.”
61.
From September through December 2014, Bayshore sought an answer as to
whether ACE would pay for the code upgrades in the Maintenance Shop, and ACE refused to
respond.
62.
By email of December 1, 2014, William Cilente provided Mr. Milligan with a
coverage opinion drafted by Robert M. Sullivan, which stated that ACE’s position that Sections
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A and B of the Deductible were to be cumulated ignored Sections 22 (“Underlying Insurance”)
and 23 (“Other Insurance”):
In the instant fact pattern, the NFIP policy would fall squarely within the
definition of “underlying insurance” as defined in Section 22. The NFIP limits
clearly would be insurance coverage for all or part of the deductible. In Part B, of
Section 22, the policy provides that if any such underlying insurance exceeds the
amount of any deductible, that portion which exceeds such a deductible amount
shall be considered “other insurance.” As the “underlying insurance,” the NFIP
layer, exceeds the 2% deductible amount of $952,123 by $47,877, this latter
amount is also “considered” to be “other insurance.”
This opinion relied on New Jersey law requiring courts to give effect to all provisions in an
insurance policy, with Mr. Sullivan noting that ACE’s position did not give effect to the
Underlying Insurance provision which stated that underlying insurance “shall not prejudice or
affect any recovery otherwise payable under the policy.”
63.
By letter of December 8, 2014, Mr. Milligan of Starr sent a letter in which he
denied elements of Bayshore’s claim, and in which he refused to commit to paying other
elements of Bayshore’s claim until after Bayshore rebuilt the Maintenance Shop. Mr. Milligan
first stated:
More than two years have passed since Sandy and ACE wishes to conclude this
claim. Accordingly, ACE requests that the insured present a final claim inclusive
of all property damage, including all additional amounts sought with regard to the
damage to the maintenance shop at the premises.
This letter notes the “pending dispute with regard to the applicable deductible,” then states that
“the information provided in this email does not even reflect the entirety of other issues that
remain unresolved.”
64.
As to the other open coverage items, Starr first noted “the adjustment differences
noted to the electrical/motors component of the claim.”
65.
Second, as to Replacement Cost, the letter noted:
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The damage to the maintenance shop building was appraised at $1,004,417.92
replacement cost and $815,009.35 actual cash value. ACE remitted payment for
the actual cash value as determined in appraisal. The insured, however, has not
provided any information as to whether it plans to rebuild the maintenance shop,
or when such work will take place.
Citing the Valuation provision of the ACE Policy, the letter noted that, “[b]ecause more than two
years have passed since the date of loss, recovery for damage to the maintenance shop would be
limited to the actual cash value of the maintenance shop, as determined during the appraisal
process and paid by ACE.”
66.
Third, noting the code upgrade estimate of $1,354,386, which Bayshore had
provided in August, this letter quoted the Demolition and Increased Cost of Construction
provision, and stated:
Thus, in order to recover under the “Demolition and Increased Cost of
Construction” clause for increased costs to repair property, the insured must show
that: 1) there was an event of loss or damage under the Policy; 2) there was an
ordinance or law that regulated the repair, construction, repair or use of the
property; 3) the event of loss or damage caused the enforcement of the law or
ordinance regulating the construction, repair, or use of property; 3) [sic] the
damaged property was actually rebuilt or replaced; and 4) [sic] the insured
incurred increased costs.
Accordingly, there is no coverage for increased costs unless the FEMA
regulations have been enforced with regard to repair and/or reconstruction of the
maintenance shop and the insured has actually rebuilt the maintenance shop,
incurring the increased costs of complying with the FEMA regulations. For this
reason, we require the submission of a formal claim outlining these details.
67.
During its adjustment of Bayshore’s claim, ACE also denied coverage for, or
refused to pay, a number of other items, including the full replacement value of destroyed tools
($22,169.10), the amount owed for damage to uniforms ($81,747.22), the full value of destroyed
tanks ($7840.00), and the Loss Adjustment Expenses to compute the cost to repair and replace
destroyed electrical equipment ($43,502.54).
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C.
Outstanding Claim Elements
68.
ACE has refused to pay the following elements of Bayshore’s claim:
$189,408.58
the difference between the Actual Cash Value found by the
appraisal panel ($815,009.34) and the Replacement Cost
found by that panel ($1,004,417.92)
$952,123.00
the amount of the deductible ACE has claimed in excess of
the actual deductible and other insurance applicable,
$1,000,000
$1,354,386.05
the estimated cost to ensure that the rebuilt Maintenance
Shop complies with FEMA’s rules and regulations
$1,604,817.10
the difference in the estimate of the cost to repair electrical
equipment by Bayshore’s contractor ($3,481,765.92) and
$1,876,948.80, the amount ACE has paid for that work
$43,502.54
costs to calculate the scope of the damage to electrical
equipment from Named Storm Sandy
$81,747.22
the outstanding amount for uniforms destroyed by Named
Storm Sandy
$7,840.00
the outstanding amount for tanks destroyed by Named
Storm Sandy
$22,169.10
the amount owed for replacement of tools destroyed by
Named Storm Sandy
_________________
$4,255,993.59
Total owed by ACE
THE CONTROVERSY
69.
Based on the above circumstances, a justiciable case and controversy exists about
Bayshore’s rights to coverage for the Sandy Damage under the ACE Policy.
70.
Specifically, ACE has: (1) refused to pay $952,123, which it asserts is within the
deductibles owed by Bayshore; (2) refused to pay $81,747.22, the outstanding amount for
uniforms destroyed by Named Storm Sandy; (3) refused to pay $7,840.00, the outstanding
amount for tanks destroyed by Named Storm Sandy; (4) refused to pay $22,169,10, the full
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replacement cost of tools destroyed by Named Storm Sandy; (5) denied its obligation to pay
$189,408.58, the difference between the Actual Cash Value of the Maintenance Shop found by
the appraisal panel and the Replacement Cost of the Maintenance Shop found by that panel; (6)
refused to pay the difference in the estimate of the cost to repair electrical equipment by
Bayshore’s contractor and the amount ACE has paid for that work, namely $1,604,817.10; (7)
refused to state whether it would pay the cost to ensure that the rebuilt Maintenance Shop
complies with FEMA’s rules and regulations, estimated to be $1,354,386.05; and (8) refused to
pay $43,502.54, the Loss Adjustment Expenses incurred by Bayshore to calculate damage to
electrical equipment destroyed by Named Storm Sandy.
71.
Bayshore now seeks a declaratory judgment from this Court finding that ACE is
obligated to provide insurance proceeds to Bayshore for its claim for loss and damage due to
Named Storm Sandy.
72.
Further, Bayshore seeks damages for ACE’s breach of the ACE Policy, and
punitive and exemplary damages for ACE’s bad faith claims handling practices.
COUNT I – Declaratory Judgment
73.
Bayshore repeats, realleges and incorporates herein by reference each and every
allegation contained in Paragraphs 1 through 72 of this Complaint, as though fully set forth
herein.
74.
An actual and justiciable controversy has arisen between Bayshore and ACE
concerning ACE’s obligations under the ACE Policy.
75.
Bayshore seeks, and is entitled to receive, a judicial determination of its rights
under the ACE Policy and ACE’s obligations to indemnify Bayshore. Specifically, Bayshore
seeks a declaration:
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(1) that ACE must pay the full Replacement Cost of the Maintenance Shop, and
that ACE, by its conduct, is prohibited from asserting its obligation to pay this
amount is relieved by any time limit in the ACE Policy;
(2) that ACE’s denial of coverage for the Replacement Cost of the Maintenance
Shop constitutes a breach of the ACE Policy;
(3) that ACE must pay the outstanding amounts for uniforms, tanks and tools
destroyed by Named Storm Sandy;
(4) that ACE’s refusal to pay the outstanding amounts for uniforms, tanks and
tools destroyed by Named Storm Sandy constitutes a breach of the ACE Policy;
(5) that ACE must pay the full Replacement Cost of the electrical equipment
destroyed by Named Storm Sandy, and that ACE, by its conduct, is prohibited
from asserting its obligation to pay this amount is relieved by any time limit in the
ACE Policy;
(6) that ACE must pay the full cost of rebuilding the Maintenance Shop to comply
with FEMA rules and regulations, and that ACE, by its conduct, is prohibited
from asserting its obligation to pay this amount is relieved by any time limit in the
ACE Policy;
(7) that ACE must pay the Loss Adjustment Expenses incurred by Bayshore to
calculate damage to electrical equipment;
(8) that ACE’s refusal to pay the Loss Adjustment Expenses incurred by Bayshore
to calculate damage to electrical equipment constitutes a breach of the ACE
Policy; and
(9) that under a proper interpretation of the ACE Policy Bayshore must absorb
only $1,000,000 under the Deductibles and Other Insurance provisions of the
ACE Policy.
76.
Judicial declarations are necessary and appropriate at this time in order that
Bayshore and ACE may ascertain their rights and obligations under the ACE Policy.
COUNT II – Breach of Contract
77.
Bayshore repeats, realleges and incorporates herein by reference each and every
allegation contained in Paragraphs 1 through 76 of this Complaint, as though fully set forth
herein.
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78.
Bayshore has provided timely and sufficient notice and duly performed all the
terms and conditions under the Policy, including any and all conditions precedent, and/or ACE
has waived its right to enforce, or is estopped from enforcing, such terms and conditions.
79.
ACE has breached the ACE Policy by wrongfully refusing to recognize and
affirmatively renouncing its obligation to indemnify Bayshore for the covered losses described
above.
80.
Bayshore has suffered losses as a direct and proximate result of ACE’s breach of
its contractual obligations under the ACE Policy, in an amount to be proved at trial.
81.
Further, Bayshore has suffered consequential damages as a result of ACE’s
breach of contract, in an amount to proven at trial.
COUNT III – Bad Faith Claims Handling
82.
Bayshore repeats, realleges and incorporates herein by reference each and every
allegation contained in Paragraphs 1 through 81 of this Complaint, as though fully set forth
herein.
83.
The ACE Policy contains an implied covenant of good faith and fair dealing that
imposed upon ACE an obligation not to do anything to injure the rights of Bayshore to receive
the benefits of the ACE Policy.
84.
ACE has engaged in bad faith claims handling practices by delaying adjustment
of Bayshore’s claim and by delaying payment of covered elements of that claim.
85.
ACE has engaged in bad faith claims handling practices by wrongfully failing or
refusing, without proper justification, to recognize its obligation to indemnify Bayshore for
covered losses.
86.
ACE has also engaged in bad faith claims handling practices by: misrepresenting
the meaning of certain provisions of the ACE Policy; failing to acknowledge and act reasonably
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promptly upon communications with respect to claims; failing to conduct a meaningful and
timely investigation of Bayshore’s claims; failing to advise Bayshore regarding available
coverage; and compelling Bayshore to institute litigation to recover amounts due under the ACE
Policy.
87.
ACE’s bad faith claims handling practices set forth above were committed
knowingly or with a reckless disregard for its obligation to process and pay Bayshore’s claims in
good faith.
88.
As a direct and proximate result of ACE’s bad faith claims handling practices and
breaches of its fiduciary duties, Bayshore has suffered damages and consequential damages.
89.
ACE has consciously engaged in egregious misconduct in breaching its duty of
good faith and fair dealing, warranting an award of punitive damages. Bayshore also seeks
reimbursement of attorney fees and other costs of litigation.
JURY DEMAND
90.
Bayshore hereby demands a trial by jury on all causes of action.
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REQUEST FOR RELIEF
WHEREFORE, Bayshore is entitled to (i) a declaration pursuant to 28 U.S.C. § 2201 by
this Court that ACE is obligated to pay Bayshore the benefits owed to it under the ACE Policy;
(ii) an award against ACE of compensatory, direct and consequential damages in the amount
established by the evidence; (iii) punitive and exemplary damages; (iv) costs of suit, reasonable
attorneys’ fees, pre-judgment and post-judgment interest; and (v) such additional relief as the
Court deems just and appropriate.
Dated: April 8, 2015
REED SMITH LLP
__/s/ Anthony B. Crawford__
Paul E. Breene
Reed Smith LLP
599 Lexington Avenue
New York, NY 10022
Princeton Forrestal Village
136 Main Street
Suite 250
Princeton, NJ 08540
Phone: 609 987 0050
Fax: 609 951 0824
[email protected]
Anthony B. Crawford
Princeton Forrestal Village
136 Main Street
Suite 250
Princeton, NJ 08540
Phone: 609 987 0050
Fax: 609 951 0824
[email protected]
Attorneys for Bayshore Recycling Corporation
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UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
____________________________________
:
BAYSHORE RECYCLING
:
CORPORATION,
:
:
Plaintiff,
:
:
CIVIL ACTION NO.:
vs.
:
:
JURY TRIAL DEMANDED
ACE AMERICAN INSURANCE
:
COMPANY,
:
:
Defendant.
:
____________________________________:
COMPLAINT
Plaintiff Bayshore Recycling Corporation (“Bayshore”), by its undersigned counsel,
brings this action against Defendant ACE American Insurance Company (“ACE”), and in
support therefor, alleges as follows:
THE NATURE OF THIS ACTION
1.
Bayshore brings this insurance coverage action against ACE for declaratory
judgment, damages for breach of contract, and punitive damages for bad faith claims handling.
Bayshore seeks to have this Court declare Bayshore’s rights under ACE Policy EPR N05110713
(the “ACE Policy”) for loss and damage caused by Named Storm Sandy at the Bayshore Facility.
Specifically, Bayshore seeks a declaration of its rights under the (i) Property Damage (ii)
Demolition and Increased Cost of Construction and (iii) Loss Adjustment Expenses coverages of
the ACE Policy. Bayshore also seeks damages for breach of contract for ACE’s refusal to pay
and affirmative renouncement of its obligation to pay amounts owed under the ACE Policy, and
punitive damages for ACE’s bad faith claims handling.
Case 2:15-cv-02501-KSH-CLW Document 1 Filed 04/08/15 Page 2 of 21 PageID: 2
2.
The Bayshore Facility is a 55 acre complex in Keasbey, New Jersey, at which
Bayshore engages in a number of operations, primarily involving recycling of construction
materials and debris.
3.
Flooding from Named Storm Sandy damaged buildings at the Bayshore Facility,
and damaged various electrical equipment in those buildings. On October 29, 2012, fire
destroyed the Maintenance Shop. The damage from Named Storm Sandy at the Bayshore
Facility will be referred to as the “Sandy Damage.”
4.
Bayshore gave ACE timely notice of the Sandy Damage and sought full coverage
for all loss and damage caused by Named Storm Sandy.
5.
Over the course of the next 26 months, ACE purported to investigate Bayshore’s
loss. During that period, the parties disagreed as to elements of Bayshore’s claim, including the
cost to replace the electrical equipment and the Maintenance Shop.
6.
The ACE Policy obligates ACE to pay the Actual Cash Value of destroyed
property to permit Bayshore to finance rebuilding, and then obligates ACE to pay the
Replacement Cost of rebuilt property if Bayshore rebuilds within two years of the date of loss.
7.
ACE, having failed to agree throughout 2013 on the amount of damage to the
Maintenance Shop, eventually agreed to submit that issue to an appraisal panel, which issued its
ruling on December 2, 2013. The panel reached conclusions as to the amount of the Actual Cash
Value as well as the Replacement Cost of the Maintenance Shop.
8.
In January 2014, ACE advanced monies representing the Actual Cash Value of
the Maintenance Shop and, in February 2014, gave Bayshore permission to demolish the
Maintenance Shop.
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9.
Throughout 2013, the parties also disagreed on the cost to replace damaged
electrical equipment, with their estimates of the repair cost differing by about $1,500,000. By
early 2014, ACE had advanced only its, much lower, estimate of the cost to replace this
equipment.
10.
The ACE Policy also obligates ACE to pay for the increased cost of
reconstruction of property on account of the enforcement of any law or ordinance regulating the
construction, repair, or use of property (“Demolition and Increased Cost of Construction
coverage”). The Federal Emergency Management Agency (“FEMA”) has indicated that its rules
require changes to the Maintenance Shop when reconstructed, which will cause Bayshore to
incur substantial additional reconstruction costs.
11.
Through 2014, the parties continued to differ on the cost to replace electrical
equipment, whether ACE would pay to bring the rebuilt Maintenance Shop up to code under the
Demolition and Increased Cost of Construction coverage, the proper application of the
Deductibles provision of the ACE Policy, and other elements of the Sandy Damage.
12.
On April 25, 2014, there was another, far more massive fire at the Bayshore
Facility. The loss and damage from that fire is also insured by ACE, under another policy. After
the April 25, 2014 fire, ACE’s coverage positions in relation to Bayshore’s rights to insurance
coverage for the Sandy Damage under the ACE Policy hardened, and ACE became increasingly
unwilling to pay anything, or commit to paying anything, for the outstanding elements of
Bayshore’s claim.
13.
In December 2014, ACE informed Bayshore that, as more than 2 years had
elapsed from the date of Named Storm Sandy, ACE was denying coverage for the Replacement
Cost of the Maintenance Shop. ACE further refused to agree that it would pay the increased cost
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to bring the Maintenance Shop in compliance with FEMA rules under the Demolition and
Increased Cost of Construction coverage, reiterated its continued refusal to pay for the electrical
equipment, and reaffirmed its improper application of the Deductibles provision.
14.
ACE’s December 2014 denial of coverage for Replacement Cost is a breach of
the ACE Policy because replacement of the Maintenance Shop was impossible at least until ACE
paid Actual Cash Value and permitted demolition of the Maintenance Shop. Further, ACE’s
coverage positions have made it commercially impossible for Bayshore to reconstruct the
Maintenance Shop, as Bayshore would risk incurring millions of dollars which ACE has not
agreed to pay. Indeed, replacement of the Maintenance Shop will remain impossible for
Bayshore until ACE commits to paying what it owes under the Demolition and Increased Cost of
Construction coverage and agrees to the proper interpretation of the Deductibles provision.
15.
Bayshore has brought this Complaint for declaratory relief as to its rights under
the ACE Policy to recover Replacement Cost and Demolition and Increased Cost of Construction
coverage, full coverage for the electrical equipment and other property, Loss Adjustment
Expenses incurred to measure the scope of damage to the electrical equipment, and the proper
application of the Deductibles provision. Bayshore further seeks declaratory relief that ACE, on
account of its conduct, is precluded from arguing that its obligation to pay any of those amounts
is relieved by any putative time limits in the ACE Policy. Bayshore also seeks damages for
ACE’s breach of the ACE Policy, and exemplary damages for ACE’s bad faith claims handling.
THE PARTIES
16.
Bayshore is a New Jersey company with its principal place of business in
Keasbey, New Jersey.
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17.
Upon information and belief, ACE is an insurance company incorporated under
the laws of Pennsylvania with its principal place of business in Philadelphia, Pennsylvania.
JURISDICTION AND VENUE
18.
This Court has jurisdiction over this matter under 28 U.S.C. § 1332 as there is
complete diversity of citizenship between the parties and the amount in controversy exceeds
$75,000.
19.
Venue is proper in this District under 28 U.S.C. § 1391 because a substantial
portion of the events giving rise to this lawsuit took place within this District and the property
which is the subject matter of this litigation is located in this District.
FACTUAL BACKGROUND
A.
The ACE Policy
20.
The ACE Policy provides $40,000,000 in insurance coverage “per occurrence
excess of deductibles” for loss and damage arising from occurrences in the policy period
February 16, 2012 through February 16, 2013. ACE Policy, at Declarations. A copy of the ACE
Policy is attached as Exhibit A hereto.
21.
Bayshore paid $192,709 for the ACE Policy (ACE Policy, at Declarations), which
constitutes all premium due under the ACE Policy.
1.
22.
Deductibles
The Deductibles provision in the ACE Policy states as follows:
A.
Each claim for loss, damage, or expenses arising out of one occurrence
shall be adjusted separately and from the amount of such adjusted claim shall be
deducted the sum of:
PROPERTY DAMAGE:
…. Flood Peril – Zone
A, V and Subzones
$25,000 except:
2% of the total insurable values at risk per location
subject to a minimum of $100,000
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…. B. As respects FEMA Zones A or V or 100 Year Flood Zones (including all
subzones), the deductible amounts specified in Clause A. above shall be excess of
available National Flood Insurance Program (NFIP) coverage, whether purchased
or not, being $500,000 for Buildings, $500,000 for Contents and $100,000 for
Business Interruption.
C.
If two or more deductible amounts in this policy apply to a single
occurrence, the total to be deducted shall not exceed the largest deductible
applicable, however, Property Damage and Time Element deductibles shall be
applied separately.
ACE Policy, at § 5.
2.
23.
Property Damage
The Property Damage provision for Real and Personal Property in the ACE Policy
states:
The interest of all real and personal property (including improvements and
betterments) owned, used, or intended for use by the Insured included Personal
property of Others in the insured’s Care Custody and Control, or hereafter
acquired and including Property owned by the Insured while in course of
construction, erection, installation and assembly, all while at locations insured
hereunder as per schedule on file with the Company.
ACE Policy, at § 8.A.
3.
24.
Valuation
The Valuation provision of the ACE Policy states:
B.
Buildings and structures, buildings equipment, plant equipment,
machinery, machinery parts, tools, dies, patterns, office furniture, fixtures, and
equipment and improvements and betterments.
The amount actually expended by or in behalf of the Insured to repair, rebuild or
replace, within a reasonable time, at the same or at another site, such property
which as [sic] been damaged or destroyed by an insured peril, subject to the
following conditions.
Liability hereunder shall not exceed the smallest of the following:
The costs to repair, rebuild or replace on the same site with new materials of like
kind and quality, whichever is the smallest;
The actual expenditures incurred in repairing, rebuilding or replacing on the same
or another site within the same country, whichever is smallest;
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In the event of loss or damage to such property that is not repaired, rebuilt or
replaced within (2) years from original date of loss, the basis of recovery shall be
the actual cash value of the property at the time of loss with proper deduction for
depreciation, and shall in no event exceed what it would then cost to repair or
replace the property with material of like kind and quality within a reasonable
time after such a loss.
It is agreed, however, that the damaged or destroyed property has been replaced
for the purpose of this valuation basis whenever the Insured expends an
equivalent amount for any such property (other than maintenance) for use in the
Insured’s business.
ACE Policy, at § 12.B.
4.
25.
Demolition and Increased Cost of Construction
The Demolition and Increased Cost of Construction provision in the ACE Policy
reads as follows:
In the event of loss or damage under this policy that causes the enforcement of
any law or ordinance regulating the construction, repair, or use of property, the
Company shall be liable for:
…C. increased cost of repair or reconstruction of the damaged and undamaged
property on the same or another site within the same country and limited to the
minimum requirements of such law or ordinance regulating the repair or
reconstruction of the damaged property on the same site. However, this Company
shall not be liable for any increased cost of construction loss unless the damaged
facility is actually rebuilt and repaired.
ACE Policy, as § 19. The ACE Policy provides a $5,000,000 limit for Demolition and Increased
Cost of Construction. ACE Policy, as § 3.
5.
Loss Adjustment Expenses
26.
The Loss Adjustment Expenses provision in the ACE Policy reads as follows:
31.
LOSS ADJUSTMENT EXPENSES
This policy is extended to include expenses incurred by the Insured, or by the
Insured’s representatives for preparing and certifying Company requested details
of a claim resulting from a loss which would be payable under this policy. Public
Adjuster’s fees and legal fees are not covered.
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A CE Policy, as § 31. The ACE Policy provides a $500,000 limit for Loss Adjustment
Expenses. ACE Policy, as § 3.
6.
Underlying Insurance
27.
The ACE Policy contains the following Underlying Insurance provision:
22.
UNDERLYING INSURANCE
A.
Underlying insurance is insurance on all or any part of the deductible and
against all or any of the perils covered by this policy including declarations of
value to the carrier for hire. The existence of such underlying insurance shall not
prejudice or affect any recovery otherwise payable under this policy.
B.
If the limits of such underlying insurance exceed the deductible amount
which would apply in the event of loss under this policy, then that portion which
exceeds such a deductible amount shall be considered “other insurance.”
ACE Policy, as § 22.
7.
28.
Other Insurance
The Commercial Property Conditions in the ACE Policy contain the following
“Other Insurance” condition:
This Coverage Part is subject to the following conditions, the Common Policy
Conditions and applicable Loss Conditions and Additional Conditions in
Commercial Property Coverage Forms.
…. G. OTHER INSURANCE
1.
You may have other insurance subject to the same plan, terms, conditions
and provisions as the insurance under this Coverage Part. If you do, we will pay
our share of the covered loss or damage. Our share is the proportion that the
applicable Limit of Insurance under this Coverage Part bears to the Limits of
Insurance of all insurance covering on the same basis.
2.
If there is other insurance covering the same loss or damage, other than
that described in 1. above, we will pay only for the amount of covered loss or
damage in excess of the amount due from that other insurance, whether you can
collect on it or not. But we will not pay more than the applicable Limit of
Insurance.
ACE Policy, at Commercial Property Conditions, G.
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29.
The ACE Policy contains another “Other Insurance” provision which states as
follows:
23.
OTHER INSURANCE
This policy may be issued in conjunction with certain other insurance policies
written by or provided by the Company. In the event such other insurance
policies provide coverage for loss or damage also covered under this policy,
coverage hereunder shall be excess and the limits of liability stated herein shall be
inclusive of the limits provided by such other insurance policies and not in
addition thereto.
ACE Policy, as § 23. In contrast to the former provision, this provision is limited to coverage
sold by “the Company” – i.e., ACE.
8.
Suit Limitation
30.
The ACE Policy contains the following suit limitation:
D.
LEGAL ACTION AGAINST US
No one may bring a legal action against us under this Coverage Part unless:
1.
and
There has been full compliance with all of the terms of this Coverage part;
2.
The action is brought within 2 years after the date on which the direct
physical loss or damage occurred.
ACE Policy, at Commercial Property Conditions, D.
31.
Further, Section 43 of the ACE Policy provides:
43.
LEGAL ACTION AGAINST THE COMPANY
No suit or action on this policy for the recovery of any claim shall be sustainable
in any court of law or equity unless the Insured shall have fully complied with all
the requirements of this policy. The Company agrees that any action or
proceeding against it for recovery of any loss under this policy shall not be barred
if commenced within the time prescribed therefor in the statutes of the state of
New York.
ACE Policy, as § 43. Under New York law, the suit limitation in a property policy is deemed to
be two years unless a longer period is provided.
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B.
Bayshore’s Claim and ACE’s Bad Faith Refusal To Pay
32.
Named Storm Sandy damaged buildings and equipment in buildings, at the
Bayshore Facility and completely destroyed the Maintenance Shop. Immediately after Named
Storm Sandy, it was obvious to all parties that it would cost many millions of dollars for
Bayshore to replace the destroyed property. Indeed, despite wrongfully denying its obligations
to pay millions of dollars from Bayshore, ACE has valued the loss at more than $5,000,000.
33.
Bayshore gave timely notice to ACE of the Sandy Damage.
34.
At all times after Named Storm Sandy, Bayshore was intent on rebuilding the
Maintenance Shop as quickly as possible, as soon as the insurance issues were resolved and
Bayshore could have certainty as to what costs it incurred in such reconstruction would be paid
by ACE.
35.
ACE hired Adam Eggleston of Crawford and Company, in Schaumberg Illinois,
to adjust the loss. In turn, Mr. Eggleston hired experts from Chicago, Illinois to analyze and
measure the damage. These experts visited the site and inspected the damage on multiple
occasions.
36.
ACE advanced $450,000 on December 3, 2012.
37.
On December 6, 2012, Bayshore, through its public adjuster Phil Melillo,
provided Crawford with estimates to repair and replace the buildings damaged by Named Storm
Sandy. The total was approximately $2,000,000. Bayshore’s construction expert was CMR
Construction Corporation of Kinnelon, NJ.
38.
In December 2012, FEMA ruled that the Maintenance Shop, when rebuilt, would
need to be raised 5 feet to comply with FEMA’s rules and regulations.
39.
On December 20, 2012, Crawford provided the estimate of its contractor –
Technacon, of Mundelein, Illinois – to repair and rebuild buildings damaged by Named Storm
- 10 -
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Sandy: approximately $900,000. This estimate was artificially low in that Crawford’s Illinois
builder did not incorporate terms and conditions upon which New Jersey contractors would
insist.
40.
Crawford submitted a revised estimate of the costs to repair and replace damaged
buildings on February 26, 2013, of approximately $1,000,000.
41.
As this amount was still unacceptable, in March 2013, Bayshore suggested the
parties appraise the amount of the loss due to damage to the buildings. ACE rejected this
proposal.
42.
ACE advanced an additional $500,000 on May 7, 2013, for a total of $950,000.
43.
The parties continued to debate the value of the damage through the summer of
2013. On August 13, 2013, Bayshore demanded appraisal of the damage to the Maintenance
Shop. ACE rejected the demand on a technical ground, demanding that Bayshore first submit a
proof of loss. Bayshore submitted the proof of loss, ACE rejected it, and, finally, the parties
went to appraisal in late 2013.
44.
ACE advanced an additional $740,982.09 on August 12, 2013, for a total of
$1,690,982.09.
45.
In October 2013, Bayshore submitted the estimate of a Little Falls, New Jersey
firm to replace the electrical equipment, which was approximately $4,375,000.
46.
ACE advanced an additional $418,680.55 on October 28, 2013, for a total of
$2,109,662.64.
47.
In November 2013, Crawford submitted its estimate of the damage to electrical
equipment, done by a firm in Greenwich, Connecticut, which was approximately $1,877,000.
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48.
On December 2, 2013, the Appraisal Panel issued an Award on the Building
damage to the Maintenance Shop, finding the Actual Cash Value of the Maintenance Shop to be
$815,009 and the Replacement Cost to be $1,004,417.
49.
Reflecting that Award, ACE provided another advance in January 2014, of
$989,836.83, bringing its total payment to just over $3,099,499.47.
50.
With the Actual Cash Value of the Maintenance Shop settled by the appraisal
Award, in February 2014, Bayshore repeatedly tried to get ACE to permit it to demolish that
building, by informing Bayshore whether ACE, prior to demolition, wanted to salvage the burnt
equipment therein. On February 7, 2014, ACE confirmed that it would permit demolition of the
Maintenance Shop.
51.
In February 2014, Bayshore revised its estimate for electrical equipment to
approximately $3,481,765.92.
52.
ACE provided an additional advance on April 8, 2014 of $50,991.81, for a total of
$3,150,491.28.
53.
On April 25, 2014, Bayshore suffered another fire at its complex. The damage
from this fire, which is covered under another policy sold by ACE, will cost tens of millions of
dollars to repair.
54.
ACE provided an additional advance on August 12, 2014 of $157,270.16 for a
total of $3,307,761.44.
55.
Through 2014, the parties exchanged a number of emails regarding the proper
application of the Deductibles provision in the ACE Policy.
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56.
By letter of August 26, 2014, Mr. Eggleston reaffirmed ACE’s position that
Section A and Section B of the Deductibles provision in the ACE Policy were cumulative, and
that Bayshore’s total property damage deductible was $1,952,123.
57.
In August 2014, Bayshore obtained an estimate of the cost to bring the
Maintenance Shop up to code; that estimate was $1,354,386.05. That estimate provided:
According to FEMA most recent flood hazard data the above referenced rebuilding site
has current effective flood elevation 9 ft. (NAVD88), and lies in flood zone ‘AE’, the
proposed Base Flood elevation (BFE) by FEMA is 13 ft. (NAVD), in addition to that the
new construction should have 1 foot of freeboard for flood protection. The existing
building site will be raised 5 feet as per FEMA’s current guidelines.
58.
In early September, Mr. Melillo sought an extension of “the 2 year time limit” in
the ACE Policy. Hearing nothing, Mr. Melillo followed up later in the month.
59.
After receiving a September 15, 2014 email forwarding an opinion of David B.
Miller of Harbor Companies which took the position that the ACE Policy applies only the higher
of two separate deductibles set forth in Sections 5.A and 5.B, Vince Milligan of Starr Technical
Risks Agency (“Starr”) reaffirmed that ACE viewed those sections of the Deductibles provision
as cumulative and not alternative.
60.
In October, Mr. Eggleston finally responded to Bayshore’s request for an
extension of time, stating “I have received communication from the insurer, granting a six
month extension of time to file- and they will consider a possible further extension if needed at
that time.”
61.
From September through December 2014, Bayshore sought an answer as to
whether ACE would pay for the code upgrades in the Maintenance Shop, and ACE refused to
respond.
62.
By email of December 1, 2014, William Cilente provided Mr. Milligan with a
coverage opinion drafted by Robert M. Sullivan, which stated that ACE’s position that Sections
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A and B of the Deductible were to be cumulated ignored Sections 22 (“Underlying Insurance”)
and 23 (“Other Insurance”):
In the instant fact pattern, the NFIP policy would fall squarely within the
definition of “underlying insurance” as defined in Section 22. The NFIP limits
clearly would be insurance coverage for all or part of the deductible. In Part B, of
Section 22, the policy provides that if any such underlying insurance exceeds the
amount of any deductible, that portion which exceeds such a deductible amount
shall be considered “other insurance.” As the “underlying insurance,” the NFIP
layer, exceeds the 2% deductible amount of $952,123 by $47,877, this latter
amount is also “considered” to be “other insurance.”
This opinion relied on New Jersey law requiring courts to give effect to all provisions in an
insurance policy, with Mr. Sullivan noting that ACE’s position did not give effect to the
Underlying Insurance provision which stated that underlying insurance “shall not prejudice or
affect any recovery otherwise payable under the policy.”
63.
By letter of December 8, 2014, Mr. Milligan of Starr sent a letter in which he
denied elements of Bayshore’s claim, and in which he refused to commit to paying other
elements of Bayshore’s claim until after Bayshore rebuilt the Maintenance Shop. Mr. Milligan
first stated:
More than two years have passed since Sandy and ACE wishes to conclude this
claim. Accordingly, ACE requests that the insured present a final claim inclusive
of all property damage, including all additional amounts sought with regard to the
damage to the maintenance shop at the premises.
This letter notes the “pending dispute with regard to the applicable deductible,” then states that
“the information provided in this email does not even reflect the entirety of other issues that
remain unresolved.”
64.
As to the other open coverage items, Starr first noted “the adjustment differences
noted to the electrical/motors component of the claim.”
65.
Second, as to Replacement Cost, the letter noted:
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The damage to the maintenance shop building was appraised at $1,004,417.92
replacement cost and $815,009.35 actual cash value. ACE remitted payment for
the actual cash value as determined in appraisal. The insured, however, has not
provided any information as to whether it plans to rebuild the maintenance shop,
or when such work will take place.
Citing the Valuation provision of the ACE Policy, the letter noted that, “[b]ecause more than two
years have passed since the date of loss, recovery for damage to the maintenance shop would be
limited to the actual cash value of the maintenance shop, as determined during the appraisal
process and paid by ACE.”
66.
Third, noting the code upgrade estimate of $1,354,386, which Bayshore had
provided in August, this letter quoted the Demolition and Increased Cost of Construction
provision, and stated:
Thus, in order to recover under the “Demolition and Increased Cost of
Construction” clause for increased costs to repair property, the insured must show
that: 1) there was an event of loss or damage under the Policy; 2) there was an
ordinance or law that regulated the repair, construction, repair or use of the
property; 3) the event of loss or damage caused the enforcement of the law or
ordinance regulating the construction, repair, or use of property; 3) [sic] the
damaged property was actually rebuilt or replaced; and 4) [sic] the insured
incurred increased costs.
Accordingly, there is no coverage for increased costs unless the FEMA
regulations have been enforced with regard to repair and/or reconstruction of the
maintenance shop and the insured has actually rebuilt the maintenance shop,
incurring the increased costs of complying with the FEMA regulations. For this
reason, we require the submission of a formal claim outlining these details.
67.
During its adjustment of Bayshore’s claim, ACE also denied coverage for, or
refused to pay, a number of other items, including the full replacement value of destroyed tools
($22,169.10), the amount owed for damage to uniforms ($81,747.22), the full value of destroyed
tanks ($7840.00), and the Loss Adjustment Expenses to compute the cost to repair and replace
destroyed electrical equipment ($43,502.54).
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C.
Outstanding Claim Elements
68.
ACE has refused to pay the following elements of Bayshore’s claim:
$189,408.58
the difference between the Actual Cash Value found by the
appraisal panel ($815,009.34) and the Replacement Cost
found by that panel ($1,004,417.92)
$952,123.00
the amount of the deductible ACE has claimed in excess of
the actual deductible and other insurance applicable,
$1,000,000
$1,354,386.05
the estimated cost to ensure that the rebuilt Maintenance
Shop complies with FEMA’s rules and regulations
$1,604,817.10
the difference in the estimate of the cost to repair electrical
equipment by Bayshore’s contractor ($3,481,765.92) and
$1,876,948.80, the amount ACE has paid for that work
$43,502.54
costs to calculate the scope of the damage to electrical
equipment from Named Storm Sandy
$81,747.22
the outstanding amount for uniforms destroyed by Named
Storm Sandy
$7,840.00
the outstanding amount for tanks destroyed by Named
Storm Sandy
$22,169.10
the amount owed for replacement of tools destroyed by
Named Storm Sandy
_________________
$4,255,993.59
Total owed by ACE
THE CONTROVERSY
69.
Based on the above circumstances, a justiciable case and controversy exists about
Bayshore’s rights to coverage for the Sandy Damage under the ACE Policy.
70.
Specifically, ACE has: (1) refused to pay $952,123, which it asserts is within the
deductibles owed by Bayshore; (2) refused to pay $81,747.22, the outstanding amount for
uniforms destroyed by Named Storm Sandy; (3) refused to pay $7,840.00, the outstanding
amount for tanks destroyed by Named Storm Sandy; (4) refused to pay $22,169,10, the full
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replacement cost of tools destroyed by Named Storm Sandy; (5) denied its obligation to pay
$189,408.58, the difference between the Actual Cash Value of the Maintenance Shop found by
the appraisal panel and the Replacement Cost of the Maintenance Shop found by that panel; (6)
refused to pay the difference in the estimate of the cost to repair electrical equipment by
Bayshore’s contractor and the amount ACE has paid for that work, namely $1,604,817.10; (7)
refused to state whether it would pay the cost to ensure that the rebuilt Maintenance Shop
complies with FEMA’s rules and regulations, estimated to be $1,354,386.05; and (8) refused to
pay $43,502.54, the Loss Adjustment Expenses incurred by Bayshore to calculate damage to
electrical equipment destroyed by Named Storm Sandy.
71.
Bayshore now seeks a declaratory judgment from this Court finding that ACE is
obligated to provide insurance proceeds to Bayshore for its claim for loss and damage due to
Named Storm Sandy.
72.
Further, Bayshore seeks damages for ACE’s breach of the ACE Policy, and
punitive and exemplary damages for ACE’s bad faith claims handling practices.
COUNT I – Declaratory Judgment
73.
Bayshore repeats, realleges and incorporates herein by reference each and every
allegation contained in Paragraphs 1 through 72 of this Complaint, as though fully set forth
herein.
74.
An actual and justiciable controversy has arisen between Bayshore and ACE
concerning ACE’s obligations under the ACE Policy.
75.
Bayshore seeks, and is entitled to receive, a judicial determination of its rights
under the ACE Policy and ACE’s obligations to indemnify Bayshore. Specifically, Bayshore
seeks a declaration:
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(1) that ACE must pay the full Replacement Cost of the Maintenance Shop, and
that ACE, by its conduct, is prohibited from asserting its obligation to pay this
amount is relieved by any time limit in the ACE Policy;
(2) that ACE’s denial of coverage for the Replacement Cost of the Maintenance
Shop constitutes a breach of the ACE Policy;
(3) that ACE must pay the outstanding amounts for uniforms, tanks and tools
destroyed by Named Storm Sandy;
(4) that ACE’s refusal to pay the outstanding amounts for uniforms, tanks and
tools destroyed by Named Storm Sandy constitutes a breach of the ACE Policy;
(5) that ACE must pay the full Replacement Cost of the electrical equipment
destroyed by Named Storm Sandy, and that ACE, by its conduct, is prohibited
from asserting its obligation to pay this amount is relieved by any time limit in the
ACE Policy;
(6) that ACE must pay the full cost of rebuilding the Maintenance Shop to comply
with FEMA rules and regulations, and that ACE, by its conduct, is prohibited
from asserting its obligation to pay this amount is relieved by any time limit in the
ACE Policy;
(7) that ACE must pay the Loss Adjustment Expenses incurred by Bayshore to
calculate damage to electrical equipment;
(8) that ACE’s refusal to pay the Loss Adjustment Expenses incurred by Bayshore
to calculate damage to electrical equipment constitutes a breach of the ACE
Policy; and
(9) that under a proper interpretation of the ACE Policy Bayshore must absorb
only $1,000,000 under the Deductibles and Other Insurance provisions of the
ACE Policy.
76.
Judicial declarations are necessary and appropriate at this time in order that
Bayshore and ACE may ascertain their rights and obligations under the ACE Policy.
COUNT II – Breach of Contract
77.
Bayshore repeats, realleges and incorporates herein by reference each and every
allegation contained in Paragraphs 1 through 76 of this Complaint, as though fully set forth
herein.
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78.
Bayshore has provided timely and sufficient notice and duly performed all the
terms and conditions under the Policy, including any and all conditions precedent, and/or ACE
has waived its right to enforce, or is estopped from enforcing, such terms and conditions.
79.
ACE has breached the ACE Policy by wrongfully refusing to recognize and
affirmatively renouncing its obligation to indemnify Bayshore for the covered losses described
above.
80.
Bayshore has suffered losses as a direct and proximate result of ACE’s breach of
its contractual obligations under the ACE Policy, in an amount to be proved at trial.
81.
Further, Bayshore has suffered consequential damages as a result of ACE’s
breach of contract, in an amount to proven at trial.
COUNT III – Bad Faith Claims Handling
82.
Bayshore repeats, realleges and incorporates herein by reference each and every
allegation contained in Paragraphs 1 through 81 of this Complaint, as though fully set forth
herein.
83.
The ACE Policy contains an implied covenant of good faith and fair dealing that
imposed upon ACE an obligation not to do anything to injure the rights of Bayshore to receive
the benefits of the ACE Policy.
84.
ACE has engaged in bad faith claims handling practices by delaying adjustment
of Bayshore’s claim and by delaying payment of covered elements of that claim.
85.
ACE has engaged in bad faith claims handling practices by wrongfully failing or
refusing, without proper justification, to recognize its obligation to indemnify Bayshore for
covered losses.
86.
ACE has also engaged in bad faith claims handling practices by: misrepresenting
the meaning of certain provisions of the ACE Policy; failing to acknowledge and act reasonably
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promptly upon communications with respect to claims; failing to conduct a meaningful and
timely investigation of Bayshore’s claims; failing to advise Bayshore regarding available
coverage; and compelling Bayshore to institute litigation to recover amounts due under the ACE
Policy.
87.
ACE’s bad faith claims handling practices set forth above were committed
knowingly or with a reckless disregard for its obligation to process and pay Bayshore’s claims in
good faith.
88.
As a direct and proximate result of ACE’s bad faith claims handling practices and
breaches of its fiduciary duties, Bayshore has suffered damages and consequential damages.
89.
ACE has consciously engaged in egregious misconduct in breaching its duty of
good faith and fair dealing, warranting an award of punitive damages. Bayshore also seeks
reimbursement of attorney fees and other costs of litigation.
JURY DEMAND
90.
Bayshore hereby demands a trial by jury on all causes of action.
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REQUEST FOR RELIEF
WHEREFORE, Bayshore is entitled to (i) a declaration pursuant to 28 U.S.C. § 2201 by
this Court that ACE is obligated to pay Bayshore the benefits owed to it under the ACE Policy;
(ii) an award against ACE of compensatory, direct and consequential damages in the amount
established by the evidence; (iii) punitive and exemplary damages; (iv) costs of suit, reasonable
attorneys’ fees, pre-judgment and post-judgment interest; and (v) such additional relief as the
Court deems just and appropriate.
Dated: April 8, 2015
REED SMITH LLP
__/s/ Anthony B. Crawford__
Paul E. Breene
Reed Smith LLP
599 Lexington Avenue
New York, NY 10022
Princeton Forrestal Village
136 Main Street
Suite 250
Princeton, NJ 08540
Phone: 609 987 0050
Fax: 609 951 0824
[email protected]
Anthony B. Crawford
Princeton Forrestal Village
136 Main Street
Suite 250
Princeton, NJ 08540
Phone: 609 987 0050
Fax: 609 951 0824
[email protected]
Attorneys for Bayshore Recycling Corporation
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