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LDLJ Associates v. Fireman’s Fund Insurance Company

A-1649-03T1 (N.J. Super. App. Div. 2005)

INSURANCE—Even though an insurance policy may cover losses to a “structure” and even if a sinkhole could arguably be part of a “structure,” the cost to fill a sinkhole is not covered by a policy that expressly excludes such a cost despite a policyholder’s contention that, when it purchased the policy, it reasonably expected that such a claim would be covered.

A developer sued an insurance company for denying coverage for the cost of filling sinkholes at a construction project. The developer’s “builder’s risk” insurance policy provided for coverage for direct physical loss caused by the sinkhole collapse, but specifically stated that the policy did not include the cost to fill those sinkholes. The insurance company moved for summary judgment dismissing the developer’s claim, which was granted by the lower court. The developer appealed. It claimed that its reasonable expectation with respect to its policy was that the policy would cover the costs associated with sinkhole collapse, including the cost to fill the sinkholes. The developer also claimed that, since the insurance policy provided for insurance coverage for losses to a “structure,” it should also have included the cost to fill the sinkhole. The Appellate Division upheld the lower court’s ruling denying coverage, noting that insurance policies have special rules of interpretation: (1) ambiguities are resolved against the insurance company and in favor of the insured; (2) insurance policies must be construed liberally in favor of the insured’s reasonable expectations; (3) when an insurance policy does not clearly exclude a claim, the disputed claim is deemed to be covered; (4) the insured is assumed to know the contents of his, her or its insurance policy, in the absence of fraud or unconscionable conduct by the insurance company; and (5) the courts are not to write a better insurance policy for the insured than the one the insured bought. The Court found that the policy clearly stated that the costs associated with filling the sinkholes was not covered. The Court rejected the developer’s argument that including the costs of filling the sinkhole was reasonable, necessary, and logical in order to make the structure hole, again finding that the policy clearly excluded the costs of filling the sinkhole from coverage.

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