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LeMay v. Reilly

A-818-02T3 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTS; INSURANCE—A home seller found liable for misrepresentations in the course of the sale cannot recover from its homeowner’s insurance policy because the injury is not a form of “property damage,” a term that is restricted to a physical injury or loss of use of tangible property.

Home buyers sued their sellers for intentionally misrepresenting that the property did not have any termite damage. The sellers sought indemnification from their insurer based on the insurance policies both for their current home and for the one they sold. The lower court ordered the insurer to defend the sellers through trial. The sellers settled their case with the buyers and sought indemnification from the insurer for the settlement amount and for reimbursement of their attorney’s fees. The lower court found for the seller and the insurer appealed. The insurer argued that the sellers’ policy on their current home did not apply to this case because the policy was not effective at the time they made the misrepresentations. The insurer also argued that the sellers’ old policy did not cover the damage claim either. It argued that the insurance policy covered only bodily injury or property damage caused by an occurrence. The policy defined “property damage” as “physical injury to, destruction of, or loss of use of tangible property.” The insurer argued that the economic damages to which the sellers were exposed for misrepresenting the house’s condition were not property damage under the policy. It also claimed that, since the sellers were not entitled to insurance coverage for the damage claim, they were not entitled to reimbursement of their attorney’s fees.

The Appellate Division agreed with the insurance company. It found that the sellers’ insurance policy’s definition of “property damage” was clear and unambiguous, holding that “property damage” meant physical damage, destruction or loss of use of the property. Therefore, the sellers’ economic losses resulting from the litigation did not constitute “property damage” as defined by the policy. The Court also agreed with the insurer’s argument that, since the sellers’ had no insurance coverage, the sellers were not entitled to reimbursement of their attorney’s fees.

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