New Jersey Appellate Court Denies Insurance Coverage To Landlords After Fatal Apartment Fire, Because They Failed To Identify The Building In Their Insurance Application
July 20, 2023
By: Carl L. Engel
The Appellate Division of the Superior Court of New Jersey, in the case State-Comm LLC v. Axis Insurance Company, affirmed a trial court’s decision to bar insurance coverage under a commercial-general-liability policy for a fire that killed two tenants and destroyed a building. The court reasoned that, because the policyholder had not disclosed the building in the application for insurance, the insurance company had no way of knowing about it when the policy was issued and the premium was set. As a result, there is no insurance coverage under the policy for the victims of the fire or the restoration of the property. This case highlights the importance of filling out insurance applications completely and accurately, as an insurance company is generally not responsible for covering undisclosed items.
State-Comm LLC is owned by Angela Tadross and her husband. In 1999, State-Comm purchased two adjacent properties in Perth Amboy, New Jersey: 109 Commerce Street and 374-380 State Street. The property on Commerce Street consisted of two residential apartments, and the property on State Street consists of four residential apartments and three commercial spaces.
In 2017, State-Comm purchased a premises-liability insurance policy from Lloyd’s of London to cover the Commerce Street property. State-Comm also purchased another policy from Axis Insurance Company, which provided premises-liability and commercial-general-liability coverage for the State Street property. The Axis policy is the subject of this lawsuit.
The Axis policy included a “Designated Premises Limitation” endorsement, which “limits insurance to the designated premises and business/operations associated with the designated premises.” The “Description/Location of Subject Premises” in the endorsement identified only the State Street property, and not the Commerce Street property. Likewise, in the applications for insurance sent to Axis, Ms. Tadross identified only the State Street property.
On February 2, 2018, a fire occurred at the Commerce Street property in which two tenants died and several more were injured. Various claims were brought against State-Comm based on allegations that it was negligent in its maintenance of the property. State-Comm settled with the plaintiffs for $1.5 million, which was the limit of the Lloyd’s policy. As part of the settlement, State-Comm also assigned its rights under the Axis policy to the plaintiffs.
Immediately thereafter, State-Comm filed a lawsuit demanding that Axis provide insurance coverage under the commercial-general-liability policy which would yield additional funds for the injury plaintiffs. On November 5, 2021, after a hearing on a motion for summary judgment filed by Axis, the trial court dismissed State-Comm’s complaint. The trial court reasoned that the “Designated Premises Limitation” endorsement limited coverage to the State Street property because it did not identify the Commerce Street property. In reaching its decision, the court observed that “the insurance company has to know what it is insuring,” and that it would be “unreasonable to expect an insurer to be collecting a certain amount of premium based on thinking it covers one building and then finding out it actually covered another.” State-Comm appealed the decision.
On appeal, State-Comm argued that the Axis policy was unclear and ambiguous because “the policy’s declaration page does not expressly state coverage is limited to only one building.” The Appellate Division disagreed, however, and affirmed the trial court’s decision to dismiss its complaint. Like the trial court, the Appellate Division found that the Axis policy made no reference to the Commerce Street building, nor did State-Comm’s application for insurance mention it. The Appellate Division reasoned that “[g]iven there was no disclosure of the Commerce Street property, there was no way for Axis to have known there was another property for which it could potentially be responsible.”
Because there is no coverage for the Commerce Street property under the Axis insurance policy, State-Comm and its owners are left with only $1.5 million dollars in coverage, which is plainly insufficient to cover two wrongful deaths, multiple injuries, and the destruction of the property. As a result, the fire victims and the families of the dead will not receive adequate compensation for their losses, and State-Comm is unlikely to ever recover and resume operations. To avoid such a calamity, property owners should be careful to fully disclose in their insurance applications all of the items of property that they want covered under the policy.