NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

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HERMAN AND CHRISTINE

WENZEL,

Plaintiffs,

v.

NAUTILUS INSURANCE COMPANY,

Defendant.

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Civil Action No. 10-6270 (SRC) (MAS)

 OPINION

CHESLER, U.S.D.J.

This matter comes before the Court on the motion to dismiss, pursuant to Federal Rule of

Civil Procedure 12(b)(6), or, in the alternative, for summary judgment, pursuant to Federal Rule

of Civil Procedure 56, by Defendant Nautilus Insurance Company (“Nautilus.”) For the reasons

stated below, the motion will be granted.

BACKGROUND

This dispute arises out of a general commercial liability insurance policy (the “Policy”)

issued by Nautilus to non-party K&C Conversions (“K&C”), a manufacturer. K&C fabricated

and sold a mobile home and trailer to Plaintiffs Herman and Christine Wenzel. Plaintiffs allege

that the mobile home and trailer were defectively manufactured, and that they caught fire and

were damaged because of these defects. Plaintiffs sued K&C in the Superior Court of New

Jersey, and the case was resolved by the entry of a consent judgment. As part of the consent

judgment, K&C assigned its claims against Nautilus to Plaintiffs. On December 3, 2010,

Plaintiffs, as assignees, filed suit against Nautilus in this Court. The Complaint asserts five

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counts: 1) declaratory judgment of Nautilus’ duty to indemnify K&C; 2) breach of contract; 3)

unfair trade practices and bad faith; 4) intentional misrepresentation; and 5) breach of fiduciary

duty. Nautilus has now moved to dismiss the Complaint or, in the alternative, for summary

judgment on all counts in the Complaint.

ANALYSIS

I. Relevant legal standard

A. Motions for summary judgment

Summary judgment is appropriate under FED. R. CIV. P. 56(a) when the moving party

demonstrates that there is no genuine issue of material fact and the evidence establishes the

moving party’s entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S.

317, 322-23 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for

the non-movant, and it is material if, under the substantive law, it would affect the outcome of

the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “In considering a motion

for summary judgment, a district court may not make credibility determinations or engage in any

weighing of the evidence; instead, the non-moving party's evidence ‘is to be believed and all

justifiable inferences are to be drawn in his favor.’” Marino v. Indus. Crating Co., 358 F.3d 241,

247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255). 

“When the moving party has the burden of proof at trial, that party must show

affirmatively the absence of a genuine issue of material fact: it must show that, on all the

essential elements of its case on which it bears the burden of proof at trial, no reasonable jury

could find for the non-moving party.” In re Bressman, 327 F.3d 229, 238 (3d Cir. 2003) (quoting

United States v. Four Parcels of Real Property, 941 F.2d 1428, 1438 (11th Cir. 1991)). “[W]ith

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respect to an issue on which the nonmoving party bears the burden of proof . . . the burden on the

moving party may be discharged by ‘showing’ – that is, pointing out to the district court – that

there is an absence of evidence to support the nonmoving party’s case.” Celotex, 477 U.S. at

325. 

Once the moving party has satisfied its initial burden, the party opposing the motion must

establish that a genuine issue as to a material fact exists. Jersey Cent. Power & Light Co. v.

Lacey Township, 772 F.2d 1103, 1109 (3d Cir. 1985). The party opposing the motion for

summary judgment cannot rest on mere allegations and instead must present actual evidence that

creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; Siegel Transfer,

Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1130-31 (3d Cir. 1995). “[U]nsupported allegations .

. . and pleadings are insufficient to repel summary judgment.” Schoch v. First Fid.

Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990). “A nonmoving party has created a genuine

issue of material fact if it has provided sufficient evidence to allow a jury to find in its favor at

trial.” Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138 (3d Cir. 2001).

If the nonmoving party has failed “to make a showing sufficient to establish the existence

of an element essential to that party’s case, and on which that party will bear the burden of proof

at trial, . . . there can be ‘no genuine issue of material fact,’ since a complete failure of proof

concerning an essential element of the nonmoving party’s case necessarily renders all other facts

immaterial.” Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex,

477 U.S. at 322-23).

II. Defendant’s motion to dismiss or for summary judgment

The parties do not dispute certain fundamental facts. K&C filed a claim for coverage for

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the property damage sustained by Plaintiffs when the mobile home and trailer caught fire (the

“Claim”), and Nautilus denied coverage under the Policy. Defendant now moves for summary

judgment on Counts I and II of the Complaint. Defendant contends that the Claim is not covered

under the Policy, and points to the following exclusions to coverage in the Policy:

2. Exclusions

This insurance does not apply to:

. . .

k. Damage to Your Product

“Property damage” to “your product” arising out of it or

any part of it.

l. Damage to Your Work

“Property damage” to “your work” arising out of it or any part of it

and included in the “products-completed operations hazard”. 

(Compl. Ex. A at § I(A) ¶¶ 2.k, l.) Defendant contends that this is a claim for property damage to

the insured’s product, and that coverage is therefore excluded.

Plaintiffs make the following argument that the Policy covers the Claim. Plaintiffs point

to the following exclusion, listed in the Exclusions section along with the other exclusions just

quoted:

j. Damage to Property

“Property damage” to:

. . .

(6) That particular part of any property that must be restored,

repaired or replaced because “your work” was incorrectly

performed on it.

. . .

Paragraph (6) of this exclusion does not apply to “property

damage” included in the “products-completed operations hazard.”

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(Compl. Ex. A at § I(A) ¶ 2.j.) Plaintiffs then point to the definition of “products-completed

operations hazard:”

a. Includes all “bodily injury” and “property damage” occurring away from

premises you own or rent and arising out of “your product” or “your work”

except [unrelated exceptions.]

. . .

b. Does not include “bodily injury” or “property damage” arising out of:

(1) The transportation of property, unless the injury or damages arises out of a

condition in or on a vehicle not owned or operated by you, and that

condition was created by the “loading or unloading” of that vehicle by the

insured. . .”

(Compl. Ex. A at § V ¶ 16.) Plaintiffs argue that the claimed damage falls within this definition

of “products-completed operations hazard.” Thus, Plaintiffs contend that the claimed damage

falls within an exclusion to an exclusion, and is therefore covered.

Defendant counters that an exclusion to an exclusion cannot operate as an affirmative

grant of coverage under New Jersey law, citing the New Jersey Supreme Court’s decision in 

Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979). Weedo is on all fours with the instant case. 

In Weedo, Stone-E-Brick, the insured, held a comprehensive general liability insurance policy,

and sought coverage for a claim related to a suit against it for faulty workmanship brought by the

Weedos. Id. Stone-E-Brick filed a third-party complaint against its insurer, arguing that the

claim fell within an exception to an exclusion in the policy. Id. at 236, 247. The New Jersey

Supreme Court rejected Stone-E-Brick’s argument: 

In this case Stone-E-Brick’s interpretation of the policy would result in coverage

for repair and replacement of its own faulty workmanship. This interpretation

relies on the supposition that the exception to exclusion “(a)” -- “but this

exclusion does not apply to a warranty that work performed by or on behalf of the

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named insured will be done in a workmanlike manner” -- grants coverage for

claims based on the warranty described. Not so. The contention runs directly

counter to the basic principle that exclusion clauses subtract from coverage rather

than grant it. 

Id. at 247. As Defendant contends, pursuant to Weedo, an exclusion to an exclusion cannot

produce a grant of coverage, and this Court must reject Plaintiff’s argument. The property

damage Claim is not covered by the Policy. 

Moreover, in Weedo, the Court also stated:

[E]ach exclusion is meant to be read with the insuring agreement, independently

of every other exclusion. The exclusions should be read seriatim, not

cumulatively. If any one exclusion applies there should be no coverage,

regardless of inferences that might be argued on the basis of exceptions or

qualifications contained in other exclusions. There is no instance in which an

exclusion can properly be regarded as inconsistent with another exclusion, since

they bear no relationship with one another. 

Id. at 248 (quotation omitted.) Under these principles, Plaintiffs’ argument must also fail. The

Policy clearly excludes coverage for property damage to the insured’s product or work. The

Claim falls within this exclusion. Under these principles, then, because one exclusion applies,

there is no coverage, “regardless of inferences that might be argued on the basis of exceptions or

qualifications contained in other exclusions.” Id. This defeats Plaintiffs’ argument. 

“[A]n insurer bears the burden of proving that a policy exclusion precludes coverage.” 

Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 329 (1998). Nautilus has met that

burden. “When the terms of an insurance contract are clear, it is the function of a court to

enforce it as written and not to make a better contract for either of the parties.” Kampf v.

Franklin Life Ins. Co., 33 N.J. 36, 43 (1960). The terms of the insurance policy are clear. 

Plaintiffs have neither raised any material factual dispute, nor rebutted Defendant’s case that the

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clear language of the policy precludes coverage. The property damage Claim is not covered by

the Policy. 

Count I of the Complaint seeks a declaratory judgment that Nautilus had a duty to

indemnify related to Plaintiffs’ claim. Nautilus has shown that it is entitled to judgment on this

claim as a matter of law. As to Count I, the motion for summary judgment will be granted. 

Count II of the Complaint seeks damages for breach of contract, based on the failure of

Nautilus to indemnify related to Plaintiffs’ claim. Nautilus has shown that it is entitled to

judgment on this claim as a matter of law. As to Count II, the motion for summary judgment will

be granted. 

Defendant has also moved for summary judgment on Counts III, IV, and V. Plaintiffs’

brief in opposition does not address Defendant’s arguments regarding Counts III and V. 

Plaintiffs are deemed to have abandoned Counts III and V. As to Counts III and V, the motion

for summary judgment will be granted. 

As to Count IV, Defendant argues that this claim, for intentional misrepresentation

relating to the insured’s representation that it would cover a claim like the one at issue, must fail

because it violates the economic loss doctrine. Defendant contends that Count IV seeks tort

damages arising out of a breach of contract, in violation of the economic loss doctrine. In

opposition, Plaintiffs contend, correctly, that courts applying New Jersey law have allowed

claims for fraud in the inducement of a contract to be pursued along with claims for breach of

that contract. See Bracco Diagnostics, Inc. v. Bergen Brunswig Drug Co., 226 F. Supp. 2d 557,

563 (D.N.J. 2002) (“New Jersey federal and state decisions that have permitted a fraud claim to

proceed with a breach of contract claim generally appear to have involved a fraud in the

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inducement of a contract or an analogous situation based on pre-contractual misrepresentations.”) 

Plaintiffs contend that the Complaint alleges “a misrepresentation that induced the sale of the

contract.” (Pl.’s Opp. Br. 14.)

The Complaint does not support Plaintiffs’ characterization of it. Count IV does not

allege any pre-contractual misrepresentations, or any misrepresentations that induced the sale of

the insurance. Rather, the Complaint states: “By entering into agreements and by accepting

premium payments in renewing the aforementioned policy, Defendant Nautilus confirmed in its

representations . . .” (Compl. ¶ 90.) This conduct does not involve any pre-contractual

representations which fraudulently induced the insured to enter into the contract. This

interpretation is confirmed by the statement of reliance in the Complaint: “In justifiable reliance

upon Nautilus’ continuing and ongoing intentional misrepresentations, Plaintiffs’ assignor paid

all premiums to maintain the policy in question.” (Compl. ¶ 94.) The payment of premiums is

not conduct which constitutes entering into a contract. Rather, it is conduct which is performed

after the creation of a contract. The insured paid its premiums because it was required to do so

under the contract. This is a matter subsequent to the creation of the contract and concerns

performance under the contract. 

Moreover, Count IV of the Complaint, as drafted, is wholly deficient in terms of

compliance with Federal Rule of Civil Procedure 9(b), which requires that the circumstances of

the fraud be stated with particularity:

Plaintiffs may satisfy this requirement by pleading the “date, place or time” of the

fraud, or through alternative means of injecting precision and some measure of

substantiation into their allegations of fraud. Plaintiffs also must allege who made

a misrepresentation to whom and the general content of the misrepresentation. 

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Lum v. Bank of Am., 361 F.3d 217, 224 (3d Cir. 2004) (citation omitted). The Complaint

neither states the date, place, or time of the fraud, nor who made a misrepresentation to whom,

nor does it use an alternative means of injecting precision into the allegations. Furthermore,

Plaintiff’s opposition brief contains no suggestion that these deficiencies could be cured by any

amendment. Inasmuch as the brief does not even make a cursory effort to flesh out the details of

the fraud claim, this Court concludes that amendment is futile, and that Plaintiff would not be

able to amend Count IV to comply with the requirements of Rule 9(b). 

Furthermore, neither the Complaint nor Plaintiffs’ opposition brief indicates the existence

of facts that could support a fraudulent inducement claim. “The elements of fraud in the

inducement are: a misrepresentation of material fact; knowledge or belief by the defendant of its

falsity; intent that the other party rely on the misrepresentation; and reasonable reliance thereon

by the other party.” Ginsberg v. Bistricer, 2007 N.J. Super. Unpub. LEXIS 474 (N.J. Super. Ct.

App. Div. Apr. 4, 2007). Thus, to prove fraud in the inducement, Plaintiffs must prove that

Defendant knew that the representations were false – that it had no intention of performing its

obligations – at the time the representations were made. This element may not, however, be

proven by the mere fact of the nonperformance. “The intention of the promisor not to perform is

not sufficiently established by mere proof of nonperformance.” Ocean Cape Hotel Corp. v.

Masefield Corp., 63 N.J. Super. 369, 382 (N.J. Super. Ct. App. Div. 1960). See also Luscko v.

Southern Container Corp., 2010 U.S. App. LEXIS 24495 (3d Cir. Nov. 30, 2010) (“Mere

non-performance of a promise is insufficient to show that a promisor had the requisite intent not

to perform.”) Plaintiffs have not pled sufficient facts to support this element, nor does their

briefing suggest that amendment of the Complaint would result in remedying this fatal defect. 

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To the contrary, Count IV was drafted as a claim for fraud in the performance of a contract and,

as such, is invalid under New Jersey law. Plaintiffs’ argument that it should be read as a claim

for fraudulent inducement is unpersuasive and merely serves to support the finding that the claim

as drafted is invalid.

This Court finds that Count IV does not state a valid claim for intentional

misrepresentation. As to Count IV, Defendant’s motion to dismiss will be granted, and Count IV

will be dismissed with prejudice.

CONCLUSIONS

For the reasons stated above, Defendant’s motion to dismiss for failure to state a valid

claim or, in the alternative, for summary judgment, is granted. As to Counts I, II, III, and V,

Defendant has shown that it is entitled to judgment as a matter of law, and the motion for

summary judgment is granted. Judgment is hereby entered in favor of Defendant on Counts I, II,

III, and V of the Complaint. As to Count IV, the motion to dismiss is granted, and Count IV is

dismissed with prejudice. 

 s/ Stanley R. Chesler 

Stanley R. Chesler, U.S.D.J.

Dated: April 18, 2011

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