RSI Bank v. The Providence Mutual Fire Insurance Company

Third-party defendant Dr. George Likakis was charged with aggravated arson and insurance fraud after a fire destroyed a building he owned (the Property). Plaintiff RSI Bank held a first-priority mortgage on the Property, and defendant/third-party plaintiff The Providence Mutual Fire Insurance Company (Providence) issued a commercial liability policy that covered the Property. Following the fire, Likakis and RSI Bank submitted insurance claims. Providence denied both sets of claims. Providence’s denial of coverage prompted the filing of two actions in the Law Division: (1) filed by Likakis against Providence; and (2) an action gave rise to this appeal: RSI Bank’s claims against Providence for breach of contract, fraudulent misrepresentation, violations of the Consumer Fraud Act, and bad faith. Providence filed a third-party complaint against Likakis, alleging claims for indemnification. Both civil lawsuits were pending when criminal proceedings commenced against Likakis. Likakis was indicted; Providence did not object to Likakis’ admission to the PTI program, provided he paid restitution, committed to protect/compensate Providence from all claims that might be brought by RSI, and dismissal of Likakis’ suit against Providence. With Likakis’s consent - but no assessment of his ability to pay - the court also imposed the three conditions that Providence had requested. During his PTI term, Likakis paid Providence the specific restitution amount and dismissed with prejudice his lawsuit. Likakis did not make any payment related to the separate indemnification provision. With the prosecutor’s consent, the PTI court terminated Likakis’s PTI supervision and dismissed his indictment. RSI Bank and Providence settled their coverage dispute. Providence agreed to pay RSI Bank to settle all of the bank’s claims based on the insurance policy and moved for summary judgment against Likakis based on the provision of the PTI agreement. The court held that the indemnification provision of the PTI agreement was enforceable against Likakis and ordered Likakis to pay Providence the portion of the settlement funds Providence attributed to fire damage, less the amount Likakis had paid during his PTI supervisory period. Likakis appealed, and an Appellate Division panel affirmed. The New Jersey Supreme Court reversed, finding an open-ended agreement to indemnify the victim of the participant’s alleged offense for unspecified future losses was not an appropriate condition of PTI. Moreover, a restitution condition of PTI was inadmissible as evidence in a subsequent civil proceeding against the PTI participant. The indemnification provision of the PTI agreement at issue should have played no role in this civil litigation. View "RSI Bank v. The Providence Mutual Fire Insurance Company" on Justia Law