ATAIN SPECIALTY INSURANCE COMPANY v. NORTHEAST MOUNTAIN GUIDING, LLC

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

____________________________________

:

ATAIN SPECIALTY INSURANCE CO. :

:

Plaintiff, :

: Case No. 3:16-cv-05129-BRM-LHG

v. :

: OPINION

NORTHEAST MOUNTAIN :

GUIDING, LLC, et al., :

:

Defendants. :

:

MARTINOTTI, DISTRICT JUDGE

Before this Court are Motions for Summary Judgment (ECF Nos. 70 & 73) filed by

Plaintiff Atain Specialty Insurance Co. (“Atain”) and Third-Party Defendants Donald Pachner,

Pachner & Associates, LLC, and Pachner Risk Management (collectively, “Pachner”).

Defendant Michael Manchester (“Manchester”) opposes both motions. (ECF No. 80.)

Defendants Northeast Mountain Guiding, LLC (“NMG”), Joseph Vulpis (“Vulpis”), and Bryan

Enberg (“Enberg”) also oppose both motions. (ECF No. 86.) Pachner supports part and opposes

part of Atain’s motion. (ECF No. 81.) Atain opposes part of Pachner’s motion and takes no

position as to the remainder. (ECF No. 85.)

Having reviewed the parties’ submissions filed in connection with the motions and

having declined to hear oral argument pursuant to Federal Rule of Civil Procedure 78(b), for the

reasons set forth below and for good cause having been shown, Atain’s motion is DENIED and

Pachner’s motion is GRANTED IN PART and DENIED IN PART.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Northeast Mountain Guiding and Its Guides

Vulpis is the founder and sole member of NMG, a limited liability company in the

outdoor adventure and education industry. (ECF No. 86-14 ¶ 4.) Vulpis has significant training

and experience, as well as multiple certifications, in the field in which NMG operates. (ECF No.

86-14 ¶¶ 5-7.) Enberg provided administrative assistance to NMG, developed a search and

rescue training for NMG to provide to clients, and served as a mountaineering guide for NMG.

(ECF No. 86-15 ¶ 3.) Manchester performed work for NMG as a Lead Backpacking Guide and

Assistant Rock Guide. (ECF No. 70-8, at 16:6-20.)

B. Pachner Procures Insurance from Atain for Northeast Mountain Guiding

Donald Pachner is the sole member of Pachner & Associates, LLC and Pachner Risk

Management, LLC. (ECF No. 73-3 ¶ 1.) Donald Pachner and Pachner & Associates, LLC

possess insurance broker licenses under New Jersey law. (ECF No. 73-31, at 1-2.)

Vulpis retained Pachner to obtain general commercial liability insurance for NMG. (ECF

No. 73-3 ¶ 7.) As part of this process, Pachner and Vulpis worked together to fill out an

application (the “Application”) for insurance. (ECF No. 73-3 ¶¶ 8-10; ECF No. 73-33, at

ATN000331-41.) The Application required Vulpis to estimate NMG’s gross revenues for the

coming year. (ECF No. 73-33, at ATN000332.) On Pachner’s advice, Vulpis checked the “No”

box when answering the Application’s question concerning whether NMG “hire[s]

Concessionaires, Independent Contractors, or Subcontractors.” (ECF No. 73-33, at ATN 000334;

ECF No. 73-12, at 221:11-222:11.) As part of the Application, Vulpis initialed next to a

requirement NMG (1) obtain from all participants an Atain-approved waiver of liability form,

and (2) maintain those forms for three years. (ECF No. 70-17, at ATN000339.)

In response to NMG’s Application, Atain issued an insurance quote (the “Quote”), which

Vulpis reviewed with Pachner. (ECF No. 72-1, at 233:24-234:23.) Among other things, the

Quote contains a summary of several of the terms the Policy would contain. (ECF No. 73-37, at

2.)

Pachner procured insurance (the “Policy”) from Atain for NMG. (ECF No. 73-3 ¶ 12.)

The Policy limits coverage to “GUIDED MOUNTAINEERING INCLUDING TOP ROPE

CLIMBING & RAPPELLING; GUIDED KAYAK TRIPS; GUIDED SNOWSHOEING;

GUIDED HIKING/BACKPACKING INCLUDING CAMPING.” (ECF No. 86-6, at Atain 47.)

The Policy excludes coverage for injuries suffered “in the course of employment by or service

to” NMG. (ECF No. 70-5, at ATN000402.)

C. Manchester’s Injury

On November 21, 2015, Manchester suffered an injury (the “Injury”) while using certain

equipment (the “Equipment”) to engage in a certain activity (the “Activity”). Much of the

dispute in this case centers on the proper characterization of the Activity and the Equipment. The

essence of the Activity is that the participant uses the Equipment to move between two points.

(ECF No. 73-12, at 16:2-7.) The evidence conflicts concerning whether the Equipment is a

“Tyrolean Traverse” or a “Clifftop Zipline.” (ECF No. 86-14 ¶¶ 33-36; ECF No. 73-12, at 75:1-

10, 186:6-191:4.) Ziplines were derived from Tyrolean Traverses, but the differences are too fine

for untrained individuals to differentiate between the two. (ECF No. 73-12, at 58:5-7.)

On November 21, 2015, three NMG guides—Christy DeMarco, Enberg, and Vulpis—

went to Allamuchy State Park to test the Equipment NMG expected to offer in the future for its

customers. Vulpis and the other three guides set up the Equipment. (ECF No. 86-14 ¶ 46.)

Manchester was present at the time, and engaged in the Activity by traveling on the Equipment.

(ECF No. 86-14 ¶¶ 46-47.) While engaged in the Activity, Manchester suffered the Injury. (ECF

No. 86-14 ¶ 47.)

D. Litigation

Following his Injury, Manchester filed a state court negligence action against Vulpis,

Enberg, and NMG. (ECF No. 1 ¶ 12.) NMG made a claim for coverage with Pachner and Atain.

(ECF No. 86-14 ¶ 51-52.) When reporting the claim to Atain, Pachner described Manchester as

an independent contractor for NMG. (ECF No. 70-21, at 161:11-13.)

Atain filed this coverage action against its Vulpis, Enberg, and NMG, and also joined

Manchester as a defendant. (ECF No. 1 ¶ 1-5.) Atain seeks declaratory judgments against

Vulpis, Enberg, NMG, and Manchester, authorizing Atain to disclaim coverage Manchester’s

Injury. (ECF No. 1 ¶¶ 31-51.) Additionally, Atain seeks a declaratory judgment voiding the

Policy under common law rescission principles and the New Jersey Insurance Fraud Prevention

Act, N.J. Stat. Ann. § 17:33A-1 et seq. (ECF No. 1 ¶¶ 52-65.)

Vulpis, Enberg, and NMG brought a third-party action against NMG’s insurance broker

Pachner, alleging Pachner’s negligence caused any failure of coverage by Atain. (ECF No. 29

¶¶ 28-34.) Manchester brought a similar action against Pachner. (ECF No. 28, at 3-7.)

II. LEGAL STANDARD

Summary judgment is appropriate “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a judgment as a

matter of law.” Farrell v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000). A factual

dispute is genuine only if there is “a sufficient evidentiary basis on which a reasonable jury could

find for the non-moving party,” and it is material only if it has the ability to “affect the outcome

of the suit under governing law.” Kaucher v. Cnty. of Bucks, 455 F.3d 418, 423 (3d Cir. 2006);

see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Disputes over irrelevant or

unnecessary facts will not preclude a grant of summary judgment. See id. at 248. “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)); see

also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, (1986); Curley v.

Klem, 298 F.3d 271, 276-77 (3d Cir. 2002). “Summary judgment may not be granted . . . if there

is a disagreement over what inferences can be reasonably drawn from the facts even if the facts

are undisputed.” Nathanson v. Med. Coll. of Pa., 926 F.2d 1368, 1380 (3rd Cir. 1991) (citing

Gans v. Mundy, 762 F.2d 338, 340 (3d Cir.)); Ideal Dairy Farms, Inc. v. John Labatt, Ltd., 90

F.3d 737, 744 (3d Cir. 1996).

The party moving for summary judgment has the initial burden of showing the basis for

its motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party bears the

burden of persuasion at trial, summary judgment is appropriate only if the evidence is not

susceptible to different interpretations or inferences by the trier of fact. Hunt v. Cromartie, 526

U.S. 541, 553 (1999). On the other hand, if the burden of persuasion at trial would be on the

non-moving party, the party moving for summary judgment may satisfy Rule 56’s burden of

production by either (1) “submit[ting] affirmative evidence that negates an essential element of

the non[-]moving party’s claim” or (2) demonstrating “that the nonmoving party’s evidence is

insufficient to establish an essential element of the nonmoving party’s claim.” Celotex, 477 U.S.

at 330 (Brennan, J., dissenting). Once the movant adequately supports its motion pursuant to

Rule 56(c), the burden shifts to the non-moving party to “go beyond the pleadings and by her

own affidavits, or by the depositions, answers to interrogatories, and admissions on file,

designate specific facts showing that there is a genuine issue for trial.” Id. at 324; see also

Matsushita, 475 U.S. at 586; Ridgewood Bd. of Ed. v. Stokley, 172 F.3d 238, 252 (3d Cir. 1999).

In deciding the merits of a party’s motion for summary judgment, the court’s role is not to

evaluate the evidence and decide the truth of the matter, but to determine whether there is a

genuine issue for trial. Anderson, 477 U.S. at 249. Credibility determinations are the province

of the factfinder. Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir.

1992).

There can be “no genuine issue as to any material fact,” however, if a party fails “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.” Celotex, 477 U.S. at 322-23. “[A]

complete failure of proof concerning an essential element of the non[-]moving party’s case

necessarily renders all other facts immaterial.” Id. at 323; Katz v. Aetna Cas. & Sur. Co., 972

F.2d 53, 55 (3d Cir. 1992).

III. DECISION1

A. Coverage for “Guided Mountaineering”

Atain and Pachner both argue Manchester’s Injury is not covered under the Policy

because the Policy covers only “guided mountaineering,” and Vulpis and Enberg both testified

Manchester’s Injury did not occur during a “guided” activity. (ECF No. 72-1, at 221:4-10; ECF

No. 70-7, at 115:19-116:6.) Conflicting evidence prevents the Court from granting summary

judgment. First, Vulpis’s testimony was more nuanced than Atain and Pachner suggest. While

Vulpis testified he would not consider the Activity to be “guided,” Vulpis did consider the

1 The Court has jurisdiction pursuant to 28 U.S.C. § 1332.

Activity to be “part of guided mountaineering.” (ECF No. 72, at 115:22-116:2.) Second, Vulpis

testified Manchester received training and instruction from both Vulpis and Enberg for the

Activity immediately prior to Manchester’s Injury. (ECF No. 72, at 85:20-86:12.) A reasonable

jury could conclude Vulpis’s and Enberg’s training and instruction “guided” Manchester, who

had little previous experience with the Equipment. (ECF No. 72, at 28:7-10.)

The Court is unpersuaded by Atain’s and Pachner’s argument alleging Vulpis’s and

Enberg’s testimonies demonstrate the parties’ “intent” the Policy not cover the Activity.

“[W]hen interpreting an insurance contract, the basic rule is to determine the intention of the

parties . . . .” Simonetti v. Selective Ins. Co., 859 A.2d 694, 698 (N.J. Super. Ct. App. Div. 2004).

While the contractual language is the Court’s primary tool, the Court may consider evidence of

the parties’ intention beyond the four corners of the contract when, as here, the language of the

insurance contract is ambiguous. See, e.g., Welcome v. Just Apts., No. L-9821-01, 2008 WL

2696252, at *3-4 (N.J. App. Div. July 11, 2008).

Vulpis’s and Enberg’s testimonies are two such pieces of evidence, but not the only

evidence, of NMG’s intent when agreeing to the Policy. Other evidence suggests NMG did

intend the Policy to cover the Activity. For instance, Vulpis testified he considered the Activity

to be “part of guided mountaineering.” (ECF No. 72, at 115:22-116:2.) Enberg testified he

understood a “guided” activity to be an activity in which there is “a guide who is leading the

activity.”2 (ECF No. 70-7, at 115:17-18.) According to Vulpis’s testimony, this is exactly what

2 Pachner also argues the Activity could not be “guided” as the Policy uses the term unless

Vulpis or Enberg met the definition of “guide” in NMG’s Guide Handbook—“specially

trained and experienced mountaineers, climbers, instructors, and outdoor professionals for

hire.” (ECF No. 73-35, at 7.) The Court rejects this argument—which Pachner raises for the

first time in a reply brief—because “arguments raised for first time in [a] reply brief will not

be considered.” Washington v. Doran, 717 F. App’x 151, 155 (3d Cir. 2017).

Were the Court to consider Pachner’s argument on its merits, the argument would fail. First,

Pachner offers no evidence the parties intended the Guide Handbook’s definition of “guide”

happened. Vulpis and Enberg lead the Activity, instructing Manchester before Manchester

participated. (ECF No. 72, at 85:20-86:12.) Manchester did not have the requisite training to

serve as a guide on the Activity. (ECF No. 86-14 ¶ 11.) In light of this conflicting evidence, a

genuine issue of material fact exists concerning whether or not the parties intended for the Policy

to cover the Activity. Accordingly, the Court cannot grant summary judgment on this ground.

B. Injury “In the Course of Employment . . . or Service”

Atain next argues the Court should grant it summary judgment because the Employer’s

Liability Exclusion precludes coverage for Manchester’s Injury because Manchester was acting

“in the course of employment by or service to” NMG. (ECF No. 70-5, at ATN000402.)

Pachner3 seeks summary judgment against Atain on this claim, arguing the Employer’s Liability

Exclusion does not apply. Neither party is entitled to summary judgment concerning the effect

of the Employer’s Liability Exclusion because the evidence conflicts concerning whether

Manchester was, in fact, acting in the course of his NMG employment.

Several facts weigh in favor of finding Manchester was a participant acting outside the

scope of his NMG employment at the time of his Injury. Manchester testified he had come to

participate in the Activity because he “thought it would be fun.” (ECF No. 70-8, at 61:25-62:1.)

Vulpis testified similarly: Manchester “came just to travel along the Tyrolean traverse. He

wanted to try it out.” (ECF No. 72, at 85:13-14.) Manchester testified he never informed NMG

to govern the Policy’s coverage for “guided” activities, nor any evidence the parties even

considered the Guide Handbook’s definition at the time Atain issued the Policy. Second,

even if the Guide Handbook’s definition did govern the Policy’s coverage for “guided”

activities, Vulpis and Enberg meet the definition. Both Vulpis and Enberg possess special

training, and were available for hire. (ECF No. 86-14 ¶¶ 4-7; ECF No. 86-15 ¶¶ 2-3.) The

Guide Handbook’s definition does not require Manchester in fact have hired Vulpis or

Enberg to guide Manchester on the day of the incident.

3 Manchester joins Pachner’s arguments. (ECF No. 80, at 19.) NMG, Vulpis, and Enberg also

join Pachner’s arguments. (ECF No. 86, at 30.)

he would be attending the Activity and further testified NMG did not know he would be

attending. (ECF No. 70-8, at 62:18-20, 68:5-7.) Manchester did not consider himself an

employee or representative of Vulpis or Enberg at the time of the Injury. (ECF No. 70-8, at

20:10-19.)

However, other factors weigh in favor of finding Manchester was acting within the scope

of his employment or service to NMG. Most importantly, Manchester acknowledged he

performed work for NMG as a Lead Backpacking Guide and Assistant Rock Guide. (ECF No.

70-8, at 16:6-20.) Vulpis and Manchester both testified Manchester came to be at Allamuchy

State Park on the date of his Injury because Vulpis posted an invitation to a Facebook group

whose members consisted only of NMG guides and staff. (ECF No. 72, at 56:11-57:14; ECF No.

70-8, at 162:8-21.) Enberg testified although Manchester was not involved in setting up the

Equipment and mostly observed others do so, Manchester did help Enberg “pull tension once, so

just pull on a rope for me.” (ECF No. 70-7, at 95:23-96:8.) Enberg also testified, “[A]s far as I

know, we just there all volunteering and testing the system.” (ECF No. 70-7, at 96:19-20.)

In short, the conflicting evidence creates a genuine issue of material fact. Accordingly,

no party is entitled to summary judgment either for or against Atain’s claim concerning whether

the Employer’s Liability Exclusion precludes coverage.

C. Rescission of the Policy

Atain also argues it is entitled to rescind the Policy in light of NMG’s material

misrepresentations in the Application. Pachner argues the Court should grant summary judgment

against Atain because Atain ratified the Policy despite knowing of the misrepresentations. The

Court cannot grant summary judgment either for or against rescission because genuine issues of

material fact remain (1) concerning whether NMG knowingly misrepresented any material facts,

and (2) about the factual bases for rescission.

“In the field of insurance, rescission has long been recognized as an available and

necessary remedy to combat fraudulent behavior by an insured.” Rutgers Cas. Ins. Co. v.

LaCroix, 946 A.2d 1027, 1035 (N.J. 2008). “It is settled that a material factual misrepresentation

made in an application for insurance may justify rescission [of the resulting insurance policy] if

the insurer relied upon it to determine whether or not to issue the policy.” Citizens United

Reciprocal Exch. v. Perez, 121 A.2d 374, 378 (N.J. 2015). “Rescission voids the [insurance

policy] ab initio, meaning that it is considered ‘null from the beginning’ and treated as if it does

not exist for any purpose.” First Am. Title Ins. Co. v. Lawson, 827 A.2d 230, 237 (N.J. 2003).

Rescission of an insurance policy for fraudulent misrepresentation is appropriate if four

conditions are satisfied: (1) the applicant must make an “untruthful” representation to the insurer,

(2) the representation must be “material to the particular risk assumed by the insurer,” (3) the

insurer must “actually and reasonably rel[y] upon [the representation] in the issuance of the

policy,” and (4) if the “insurance application . . . calls for subjective information,” then “the

insured [must] kn[o]w that the information was false when completing the application.” Id.

Examples of subjective information include when an insurer asks

an insured to indicate a belief about the status of his or her health,

or when . . . an insurer asks whether an applicant is aware of any

circumstances which may result in a claim being made against the

firm[.] [A] subjective question will not constitute equitable fraud

if the question is directed toward probing the knowledge of the

applicant and determining the state of his mind and . . . the answer

is a correct statement of the applicant’s knowledge and belief[.]

Id. (citations omitted).

A “mere oversight or honest mistake” will not support rescission. Rutgers, 945 A.2d at

1035 (quoting Longobardi v. Chubb Ins. Co. of N.J., 582 A.2d 1257, 1261 (N.J. 1990)). “The lie

must be willful.” Longobardi, 582 A.2d at 1261. The insurer bears the burden of demonstrating

the applicant “knew and believed” the information provided on the application was false and

“knowingly misrepresented” the information provided to be true, but need not demonstrate the

applicant “harbored an intent to defraud.” Mass. Mut. Life Ins. Co. v. Manzo, 584 A.2d 190, 195

(N.J. 1991).

1. Projected Revenues

First, Atain argues this Court should void the Policy because NMG materially

misrepresented its projected revenues on its Application. The Court disagrees because the

evidence, viewed in the light most favorable to non-movant NMG, precludes the Court from

finding NMG knowingly4 misrepresented its projected revenues.5

4 Because a genuine issue of material fact exists concerning whether NMG knowingly

misrepresented its projected revenue, the Court need not decide (1) whether NMG’s projected

revenue was material to the particular risk assumed by the Atain, nor (2) whether Atain’s

remedy is limited to a retroactive increase in the Policy premium.

5 The Court declines to consider two of Atain’s arguments concerning whether NMG

knowingly misrepresented its projected revenues. First, Atain argues—for the first time in its

reply brief (ECF No. 93, at 25)—Vulpis improperly projected zero revenue from NMG’s

Professional Services Division, which NMG had created shortly before applying for Atain’s

insurance. Second, Atain argues—again, for the first time in its reply brief (ECF No. 93, at

25-26)—even if NMG’s revenue figures were reasonable at the time of the Application,

NMG’s failure to update the figures as circumstances changed constitutes a knowing

misrepresentation. The Court will not consider either argument because an argument raised

for the first time in a reply brief is waived. See Haberle v. Borough of Nazareth, 936 F.3d

138, 141 n.3 (3d Cir. 2019).

Were the Court to consider Atain’s arguments on their merits, neither argument would

prevail. With regard to revenue from NMG’s newly created Professional Services Division,

the Court notes, “[m]ost new businesses fail. Pretty much all studies agree on that.” Thomas

J. McIntyre, Note, Discriminatory Opportunism: Why Undertaking Self-Employment to

Mitigate Damages Creates Unique Challenges, 45 Suffolk U. L. Rev. 549, 550 n.11 (2012)

(quoting Scott A. Shane, The Illusions of Entrepreneurship 98 (2008)). That Vulpis projected

no revenue from NMG’s new venture is unsurprising. In conjunction with the other evidence

and viewed in the light most favorable to non-movant NMG, a reasonable fact-finder could

still determine Vulpis did not knowingly misrepresent NMG’s projected revenue. With

regard to NMG’s failure to update its revenue figures as its circumstances changed, the

evidence viewed in a light most favorable to NMG does not rule out the possibility NMG’s

Atain argues the projected amount listed on the Application was substantially lower than

NMG’s actual revenue for the year preceding the Application and disproportionately less than the

revenue NMG actually received in the Policy year. The Court declines to find these numerical

discrepancies demonstrate a knowing misrepresentation. Vulpis testified several considerations

left him doubtful NMG would succeed financially in the coming year when he filled out the

Application for NMG. (ECF No. 86-14 ¶ 23.) First, Vulpis was divorcing his spouse, which he

believed would impact NMG’s ability to remain in business. (ECF No. 86-14 ¶ 23.) Second,

Vulpis had hired new guides, and expected revenues would be lower while his new guides gained

experience.6 (ECF No. 86-14 ¶ 23.) Third, “a chronic, life-threatening auto-immune disease”

hospitalized Vulpis shortly before he filed the Application, and he was “not sure [he] would live

through” the year, “much less have any revenues in NMG.” (ECF No. 86-14 ¶ 23.) Even taking

those factors into account, the revenue Vulpis projected on the Application was approximately

equal to NMG’s annual revenue two years prior to the Application, and was slightly lower than

the average of the revenue for the preceding three years. (ECF No. 86-14 ¶ 23.) Taking these

facts in the light most favorable to NMG, a reasonable fact-finder could determine NMG did not

knowingly misrepresent its projected income.

Atain also points to Vulpis’s testimony about how he projected NMG’s revenue by

merely “guess[ing] what I thought we might do for the season” and answered “no” when asked if

he did any math to figure out the projected revenue. (ECF No. 72-1, at 217:3-12.) Atain argues

these answers demonstrate Vulpis did not make a good faith revenue projection. The Court

failure to update its Application was a “mere oversight or honest mistake.” Rutgers, 945

A.2d at 1035 (quoting Longobardi, 582 A.2d at 1261).

6 Atain argues the existence of new hires indicates NMG’s business was growing, and is reason

to expect a good faith estimate of NMG’s revenues would have been higher. While Atain’s

argument is one permissible inference concerning this piece of evidence, the Court must draw

all inferences concerning the new hires in favor of non-movant NMG.

disagrees. When read in context, a reasonable fact-finder could determine Vulpis attempted to

accurately project NMG’s revenues. Immediately before testifying he “guessed,” Vulpis testified

he “guestimated” the revenue figures, and further testified his projection considered revenues

“from previous years of business.” (ECF No. 72-1, at 216:23, 217:13-14.) Combined with his

more detailed testimony about how Vulpis considered his divorce, new hires, and his medical

condition when projecting revenue on the Application, and viewed in the light most favorable to

NMG, genuine issues of material fact exists concerning whether Vulpis failed to make a good

faith attempt to project NMG’s revenue.

2. Independent Contractors

Atain argues it is entitled to summary judgment because a second, unrelated

misrepresentation on the Application—Vulpis’s statement claiming NMG did not use

subcontractors or independent contractors—warrants rescission of the Policy. Pachner7 argues

the Court should grant summary judgment against Atain on this ground because NMG accurately

represented it did not use independent contractors. Pachner also argues summary judgment is

appropriate against any claim Pachner negligently (1) advised Vulpis to answer “no” to the

question on the Application asking about NMG’s use of subcontractors or independent

contractors or (2) misidentified Manchester as an independent contractor when communicating

with Atain. The Court rejects all these arguments because the evidence creates genuine issues of

material fact concerning whether NMG (1) knowingly misrepresented its use of independent

contractors, and (2) used independent contractors at all.8

7 Manchester joins Pachner’s arguments. (ECF No. 80, at 19.) NMG, Vulpis, and Enberg also

join Pachner’s arguments. (ECF No. 86, at 30.)

8 Because these two genuine issues of material fact preclude summary judgment on these

issues for both Atain and Pachner, the Court need not decide (1) whether principles of

preclusion or estoppel require the Court to treat the guides as independent contractors for

purposes of this litigation, nor (2) whether NMG’s representation concerning subcontractors

i. Knowing Misrepresentation

Distinguishing independent contractors from employees is among the most contentiously

litigated issues in courts today, arising in a host of different contexts, each with a different

standard.9 The variety of tests creates a “paradoxical truth that even when the same person

performs the same acts at the same time in the same place under the same conditions,” the person

“may be considered an employee for one purpose and an independent contractor for another.”

EEOC v. Zippo Mfg. Co., 713 F.2d 32, 35-36 (3d Cir. 1983) (“paradoxical truth”); Hoag v.

Brown, 935 A.2d 1218, 1228 (N.J. Super. Ct. App. Div. 2007) (“may be considered”).

Given the issue’s complexity, the Court is not surprised Vulpis’s testimony suggests he

had genuine difficulty distinguishing between employees and independent contractors. Vulpis’s

testimony concerning his thinking at the time demonstrates his confusion. For instance, Vulpis

and independent contractors was material to the particular risk assumed by Atain.

9 In the copyright context, a work is “made for hire” if the work’s author or creator is an

“employee” under a non-exhaustive thirteen-factor test derived from the common law of

agency. See Cmty. for Creative Non-Violence v. Reid (“CCNV”), 490 U.S. 730, 751 (1989).

The Fair Labor Standards Act regulates the wages of individuals who meet a six-factor,

totality-of-the-circumstances test focusing on the “economic reality” of the employer-

employee relationship. See Verma v. 3001 Castor, Inc., 937 F.3d 221, 229-30 (3d Cir. 2019).

The Americans with Disabilities Act covers businesses with a minimum number of

“employees” as determined by a different six-factor, totality-of-the-circumstances test,

focusing on the employer’s right to control the employee. See Clackamas Gastroenterology

Assocs. v. Wells, 538 U.S. 440, 449-50 (2003). New Jersey’s Conscientious Employee

Protection Act protects a person from retaliation against whistle-blowing if the person is an

“employee” under the totality of the circumstances after analyzing a three-consideration,

twelve-factor test analyzing both the employer’s right to control the employee and the

economic realities of the employer-employee relationship. See D’Annunzio v. Prudential Ins.

Co. of Am., 927 A.2d 113, 120-22 (N.J. 2007). When distinguishing employees from

independent contractors in the context of federal employment taxes, the U.S. Tax Court, the

Internal Revenue Service, and the Court of Federal Claims each use a different test. The Tax

Court considers seven factors while the IRS considers twenty, and the Court of Federal

Claims adopts the Reid test from copyright law. See Ewens & Miller, Inc. v. Comm’r, 117

T.C. 263, 270 (2001); Consol. Flooring Servs. v. United States, 38 Fed. Cl. 450, 455 (1997)

(quoting CCNV, 490 U.S. at 751-52); Rev. Rul. 87-41, 1987-1 C.B. 296, 298-299). This is

not an exhaustive list.

described his guides as “1099 employees,” something of a misnomer.10 (ECF No. 86-14 ¶ 17.)

When completing the Application, Vulpis discussed how to answer the “independent contractor”

question with Donald Pachner, whose less-than-illuminating explanation was to describe the

meaning of independent contractor as a “gray area.” (ECF No. 72-1, at 221:19-222:17.) Even

when answering interrogatories in this case—presumably with the assistance of counsel—Vulpis

initially described his guides as independent contractors, then amended his answer to strike that

characterization. (ECF No. 72, at 19:7-23:20.) The Application does not instruct the applicant

on the meaning of “independent contractor,” nor does it suggest which (if any) of the legal tests

an applicant should apply—missing an opportunity to dispel Vulpis’s confusion. (ECF No. 70-

17, at ATN00034.)

Viewed in the light most favorable to non-movant NMG, a reasonable fact-finder could

determine Vulpis merely failed to appreciate every nuance of the difference between employees

and independent contractors when he wrote on the Application NMG did not use independent

contractors or subcontractors. Such a misunderstanding would constitute an “honest mistake,”

not a “lie” or a “willful” falsification. Rutgers, 945 A.2d at 1035; Longobardi, 582 A.2d at 1261.

Drawing all inferences in non-movant NMG’s favor, a genuine issue of material fact remains

concerning whether Vulpis knowingly misrepresented NMG’s use of independent contractors.

ii. Independent Contractors vs. Employees

While Atain is not entitled to summary judgment on its claim concerning Vulpis’s

knowing misrepresentation of his use of independent contractors, neither is Pachner entitled to

summary judgment against Atain on the same issue. Pachner argues Vulpis’s representation was

10 A business uses IRS Form W-2 to report payments to an employee, but uses IRS Form 1099

to report payments to a non-employee independent contractor. See Hopkins v. Duckett, Civ.

No. 02-5589, 2006 WL 3373784, at *4 & n.2 (D.N.J. Nov. 21, 2006).

accurate because NMG’s guides were not independent contractors. A host of evidence suggests

the opposite. For instance, Vulpis deducted over $10,000 for “cost of contract labor” and

“subcontractors” on the 2015 federal income tax form (and corresponding worksheet) covering

NMG’s profit and loss. (ECF No. 70-19, at sch. C, line 11.11) Manchester testified NMG

classified its guides as “subcontractors” in its accounting software. (ECF No. 70-7, at 54:12-20.)

Manchester further testified Vulpis repeatedly used the term “independent contractor” to describe

guides. (ECF No. 70-7, at 54:23-55:8.) Viewed in the light most favorable to non-movant Atain,

this evidence creates a genuine issue of material fact concerning whether NMG’s guides were in

fact independent contractors.

iii. Pachner’s Advice to Vulpis

Pachner also argues summary judgment is appropriate against any claim concerning

Pachner’s negligent advice to Vulpis to answer “no” to the question on the Application asking

about NMG’s use of subcontractors or independent contractors. However, as Pachner points out,

Pachner’s negligence in this instance “is only relevant insofar [as] Atain is seeking to rescind the

Policy based on [NMG’s] answer” concerning independent contractors or subcontractors. (ECF

No. 73-2, at 19.) Because genuine issues of material fact exist concerning whether Atain may

rescind the Policy on the basis of NMG’s use of independent contractors, see part III.C.2.i.,

supra, the same genuine issues of material fact necessarily exist concerning Pachner’s alleged

negligent advice to Vulpis concerning this question. Accordingly, the Court cannot grant

summary judgment on this ground.

11 The Court reminds the parties of their obligation to redact social security numbers and tax

identification numbers from filings, including copies of tax returns attached as exhibits. See

Fed. R. Civ. P. 5.2(a). The parties shall coordinate with the assigned magistrate judge to

bring all non-compliant filings into compliance with this rule.

iv. Pachner’s Misdentification of Manchester as a Contractor

Pachner asks the Court to grant summary judgment on any claim concerning Pachner’s

negligent mislabeling of Manchester as an independent contractor when Pachner first reported

Manchester’s Injury to Atain. The Court cannot grant summary judgment. As with Pachner’s

advice to Vulpis, Pachner’s statement to Atain identifying Manchester as an independent

contractor relates only to Atain’s claim for rescission of the Policy for NMG’s misrepresentation

of its use of independent contractors. Because genuine issues of material fact exist concerning

whether Atain may rescind the Policy on this basis, see part III.C.2.i., supra, the same genuine

issues of material fact exist concerning Pachner’s characterization to Atain of Manchester as an

independent contractor. Accordingly, the Court cannot grant summary judgment on this ground.

3. Training and Education Relating to “Search and Rescue” Operations

Atain also argues NMG committed a knowing misrepresentation when it failed to

disclose its training and education programs concerning search and rescue operations. The Court

declines to grant summary judgment on this claim, because Atain did not plead this claim in its

complaint.

“Each and every claim for relief that a plaintiff seeks to press must be set forth in the

Complaint.” Bravo v. Union Cty., Civ. No. 12-2848, 2013 WL 2285780, at *8 (D.N.J. May 23,

2013). Failure to do so has consequences. One consequence is that this Court may not “grant[]

summary judgment on a claim that was never pleaded.” Day v. White, 764 F. App’x 164, 166 (3d

Cir. 2019) (quoting Michelson v. Exxon Rsrch. & Eng’g Co., 808 F.2d 1005, 1009 (3d Cir.

1987)). “To the extent the plaintiff discovers new information giving rise to additional claims,

the plaintiff must amend the Complaint to assert those claims and properly put the defendant on

notice of them.” Bravo, 2013 WL 2285780, at *8; see also Tavarez v. Twp. of Egg Harbor, Civ.

No. 09-6119, 2012 WL 13186197, at *4 (D.N.J. Aug. 3, 2012); Durham v. Vekios, Civ. No. 09-

5376, 2011 WL 3667560, at *4 (D.N.J. Aug. 22, 2011).

Atain contends it “asserted a cause of action for rescission based upon material

misrepresentation” in its complaint, which Atain argues is broad enough to cover any

misrepresentation relating to NMG’s training and education programs concerning search and

rescue. (ECF No. 93, at 29.) The Court disagrees because Atain’s “Material Misrepresentation”

claim—Count Six12—alleges only a material misrepresented concerning NMG’s engagement in

“Ropes/Challenge Course Facilitation.” (ECF No. 1 ¶¶ 52-59.) Count Six does not mention

search and rescue, much less allege a material misrepresentation relating to NMG’s education

and training concerning search and rescue operations.

Atain further argues it did not learn of the misrepresentation concerning search and

rescue operations until well into the discovery period of this litigation. This fact does not excuse

Atain from seeking to amend its complaint. If Atain learned late in the litigation it had an

additional claim of which it was previously unaware, its appropriate course was to seek leave to

amend its complaint to add the new claim. See Bravo, 2013 WL 2285780, at *8. Atain did not

do so. Because Atain’s complaint does not plead any claim related to search and rescue

operations, Atain may not obtain summary judgment on this unpleaded claim. See Day, 764 F.

App’x at 166.

However, even if Atain did plead this claim, a genuine issue of material fact precludes

summary judgment concerning whether NMG knowingly failed to disclose its education and

training programs concerning search and rescue operations. The record contains evidence Vulpis

12 Atain does not contend Count Seven, a claim under the New Jersey Insurance Fraud

Prevention Act, N.J. Stat. Ann. § 17:33A-1 et seq., covers the claim for misrepresentation

concerning the training and education programs for search and rescue operations. (ECF No.

93, at 28-33.)

and Enberg both believed these activities were no different than NMG’s other activities NMG

had already disclosed on NMG’s initial Application. (ECF No. 86-14 ¶¶ 37-42; ECF No. 86-15

¶¶ 3-6.) Viewed in the light most favorable to non-movant NMG, this evidence13 is sufficient to

create a genuine issue of material fact.

4. Ratification of the Policy

Pachner14 argues the Court should grant summary judgment against Atain on its claim for

rescission because Atain has ratified the Policy. The Court disagrees because (1) the Federal

Rules of Civil Procedure prohibit this Court from construing the allegations in one claim as an

admission against an alternative or inconsistent second claim, and (2) the evidence conflicts

concerning whether Atain’s actions constitute ratification of the Policy.

i. Ratification by Lawsuit

First, Pachner argues Atain cannot file a lawsuit demanding both to disclaim coverage or,

in the alternative, to rescind the Policy. Doing so, Pachner argues, constitutes ratification of the

Policy and bars rescission. See Merchants Indem. Corp. v. Eggleston, 179 A.2d 505, 514 (N.J.

13 The Court rejects Atain’s argument asking the Court to disregard Vulpis’s and Enberg’s

declarations as “conclusory, self-serving affidavits . . . insufficient to withstand a motion for

summary judgment.” Gonzalez v. Sec’y of Dep’t of Homeland Sec., 678 F.3d 254, 263 (3d

Cir. 2012) (quoting Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 161 (3d Cir.

2009)). Vulpis’s and Enberg’s declarations “detail[] the specific circumstances” surrounding

NMG’s education and training programs concerning search and rescue operations, rendering

the declarations far from conclusory. Kirleis, 560 F.3d at 161. Notwithstanding any arguable

inconsistencies with his deposition testimony, Enberg’s declaration is not so unbelievable that

“the [C]ourt, based on all of the evidence, can say with confidence that a rational trier of fact

could not credit” Enberg’s declaration. United States v. 717 S. Woodward Street, 2 F.3d 529,

534 (3d Cir. 1993). Both Vulpis’s and Enberg’s declarations (like all declarations) are self-

serving, but this is no reason to disregard them entirely. See Paladino v. Newsome, 885 F.3d

203, 209 (3d Cir. 2018). Accordingly, the Court must consider Vulpis’s and Enberg’s

testimony, and their testimony creates a genuine issue of material fact precluding summary

judgment.

14 Manchester joins Pachner’s arguments. (ECF No. 80, at 19.) NMG, Vulpis, and Enberg also

join Pachner’s arguments. (ECF No. 86, at 30.)

1962). Assuming without deciding New Jersey law treats an action to disclaim coverage as a

ratification of the Policy and thus prohibits a claim for rescission, Pachner is still not entitled to

summary judgment because “[t]he Federal Rules of Civil Procedure permit parties to file

pleadings containing inconsistent factual and legal allegations.” W.V. Realty, Inc. v. N. Ins. Co.,

334 F.3d 306, 316 (3d Cir. 2003).

“A party may state as many separate claims or defenses as it has, regardless of

consistency.” Fed. R. Civ. P. 8(d)(3). For instance, a plaintiff may simultaneously plead claims

for both breach of contract (which requires the existence of a contract) and unjust enrichment

(which requires the non-existence of a contract). See Hughes v. TD Bank, N.A., 856 F. Supp. 2d

673, 680 n.4 (D.N.J. 2012); Dewey v. Volkswagen AG, 558 F. Supp. 2d 505, 528-29 (D.N.J.

2008); cf. Showalter v. Brubaker, 283 F. App’x 33, 36 (3d Cir. 2008) (permitting defendants in a

civil rights action under 42 U.S.C. § 1983 to simultaneously plead both (1) they are entitled to

governmental immunity and (2) their actions were wholly private and therefore not under color

of state law).

Importantly, this allowance for inconsistent claims “has been interpreted to mean that a

court ‘may not construe [a plaintiff’s] first claim as an admission against another alternative or

inconsistent claim.’” Indep. Enters. v. Pitt. Water & Sewer Auth., 103 F.3d 1165, 1175 (3d Cir.

1997) (quoting Henry v. Daytop Village, 42 F.3d 89, 95 (2d Cir. 1994)). For instance, a claim for

abuse of process does not implicitly concede the legitimacy of a prosecution so as to invalidate a

simultaneous claim for malicious prosecution. See Evans v. City of Newark, Civ. No. 14-120,

2016 WL 2742862, at *5 n.7 (D.N.J. May 10, 2016).

Atain’s claims are subject to this rule. Assuming without deciding a claim to disclaim

coverage and a claim to rescind the Policy are inconsistent under New Jersey law, the Federal

Rules of Civil Procedure permit Atain to make both claims simultaneously. Accordingly, Atain’s

claim for disclaimer of coverage does not constitute a ratification of the Policy.

ii. Ratification by Action

Second, Pachner argues Atain’s actions constitute ratification of the contract. Genuine

issues of material fact preclude the issuance of summary judgment on this ground.

“[T]he remedy [of rescission] is discretionary and will not be granted where the claimant

has not acted within a reasonable time or where there has been substantial performance.” Farris

v. Cty. of Camden, 61 F. Supp. 2d 307, 336 (D.N.J. 1999) (quoting Notch View Assocs. v. Smith,

615 A.2d 676, 680 (N.J. Super. Ct. Law Div. 1992)); see also Rowen Petrol. Props., LLC v.

Hollywood Tanning Sys., Inc., Civ. No. 08-4764, 2011 WL 6755838, at *10 (D.N.J. Dec. 23,

2011) (same). “[W]here a party ‘is cognizant of fraud or misrepresentation and fails to promptly

rescind the . . . agreement or transaction, and instead engages in conduct which assumes the

validity of the [agreement], then the agreement or transaction may be deemed ratified.’” Everest

Nat’l Ins. Co. v. Sutton, Civ. No. 07-722, 2008 WL 3833586, at *8 (D.N.J. Aug. 13, 2008)

(quoting Notch View, 615 A.2d at 685).

Pachner argues Atain received notice of its potential grounds for rescission on or before

November 30, 2015, when Atain received an e-mail with a description of the events leading to

Manchester’s Injury and a discussion of how Manchester was an “independent contractor” for

NMG. (ECF No. 73-43, at Atain 73-75.) Assuming without deciding this e-mail put Atain on

notice of its potential grounds for rescission,15 the evidence of ratification following this date is

mixed, precluding summary judgment.

15 Atain argues the relevant date is January 5, 2016, when NMG received a letter from

Manchester’s attorneys providing a notice of claim. (ECF No. 85-5, at 2.)

For instance, Atain issued a “Notice of Conditional Renewal” to NMG on January 6,

2016, “to advise that [Atain is] agreeable to renewing this policy subject to” new terms and

conditions and a rate increase. (ECF No. 73-45, at 1.) This explicit statement suggests Atain

treated the Policy as valid. However, this evidence of ratification is tempered by testimony from

Atain’s former director of director of underwriting for recreational programs, Grace

Cunningham, who noted Atain issued the conditional renewal “until [Atain] received more

information about the claim.” (ECF No. 73-16, at 270:10-11.) Cunningham also testified, “We

rescinded this,” after Atain learned more. (ECF No. 73-16, at 270:16-19.)

Other evidence is also ambiguous. Although, Atain appears to have kept the Policy

premium16 rather than refund it to NMG, the normal course of rescission litigation appears to

allow an insurer to maintain the premium while litigation is pending, and to refund the policy-

holder after the litigation is successful. See, e.g., Liebling v. Garden State Indem., 767 A.2d 515,

465 n.1 (N.J. Super. Ct. App. Div. 2001). Additionally, Atain negotiated an explicit agreement

with Vulpis, Enberg, and NMG to allow Atain to follow this procedure. (ECF No. 70-13, at

ATN000051, ATN000068.) Under these circumstances, the Court cannot say Atain’s retention of

the Policy premium necessarily demonstrates Atain ratified the Policy.

The record also contains contrary evidence suggesting Atain did not act to ratify the

Policy, but instead acted with diligence concerning the possibility of rescinding the Policy. For

example, Atain wrote a letter to NMG on February 23, 2016, in which it sought to reserve its

right to rescind the Policy. (ECF No. 73-44, at 2.) Likewise, Atain negotiated and, on August 8,

16 The record is ambiguous on this point. When asked whether, after Manchester’s Injury, Atain

retained NMG’s Policy premiums or returned them to NMG, Atain’s representative testified,

“I don’t believe so. I don’t know for sure. I can’t verify.” (ECF No. 73-18, at 149:14-15.)

For the purpose of Pachner’s motion, the Court assumes Atain did not refund the Policy

premium to NMG in light of Atain’s argument claiming Atain may retain the premium

without forfeiting Atain’s right to rescission. (ECF No. 85, at 13-14.)

2016, executed non-waiver agreements with Vulpis, Enberg, and NMG to protect Atain’s right to

seek rescission of the Policy. (ECF No. 70-13, at ATN000049-53, ATN000066-70.) And, of

course, Atain filed this action on August 23, 2016. (ECF No. 1, at 21.) Pachner points to

deficiencies in Atain’s reservation-of-rights letter, but no matter the deficiencies, the letter, non-

wavier agreement, and declaratory judgment action are not the acts of a company taking action to

ratify the Policy. Cf. Annito v. Trump Marina Hotel Casino, No. L-5622-02, 2005 WL 4344137,

at *8 (N.J. Super. Ct. App. Div. July 25, 2006) (“By paying his casino debts when he was sober,

plaintiff ratified his prior promises to repay the loans, even if they were made while he was

intoxicated and not competent to contract.”).

However, the most important evidence is missing. Pachner’s critical argument is Atain

ratified the Policy by failing to act promptly after learning of the potential grounds for rescission

as a result of the November 30, 2015 e-mail. (ECF No. 73-43, at Atain 73-75.) Pachner does not

point to any evidence—other than the mere passage of time—showing Atain failed to follow-up

on the e-mail or to investigate the potential grounds for rescission the e-mail raised. Coupled

with the ambiguous or contrary evidence above, a genuine issue of material fact exists

concerning whether Atain ratified the Policy. Accordingly, the Court cannot grant summary

judgment against Atain on its claim for rescission.

D. Failure to Maintain Signed Liability Waivers

Atain’s final argument is NMG’s failure to comply with a coverage condition—namely,

obtaining a signed waiver and release of liability from all participants in NMG’s activities, and

maintaining the signed document for three years—relieves Atain from its obligation to cover

NMG’s exposure to Manchester’s underlying litigation. The Court rejects this argument because

a genuine issue of material fact exists concerning whether the loss of Manchester’s waiver form

appreciably prejudices Atain’s defense of Manchester’s underlying state court litigation.

New Jersey law permits an insurer to escape liability for its obligations under an

insurance policy if the insured breaches a condition of coverage, but only if the insurance carrier

suffers appreciable prejudice from the breach. See, e.g., Gazis v. Miller, 847 A.2d 591, 595 (N.J.

Super. Ct. App. Div. 2005). When determining the existence of appreciable prejudice, a court

must consider two factors. “[F]irst, ‘whether substantial rights have been irretrievably lost’ as a

result of the insured’s breach, and second, ‘the likelihood of success of the insurer in defending

against the accident victim’s claim’ had there been no breach.” Hager v. Gonsalves, 942 A.2d

160, 164 (N.J. Super. Ct. App. Div. 2008) (quoting Sagendorf v. Selective Ins. Co. of Am., 679

A.2d 709, 715 (N.J. Super. Ct. App. Div. 1996)); see also Ohaus v. Continental Cas. Ins. Co.,

679 A.2d 179, 185 (N.J. Super. Ct. App. Div. 1996).

The insurer bears the burden of demonstrating appreciable prejudice. See, e.g., Kenny v.

N.J. Mfrs. Ins. Co., 746 A.2d 57, 59 (N.J. Super. Ct. App. Div. 2000). The existence of

appreciable prejudice is generally a question for the finder-of-fact, and generally not appropriate

for summary judgment. See, e.g., State Nat’l Ins. Co. v. Cty. of Camden, 10 F. Supp. 3d 568,

582-83 (D.N.J. 2014).

A genuine issue of material fact exists concerning whether the loss of Manchester’s

misplaced waiver form will appreciably prejudice Atain. First, the record is not clear whether

Manchester’s waiver form—and therefore, Atain’s ability to defend the underlying state court

litigation using Manchester’s waiver—has been “irretrievably lost.” Hager, 942 A.2d at 164.

Although NMG cannot locate the waiver at present, Atain points to no evidence NMG will be

unable to locate the waiver in the future. In fact, NMG indicates it will willing to allow opposing

counsel access to its physical files to conduct its own search for Manchester’s missing waiver.

(ECF No. 86-2 ¶ 5.) Atain does not indicate it has accepted NMG’s offer.

Second, even if Atain cannot obtain Manchester’s waiver in time to rely on the waiver

against Manchester in the underlying state court litigation, the absence of Manchester’s waiver

will not necessarily reduce “the likelihood of success of the insurer in defending against the

accident victim’s claim.” Hager, 942 A.2d at 164. NMG has provided Atain with Manchester’s

signed acknowledgment of receipt (ECF No. 86-4, at 1) of NMG’s employee handbook, which

contains a waiver form (ECF No. 86-3, at 22-24). Moreover, while Vulpis acknowledged he

could not locate the forms, Vulpis testified Manchester had previously signed a waiver (1) when

Manchester initially became was a customer of NMG prior to serving as a guide, and (2) for the

year 2015, when Manchester served as a guide. (ECF No. 72, at 55:13-56:3, 87:1-6.) The only

contrary evidence is Manchester did not sign a waiver on the day of the Injury. (ECF No. 72, at

99:18-100:4; ECF No. 70-8, at 161:23-162:1.) Atain points to no evidence contradicting Vulpis’s

testimony concerning Manchester previously signing a waiver before the day of the Injury.

Viewing the facts in the light most favorable to NMG, a genuine issue of material fact exists

concerning whether NMG’s loss of Manchester’s waiver will appreciably prejudice Atain’s

defense of Manchester’s underlying state court litigation.

E. Pachner’s Insurance Producer Licenses

Pachner argues it is entitled to summary judgment on any negligence claim relating to

Pachner’s failure to maintain insurance producer licenses. No party opposes Pachner’s

argument. Assuming without deciding Pachner owes a duty to its clients or third parties to

maintain appropriate licenses as an insurance producer, the uncontested evidence demonstrates

Pachner in fact possessed the requisite licenses at the time he assisted NMG with its search for

insurance coverage. (ECF No. 73-31, at 1-2.) Therefore, there is no genuine dispute of material

fact concerning Pachner’s licensure, and Pachner is entitled to summary judgment on this claim.

F. Pachner’s Explanation of the Policy to NMG

Pachner argues the Court should grant summary judgment against NMG’s claims relating

to Pachner’s failure to explain mountaineering-related terms in the Policy or the Application.

The Court declines to grant summary judgment because a genuine issue of material fact remains

concerning whether Pachner fulfilled his obligations to NMG as a broker.17

An insurance broker’s obligations are “(1) to procure the insurance; (2) to secure a policy

that is neither void nor materially deficient; and (3) to provide the coverage he or she undertook

to supply.” President v. Jenkins, 853 A.2d 247, 569 (N.J. 2004). “[A]n insurance broker owes a

duty to his principal to exercise diligence in obtaining coverage in the area his principal seeks to

17 As part of its argument, Pachner contends the testimony of Grace Cunningham is irrelevant

because Cunningham was not designated as Atain’s organizational representative under

Federal Rule of Civil Procedure 30(b)(6) and because she did not work at Atain at the time of

her deposition. Accordingly, Pachner argues, the Court should disregard not only

Cunningham’s testimony but other evidence relying on Cunningham’s testimony. The Court

disagrees. Cunningham’s testimony is relevant to this case and the Court will consider it.

A person need not be an organizational representative under Rule 30(b)(6) nor still employed

with a defendant to provide relevant testimony. Cf. Lacey v. Cessna Aircraft Co., 932 F.3d

170, 183 (3d Cir. 1991) (observing “many potentially relevant witnesses may no longer be

employed by” a defendant company). Testimony is relevant to the extent “(a) it has any

tendency to make a fact more or less probable than it would be without [her testimony]; and

(b) the fact is of consequence in determining [this] action.” Fed. R. Evid. 401.

Pachner does not argue any particular item of Cunningham’s testimony fails to meet this

definition. Instead, Pachner argues only the Court should wholesale disregard Cunningham’s

entire testimony because none of it can be relevant if Atain no longer employs Cunningham.

The Court cannot agree. As the director of underwriting for recreational programs at Atain

when NMG contracted with Atain under the Policy, Cunningham was personally involved

with Atain’s issuance of the Policy to NMG. (ECF No. 70-20, at 12:22-13:6, 32:19-23.)

Given her position and personal involvement, the Court cannot say her testimony is entirely

irrelevant. Accordingly, the Court considers both Cunningham’s testimony and other

evidence relying on her testimony.

be protected.” Satec, Inc. v. Hanover Ins. Grp., 162 A.3d 311, 317 (N.J. Super. Ct. App. Div.

2017) (quoting Werrmann v. Aratusa, Ltd., 630 A.2d 302, 304 (N.J. Super. Ct. App. Div. 1993)).

A broker’s failure to inform a client about critical facts related to the client’s pursuit of insurance

can constitute a breach of the broker’s duty. See Brill v. Guardian Life Ins. Co. of Am., 666 A.2d

146, 157 (N.J. 1995).

1. Subjective vs. Objective Understanding of Policy Terms

Pachner is not entitled to summary judgment concerning whether Pachner failed to

explain certain mountaineering-related terms. The report of NMG’s expert Frank Seigel explains

Pachner breached an insurance broker’s duty because Pachner “should have been familiar with

how Atain handled and considered ‘mountaineering’ and ‘guided mountaineering’ and whether or

not those terms, in Atain’s eyes, included the assembly and use of a Tyrolean Traverse.” (ECF

No. 80-4, at 13.) Pachner argues Atain’s subjective understanding of these contested terms is

irrelevant because of “the general rule that the terms in an insurance policy should be interpreted

in accordance with their plain and commonly-understood meaning,” not the subjective meaning

of the insurer. Cypress Point Condo. Ass’n v. Adria Towers, LLC, 143 A.3d 273, 286 (N.J. 2016).

This argument does not entitle Pachner to summary judgment. Pachner is correct that

courts must “first consider the plain meaning of the language at issue.” N.J. Transit Corp. v.

Underwriters at Lloyd’s, London, ___ A.3d ___, 2019 WL 6109144, at *4 (N.J. Super. Ct. App.

Div. Nov. 18, 2019). But the plain language analysis is only one part of the approach to the

interpretation of insurance contracts. Courts’ “goal in interpreting [insurance] policies is to

‘discover the intention of the parties[,]’ by considering ‘the contractual terms, the surrounding

circumstances, and the purpose of the contract.’” Id. at *5 (quoting Marchak v. Claridge

Commons, Inc., 633 A.2d 531 (1993). Atain’s subjective understanding of these terms is relevant

to “discover[ing] the intention of the parties.” Id.

2. Vulpis’s Reliance on Pachner’s Information

Pachner also argues none of the Pachner entities breached any duty to inform NMG about

relevant Policy terms because Vulpis testified he did not rely on Pachner for information about

these terms. Vulpis’s testimony does not entitle Pachner to summary judgment because Vulpis

could not have relied on Pachner for information Pachner did not provide, but should have. Cf.

Brill, 666 A.2d at 157.

3. Vulpis’s Greater Level of Expertise Compared to Pachner

Pachner further argues Vulpis, as an expert in the mountaineering field, had greater

familiarity than Pachner with terms like “mountaineering” and equipment like a “Tyrolean

Traverse.” Therefore, Pachner argues, NMG had no need for any explanation from an individual

like Pachner with a lesser level of expertise than Vulpis. The Court cannot grant summary

judgment on this ground. The fact an insured possesses greater knowledge and expertise in a

field than the insured’s broker does not relieve the broker from “exercis[ing] diligence in

obtaining coverage in the area his principal seeks to be protected.” Satec, 162 A.3d at 317.

4. Pachner’s and Vulpis’s Awareness of NMG’s Activities

Pachner next points out Vulpis informed Pachner NMG engaged in “mountaineering”

activities and requested insurance for those activities (ECF No. 70-17, at ATN000336), but

Vulpis never alerted Pachner that NMG engaged in the Activity. Pachner asks this Court for

summary judgment because, the argument goes, Pachner could not reasonably have been

expected to procure coverage for an Activity of which it had no knowledge. Pachner also argues

summary judgment is appropriate because Vulpis was aware the Policy did not cover the Activity

because the Activity was not a “mountaineering” activity. The same genuine issue of material

fact—namely, the conflicting evidence concerning whether the Activity qualified as a

“mountaineering” activity (ECF No. 72-1, at 253:19-24; ECF No. 70-20, at 18:8-13; ECF No.

70-8, at 20:20-21:4)—precludes the entry of summary judgment on both grounds.

G. Pachner’s Failure to Recommend Workers’ Compensation Insurance

Pachner asks the Court to grant summary judgment on NMG’s claim related to Pachner’s

failure to procure workers’ compensation insurance, as required by law. The Court cannot grant

summary on this basis because genuine issues of material fact exist concerning whether (1)

Pachner attempted to procure workers’ compensation insurance for NMG and (2) workers’

compensation insurance would have protected either NMG or Manchester.

An insurance broker’s obligations are “(1) to procure the insurance; (2) to secure a policy

that is neither void nor materially deficient; and (3) to provide the coverage he or she undertook

to supply.” President v. Jenkins, 853 A.2d 247, 569 (N.J. 2004). “[A]n insurance broker owes a

duty to his principal to exercise diligence in obtaining coverage in the area his principal seeks to

be protected.” Satec, Inc. v. Hanover Ins. Grp., 162 A.3d 311, 317 (N.J. Super. Ct. App. Div.

2017) (quoting Werrmann v. Aratusa, Ltd., 630 A.2d 302, 304 (N.J. Super. Ct. App. Div. 1993)).

When a client retains a broker to procure insurance, the broker must procure legally mandated

workers’ compensation insurance. See Schustrin v. Globe Indem. Co. of N.Y., 130 A.2d 897, 898

(N.J. Super. Ct. App. Div. 1957) (noting the jury’s finding that broker was obligated to procure

workers’ compensation insurance for client).

Pachner argues a broker owes no duty to recommend additional coverage for a client.

This argument does not affect the Court’s analysis. Pachner correctly points out New Jersey law

imposes “no duty [on an insurance broker] to advise an insured to consider higher amounts of

homeowner’s insurance.” Carter Lincoln-Mercury, Inc., Leasing Div. v. EMAR Grp., 638 A.2d

1288, 1292 (N.J. 1994) (citing Wang v. Allstate Ins. Co., 592 A.2d 527, 532-33 (N.J. 1991)).

Assuming without deciding this principle extends to workers’ compensation, the principle still

does not apply here. NMG does not claim Pachner failed to advise NMG to consider the option

of purchasing higher policy limits. Instead, the case concerns an alleged failure by a broker to

obtain workers’ compensation insurance for a client who was legally mandated to obtain such

insurance. (ECF No. 80-4, at 13-14.) Were the Court to adopt Pachner’s argument, then NMG

would possess a legal obligation to obtain workers’ compensation insurance, see N.J. Stat. Ann.

§ 34:15-71 (requiring employers to obtain workers’ compensation insurance), but NMG’s

insurance broker Pachner would have no legal obligation to procure the insurance for NMG.

This is not the law in New Jersey. See Schustrin, 130 A.2d at 898.

The delineation of a broker’s duties does not end the Court’s inquiry, because a plaintiff

must show more than the failure to procure workers’ compensation insurance before liability will

attach. “To succeed in an action against an insurance broker, the plaintiff must prove that in

addition to being negligent, the broker’s negligence was a proximate cause of the loss.” Harbor

Commuter Serv., Inc. v. Frenkel & Co., 951 A.2d 198, 207 (N.J. Super. Ct. App. Div. 2008). Put

another way, the plaintiff must “establish[] that its loss would not have occurred but for

defendants’ negligence, or that defendants’ negligence constituted a substantial contributing

factor to the loss.” Id.

Two genuine issues of material fact preclude summary judgment. First, the record

contains conflicting evidence concerning whether Pachner in fact attempted to obtain workers’

compensation insurance for NMG. (ECF No. 73-3 ¶¶ 4-5; ECF No. 73-10, at 6; ECF No. 86-14

¶ 18.) Taking the evidence in the light most favorable to non-movants NMG and Manchester

while making all reasonable inferences in their favor, a reasonable jury could find Pachner did

not attempt to obtain workers’ compensation insurance for NMG.

The second genuine issue of material fact concerns whether (1) Pachner’s failure to

procure workers’ compensation insurance for NMG either contributed to NMG’s and

Manchester’s loss or (2) their loss would not have occurred had NMG purchased workers’

compensation insurance. As discussed earlier, genuine issues of material fact remain concerning

whether Manchester qualified as an employee or an independent contractor. See part III.B.,

supra. Given this uncertainty, the record does not conclusively demonstrate whether or not

workers’ compensation insurance would have covered Manchester’s Injury. Viewing this

uncertainty in the light most favorable to non-movants NMG and Manchester while making all

reasonable inferences in their favor, a reasonable jury could find Pachner’s failure to procure

workers’ compensation insurance for NMG either contributed to NMG’s and Manchester’s loss,

or their loss would not have occurred but for Pachner’s failure. In light of the two genuine issues

of material fact, the Court cannot grant summary judgment against NMG’s and Manchester’s

claims related to Pachner’s failure to procure workers’ compensation insurance for NMG.

H. Pachner’s Failure to Provide a Copy of the Policy

Pachner requests summary judgment on any claim it negligently failed to provide NMG

with a copy of the Policy. The Court cannot grant summary judgment in light of the conflicting

evidence.

An insurance broker has a duty to provide its client with any policy it receives from the

insurer within 10 days of receipt by the broker. See N.J. Admin Code § 11:17A-4.6. According

to Pachner, when “Pachner & Associates received a copy of the Policy, we made it available to

NMG through our web portal.” (ECF No. 73-3 ¶ 13.) Vulpis testified that he never received the

Policy until after Manchester’s Injury. (ECF No. 72, at 112:16-25.) In light of the conflicting

evidence, a genuine issue of material fact precludes summary judgment.

Pachner argues even if Pachner did not provide Vulpis with a copy of the Policy,

Pachner’s failure did not proximately cause any of NMG’s damages because Vulpis received a

copy of the Quote. (ECF No. 72-1, at 233:21-236:8.) A genuine issue of material fact also

precludes summary judgment on this basis. “To succeed in an action against an insurance

broker, the plaintiff must prove that in addition to being negligent, the broker’s negligence was a

proximate cause of the loss.” Harbor Commuter Serv., Inc. v. Frenkel & Co., 951 A.2d 198, 207

(N.J. Super. Ct. App. Div. 2008). Put another way, the plaintiff must “establish[] that its loss

would not have occurred but for defendants’ negligence, or that defendants’ negligence

constituted a substantial contributing factor to the loss.” Id.

A genuine issue of material fact exists concerning whether Pachner’s failure to provide

the Policy to NMG substantially contributed to NMG’s loss by depriving Vulpis of important

Policy details that would have prompted Vulpis to make inquiries about, and adjustments to,

NMG’s insurance. The Policy contains substantially more details about coverage than the Quote.

For instance, while the Quote merely mentions the insurance “Excludes Injury to Employees,

Leased Workers, Volunteers, and Independent Contractors,” the Policy actually defines several of

these terms. (ECF No. 73-37, at 2; ECF No. 70-5, at ATN000373-76.) Unlike the Quote, the

Policy spells out the exact terms of the exclusion for injury to employees or independent

contractors. (ECF No. 70-5, at ATN000383.) Making all reasonable inferences in favor of non-

movant NMG, a reasonable jury could find Vulpis would use the more detailed information in

the Policy to inquire about his insurance and adjust it so as to explicitly cover incidents like the

one in which Manchester suffered an Injury. Accordingly, the Court cannot grant summary

judgment.

I. Pachner’s Duty to Manchester

Pachner asks this Court to grant summary judgment against Manchester because New

Jersey law precludes Manchester from bringing an action against Pachner until Manchester

obtains a judgment against NMG and the judgment is returned unsatisfied.18 The Court disagrees

because Manchester is a foreseeable injured third-party to whom Pachner, a broker, owes a duty.

See Carter Lincoln-Mercury, Inc., Leasing Div. v. EMAR Grp., 638 A.2d 1288, 1297-98 (N.J.

1994).

“[A]n insurance broker may owe a duty of care not only to the insured who pays the

premium and with whom the broker contracts but to other parties found within the zone of harm

emanating from the broker’s actions as well.” Id. at 1297. When a broker negligently fails to

procure insurance that would cover the injuries of a third-party, the broker owes a duty to the

third-party, making the third-party an appropriate plaintiff in a negligence action against the

broker. See Impex Ag. Commodities Div. Impex Overseas Corp. v. Parness Trucking Corp., 576

F. Supp. 587, 591 (D.N.J. 1983) (applying New Jersey law). Pachner, as a broker, owes a duty to

procure appropriate insurance not just to NMG, but also to Manchester—a foreseeable, injured

third-party whose Injury NMG expected the Policy to cover. Because Pachner owes Manchester

a duty, Manchester is therefore an appropriate plaintiff in a negligence action. Accordingly,

summary judgment against Manchester on this basis is inappropriate.

18 Pachner characterizes this argument by saying Manchester lacks “standing” to sue Pachner.

(ECF No. 73-2, at 25-26; ECF No. 92, at 4-5.) The Court declines to adopt this phrasing, to

avoid confusion with the doctrine of justiciability under Article III of the Constitution. See,

e.g., Gill v. Whitford, 138 S. Ct. 1916, 1929 (2018). Pachner’s underlying argument concerns

whether Manchester is an appropriate plaintiff—which, in a negligence action like this, is

best analyzed in terms of whether Pachner owes a duty to Manchester.

Pachner argues New Jersey is not a direct action state, meaning an injured third party

may not bring an action directly against a tortfeasor’s insurance company in lieu of the tortfeasor.

See Manukas v. Am. Ins. Co., 237 A.2d 898, 524 (N.J. Super. Ct. App. Div. 1968). But Pachner is

not an insurance company against whom Manchester brings an action in lieu of the tortfeasor.

Rather, Pachner is the tortfeasor. Manchester brings a negligence action against Pachner for

Pachner’s negligent failure to obtain appropriate insurance for NMG that would cover

Manchester’s Injury. Manchester does not bring an action against Pachner in the capacity of an

insurer. Therefore, Pachner’s “direct action” argument is inapposite.

Pachner further argues New Jersey law imposes a bar against direct actions such as this

one until the plaintiff obtains a judgment against the tortfeasor and is unable to execute on the

judgment. See N.J. Stat. Ann. § 17:28-2. This argument does not entitle Pachner to summary

judgment against Manchester for two reasons. First, as previously explained, Manchester has not

brought a direct action against an insurer, because Pachner is the tortfeasor, not the tortfeasor’s

insurer. Second, the statute’s language merely imposes a requirement on insurance contracts; it

does not limit the circumstances under which a plaintiff may bring a tort action. See id. (“No

policy of insurance . . . shall be issued or delivered in this state by any insurer authorized to do

business in this state, unless [the policy allows the plaintiff to recover directly against the insurer

if the tortfeasor is insolvent.]”). Because Manchester is not bringing an action for breach of an

insurance contract, the statute has no application here.

Finally, Pachner argues Manchester cannot bring an action against Pachner until it has

obtained a judgment against NMG. See Estate of Atanasoski v. Arcuri Agency, Inc., No. A-2291-

17T4, 2019 WL 1986539, at *3-6 (N.J. Super. Ct. App. Div. May 6, 2019). Because an action by

Manchester against NMG concerning Manchester’s Injury is pending in state court, the

appropriate course for this Court would not be to grant summary judgment against Manchester

(which would permanently extinguish Manchester’s right to recover against Pachner), but to

await the outcome of the state court case before issuing any final judgment against Pachner in

favor of Manchester.

J. Action Against Pachner Risk Management

Pachner argues, and the Court agrees, summary judgment is appropriate against Pachner

Risk Management (“PRM”) because PRM had no relationship with Manchester, Enberg, Vulpis,

or NMG, nor was PRM involved in procuring insurance for NMG. No party contests this

argument, and the evidence supports it. Donald Pachner testified PRM has always been an

inactive company and further testified PRM has never had anything to do with NMG. (ECF No.

73-11, at 126:14-127:5.) When asked whether “there was anything you came across that

suggested [PRM] owed or breached any duty to [NMG],” NMG’s expert Frank Seigel testified

he did not recall any reference to PRM in the file he reviewed. (ECF No. 73-15, at 180:8-23.)

Because the undisputed evidence shows PRM had no connection to NMG, Vulpis, or the other

parties in this case, the Court will grant summary judgment in favor of PRM.

K. Donald Pachner as Agent of His Disclosed Principal, Pachner & Associates

Pachner argues the Court should grant summary judgment in favor of Donald Pachner

because he cannot be liable for the torts of his disclosed principal Pachner & Associates if

Donald Pachner was merely serving as the agent of Pachner & Associates. See City of Millville

v. Rock, 683 F. Supp. 2d 319, 326-28 (D.N.J. 2010). In light of New Jersey’s “participation

theory” of principal-agent tort liability, the court disagrees.

Under New Jersey law, the “long-standing rule [is] that ‘[a]n agent who does an act

otherwise a tort is not relieved from liability by the fact that he acted at the command of a

principal or on account of the principal.’” Ballinger v. Del. River Port Auth., 800 A.2d 97, 110

(N.J. 2002) (quoting Restatement (Second) of Agency § 343 (1958)). New Jersey law refers to

this as the “participation theory” of principal-agent tort liability.

[T]he essence of the participation theory is that a corporate officer can be held

personally liable for a tort committed by the corporation when he or she is

sufficiently involved in the commission of the tort. A predicate to liability is a

finding that the corporation owed a duty of care to the victim, the duty was

delegated to the officer and the officer breached the duty of care by his own

conduct.

Saltiel v. GSI Consults., Inc., 788 A.2d 268, 272 (N.J. 2002); see also Reliance Ins. Co. v. The

Lott Grp., 776-77 (N.J. Super. Ct. App. Div. 2004).

As the sole member of Pachner & Associates who served as the primary individual

responsible for dealing with NMG during NMG’s effort to insure its activities, Donald Pachner

meets these requirements. (ECF No. 73-3 ¶ 1; ECF No. 86-14 ¶ 16.) Accordingly, the Court

may not grant summary judgment on this ground.

IV. CONCLUSION

For the reasons set forth above, Atain’s motion is DENIED and Pachner’s motion is

GRANTED IN PART in favor of PRM on all claims and in favor of all Pachner parties on any

claims relating to Pachner’s negligent failure to maintain appropriate licensure and DENIED IN

PART in all other respects. An appropriate order will follow.

/s/ Brian R. Martinotti

HON. BRIAN R. MARTINOTTI

UNITED STATES DISTRICT JUDGE

Dated: January 30, 2020