Schibell Mennie & Kentos LLC v. Allied World Insurance Company, A-3144-22

Richard D. Schibell, through his law firm, failed to properly manage trust account funds, resulting in an Office of Attorney Ethics (OAE) investigation and subsequent disciplinary action for professional misconduct related to dishonesty and recordkeeping.
Schibell and his firm did not disclose these disciplinary proceedings and OAE investigations when applying for and renewing their malpractice insurance policy with Allied World Insurance Company.
Allied's policies explicitly required applicants to disclose any bar complaints, investigations, or disciplinary proceedings in the last five years, and made policy validity contingent on the truthfulness of such disclosures.
After discovering the nondisclosure, Allied rescinded the insurance policy and denied coverage for a malpractice claim related to an alleged fraudulent conversion of insurance proceeds.
Plaintiffs (the firm and Schibell) sued Allied for breach of contract and violation of the New Jersey Consumer Fraud Act; the trial court granted summary judgment to Allied, holding the policy void ab initio due to material misrepresentation.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Was the nondisclosure material?	Schibell argued the omission was not material or required based on their interpretation of the questions.	Allied contended that any disciplinary action was material and clearly required to be disclosed.	The court held the omission was material and voided the policy from inception.
Was Allied's reliance on the nondisclosure justified?	Plaintiffs argued Allied should not have relied on the omission or that terms were ambiguous.	Allied argued it reasonably relied on the representations in issuing the policy.	The court found Allied's reliance was reasonable and expected under the policy terms.
Were further factual disputes or discovery needed?	Plaintiffs argued the case was not ripe for summary judgment due to incomplete discovery.	Allied argued no genuine factual disputes remained.	The court rejected plaintiffs' argument, noting their inaction during the discovery period.
Could plaintiffs bring breach of contract or CFA claims?	Plaintiffs sought damages for breach and statutory violations.	Allied argued no liability under a void contract.	The court held the contract was void ab initio, so no claims could lie.

Palisades Safety & Ins. Ass'n v. Bastien, 175 N.J. 144 (materiality standard for insurance applications)
Mass. Mut. Life Ins. Co. v. Manzo, 122 N.J. 104 (definition of material fact in insurance law)
Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530 (truthful disclosure incentivized in insurance contracts)
First Am. Title Ins. Co. v. Lawson, 177 N.J. 125 (rescission standard for equitable fraud)
DepoLink Ct. Reporting & Litig. Support Servs. v. Rochman, 430 N.J. Super. 325 (distinction between equitable and legal fraud in insurance)
President v. Jenkins, 180 N.J. 550 (plain meaning rule in interpreting insurance policies)
Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165 (resolving policy ambiguity in favor of insured)
Globe Motor Co. v. Igdalev, 225 N.J. 469 (summary judgment standard)