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Bryan Construction Co. v. Employers'' Surplus Lines Insurance Co.

Decided: August 26, 1971.


Conford, Kolovsky and Carton. The opinion of the court was delivered by Kolovsky, J.A.D. Conford, P.J.A.D. (concurring in part and dissenting in part).


Plaintiff Bryan Construction Co., Inc. (Bryan) appeals from final judgments entered in favor of defendants Employers' Surplus Lines Insurance Company (Employers'), Aetna Casualty and Insurance Company (Aetna) and Employers Mutual Liability Insurance Company of Wisconsin (impleaded as "Employers Mutuals of Wausau") (Wausau), dismissing the first, third and fourth claims for relief pleaded in the complaint.

As the trial court's opinion notes, 110 N.J. Super. 181, the motions for summary judgment resulting in the judgments appealed from involved only "the issue as to the interpretation of the three policies" issued to plaintiff Bryan by the insurance companies. "Other issues projected in the complaint [were] not involved."

The trial court concluded that the respective policies did not require the insurance companies either to provide Bryan with a defense to the action instituted against it by the County of Union or to indemnify Bryan if the county should recover a judgment against it.

The county's action against Bryan was bottomed on a written agreement dated June 7, 1963 by which Bryan agreed to erect and construct a court house annex, parking garage and juvenile detention center for the sum of $2,612,500. To insure its performance Bryan furnished a bond in that amount with Standard Accident Insurance Company (now Reliance Insurance Company) as surety.

The buildings were erected and the contract price fully paid to Bryan by the end of October 1965. However, in June 1967 the county filed a 13-count complaint in which it charged that the automobile parking garage and juvenile detention center were defectively and improperly constructed. The complaint sought damages from those allegedly responsible for the defects, viz. , the county's architect, Joseph Allan, the engineer he hired, Ingvald Moe, the county's general contractor Bryan (the plaintiff herein), as well as

from Standard Accident Insurance Company, the surety on Bryan's performance bond.

The three counts seeking damages from Bryan charged that:

(1) Bryan had breached its contract by reason of its failure "to erect and construct said building in accordance with [the] plans and specifications" (10th count);

(2) Bryan "in the construction and erection of said structures, was careless and negligent in that it did not provide sufficient quantity and quality of materials for said structure; that it failed to follow the plans and specifications; that it did not follow accepted standard building practices," and that as a result the building was in an unsafe, uninhabitable and dangerous condition with the walls cracking and the roof falling, requiring the county to expend "great * * * sums of money to correct said faulty workmanship" (11th count), and

(3) the county had relied on Bryan's representation that it was qualified and skilled in the erection of buildings of the nature here involved and "was severely damaged by reason of [Bryan's] willfully erecting a structure which was unsuitable for its intended purpose, and [Bryan] was grossly negligent in erecting and constructing said structure, knowing full well that said structure would not be functional and would create a dangerous and hazardous condition [and that as] a result of [Bryan's] willful and deliberate acts, the plaintiff was caused to expend large sums of money for engineering and architectural surveys to construct and reconstruct the building and to expend other funds in order to protect said building" (12th count).

Except for the punitive damages sought by the 13th count based on the charge that Bryan had committed an intentional and willful tort, each count seeks recovery by the county of the amount required to remedy deficiencies in the buildings allegedly resulting from Bryan's failure to carry out its obligations under the contract for the construction of those buildings.

Plaintiff does not claim that the policies furnish coverage for the pleaded intentional tort. It does not dispute that property damage caused intentionally by or at the direction of the insured is expressly excluded from coverage.

Plaintiff does claim, however, that the policies require the insurance companies to indemnify it for the cost, which the county seeks to recover, of curing the defects in the buildings

which it had constructed, even though those defects allegedly are attributable to its own poor workmanship or other fault.

The trial court's ruling to the contrary was based on its determinations that "Exclusion" clauses of the respective policies excluded coverage for the claims asserted against plaintiff by the County of Union -- recovery of the amount required to correct the deficiencies in the parking garage and juvenile detention center. We agree with those determinations. Insofar as the Aetna and Wausau policies are concerned, we do so for the reasons set forth in the trial court's opinion reported at 110 N.J. Super. 181.

However, the ruling with respect to the Employers' policy requires additional comment. Under that policy, sometimes referred to as an "umbrella" policy, Employers' Surplus Lines Insurance Company agreed, "subject to the limits of liability, exclusions, conditions and all other terms of [the] policy,"

to indemnify [Bryan] for all sums which [it] shall be obligated to pay by reason of the liability imposed upon [it] by law or liability assumed by [it] under contract or agreement for damages, and expenses, all as included in the definition of "ultimate net loss," because of:

(a) personal injuries, as hereinafter defined;

(b) property damage, as hereinafter defined;

(c) advertising liability, as hereinafter defined.

Terms used in the insuring agreement were defined in the policy:

3. Property Damage.

The term "property damage" shall mean (a) physical injury to, or physical destruction of, tangible property, including the loss of use thereof, but excluding all other consequential damages, or

(b) injury to or destruction of property, including the loss of use thereof, caused by accident.

5. Ultimate Net Loss.

The term "ultimate net loss" shall mean the total sum which the insured, or any company as his insurer, or both, becomes legally obligated to pay as damages because of personal injury, property damage,

or advertising liability claims, either through adjudication or compromise, and shall also include [certain specified expenses].

The company shall not be liable for any expenses as aforesaid when payment of such expenses is included in other valid and collectible insurance.

The "limits of liability, exclusions and conditions" to which Employers' insuring agreement was made subject includes a requirement (Condition 15) that the insured maintain in effect the four policies of "Underlying Insurance" set forth in Item 3 of the Declarations of Employers' policy.

The significance of the requirement for maintenance of the policies of "Underlying Insurance" stems from provisions (1) limiting Employers' liability under its policy and (2) excluding particular claims from the coverage which might otherwise be afforded by the insuring agreement.

Under policy Condition 4, Employers' is liable only for "ultimate net loss" in excess of either "the applicable limits of liability of the policies of underlying insurance set forth in Item 3 of the Declarations," or if the occurrence is one not covered by such underlying insurance or is one "covered by such underlying insurance but in recoverable amounts less than the Underlying Limits set forth in Item 4 of the Declarations [$25,000.00], the amount of ultimate net loss set forth in the Declarations as 'Underlying Limits.'" "Occurrence," as used in the policy, means

(a) an accident, or (b) an event, or continuous or repeated exposure to conditions, which unexpectedly results in personal injury, property damage, or advertising liability (either alone or in any combination) during the policy period * * *.

Subsequent provisions of Condition 4 provide for additional coverage if the policies of underlying insurance have been reduced or exhausted by reason of losses paid thereunder, and limit Employers' liability in any event to $1,000,000.

We are satisfied, as was the trial court, that the exclusionary clauses of Employers' policy excludes coverage of the claims asserted by ...

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