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Borough of Dunellen v. F. Montecalvo Contracting Co.

Decided: May 4, 1994.

BOROUGH OF DUNELLEN, A MUNICIPAL CORPORATION, PLAINTIFF,
v.
F. MONTECALVO CONTRACTING CO., INC., A NEW JERSEY CORPORATION, AND F.I.A. INSURANCE COMPANY, DEFENDANTS/THIRD-PARTY PLAINTIFFS, V. STETLER & GULDIN ENGINEERING, INC., THIRD-PARTY DEFENDANT/FOURTH PARTY PLAINTIFF/RESPONDENT, V. BOROUGH OF DUNELLEN, A MUNICIPAL CORPORATION, FOURTH-PARTY DEFENDANT/APPELLANT.



On appeal from Superior Court of New Jersey, Law Division, Middlesex County.

Before Judges Brody, Stern and Keefe.

Brody

The opinion of the court was delivered by BRODY, P.J.A.D.

The Borough of Dunellen (Dunellen) appeals from an order declaring that it must provide for the defense and indemnification of Stetler & Guldin Engineering, Inc. (Stetler), the borough engineer, respecting the claims asserted against Stetler in this action by F. Montecalvo Contracting Co. (Montecalvo). Dunellen acknowledges that it would be obliged to pay Stetler's attorneys fees and expenses had they been incurred in defense of claims arising out of its services as the borough engineer. Dunellen contends, however, that Stetler was acting as an independent contractor, not as the borough engineer, with respect to the subject matter of Montecalvo's claims. We reject Dunellen's argument, as did Judge Hamlin, and affirm.

The underlying dispute in this action was settled when Montecalvo paid Dunellen $75,000 for damages Dunellen incurred as the result of Montecalvo's failure to complete its work under a 1988 contract to replace part of a sanitary sewer in Bound Brook Road (the project). Montecalvo defended the action by claiming that Dunellen's bid documents, prepared earlier that year by Stetler, failed to warn of subsurface water conditions that made the project unusually costly to complete. Montecalvo also asserted a third-party claim against Stetler alleging that it had negligently prepared the bid documents. In a fourth-party complaint, Stetler sought an order, which it obtained, declaring that Dunellen was obliged to provide it with a "defense and indemnification."

Pursuant to the authority of N.J.S.A. 59:10-4, Dunellen adopted an ordinance that provides for

the defense of any action, suit or proceeding, whether civil, criminal, administrative or investigative, including a cross action, counterclaim or cross-complaint, against any public employee on account of any act or omission of that employee in the scope of their employment and shall defray all costs of defending such action, including reasonable counsel fees and expenses, together with costs of appeal, if any, excepting actions, suits or proceedings brought by the Borough against any employee. [Emphasis added.]

The ordinance defines "public employee" as follows:

The term "public employee" as used in this Chapter shall include any employee of the Borough of Dunellen . . . and shall include any elected or appointed official or any officer, employee or servant, whether or not compensated, who is authorized to perform any act or service; provided, however, that the term does not include an independent contractor or any person furnishing professional or extraordinary unspecifiable services under separate retainer, agreement or contract. The term "public employee" shall include persons formerly holding office or employment, provided the events giving rise to a cause of action or claim hereunder occur after the effective date of this Chapter. [Emphasis added.]

Dunellen contends that though Stetler was its borough engineer when it prepared the bidding documents, it had engaged Stetler to perform that and other services for the project separately as an independent contractor.

N.J.S.A. 40A:9-140 requires every municipality to create by ordinance the office of municipal engineer:

In every municipality the governing body, by ordinance, shall provide for the appointment of a municipal engineer and fix his compensation in an annual salary or fixed fee basis or at an hourly rate and based upon actual time and expenses agreed on prior to the rendering of the services. No municipal engineer shall be compensated by receiving a percentage of the contract for which he renders services. Unless otherwise provided by law his term of office shall be 3 years.

We have not been furnished with a copy of the ordinance creating the office, but there is no dispute that Dunellen had adopted such an ordinance before Stetler was appointed to the position by resolution.*fn1

Stetler's services on the project, as they affected Montecalvo, were performed in 1988. Dunellen appointed Stetler "as Borough Engineer" for that year by a resolution authorizing execution of an agreement that contained the terms of the appointment. The resolution provided that "payments for services rendered shall not exceed the sum of $5,000.00 included in the 1988 budget, unless services are to be performed for capital projects to be funded by Bond or Note authorizations." The agreement provided in part that Stetler "is hereby retained by the Contracting Unit to serve as the Municipal ...


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