On appeal from Superior Court of New Jersey, Law Division, Burlington County.
Before Judges Petrella, Skillman and Eichen. The opinion of the court was delivered by Skillman, J.A.D..
The opinion of the court was delivered by: Skillman
The opinion of the court was delivered by
This is an insurance coverage case. Plaintiff S.N. Golden Estates, Inc. (Golden), a developer of new homes, purchased comprehensive liability insurance from defendant Continental Casualty Company (Continental) providing coverage for the period from May 9, 1986, to May 9, 1988, for a residential development known as Potts Mills Acres in Florence Township. The sections of Continental's policy relevant to this dispute are quoted and discussed later in this opinion.
On October 29, 1991, the owners of thirty-two of the thirty-seven homes in Potts Mill Acres, as well as the Township of Florence, filed an action in the Chancery Division against Golden, one of its principals, Stanley Neuman, who also was an insured under the Continental policy, and several of Golden's subcontractors alleging that the sewage systems installed in Potts Mills Acres were defective. More specifically, the complaint alleged that "a substantial number of the septic systems ... failed, causing effluent to seep onto and over the lawns of the properties of the plaintiffs and, in some cases, to back up into the residences." The complaint further alleged that even those plaintiffs whose own septic systems had not failed had been "deprived of the full use and enjoyment of their properties by reason of the malfunctioning of the [other plaintiffs'] septic systems." Plaintiffs sought equitable relief in the form of an order requiring defendants either to install the facilities necessary to connect their homes to the public sewage system or the removal or repair of their septic systems. Plaintiffs also sought compensatory and punitive damages.
Continental denied demands by Golden and Neuman that it provide them with a defense. Golden and Neuman then filed this action seeking a declaration that Continental is obligated to provide them with a defense in the underlying action and to indemnify them for any judgment that might be entered. Golden and Neuman also sought an award for counsel fees already incurred in prosecuting the declaratory action and defending the underlying action.
While the insurance coverage action was pending, the trial court in the underlying action granted a partial summary judgment in favor of plaintiffs which required Golden to prepare "a plan for remedial action." After Golden filed a motion for reconsideration, the trial court conducted further proceedings, including an evidentiary hearing. The court subsequently issued a letter opinion on July 30, 1993, reaffirming the partial summary judgment that granted plaintiffs equitable relief and transferring plaintiffs' damage claims to the Law Division.
The coverage action was brought before the trial court on cross-motions for summary judgment. On March 7, 1994, the trial court issued a letter opinion which concluded that Continental had a duty to defend Golden and Neuman. The court noted in the course of its opinion that "the homeowners alleged untreated effluent seeped across their lawns and into their homes causing injury to their residences, real property and lawns." The court did not make any ruling with respect to Continental's duty to indemnify Golden for any judgment that might be entered in the underlying action.
Thereafter, the court awarded plaintiff $66,376.09 for attorneys fees and costs incurred in prosecuting the declaratory judgment action. The court referred the determination of the amount to award for counsel fees and costs incurred in defending the underlying action to the trial Judge in that action, who awarded Golden an additional $267,704.13. The court certified the order awarding these amounts as a final judgment.
Continental appeals, arguing that: (1) the trial court erred in concluding that it had a duty to defend Golden, (2) the trial court abused its discretion in awarding Golden counsel fees and other litigation expenses incurred in the declaratory judgment action, and (3) the trial court erred in awarding Golden the full amount of legal fees and other litigation expenses incurred in defending the underlying action without first affording Continental an adequate opportunity to inquire into the reasonableness of those expenses.
We affirm the parts of the judgment directing Continental to provide for the defense of Golden and Neuman in the underlying action and awarding plaintiffs $66,376.09 for litigation expenses incurred in prosecuting the declaratory judgment action. However, we vacate the part of the judgment awarding plaintiffs $267,704.13 for litigation expenses incurred in defending the underlying action and remand this part of the case to the trial court for reconsideration.
"Whether an insurer has a duty to defend is determined by comparing the allegations in the complaint with the language of the policy." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 173, 607 A.2d 1255 (1992). "When multiple alternative causes of action are stated, the duty to defend will continue until every covered claim is eliminated." Id. at 174. "If the complaint is ...