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American Fire & Casualty Insurance Co. v. Manzo

January 29, 2002

AMERICAN FIRE & CASUALTY INSURANCE COMPANY AND THE OHIO CASUALTY INSURANCE GROUP, PLAINTIFFS-APPELLANTS,
v.
JOSEPH MANZO, PHYLLIS MANZO, AND MANCO, INC., DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS,
AND CHARLES RICHARD APPLEGATE, DEFENDANT,
v.
PRIMA CORPORATION AND CAPTAINS AGENCY, THIRD-PARTY DEFENDANT,
AND FARMERS MUTUAL FIRE ASSURANCE ASSOCIATION OF NEW JERSEY, THIRD-PARTY DEFENDANT, FOURTH-PARTY PLAINTIFF-RESPONDENT/CROSS-APPELLANT,
v.
YORK-JERSEY UNDERWRITERS AGENCY, INC., FOURTH-PARTY DEFENDANT-RESPONDENT.



On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-1240-96.

Before Judges Wefing, Lesemann and Parrillo.

The opinion of the court was delivered by: Wefing, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

OPINION CORRECTED 2/6/02

Argued: October 16, 2001

This matter is before the court on an appeal and cross-appeal from orders entered by the trial court adjudicating a coverage dispute between carriers and awarding counsel fees to the insured. After carefully reviewing the record in light of the contentions advanced on appeal, we affirm in part and reverse in part.

The dispute involves determining the proper method to allocate responsibility among the carriers to contribute to a $1.1 million settlement negotiated with Charles Applegate for injuries he received on November 11, 1992 while clearing land owned by Joseph and Phyllis Manzo in Colts Neck, New Jersey.

The Manzos had purchased the property in 1968, a twenty-two acre parcel, taking title as tenants by the entirety. They later subdivided into building lots, naming the entire tract Woodbury Estates. In 1992, they executed a contract to sell one lot within the parcel to Prima Corporation. Prima intended to build a single- family home on the lot for resale. The contract included a representation by the Manzos that all necessary improvements to the site had been completed, with Prima only required to obtain a building permit. The contract anticipated a closing to occur in December 1992. Applegate was an employee of Prima; Prima sent him to the site in November, apparently for inspection and preliminary site preparation.

Applegate, as part of that preparation, undertook to remove a tree. The tree began to topple toward him and Applegate tried to run away. He was unsuccessful, however, as he fell into a sinkhole. The tree collapsed upon him, injuring him severely and leaving him a paraplegic. He filed suit for his injuries, naming as defendants the Manzos; one of their corporate entities, Manco, Inc.; and a number of John Doe defendants. He alleged that the Manzos had, over the course of time, improperly deposited tree stumps and other items on the property, which led to formation of the sinkhole into which he fell.

Joseph and Phyllis Manzo own and operate an active road construction and real estate site preparation business, which they conduct through two corporations, Manco, Inc., and G. Manzo, Inc. They each own fifty percent of the stock of both corporations, and Joseph is president and Phyllis secretary/treasurer of both. Joseph testified in depositions that at the time of Applegate's accident, Manco was primarily engaged in road work, G. Manzo in site work.

The Manzos insured their business activities through four policies of insurance, the first of which, American Fire & Casualty Insurance Co. (American Fire) policy BLA (93)00389233, was a commercial liability policy. The named insureds were Manco, Inc., J. Manco, Inc., and G. Joseph Manzo, and the policy limits were $1 million per occurrence. The second, issued by Ohio Casualty Insurance Co., (Ohio), policy BXO (93)389233, was a commercial umbrella excess policy; the named insureds were Manco, Inc., J. Manzo, Inc. and G. Joseph Manzo, and the policy limit was again $1 million. At one point before the trial court, the parties disputed the extent of the coverage afforded by the Ohio excess policy, i.e., whether it provided $1 million or $5 million in coverage. The trial court initially concluded $1 million but later revised that figure to $5 million. In light of our disposition of the issues, it is unnecessary for us to address the question. We have, simply for ease of reference, adopted the $1 million figure. We note, for the sake of completeness, that American Fire is a member of the Ohio Casualty group of insurance companies.

The Manzos also held a special multi-peril policy issued by Farmers Mutual Fire Assurance Association of New Jersey (Farmers), policy SMP-912093, and another commercial excess policy issued by Farmers, policy CEU 2162. The named insureds on both Farmers' policies were Joseph and Phyllis Manzo, and each afforded $1 million in coverage. All four policies were in effect on the date of Applegate's accident.

Applegate commenced suit in 1994 for his injuries, and the Manzos forwarded a copy of the summons and complaint to American Fire, requesting coverage under its commercial liability policy. American Fire responded that it would assign counsel and defend the matter, but was doing so under a reservation of rights in light of the fact that, although the complaint referred to the accident having occurred in 1992, it had not been notified until 1994.

The Applegate litigation proceeded forward apparently uneventfully until March 1996, when American Fire, through a claims manager, wrote to the Manzos, informing them that its investigation had disclosed that they owned the property in question as partners, and thus had no coverage because they had failed to disclose that partnership to American Fire. It cited the following language in its policy:

No person or organization is an insured with respect to the conduct of any current or past partnership or joint venture that is not shown ...


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