United States District Court, D. New Jersey
August 15, 2005.
MERCHANTS INSURANCE COMPANY of NEW HAMPSHIRE, INC., Plaintiff,
VERONICA and TIMOTHY HESSLER t/a, COASTAL PAINTING and RESTORATION CO., and GEORGE and STACEY DEPOE, Defendant.
The opinion of the court was delivered by: ANNE THOMPSON, Senior District Judge
[EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] MEMORANDUM & ORDER
This matter comes before the Court on Plaintiff's Motion for
Summary Judgment pursuant to Fed.R.Civ.P. 56. The Court has
decided this motion based on the submissions of the parties.
Pursuant to Fed.R.Civ.P. 78, no oral argument was heard. For
the following reasons, Plaintiff's motion is granted in part and
denied in part.
On January 16, 2003, George and Stacy DePoe instituted a
lawsuit against Veronica and Timothy Hessler, trading as Coastal
Painting and Restoration Co. (hereinafter "Coastal"), in the
Superior Court of New Jersey, Law Division, Monmouth County
(hereinafter referred to as the "underlying action"). In the
underlying action, Mr. and Mrs. DePoe seek a judgment for bodily
injury and property damage resulting from alleged exposure to
lead, toxic fumes and dust. The DePoes claim that after contracting with Coastal to paint the
exterior of their home, Coastal negligently performed the job
causing the aforementioned exposure.
As a result of the underlying action, Coastal sought a legal
defense and indemnification under their insurance policy with
Merchants Insurance Co. of New Hampshire (hereinafter
"Merchants"). Merchants agreed to provide a defense in the
underlying action, but reserved the right to seek judicial
resolution of the coverage issues in a declaratory judgment
action pursuant to the terms of a Non-Waiver agreement. On
December 11, 2003, Merchants filed this instant action against
Coastal seeking declaratory relief. Specifically, Merchants'
Complaint seeks a judgment: (1) that the insurance policy between
it and Coastal does not cover the claims alleged in the
underlying action; (2) that Merchants owes no duty to provide a
defense on behalf of Coastal in the underlying action; (3) and
that Merchants owes no duty to indemnify Coastal in the event
that an award or judgment is rendered against it in the
The insurance policy between Merchants and Coastal contains
several noteworthy exclusions precluding coverage. The first is a
total pollution exclusion endorsement, which provides as follows:
This insurance does not apply to
(1) "Bodily Injury" or "property damage" which would
not have occurred in whole or in part but for the
actual, alleged or threatened discharge, dispersal,
seepage, migration, release or escape of "pollutants"
at any time.
(2) Any loss, cost or expense arising out of any:
(a) Request, demand, order or statutory or regulatory
requirement that any Insured or others test for,
monitor, clean up, remove, contain, treat, detoxify
or neutralize, or in any way respond to, or assess
the effects of "pollutants"; or
(b) Claim or suit by or on behalf of a governmental
authority for damages because of testing for,
monitoring, cleaning up, removing, containing,
treating, detoxifying or neutralizing, or in any way
responding to, or assessing the effects of,
(Pl.'s Br. Ex. D.) The policy also contained an exclusion for
liability due to lead, which stated:
This insurance does not apply to:
"Bodily Injury" caused in whole or in part, either
directly or indirectly, by lead paint or lead
contamination, or arising out of or incidental to the
inhalation, ingestion, use, handling or contact with
lead paint or lead contamination.
Id. Third, the insurance policy excludes injuries and property
damage "expected or intended from the standpoint of the insured."
Further, the policy contains a provision excluding from coverage
"`[b]odily injury' or `property damage' for which the insured is
obligated to pay damages by reason of the assumption of liability
in a contract or agreement." Id. Lastly, the insurance policy
contains a number of business risk exclusions relating to damages
arising from Coastal's "work product."
Merchants claims that no coverage under the policy exists
because the allegations in the underlying complaint against
Coastal concern claims of lead exposure, and exposure to
hazardous substances. As such, according to Merchants, summary
judgment is appropriate.
I. Summary Judgment Standard
A party seeking summary judgment must "show that there is no
genuine issue as to any material fact and the moving party is
entitled to judgment as a matter of law." Fed.R.Civ.P. 56;
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Orson,
Inc. v. Miramax Film Corp., 79 F.3d 1358, 1366 (3d Cir. 1996). An issue involving a material fact is
genuine "if the evidence is such that a reasonable jury could
return a verdict for the non-moving party." Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). In reviewing motions for
summary judgment, the evidence is viewed in the light most
favorable to the non-moving party. InterVest, Inc. v. Bloomberg,
L.P., 340 F.3d 144, 159-60 (3d Cir. 2003).
A motion for summary judgment is designed to go beyond the
pleadings. Celotex, 477 U.S. at 322. Consequently, to defeat a
motion for summary judgment, a party must do more than restate
the initial allegations of the complaint, or provide unsupported
conclusions of fact. Id. A non-moving party must point to
concrete evidence in the record which supports each element of
the claim. Id. Failure of the non-moving party to provide such
evidence entitles the moving party to judgment as a matter of
law. Fed.R.Civ.P. 56.
II. Interpretation of Insurance Policies
New Jersey Courts recognize that insurance policies are
adhesion contracts. See e.g., Voorhees v. Preferred Mutual
Ins. Co., 128 N.J. 165, 175 (1992). Therefore, "courts must
assume a particularly vigilant role in ensuring [that insurance
policies conform] to public policy and principles of fairness."
Id. To that end, while courts will give an insurance policy's
words their plain, ordinary meaning, "[i]f the policy is
ambiguous, the policy will be construed in favor of the insured."
Nav-Its, Inc., v. Selective Ins. Co. of Am., 183 N.J. 110, 118
(2005). Additionally, exclusions within an insurance policy are
narrowly interpreted, and construed in "accord with the
objectively reasonable expectations of the insured." Id. at
118; see also Princeton Ins. Co. v. Chunmuang, 151 N.J. 80,
In the present matter, the issue is whether the complaint in
the underlying action alleges claims that are covered under Coastal's insurance policy with
Merchants. "Whether an insurer has a duty to defend is determined
by comparing the allegations in the complaint with the language
of the policy. When the two correspond, the duty to defend
arises, irrespective of the claim's actual merit." Voorhees,
128 N.J. at 173.
III. Policy Exclusions Compared to the Allegations in the
Count I of the DePoes' complaint in the underlying action
alleges that in March of 2002 they contracted with "C[oastal] to
paint the exterior of [their] property and to perform services
associated with painting, including . . . power washing the
exterior and removing old paint." (Pl.'s Br. Ex. A.) The DePoes
claim that, prior to commencing work, Coastal informed them that
it had tested for lead paint and none was found. Count I goes on
to further claim that Coastal negligently performed the work
causing lead paint dust and debris to enter the property. Count
II of the complaint claims that as a further result of Coastal's
negligence, the DePoes suffered emotional distress, and were
forced to vacate the premises, incurring expenses for alternative
Count III of the complaint claims Coastal violated the New
Jersey Consumer Fraud Act, N.J.S.A. § 56:8-1 et seq., by stating
to the DePoes "that the exterior paint had been tested for
hazardous paint and that no hazardous paint was found." (Id.)
Count IV similarly claims that Coastal's statements regarding
lead paint testing constituted an intentional misrepresentation
and/or fraud. In Count V, the DePoes claim that Coastal breached
the performance contract "by failing to complete all work
required under the contract and by causing plaintiffs to incur
damages exceeding the contract price." (Id.) Finally, Count VI
alleges that "C[oastal] created a nuisance causing unreasonable
interference with plaintiffs['] use and enjoyment of their land, damages to plaintiffs['] property, and personal
A. Total Pollution Exclusion Endorsement
Merchants initially contends that it has no duty to defend or
indemnify Coastal because of the total pollution exclusion
endorsement contained in the policy. The New Jersey Supreme Court
recently defined the parameters of pollution exclusions in
insurance policies in Nav-Its, Inc. v. Selective Insurance Co.
of America, 183 N.J. 110 (2005). In Nav-Its, the New Jersey
Supreme Court reviewed the history and development of pollution
exclusions and held that these exclusions "should be limited to
injury or property damage arising from activity commonly thought
of as traditional environmental pollution. . . ." Id. at 124.
Traditional environmental pollution was defined as "environmental
catastrophe related to intentional industrial pollution." Id.
Merchants proffers two arguments as to why the total pollution
exclusion at issue should apply. First, Merchants asserts that
Nav-Its is distinguishable because the absolute pollution
exclusion in Nav-Its is different than the total pollution
exclusion in this case. Additionally, Merchants argues that there
is an environmental component to the DePoes' claims inasmuch as
Coastal "was requested by the health department to remediate the
lead paint chips by removing the top layer of soil off the
property and laying down fresh soil." (Pl.'s Reply Br. at 6.)
Merchant's first argument fails because it is clear from the
language in Nav-Its that the New Jersey Supreme Court's ruling
applies to all types of pollution exclusion clauses.
183 N.J. at 123. Merchant's second argument fails because, even assuming the
Court looks beyond the language of the underlying complaint as this second argument
requires, the act of removing the top layer of soil does not
constitute an "environmental catastrophe related to intentional
industrial pollution." Id. at 124. Therefore, the total
pollution exclusion endorsement does not apply in this case.
B. Lead Exclusion
Merchants next argues that the lead exclusion in the policy
precludes coverage in the case at bar. The lead exclusion
provides, "[t]his insurance does not apply to: `[b]odily injury'
caused in whole or in part, either directly or indirectly, by
lead paint or lead contamination, or arising out of or incidental
to the inhalation, ingestion, use, handling or contact with lead
paint or lead contamination." (Pl.'s Br. Ex. D.) Bodily injury is
defined as "sickness or disease sustained by a person, including
death resulting from any of these at any time." The plain
language of the lead exclusion bars coverage for count I of the
underlying complaint because the DePoes seek damages for personal
injuries due to lead paint.
In count II the DePoes seek damages for emotional distress and
property loss. Addressing the property loss claims first, the
lead exclusion does not contain the phrase property loss or
property damage in its language. Therefore, the lead exclusion is
not applicable to this aspect of count II.
As to count II's emotional distress claims, the Court must
analyze whether emotional distress is encompassed by the phrase
bodily injury. It is settled that emotional distress with
physical manifestations is generally covered in the phrase
"bodily injury." See Voorhees, 128 N.J. at 177-78. It is also
settled that "in the context of purely emotional distress,
without physical manifestations, the phrase `bodily injury' is
not ambiguous," and therefore emotional distress is not covered. SL Indus. Inc. v. Am. Motorists Ins. Co.,
128 N.J. 188, 202 (1992). This distinction is moot, however, because the
definition of bodily injury is consistent throughout the
insurance policy in question.
Consistency in defining "bodily injury" is important because if
the finder of fact were to conclude that the emotional distress
described in the underlying complaint is covered under that
phrase, then, although initially obligated to pay for
"occurrence[s]" resulting in "bodily injury" under Section
I-(A)(1) of the insurance policy, the lead paint exclusion would
apply. If, on the other hand, the emotional distress in question
is not covered under the phrase "bodily injury", then there is no
obligation to defend or possibly indemnify Coastal because
Section I-(A)(1) of the policy only obligates Merchants to pay
damages due to "bodily injury." Thus, Merchants is entitled to
judgment as a matter of law with regard to the emotional distress
claims of count II of the underlying complaint.
Count VI of the underlying complaint asserts the cause of
action of nuisance. In this count, the DePoes claim damages for
loss of use of land and personal injuries. Recovery under a
nuisance theory is generally limited to damages sustained for the
loss of use and enjoyment of one's land. See Birchwood Lakes
Colony Club, Inc. v. Medford Lakes, 90 N.J. 582, 591 (1982).
Even assuming the DePoes personal injury claims are sustainable
under a nuisance theory, the lead exclusion is applicable to
these injuries. Yet, under the same rational discussed above, the
lead exclusion does not apply to claims for property damage or
for loss of use or enjoyment of land.*fn2 C. Intentional Acts Exclusion
Counts III and IV of the DePoes' complaint allege violations of
the New Jersey Consumer Fraud Act and intentional
misrepresentation/fraud, respectively. Merchants asserts that the
intentional acts exclusion within the policy bars coverage on
these two claims. The intentional act exclusion is applicable
when "`[b]odily injury' or `property damage' [is] expected or
intended from the standpoint of the insured." (Pl.'s Br. Ex. D.)
Following the terms of the exclusion and New Jersey case law
construing similar language, the Court will focus on Coastal's
"intent to cause the injury rather than on its intent to commit
the act that resulted in the injury." SL Indus. Inc.,
128 N.J. at 207. Thus, count IV of the underlying complaint is excluded
from coverage because "no defense is required when the insured is
accused of intentional misrepresentations." Id. at 208 (stating
"[a]n intent to misrepresent is sufficient to presume an intent
As for Count III, a genuine issue of fact remains as to whether
Coastal's statement to the DePoes was made with the intent to
cause harm. To violate the New Jersey Consumer Fraud Act "a
person must commit an `unlawful practice' as defined in the
legislation. Unlawful practices fall into three general
categories: affirmative acts, knowing omissions, and regulation
violations. . . ." Cox v. Sears Roebuck & Co., 138 N.J. 2, 17
(1994). For affirmative acts, "the plaintiff need not prove that
the defendant intended to commit an unlawful act." Id. at
17-18. The defendants intent is only relevant if the alleged
consumer fraud consists of an omission. Id. at 18. Here, the
DePoes can prove their claim under the New Jersey Consumer Fraud
Act without proving an intent to injure. Therefore, a genuine
issue of fact remains as to whether the intentional acts
exclusion applies to count III.
A genuine issue of fact also remains as to whether the
intentional acts exclusion applies to the DePoes' nuisance claim. A nuisance claim can be sustained
by a defendant's intentional conduct or by negligent or reckless
conduct. See Medford Lakes, 90 N.J. at 591-92. Again, because
the DePoes can prove their nuisance claim without having to prove
intent, the intentional acts exclusion may or may not apply to
D. Business Risk Exclusions
Merchants cites to several "business risk exclusions" in the
policy that exclude coverage on the DePoes breach of contract
claim (count V). The business risk exclusions cited are
applicable to claims of faulty workmanship. Specifically,
exclusion (m) excludes coverage for "`Property damage' to
`impaired property' or property that has not been physically
injured, arising out of: (1) A defect, deficiency, inadequacy or
dangerous condition in `your product' or `your work'. . . ."
(Pl.'s Br. Ex. D.) "`Impaired property' means tangible property,
other than `your product'or `your work', that cannot be used or
is less useful because: . . . b. [y]ou have failed to fulfill the
terms of a contract or agreement. . . ." (Id.)
In Newark Ins. Co. v. Acupac Packaging, Inc., the New Jersey
Appellate Division analyzed business risk exclusion (m) at issue
in this case. 328 N.J. Super. 385, 392-401 (App.Div. 2000). In
following well-established precedent, the Appellate Division
reaffirmed the scope of exclusion (m) in holding that it applies
to contractual liability for faulty workmanship and generally not
tort liability. Id. at 396; see also Aetna Cas. & Sur. Co.
v. Ply Gem Indus. Inc., 343 N.J. Super. 430, 449 (App.Div.
2001). Here, the plain language of exclusion (m) excludes
coverage on the DePoes' breach of contract claim. See also
Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 239 (1978)
(analyzing a similar provision). Therefore, the policy provides
no coverage for count V. Exclusion (m) is also applicable to count III of the underlying
complaint. The Consumer Fraud Act claim in count III is not so
much an action in tort as it is a claim for "economic loss?
because the product or completed work is not that for which the
damaged person bargained." See Acupac Packaging, Inc.,
328 N.J. Super. at 395-96. Therefore, exclusion (m) is applicable to
count III of the underlying complaint.
Additionally, the plain language of exclusion (m) and its
incorporation of the term "your work" support the determination
that exclusion (m) is applicable to count III. In this case "your
work" is defined as:
a. Work or operations performed by you or on your
b. Materials, parts or equipment furnished in
connection with such work or operations.
"Your work" includes:
a. Warranties or representations made at any time
with respect to the fitness, quality, durability,
performance or use of "your work"; and
b. The providing of or failure to provide warnings or
(Pl.'s Br. Ex. D.) Incorporating this definition within the
language of the exclusion (m), it is clear that count III is not
covered under the policy because Coastal's affirmative statement
prior to commencing work that it had tested for lead paint and
that none was found was a misrepresentation that falls under the
plain definition of "your work."
The last issue is whether the business risk exclusions in the
policy apply to the DePoes count II and VI property damage
claims. Exclusion (m) does not apply because the DePoes' count II
and VI property damage claims rest in tort. Exclusion (n) does
not apply because its scope "is limited to those costs associated
with the withdrawing of a product from the market. It does not exclude from coverage damage already caused to the
property of a third party." Acupac Packaging, Inc.,
328 N.J. Super. at 402. Finally, the plain language of exclusions (j), (k)
and (l) do not apply to the DePoes' count II and VI property
IV. Defendants' Additional Arguments
Defendants argue that the reasonable expectations doctrine
requires coverage on the claims in the underlying complaint.
Under the this doctrine, a court may construe ambiguous language
in an insurance contract to comport with the reasonable
expectations of the insured. See Zacarias v. Allstate Ins.
Co., 168 N.J. 590, 595 (2001). However, the reasonable
expectations doctrine is not applicable in this case because
there is no ambiguity in the language of the exclusion provisions
discussed. Therefore, this argument fails.
Additionally, the DePoes argue that this motion must be denied
based on the equitable principle of estoppel. The DePoes insist
that Merchants slept on its rights in not filing its declaratory
judgment action sooner. The Court disagrees with this argument
because Merchants "reserve[d] the right to seek judicial
resolution of the coverage issues in a declaratory judgment
action or other legal proceeding, either during the pendency of
or upon the conclusion of the [l]awsuit. . . ." (Pl.'s Br. Ex.
B.) Here, Merchants is within the time period reserved in the
non-waiver agreement, and there has been no showing that
injustice would result in allowing this action to proceed.
Finally, the DePoes argue that, pursuant to Fed.R.Civ.P.
56(f), summary judgment at this stage of the litigation is
premature because discovery has not been completed. Rule 56(f)
allows a district court to refuse to entertain a motion for
summary judgment to allow further discovery. Whether a Rule 56(f)
should bar final disposition of a motion for summary judgment "depends, in part, on `what particular information is sought;
how, if uncovered, it would preclude summary judgment; and why it
has not been previously obtained.'" San Filipino v.
Bongiovanni, 30 F.3d 424, 432 (3d Cir. 1994) (quoting
Contractors Assoc. v. City of Philadelphia, 945 F.2d 1260, 1266
(3d Cir. 1991)). The Depoes argue that there have been no "Rule
26 Initial Disclosures, no response to a Demand for Answers to
Interrogatories, no response to a Demand for Answers to a Notice
to Produce, and no depositions." (DePoes' Opp. at 13). However,
this argument is unpersuasive because the issues in this motion
concern whether Merchants is obligated to defend, and potentially
indemnify Coastal in the underlying action. Further discovery is
unnecessary because the standard articulated in Section II of
this memorandum only requires the Court to compare the complaint
in the underlying action to insurance policy issued to Coastal.
See Voorhees, 128 N.J. at 173.
For these reasons,
It is on this 15th day of August, 2005,
ORDERED that Plaintiff's Motion for Summary Judgment is GRANTED
with respect to counts I, III, IV, and V of the underlying
complaint, and DENIED consistent with this memorandum as to
counts II and VI.