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Firemen's Insurance co. of Newark v. National Union Fire Insurance Co.

August 16, 2006

FIREMEN'S INSURANCE COMPANY OF NEWARK AND THE CONTINENTAL INSURANCE COMPANY, PLAINTIFFS-RESPONDENTS/ CROSS-RESPONDENTS,
v.
NATIONAL UNION FIRE INSURANCE COMPANY; AMERICAN CASUALTY COMPANY OF READING, PA; THE HOME INDEMNITY COMPANY; STATE FARM FIRE AND CASUALTY; INTERNATIONAL INSURANCE COMPANY; SOCIETY HILL ASSOCIATES; AMS ASSOCIATES, INC.; STEIN BUILT HOMES, INC.; ARTHUR M. STEIN; DAVID M. STEIN; ALBERT L. STEIN; JOSEPH ALBER; AND JUNE BALDWIN, DEFENDANTS, AND SOCIETY HILL CONDOMINIUM ASSOCIATION, INC., DEFENDANT-APPELLANT, AND THE HOME INSURANCE COMPANY, DEFENDANT-RESPONDENT/ CROSS-APPELLANT, AND CRUM AND FORSTER INSURANCE COMPANY AND THE NORTH RIVER INSURANCE COMPANY, DEFENDANTS-RESPONDENTS/CROSS-RESPONDENTS, AND HOME OWNERS WARRANTY CORPORATION; HOW INSURANCE COMPANY; AND CONTINENTAL CASUALTY COMPANY, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Camden County, L-9950-91.

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

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Submitted May 2, 2006

Before Judges Coburn, Collester and S.L. Reisner.

This is an insurance coverage case, stemming from a lawsuit by the Society Hill Condominium Association, Inc. against various defendants for defects in construction of the condominiums. The Association recovered a substantial judgment against several defendants in the underlying construction defect litigation. But in the related insurance coverage action, which gave rise to this appeal, the trial judge held that the defendants' various commercial general liability policies did not require the insurers to indemnify the defendants for the claims at issue here. The essence of the trial judge's decision is that faulty workmanship, in itself, does not constitute "property damage" or an "occurrence" within the meaning of the applicable insurance policies. We affirm the judge's coverage decision, and also affirm his allocation of legal expenses among the insurers.

I.

Society Hill Condominiums located in Cherry Hill is comprised of 375 dwelling units within forty-three buildings. Construction of the Society Hill Condominiums occurred over a period of approximately eight years between 1978 and 1986. Society Hill Associates was the developer on the project. AMS Associates served as general contractor during the construction. In 1985, Stein Built Homes, Inc. merged with AMS Associates, Inc. and took over as the general contractor on the construction. All construction work at Society Hill was performed by subcontractors retained by AMS Associates, and Stein Built Homes.

On October 16, 1989, Society Hill Condominium Association (Society Hill) instituted suit against Society Hill Associates, AMS Associates, Inc., Stein Built Homes, Inc., Arthur M. Stein, David M. Stein, Albert L. Stein, Joseph Albert and June Baldwin (Stein defendants). The claims advanced against the Stein defendants alleged breach of express warranty, breach of implied warranty, negligent design and construction, negligent supervision of subcontractors, failure to inform, investigate and correct defects, negligent failure to establish a proper operating reserve budget, misrepresentation of funding and inadequacy of budgets, misrepresentation of budget regulation statement in violation of N.J.S.A. 45:22A-37, violations of the Consumer Fraud Act, and negligence of Mark S. Taconita and Triad Associates. All of the alleged defective work was performed by subcontractors.

Firemen's Insurance Company of Newark, New Jersey and Continental Insurance Company of New Jersey (Firemen's) undertook the defense of the Stein defendants. On August 23, 1991, Firemen's filed a complaint for declaratory judgment, naming as defendants, the Home Insurance Company, the Home Indemnity Company (The Home), North River Insurance Company, Crum & Forster Insurance (C&F) and various other insurers who had issued policies to the Stein defendants over the course of the years of construction, 1978 through 1991. In January 1996, Firemen's moved for summary judgment seeking a defense and indemnification against all of the insurer defendants named in the declaratory judgment action. Society Hill, who was also named as a defendant in the declaratory judgment action, filed a cross-motion seeking a defense and indemnification for the Stein defendants under the carrier policies of insureds. The carriers opposed both motions. Judge Charles A. Little found there was coverage for the Stein defendants, without respect to the work of their subcontractors. Accordingly, C&F, The Home and Firemen's were required to defend the Stein defendants in the underlying litigation.

The liability trial in the underlying action, took place before Judge John B. Fratto. Judge Fratto dismissed several counts of the complaint and made a factual determination as to defects listed by plaintiff's expert, dismissing certain claims against the Stein defendants and holding them liable for seven specific construction defects.

Subsequent to the decision of Judge Fratto in the liability trial, motions for summary judgment were filed by C&F, The Home and Firemen's in the declaratory judgment action, seeking an order declaring that they did not have a duty to indemnify the Stein defendants for the damages that might be assessed against the Stein defendants in the underlying action with respect to the seven construction defects identified by the court in the liability trial. The insurance carriers argued that the policies did not provide coverage for faulty workmanship, that the claims against the insured defendants were not claims for property damage and that there was no "occurrence" which would trigger coverage under the insurance policies.

Judge Fratto granted all the insurance carriers' motions ruling that there was no duty to indemnify the Stein defendants. Judge Fratto accepted the insurance carriers' arguments that there was not property damage which would trigger coverage. He also found that the condominium buildings were the product of the insured so as to trigger the insured product exclusion.

The damages trial in the underlying action resulted in a finding by the jury for plaintiffs on the seven claims and an award of $600,000. Pre-judgment interest in the amount of $336,000 was also awarded.

Society Hill appealed from the adverse rulings of Judge Fratto's 1998 liability judgment and the Stein defendants cross-appealed. We affirmed. Society Hill Condo Ass'n v. Society Hill Associates, 347 N.J. Super. 163, 175 (App. Div. 2002).

As a result of summary judgment granted to the insurance carriers on grounds that none of the insurers provided coverage for the seven items of defective construction, no insurance coverage was available for any policy to satisfy the judgment against the Stein defendants. Therefore, Society Hill has appealed from the orders for summary judgment granted to the carriers. The cross-appeal relates to that portion of Judge Fratto's judgment dealing with Firemen's application for allocation of legal expenses as follows: North River/C&F -thirty-eight percent; Home -- thirty-one percent; Firemen's -- thirty one percent. We affirm the final judgment in its entirety.

II.

The three primary carriers provided CGL/umbrella coverage to the Stein defendants during different periods over the range of years of liability: North River -- 1978-1983; Firemen's --1983-1987; and Home -- 1987-1991.

All of the insurers issued policies that contained the standard provisions of the 1973 version issued by the Insurance Services ...


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