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Watkins Engineers & Constructors, Inc. v. Essex Insurance Co.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


September 21, 2007

WATKINS ENGINEERS & CONSTRUCTORS, INC., PLAINTIFF-RESPONDENT,
v.
ESSEX INSURANCE COMPANY, DEFENDANT-APPELLANT.

On appeal from the Superior Court of New Jersey, Law Division, Gloucester County, L-1558-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted September 10, 2007

Before Judges Lintner, Parrillo and Sabatino.

In this insurance coverage action, defendant Essex Insurance Company ("Essex") appeals a final judgment entered against it on March 15, 2006, as supplemented by a July 11, 2006 order awarding counsel fees. The orders were entered following a three-day bench trial in the Law Division.

The judgment against Essex was procured by plaintiff Watkins Engineers & Constructors, Inc. ("Watkins"). Watkins had been hired by St. Lawrence Cement, Inc. ("St. Lawrence") to serve as the general contractor for construction work at St. Lawrence's cement plant in Camden. Watkins hired various subcontractors for the work, including Brennan Industrial Contractors ("Brennan") and C.H. Schwertner & Son, Inc. ("Schwertner"). Brennan was hired to perform certain structural tasks on the project, while Schwertner was responsible for designing and building two large silos and supplying cement.

As part of their underlying contracts, Schwertner and Brennan each agreed to insure and indemnify Watkins for liabilities created on the job site. Accordingly, Watkins was designated as an additional insured under an insurance policy issued to Brennan by Royal Surplus Lines Insurance Company ("Royal"), as well as an additional insured under a policy issued by Essex to Schwertner.

The claim that gave rise to the present coverage lawsuit arose out of an August 2000 accident involving John Knoll, an iron worker employed by Brennan. Knoll fell in a depression on the job site and injured his back. About two days before Knoll's accident, Schwertner, at the direction of Watkins, had poured material known as "flowable fill" into the depression. Allegedly, the fill material was still in a slippery condition when Knoll walked upon it.

Knoll claimed that this incident had exacerbated his injuries from several prior accidents, causing him to need major back surgery. He consequently filed a negligence action against Watkins and Schwertner. Watkins cross-claimed against Schwertner for contribution and indemnification in the event that it was found liable to Knoll.

Concurrently, Knoll also filed a separate lawsuit against Durand Glass Manufacturing Co. ("Durand"), for injuries he sustained in an accident unrelated to the one on the St. Lawrence job site. Because his injuries from these accidents were overlapping, the two negligence cases were consolidated. As part of his damages, Knoll claimed, among other things, a prospective wage loss of over $500,000.

After the Knoll lawsuit against Watkins and Schwertner had been pending for over three years, Watkins filed the instant declaratory judgment action against Essex for failing to defend it in that case. Although Essex acknowledged that Watkins was listed as an additional insured under its policy, it disclaimed coverage, principally relying upon a policy exclusion for claims "arising out of the rendering of, or the failure to render, any professional architectural, engineering or surveying services.

. . ." Essex took the position that this particular exclusion applied because Schwertner's negligence, if any, concerning the fill material allegedly involved "professional" or "engineering" decisions. However, Essex agreed to pay $50,000 in defense costs to Watkins on behalf of Schwertner, pursuant to the contract between Watkins and Schwertner.

Following their consolidation, the two negligence cases were submitted to a mediator. The mediator recommended that the cases should settle for a combined sum in the range of $600,000 to $650,000, allocated equally to the two lawsuits. The mediator thus suggested that the joint exposure of Watkins and Schwertner could be valued between $300,000 and $325,000. After further negotiations, Knoll agreed to accept a total gross settlement of $480,000, with $240,000 paid on behalf of Durand and another $240,000 paid on behalf of Watkins by Royal.

Watkins then looked to Schwertner for indemnification of its share of the Knoll settlement. This coverage action ensued to resolve whether Watkins could recover any of the $240,000 settlement as an additional insured under the Essex policy. Those remaining issues became the subject of cross-motions for summary judgment in the coverage action.

In March 2005, the Law Division entered partial summary judgment in favor of Watkins, ruling that Essex owed a duty to defend and indemnify Watkins as an additional insured in the underlying Knoll matter. A bench trial ensued to determine the extent of Essex's indemnification liability and also to determine, under Griggs v. Bertram, 88 N.J. 347 (1982), the reasonableness of the settlement with Knoll.

The non-jury trial on these remaining issues was conducted before Judge David Morgan over three days in November 2005. Watkins presented the testimony of Royal's claims adjuster, who outlined the perceived risks associated with Knoll's claims and explained why the carrier had agreed to the $240,000 settlement. In attempting to support its contention that the policy exclusion for "professional" and "engineering" services applied, Essex presented testimony from Schwertner's project superintendent and from an expert in civil engineering. Essex also relied upon the de bene esse deposition of a defense orthopedist who had testified in the underlying lawsuit, opining that Knoll's injuries were pre-existing and had not been aggravated by the August 2000 accident. Lastly, Essex presented testimony from Schwertner's defense counsel in Knoll, who contended that the settlement amount paid by Royal was unreasonable and that the defense would have had a strong chance of obtaining a no-cause verdict had the case gone to trial.

After considering all of these proofs, Judge Morgan issued a comprehensive oral decision, which he summarized in a written summary of reasons dated March 15, 2006. The judge concluded that Essex was liable to pay Watkins a one-half share, i.e., $120,000, of the $240,000 settlement with Knoll.

Among other things, the judge specifically found that (1) the settlement reached with Knoll was "both reasonable and in good faith"; (2) Knoll's claim was not subject to the policy exclusion for professional or engineering services, because "the relevant negligence on the part of both Watkins and Schwertner was primarily construction[-]related and principally dealt with the failure to cordon off the site where [Knoll] fell in order to allow the flowable fill to cure"; (3) the "negligence leading to [Knoll's] fall was the responsibility of both Watkins and Schwertner [in failing] to provide a safe working environment for other invitees/independent contractors at the property," and that the record did not manifest a "significant likelihood of comparative negligence on the part of [Knoll] . . ."; (4) Watkins had standing to bring its indemnification claim, based on its contract with Schwertner, the terms of the Essex policy, and the fact that the consent judgment resulting from the Knoll settlement was issued against Watkins, not Royal; (5) the court had the authority to consider apportionment of the settlement between the Essex and Royal policies; and (6) the parallel terms of Watkins' subcontracts with Brennan and Schwertner, as well as the similarity of the terms of the Essex and Royal policies, justified treating each policy's coverage as primary, and warranted an equal apportionment of the $240,000 settlement between the two carriers.

In a subsequent order entered on July 11, 2006, the judge directed Essex to pay Watkins an additional sum of $26,849.08 as reimbursement for counsel fees expended in litigating the coverage issues.

On appeal, Essex reiterates the arguments that it made at trial, particularly stressing its contentions that Watkins lacked standing to bring the coverage action, that the professional and engineering policy exclusion in the Essex policy applied, and that the underlying settlement in the Knoll matter was unreasonable and was not made in good faith.

We reject all of those contentions as unmeritorious, substantially for the reasons comprehensively recited by Judge Morgan in his lengthy bench ruling and ensuing written summary of March 15, 2006. Among other things, we fully agree with Judge Morgan that Watkins was a real party in interest with standing to sue Essex, notwithstanding its obligations to repay all or part of such a recovery to Royal; that the failure to rope off the flowable fill material adequately before it hardened on the job site was in the nature of a construction failure and not a professional or engineering decision excludable under the insurance policy; and that the Griggs hearing yielded more than ample credible evidence to demonstrate the reasonableness and good faith of the settlement figure, which we note was an amount less than that initially recommended by the mediator.

In sum, the trial judge's factual findings have substantial support in the record, see Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974), and his legal conclusions are sound.

Affirmed.

20070921

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