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Farm Family Casualty Insurance Co. v. Budd


March 7, 2008


On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-3057-04.

Per curiam.


Argued January 23, 2008

Before Judges Winkelstein, Yannotti and LeWinn.

Farm Family Casualty Insurance Company (Farm Family) appeals from orders entered on January 30, 2007, which denied Farm Family's motion for a declaratory judgment; granted a cross-motion for summary judgment by Kennard G. Budd and Paula N. Budd (the Budds); and ordered Farm Family to pay the legal expenses and litigation costs incurred by the Budds in defending certain claims asserted against them by Heidi J. Grovatt and the Estate of Charles B. Grovatt, as well as a portion of the amount paid by the Budds to settle certain of those claims. The Budds cross-appeal from the provisions of one of the January 30, 2007 orders awarding them monetary relief. For the reasons that follow, we affirm in part, reverse in part, and remand for further proceedings.


This dispute arose from the following facts. Mr. Grovatt was the owner of certain residential properties located at 21 and 23 Ed Brown's Meadow in Lumberton, New Jersey. In 1978, Mr. Grovatt rented the property at 21 Ed Brown's Meadow to the Budds. In 1981, Mrs. Budd's mother purchased the property and, in turn, sold it to the Budds. In January 2001, the Budds learned that the artesian well on their property was providing water to the residence at 23 Ed Brown's Meadow, which Mr. Grovatt had rented to Mark Carter.

By letter dated September 13, 2001, Robert J. Incollingo, the Budds' attorney, notified Mr. Carter that the Budds intended to cut off the water supply to the Carter residence within ten days of the date of the letter. Mr. Grovatt complained to the Burlington County Health Department (BCHD), which advised Mr. Incollingo that terminating the water supply may be in violation of various ordinances. Thereafter, the Budds and the Grovatts agreed that Mr. Grovatt would have until November 13, 2001 to obtain an alternative water supply for the residence at 23 Ed Brown's Meadow.

On November 13, 2001, at approximately 8:53 a.m., the Grovatts filed a verified complaint against the Budds in the Chancery Division. They alleged that the well had been in existence since 1955 and thereafter continuously supplied water to both the Budd and Grovatt properties. The Grovatts alleged that, in light of these circumstances, it would be inequitable to permit the Budds to terminate the water supply to the Grovatts' property. The Grovatts further alleged that "the permissive use of water" over the years had "created an implied easement for [the Grovatts'] pipe and its access to the [w]ell."

The Grovatts sought a judgment enjoining the Budds from terminating the water supply to the property at 23 Ed Brown's Meadow Lane; ordering that the water supply continue in an uninterrupted fashion; and awarding reasonable attorney's fees and costs.

On November 13, 2001, the judge entered an order to show cause with temporary restraints, enjoining the Budds from "shutting off or otherwise preventing [the Grovatts] from utilizing the well in question existing on [the Budds'] property[.]" The Grovatts' attorney faxed the order to the Budds' attorney. However, Mr. Budd claimed that he had not been informed of the order, and sometime that day he cut off the water supply to the residence at 23 Ed Brown's Meadow.

On November 28, 2001, the Budds informed Farm Family of the Grovatts' Chancery Division action and made a claim for coverage under their insurance policy. Farm Family sent the Budds a reservation of rights letter dated December 4, 2001, and requested a copy of the Grovatts' complaint. Thereafter, the Budds' attorney furnished Farm Family with a copy of the complaint.

Because the water supply had been cut off, the Grovatts sought further relief from the court. On December 21, 2001, the judge conducted a hearing and directed the Budds to permit Mr. Grovatt and a licensed professional to enter upon their property so that they could reconnect the well to the Grovatt's property. It appears that when Mr. Grovatt and the professional entered the Budds' property, Mr. Budd called the police and had them removed. The judge entered an order on January 2, 2002, which directed the Budds to immediately make the well on their property available to the Grovatts. On February 27, 2002, Farm Family sent the Budds a letter denying coverage.

Carter and his family moved from the residence at 23 Ed Brown's Meadow in February 2002. On September 6, 2002, the dwelling was completely destroyed by fire. In addition, on November 21, 2002, Mr. Grovatt died of idiopathic pulmonary fibrosis. By order dated March 6, 2003, the Chancery Division transferred the matter to the Law Division for resolution.

On September 9, 2003, Mrs. Grovatt, individually and as administrator of Mr. Grovatt's estate, filed another action against the Budds in the Law Division. In this action, Mrs. Grovatt alleged that, when Mr. Grovatt sold the property to Mrs. Budd's mother, he retained a fifty-per-cent ownership of the well for his permanent use. Mrs. Grovatt claimed that this action gave rise to an implied easement for the pipe that provided the Grovatts access to the well. Mrs. Grovatt further alleged that Mr. Grovatt and Mrs. Budd's mother had an agreement that granted the Grovatts the right to use the well until Mr. Grovatt died but this agreement had not been attached to the deed. Mrs. Grovatt claimed that the Budds violated the agreement when they cut off the water supply to the Grovatts' property.

Mrs. Grovatt alleged that as a result of the Budds' cutting off the water supply to their property, the Grovatts lost rental income which in turn caused them "serious" financial problems. Mrs. Grovatt asserted that the Budds' "unlawful and intentional bad acts" caused the Grovatts to suffer emotional distress, physical and mental illness, and serious bodily injury. She further alleged that the Budds' "wrongful" actions brought about Mr. Grovatt's death from cardiac illness due to the stress.

In the complaint, Mrs. Grovatt asserted claims for negligence; breach of contract; quantum meruit and unjust enrichment; breach of express and implied warranties; breach of the implied covenant of good faith and fair dealing; fraud; intentional and/or negligent misrepresentation; intentional infliction of emotional distress; intentional and malicious destruction of property; conversion; intentional and unlawful interference with business opportunity, economic advantage, or contractual rights; malicious prosecution; abuse of process; and harassment. Mrs. Grovatt sought compensatory damages, attorney's fees, expert witness fees, costs of suit, interest, punitive damages, and all other relief and damages that are recoverable by law.

The Budds furnished Farm Family a copy of the complaint in the newly filed action, and by letter dated February 11, 2004, demanded that Farm Family defend and indemnify them in that case. Farm Family denied coverage.

The Budds moved on February 23, 2004, to dismiss both of the Grovatt actions based on the Entire Controversy Doctrine. They additionally sought dismissal of the wrongful death claim, arguing that Mrs. Grovatt did not have a good faith basis for that claim. On April 20, 2004, the court denied the Budds' motion. On June 30, 2004, the court entered an order consolidating the two lawsuits.

Farm Family filed a declaratory judgment action on November 4, 2004, seeking a determination that it was not required to defend or indemnify the Budds in the Grovatt lawsuits. On April 1, 2005, the court entered an order consolidating the Farm Family action with the underlying actions. On that same day, the court entered an order granting partial summary judgment to the Budds in the Grovatt action, dismissing with prejudice all claims asserted by the Grovatts with the exception of the claim based on an implied easement. The trial on the remaining claim commenced on May 23, 2005. After a mistrial was declared, the parties reached a settlement, which required the Budds to pay $17,500 to the Grovatt Estate.

In April 2006, Farm Family filed a motion for summary judgment. The Budds cross-moved for summary judgment, seeking reimbursement of the $135,476.98 that they paid in attorneys' fees and costs in defending and settling the Grovatts' lawsuits. The judge heard oral argument on the motions on June 9, 2006, June 23, 2006, October 31, 2006, and January 4, 2007.

The judge found that the Budds were not entitled to coverage in the case initiated in the Chancery Division and later transferred to the Law Division because in that action, the Grovatts did not make a claim for damages. The judge also determined that the Budds were entitled to coverage under the policy for the implied easement claim. The judge further found that coverage was not barred under the policy's provision excluding coverage for damages arising from the intentional acts of the insured.

The judge determined that there was insufficient evidence to show that Mr. Budd intended to cause harm by cutting off the water to the Grovatts' property. Accordingly, the judge found that the Budds were entitled to reimbursement of the attorneys' fees and litigation costs that they incurred in the period from February 11, 2004 through May 30, 2005, subject to an assessment of the reasonableness and fairness of the fees and costs.

The judge entered orders on January 30, 2007, which required Farm Family to reimburse the Budds for attorneys' fees and litigation costs in the amount of $48,469.54. Farm Family also was ordered to pay the Budds $5,594.63, of which $5,500 represented partial reimbursement of the $17,500 paid in settlement of the Grovatts' actions, plus pre-judgment interest of $94.63. The judge entered another order on April 16, 2007, which stayed enforcement of the judgments and reduced Farm Family's obligation to pay the Budds' counsel fees and costs to $42,874.91.


In its appeal, Farm Family contends that the claims asserted by Mrs. Grovatt are not covered by the Budds' policy and therefore the judge erred by finding that it was obligated to defend and indemnify the Budds in the underlying lawsuit.

In reviewing an order granting summary judgment, we apply the same standards that are applied by the trial court. Prudential Prop. Ins. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Summary judgment may issue when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. R. 4:46-2(c). In determining whether a genuine issue of material fact exists, the court must determine "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). Therefore, we must determine whether the judge correctly found that there were no material issues of fact, and that the Budds were entitled to judgment as a matter of law.

The duty of an insurer to defend arises "'when the complaint states a claim constituting a risk insured against.'" Voorhees v. Preferred Mutual Ins. Co., 128 N.J. 165, 173 (1992) (quoting Danek v. Hommer, 28 N.J. Super. 68, 77 (App. Div. 1953), aff'd o.b., 15 N.J. 573 (1954)). We compare "the allegations in the complaint with the language of the policy." Ibid. "When the two correspond, the duty to defend arises, irrespective of the claim's actual merit." Ibid. (citing Danek, supra, 28 N.J. Super. at 76-77). Furthermore, when a complaint includes multiple causes of action, "the duty to defend will continue until every covered claim is eliminated." Id. at 174 (citing Mt. Hope Inn v. Travelers Indem. Co., 157 N.J. Super. 431, 440-41 (Law Div. 1978)).

Furthermore, in considering whether claims are covered under an insurance policy, we must interpret the policy language "according to its plain and ordinary meaning." Voorhees, supra, 128 N.J. at 175 (citing Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537 (1990)). If there is any ambiguity in the policy, it must be resolved in favor of the insured, and in accord with the insured's "objectively-reasonable expectations." Ibid. (citing DiOrio v. N.J. Mfrs. Ins. Co., 79 N.J. 257, 269 (1979)). "Moreover, if an insured's 'reasonable expectations' contravene the plain meaning of a policy, even its plain meaning can be overcome." Ibid. (citing Werner Indus. v. First State Ins. Co., 112 N.J. 30, 35-36 (1988)).

Here, Farm Family issued to the Budds a "Special Farm Package" for the period from April 27, 2001 to April 27, 2002. The policy states in pertinent part that coverage will be provided "if a claim is made[,] or a suit is brought[,] against an INSURED for damages because of BODILY INJURY or PROPERTY DAMAGE that is caused by an OCCURRENCE to which coverage applies." The policy defines "bodily injury" to mean "bodily harm, sickness or disease to a person including required care, loss of services and death resulting therefrom." The term "property damage" is defined as "physical injury to or destruction of tangible property, including the loss of use of this property." In addition, the policy defines "occurrence" to mean "an accident."

Farm Family contends that there is no coverage under its policy for the claims asserted by Mrs. Grovatt in the second lawsuit. However, the complaint in that action included claims for "bodily injury" and "property damage" as those terms are defined in the policy. The complaint included a claim for Mr. Grovatt's wrongful death. This is undoubtedly a claim for "bodily injury" under the policy. Furthermore, Mrs. Grovatt asserted an assortment of claims based on the alleged wrongful termination of the water supply to the Grovatts' rental property. The policy defines "property damage" to include physical injury to tangible property, "including the loss of use of this property." The lack of water may cause injury to tangible property, and the Grovatts' claim arising from the "loss of use" of water from the Budds' well is a claim for "property damage" under the policy.

Farm Family nevertheless argues that Mrs. Grovatt's claims are essentially claims for breach of a contract that are not covered by the policy. In support of this argument, Farm Family relies upon the exclusion under the policy of claims for "bodily injury" or "property damage" that are "assumed" by an insured "under any contract or agreement." However, the policy states that this exclusion does not apply to "bodily injury" or "property damage" assumed under a "covered contract." The policy defines "covered contract" to include "an easement or license agreement[.]" We must interpret the exclusion in light of its ordinary and plain meaning. Voorhees, supra, 128 N.J. at 175. Accordingly, Mrs. Grovatt's claims for "bodily injury" and "property damage" are not excluded under this provision of the policy.

We therefore conclude that the complaint filed in the second action includes claims for "bodily injury" and "property damage" as those terms are defined in the policy, and the claims are not excluded under the provision of the policy that bars coverage for claims assumed under certain contracts.


We turn to Farm Family's contention that Mrs. Grovatt's claims for "bodily injury" and "property damage" are not covered because these claims do not arise from an "occurrence," which is defined in the policy to mean "an accident." Farm Family alternatively argues that the claims are not covered because the policy excludes coverage for claims that result from the intentional acts of an insured.

Like the policy at issue here, the policy in the Voorhees case defined the term "occurrence" as "an accident." Voorhees, supra, 128 N.J. at 180. There, our Supreme Court stated that, when a policy limits coverage to claims arising from an "accident," the general rule is that "coverage exists for the unintended results of an intentional act, but not for damages assessed because of an injury which was intended to be inflicted." Id. at 182. The Court added that, "the accidental nature of an occurrence is determined by analyzing whether the alleged wrongdoer intended or expected to cause an injury. If not, then the resulting injury is 'accidental,' even if the act that caused the injury was intentional." Id. at 183. In the absence of exceptional circumstances that objectively establish that the insured intended to injure, a court will look to the subjective intent of the insured to determine intent to injure. Id. at 185.

In this matter, the trial court held that the evidence did not establish that Mr. Budd intended to cause injury when he cut off the water supply to the Grovatts' property. In the court's view, the critical fact was whether, at the time Mr. Budd severed the water line, he was aware that the court had issued an order enjoining him from doing so. At the hearing on June 6, 2006, the judge stated:

Because, to me, the linchpin on intention in this case is, what were Budd's rights at the time he cut the water? If he didn't know about the order saying you can't cut the water, his rights were governed, in his mind, by the contract, which he had every right to cut the water. And he had every right to assume at that point, not hearing from Grovatt, that Grovatt had made alternative methods to deliver water to the Grovatt property.

If he did know about the order, or if he even knew about the application, which he probably didn't because it's ex parte, from what you're saying. Then if he knew about the order, he's going to lose, because he did it in contravention of an order.

If he knew about the application, I'm going to let a fact finder decide whether or not knowing about the potential application you don't wait for the result, you cut it.

The judge adjourned the matter so that he could review the evidence concerning the time in which Mr. Budd received notice of the court's order.

Following oral argument on June 23, 2006, the judge found that because Mr. Budd's counsel did not have notice of the order until after the water line had been severed, Mr. Budd could not have known about the order when he cut off the water. The judge additionally found that in these circumstances Mr. Budd could not have intended to cause harm because he had a contractual right to cut off the water to the Grovatts' property. The judge stated that "you can't get to the intent to injure part of [the] policy if [Mr. Budd] has a right to do it. He had a right to do it. It was a negotiated right."

We are convinced, however, that there is a genuine issue of material fact as to whether Mr. Budd intended to cause injury to the Grovatts by severing the water line. We note that, on this issue, the evidence must be viewed in a light most favorable to Farm Family, which was the party opposing the Budds' motion for summary judgment. Brill, supra, 142 N.J. at 540. Moreover, Farm Family was entitled to the benefit of all favorable inferences that could legitimately be drawn from the evidential materials. Ibid.

We disagree with the judge's conclusion that because Mr. Budd may have had a contractual right to cut the water line, he could not have intended to harm the Grovatts by doing so. The agreement contemplated that the Grovatts would obtain an alternate source of water for the rental property. It is undisputed that the Grovatts failed to do so by November 13, 2001, the deadline established by the agreement. The judge suggested that Mr. Budd could have assumed that Mr. Grovatt had obtained another source of water but, in view of the proximity of the properties, an inference could legitimately be drawn that Mr. Budd was well aware that the property would be without water and therefore uninhabitable if he shut off the water from his well.

Moreover, an inference of an intent to harm could be drawn from Mr. Budd's own statements. In a certification dated November 20, 2001, which was submitted in opposition to the Grovatts' application for a preliminary restraining order, Mr. Budd made clear that he was not pleased with the Grovatts or their tenants. Mr. Budd stated that the since the tenants moved into the residence at 23 Ed Brown's Meadow, his life and that of his wife "ha[d] turned into living hell."

Mr. Budd added that the tenants were "constantly yell[ing], hooting, [and] screaming[.]" He asserted that possibly as many as twelve adults and about nine children were living on the premises. He stated that the tenants had allowed dogs to bark incessantly; ran trucks and equipment at all hours; and "blasted" the car radio amplifier.

Mr. Budd commented, "[o]ur peace, quiet and comfort has been totally taken away from us. We no longer have a happy . . . home." He said that he and his wife had been "under constant stress and fatigue." Mr. Budd said that the tenant's behavior was abusive and he suggested they may be using and selling drugs on the property. Mr. Budd also stated that the tenants "tried to flood [him] out of [his] house by running the water from a hose all day long in [his] yard."

At the trial of the underlying action, Mr. Budd admitted that he knew that cutting off the water to Grovatts' tenants would render the home uninhabitable. He stated that the tenants had an excessive amount of traffic. They had yelled obscenities at his wife on four occasions and the police had been called. He additionally testified concerning the tenants' "derelict cars, trucks, recreational vehicles and piles of rat infested debris on [the tenant's] land."

In our view, this evidence raises a genuine issue of material fact as to whether Mr. Budd intended to injure the Grovatts by severing the water line to their property. We are convinced that the judge erred by deciding this issue as a matter of law. Suffice it to say, the evidence on this fact issue was not so "'one-sided'" that it could be resolved as a matter of law. Brill, supra, 142 N.J. at 540 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed. 2d 202, 214 (1986)).

Therefore, we reverse the orders granting summary judgment and awarding monetary relief to the Budds. We remand for further proceedings on the issue of whether the claims for "bodily injury" and "property damage" asserted by Mrs. Grovatt in the second lawsuit arose from an "accident" or "intentional act" of the insured.


In their cross-appeal, the Budds argue that the trial judge erred by: denying reimbursement for the fees and costs incurred in the Chancery Division action; holding that no fees or costs would be awarded for any work done prior to February 11, 2004; and determining that no fees or costs would be incurred for Mr. Incollingo's work.

Here, the trial court determined that the Budds were not entitled to coverage for the claims initially asserted in the Chancery Division action because they were essentially claims for equitable relief, not claims for damages. In our view, that determination was correct. By its plain and unambiguous terms, the policy only provides coverage for claims for "damages." Because the Grovatts did not seek "damages" in the complaint filed in the Chancery Division action, the claims were not covered by the policy. Therefore, the Budds were not entitled to reimbursement for the attorneys' fees and costs incurred to defend against those claims.

In addition, both parties raise issues that pertain to the amount of reimbursement awarded to the Budds. Farm Family argues that the trial court erred in awarding pre-judgment interest; and in determining the hourly rate for the Budd's counsel. The Budds argue that the court erred by denying reimbursement for work done after May 30, 2005, when the trial in the underlying action was concluded; and by ordering only partial reimbursement for the amount paid by the Budds to settle the case. In view of our determination that summary judgment should not have been granted to the Budds, we need not address these issues.

Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.


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