June 26, 2008
FRANK METTA D/B/A FRANK METTA BUILDERS, PLAINTIFF-RESPONDENT, AND AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY, PLAINTIFF,
FITCHBURG MUTUAL INSURANCE COMPANY, DIEGO COSTA, TOLL NEW JERSEY BUILDER I, TOLL BROS., INC., DOMINICANO CONSTRUCTION, REAL MADEIRA, INC., DEFENDANTS, AND ERIE INSURANCE EXCHANGE, DEFENDANT-APPELLANT, AND ESTATES AT PRINCETON JUNCTION, L.P., DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-8363-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 30, 2008
Before Judges Lihotz and Simonelli.
In this declaratory judgment action, plaintiff Frank Metta, d/b/a Frank Metta Builders (FMB), sought a declaration that defendant Erie Insurance Exchange (Erie) is required to pay any judgment FMB obtains on its contractual indemnification claims against Erie's insured, defendant Real Madeira, Inc. (Madeira) in the personal injury action, Costa v. Estates at Princeton Junction, L.P., Docket No. MID-L-4644-05 (the Costa Action). Diego Costa (Costa), the plaintiff in the Costa Action, alleges that he was injured on a construction site while working for Madeira, who was FMB's subcontractor.
FMB filed a motion for summary judgment, and Erie filed a cross-motion for summary judgment. Erie appeals from the April 9, 2007 order granting FMB's motion and denying it's cross- motion.
The facts are derived from evidence submitted by the parties in support of, and in opposition to, the summary judgment motions viewed in a light most favorable to the non- moving party. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). On January 25, 2005, FMB contracted with defendant Toll Bros., Inc. to perform carpentry work at a 600- unit development located on property in Princeton owned by defendant Estates at Princeton Junction (EPJ). FMB subcontracted the framing work to Madeira. The contract between FMB and Madeira (the contract) contained the following provision:
INDEMNIFICATION: TO THE FULLEST EXTENT PERMITTED BY LAW, [MADEIRA] SHALL INDEMNIFY AND HOLD HARMLESS [METTA] AND [EPJ] AGAINST ANY CLAIMS, DAMAGES, LOSSES AND EXPENSES, INCLUDING LEGAL FEES, ARISING OUT OF OR RESULTING FROM PERFORMANCE OF SUBCONTRACTED WORK TO THE EXTENT CAUSED IN WHOLE OR IN PART BY [MADEIRA] OR ANYONE DIRECTLY OR INDIRECTLY EMPLOYED BY [MADEIRA].
The contract also required Madeira to name FMB as an additional insured under Madeira's commercial general liability insurance policy. Erie issued a commercial general liability insurance policy (the policy) to Madeira, which named FMB as an additional insured. The policy contains the following provisions, in relevant part:
a. We will pay those sums that [Madeira] becomes legally obligated to pay as damages because of "bodily injury" . . . to which this insurance applies. We will have the right and duty to defend [Madeira] against any "suit" seeking those damages. However, we will have no duty to defend [Madeira] against any "suit" seeking damages for "bodily injury" . . . to which this insurance does not apply.
This insurance does not apply to:
b. Contractual Liability
"Bodily injury" . . . for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:
(2) Assumed in a contract or agreement that is an "insured contract[.]"
The policy defines "insured contract" as follows, in relevant part:
f. That part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another party to pay for "bodily injury" . . . to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.
On February 18, 2005, Costa allegedly was injured while performing work for Madeira at the development. He filed the Costa Action. Erie's defense of Madeira in that action was not subject to a reservation of rights to later deny coverage.
FMB and EPJ sought indemnification from Madeira for any damages they were obligated to pay Costa. Erie declined to indemnify them. The declaratory judgment action followed.
FMB and EPJ filed summary judgment motions, contending that Erie was obligated to cover any judgment they obtained against Madeira on their contractual indemnity claims in the Costa Action because: (1) the contract was an "insured contract" under the policy; and (2) Erie was estopped from disclaiming coverage to Madeira because it failed to reserve its rights to do so.
Erie countered that, under New Jersey law on construction of indemnity agreements, the contract's indemnification clause was not enforceable and, thus, it did not qualify as an "insured contract" under the policy. Accordingly, Erie asserted that its contractual liability exclusion barred coverage for Madeira.
Erie also countered that FMB lacked standing because its claim against Erie was a direct action that could not be maintained until FMB obtained a judgment on its contractual indemnity claim against Madeira in the Costa Action.
Judge Ferencz found that the indemnification provision in the contract constituted an "insured contract" under the policy, and that the provision was valid and enforceable and not subject to the policy's exclusion provision. However, the judge concluded that "whether or not that will be meaningful will have to be decided once the percentages of negligence are determined.
I don't think this Court can go any further than that." The judge further stated:
It would seem to me that the cases that have been given to me that there is no explicit language indicating there would be indemnification for [EPJ's] or [Metta's] negligence, but that's really not an issue that's before this Court at this time. Once the [Costa Action] is determined, the percentages are determined, another Court will make a finding as to how that affects the obligation of each party.
We agree with the motion judge that the indemnification provision is an "insured contract." The contract pertains to Madeira's business. Under the contract, Madeira assumed the tort liability of FMB to pay for bodily injury to a third person. Thus, the indemnification provision in the contract satisfies the policy's definition of "insured contract." Under that provision, Madeira is required to indemnify and hold FMB harmless for any damages assessed against FMB in the Costa Action that were caused by Madeira's negligence. Since those damages, if any, have not been determined, final resolution of this matter must abide the resolution of the Costa Action.
© 1992-2008 VersusLaw Inc.