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Taylor v. Port Authority of New York and New Jersey

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 1, 2008

RICKIE TAYLOR, PLAINTIFF,
v.
THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY, DEFENDANT,
THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY, THIRD-PARTY PLAINTIFF/ RESPONDENT,
v.
NEW JERSEY TRANSIT CORPORATION, THIRD-PARTY DEFENDANT/APPELLANT.

On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-41554-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 21, 2008

Before Judges Lihotz, Simonelli and King.

Defendant New Jersey Transit (NJT) appeals from a judgment following a bench trial to determine the scope of the indemnification and insurance clauses in NJT's lease with defendant the Port Authority of New York and New Jersey (Port Authority). Rickie Taylor worked for NJT. He was injured when he fell on the Port Authority premises. Taylor received workers' compensation benefits from NJT. He then sued the Port Authority alleging a structural defect in the premises. The Port Authority filed a third-party claim against NJT seeking indemnification. Taylor's negligence case was settled and the defendants tried the indemnification claim. The trial court determined NJT must indemnify the Port Authority and pay its counsel fees and costs. NJT challenges the trial court's determination that the indemnification obligation, as set forth in the lease, extended to the Port Authority's own negligent acts. We reverse.

The facts underlying Taylor's negligence action giving rise to this dispute are as follows. NJT leased bus parking spaces from the Port Authority to park its empty busses at the Port Authority Bus Terminal in New York City. From 1978 until he was injured, Taylor worked as an NJT bus starter assigned to the Port Authority Bus Terminal. On June 27, 2002, while working between the North and South wings of the bus terminal, Taylor "caught his foot" in an uncovered two and three-quarter inch expansion joint connecting sections of the concrete floor. He fell and dislocated his right knee. Although the accident occurred in the bus parking garage, Taylor fell in an area other than the bus spaces leased by NJT. NJT paid Taylor's workers' compensation claim.

Taylor filed a negligence action against the Port Authority, as owner of the premises, alleging it was negligent in the design, construction, and maintenance of the terminal. More specifically, in the first count of Taylor's complaint, he alleged that as "a direct and proximate result of [the] Port Authority's negligence, carelessness, and recklessness in the design and maintenance of the Terminal's floor, . . . Taylor was severely injured . . . ." The second count asserted that as "a direct and proximate cause of the negligent, careless and reckless design, manufacture and/or installation of the floor by the [Port Authority] . . . [Taylor] was caused to be injured." The Port Authority filed a third-party complaint against NJT seeking defense costs and indemnification for any determined liability.

NJT and the Port Authority settled Taylor's claims without a determination of liability and with a reservation that the court would decide whether NJT owed an obligation to indemnify the Port Authority based upon the lease provisions. NJT and the Port Authority agreed to waive the presentation of testimony and submit documents to the trial judge.*fn1

It was not disputed that NJT was self-insured and that no policy document existed delineating the extent of coverage. Further, the parties stipulated that "Taylor was working within the scope of his employment at the time of the accident."

NJT argued, as it does before this court, based on the expert reports, it had no liability regarding the accident and the lease did not require indemnification for the negligent acts of the Port Authority.*fn2 NJT points to Taylor's expert who opined that the expansion joint involved in Taylor's fall was "improperly maintained and . . . in violation of generally accepted safety standards and/or practices" for walking surfaces. He stated the unguarded joint filled with elastomeric composite fiber that compressed underfoot was "a dangerous tripping hazard to a pedestrian walking in the area" and caused Taylor's fall. This hazardous condition "existed for an extensive period of time prior to the incident."

The Port Authority argued that determination of the matter was informed by the insurance provisions of the lease not the indemnification clause. Further, the fault of the Port Authority or Taylor is inconsequential because Taylor's accident arose out of NJT's use of the terminal for which insurance coverage was required. In any event, the Port Authority denied liability and its expert concluded Taylor worked in the area for fifteen years prior to the accident and should have known of the presence of the expansion joint. Alternatively, Taylor should have been walking on an available segregated walkway not the area where buses travel.

After reviewing the stipulated documents, the trial judge concluded the broad language of the indemnification provision of the lease required NJT to "indemnify the Port Authority for all claims arising out of NJT['s] use of the Bus Terminal[,]" including those presented by Taylor. The trial judge entered judgment in favor of the Port Authority and, in a subsequently entered order, required NJT to reimburse the sum of $16,241.50 in counsel fees and costs expended by the Port Authority. This appeal followed.

We review whether the contractual provisions of the lease agreement obligated NJT in "unequivocal terms" to indemnify and defend the Port Authority for third-party claims resulting from the Port Authority's own negligent acts. A related question is, notwithstanding the nature of the responsibility for indemnification, whether the insurance clause of the lease separately obligated NJT to provide coverage for the benefit of the Port Authority to satisfy Taylor's claim for personal injury.

In our discussion, we set forth relevant portions of the parties' agreement. The lease document in the record commenced on July 27, 1981 and ended on December 31, 1982. Thereafter, the lease agreement was modified and extended each year.*fn3

The lease designated the "premises" as an area: in the upper bus level of the North Wing of the Port Authority Bus terminal . . . fifteen (15) bus parking spaces in the area shown in diagonal hatching on the sketch attached hereto and hereby made a part hereof and marked as "Exhibit A" . . . .

Although the location varied over the years, the documents consistently identified the "leased premises" as specific bus parking spaces in the North Wing of the terminal.

Article V of the lease incorporated a document entitled "Terms and Conditions," which included Section 6, the provision for indemnification:

SECTION 6. Indemnity

The Lessee shall indemnify and hold harmless the Port Authority, its Commissioners, officers, employees and representatives, from all claims and demands of third persons including but not limited to claims and demands for death, claims and demands for personal injuries, and claims and demands for property damages, arising out of the use or occupancy of the premises by the Lessee or by others with its consent or out of any other acts or omissions of the Lessee, its officers and employees on the premises or elsewhere at the Facility, or out of the acts or omissions of others on the premises with the consent of the Lessee, including claims and demands of the party from which the Port Authority derives its rights in the Facility for indemnification arising by operation of law or through agreement of the Port Authority with such party.

Additionally, the lease incorporated endorsements and attachments, many of which were amended, from time to time, as the parties continued their relationship. At the conclusion of the lease term, the lease was extended under a written extension agreement. Paragraph 4(b) of Lease Extension No. 6, dated January 31, 2002, included NJT's obligation to obtain insurance, which we recite later in this opinion. NJT chose to be self-insured with a retention amount of $5,000,000 and obtained an excess coverage policy.

The first count of the Port Authority's amended third-party complaint sought specific performance by NJT to comply with the indemnification provision recited at Section 6 of the "Terms and Conditions." "Indemnity contracts are interpreted in accordance with the rules governing the construction of contracts generally. When the meaning of the clause is ambiguous however, the clause should be strictly construed against the indemnitee." Ramos v. Browning Ferris Indus., Inc., 103 N.J. 177, 191 (1986) (citations omitted).

As applied to the facts of this case, NJT's indemnification obligations to the Port Authority would include all claims and demands of third persons for personal injuries arising out of (1) the use or occupancy of the premises; (2) any other acts or omissions of NJT on the premises or elsewhere at the facility; or (3) out of the acts or omissions of others on the premises with the consent of NJT.

We disagree with the trial court's conclusion that "NJT would indemnify the Port Authority for all claims arising out of the use of the Bus Terminal." Specifically, the indemnity clause distinguished between use of the premises, which the lease defined as the bus parking spaces, and the facility, which is stated to be the Port Authority Bus Terminal. The indemnification clause encompasses only NJT's negligent acts in the facility. It does not address indemnification for claims arising out of a dangerous structural condition existing in the facility. Taylor's injury did not occur on the leased premises, but elsewhere in the terminal facility, eliminating the first and third bases of indemnification. The remaining provision, which directly refers to "the Facility," is limited to instances of NJT's negligence. No evidence suggests NJT's negligence caused Taylor's injury.

The language of the indemnity clause fails to include explicit contractual language requiring NJT to indemnify and defend against allegations of the Port Authority's own independent fault occurring in the terminal facility, other than on the leased premises. This omission renders the indemnification clause inapplicable to Taylor's claim. Ramos, supra, 103 N.J. at 191; Mantilla v. NC Mall Assocs., 167 N.J. 262, 275 (2001).

Our Supreme Court has made clear that "what is required to bring a negligent indemnitee within an indemnification agreement, . . . [is] the agreement must specifically reference the negligence or fault of the indemnitee." Azurak v. Corporate Prop. Investors, 175 N.J. 110, 112-13 (2003); Ramos, supra, 103 N.J. at 191. Absent a clear expression in "unequivocal terms" that NJT assumed such a contractual duty, we conclude it did not agree to indemnify the Port Authority for personal injuries occurring in the facility as a result of the Port Authority's negligence. Ibid.; Port Auth. of N.Y. & N.J. v. Honeywell, 220 N.J. Super. 445, 454 (App. Div. 1987).

Regardless of the inapplicability of the indemnification clause, the Port Authority argues that the contractual distribution of insurance burdens may, nonetheless, be negotiated by the parties. Here, the Port Authority maintains the lease agreement shifted liability from the Port Authority to NJT for claims by NJT employees present in the terminal. See Mautz v. J.P. Patti Co., 298 N.J. Super. 13, 20 (App. Div. 1997) (quoting Doloughty v. Blanchard Constr. Co., 139 N.J. Super. 110, 116 (Law Div. 1976)) ("[T]he parties ought therefore to be free to determine how the insurance burdens will be distributed between them and who will pay for specific coverage for specific risks.").

Again, we turn to the terms of the parties' lease agreement to examine the risks NJT was to insure against. Because NJT was self-insured, we have no specific policy provisions to review and look solely to the contract provisions found at Endorsement No. 6 at paragraph 4(b). The provision states:

[T]he Lessee, in its own name as insured and including the Port Authority as an additional insured, including without limitation, for both premises-operations and completed operations, shall maintain and pay the premiums during the term of the letting under the Lease, as herein amended and extended, on a policy or policies of Commercial General Liability Insurance, including premises-operations and products-completed operations and covering bodily-injury liability . . . none of the foregoing to contain care, custody or control exclusions, and providing for coverage in the limits set forth below, . . . . All the aforesaid policy or policies of insurance shall also provide or contain an endorsement providing that the protection afforded the Lessee thereunder with respect to any claim or action against the Lessee by a third person shall pertain and apply with like effect with respect to any claim or action against the Lessee by the Port Authority but such endorsement shall not limit, vary, change or affect the protection afforded the Port Authority thereunder as an additional insured. In addition, all of the aforesaid policy or policies of insurance shall also provide or contain an endorsement providing that the protection afforded the Port Authority thereunder with respect to any claim or action against the Port Authority by the Lessee shall be the same thereunder with respect to any claim or action against the Lessee by a third person as if the Port Authority were the named insured thereunder. The said policy or policies of insurance shall also provide or contain a contractual liability endorsement covering the obligations assumed by the Lessee under the Section 6 [of] the Terms and Conditions annexed to the Lease entitled "Indemnity."

Paragraph 4(d) of the extension agreement stated:

If the Lessee maintains its own self-insurance program for Public Liability Insurance, then so long as Lessee is NJ Transit Bus Operations, Inc., the Lessee may elect, upon written notice to the Manager, Risk Management Division of the Port Authority, signed by an authorized officer of the Lessee, to provide the required insurance coverage under its own self-insurance program.

The language of the insurance clause is cumbersome and indistinct. Broken down into its component parts, the clause requires NJT to (1) list the Port Authority as a named insured; (2) on a commercial general liability insurance policy; (3) covering premises operations and bodily-injury liability; (4) which contains no exclusions for care, custody or control; (5) containing an endorsement allowing the Port Authority to bring actions against NJT for coverage in the same way NJT is covered for actions against third-party claims; (6) containing an endorsement that covers claims against the Port Authority brought by NJT; and (5) containing an endorsement for insurance covering NJT's indemnification obligations under Section 6.

It is clear that the insurance clause would obligate NJT to provide insurance coverage and defend claims against the Port Authority made by third-parties occurring on the leased premises; or for injuries caused by NJT's actions or omissions; or to cover any indemnification obligation. However, from this language, we cannot discern an express obligation requiring NJT to obtain coverage insuring claims against the Port Authority for its actions or omissions in its facility other than the leased premises. Taylor's injury, purportedly arising from a structural defect in the facility, was not a claim contemplated by the required coverage.

We also reject the Port Authority's argument that the insurance obligation covered all actions "arising out of" NJT's presence in the terminal. The "arising out of clause" appears solely in the indemnity provision, not the insurance clauses. If the Port Authority required NJT to obtain coverage insuring against any claims, including those resulting from the negligent acts or omissions of the Port Authority, by NJT's employees while in the facility, it could have explicitly said so.

We also reject the Port Authority's suggestion that other lease provisions, such as paragraph 3(a), 4, 7, 26(a) of the "Terms and Conditions" addendum, reflect the Port Authority's intention to shift all risks to NJT.*fn4 Although NJT assumed responsibility for maintenance and inspection, these obligations were circumscribed in the lease to apply to the premises, not to the facility.

We decline to address the Port Authority's newly raised challenge to the choice of law, which is presented on appeal but was not raised below. Our review discerns the argument does not "go to the jurisdiction of the trial court or concern matters of great public interest." Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973) (quoting Reynolds Offset Co. v. Summer, 58 N.J. Super. 542, 548 (App. Div. 1959), certif. denied. 31 N.J. 554 (1960)).

We reverse the trial court's entry of judgment and order to pay defense costs. We remand to the trial court to determine the allocation of payment between the parties, as provided in their agreement to settle Taylor's claims.

Reversed and remanded for further proceedings consistent with this opinion.


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