August 6, 2008
STEPHANIE A. KRASTANOV, INDIVIDUALLY AND AS GENERAL ADMINISTRATRIX AND ADMINISTRATRIX AD PROSEQUENDUM OF THE ESTATE OF KRUM T. KRASTANOV, DECEASED, PLAINTIFFS,
K. HOVNANIAN/SHORE ACQUISITIONS, LLC, K. HOVNANIAN AT BARNEGAT I, LLC, K. HOVNANIAN CONSTRUCTION MANAGEMENT, INC., THE WENTWORTH GROUP, INC., WENTWORTH PROPERTY MANAGEMENT OF NEW JERSEY, INC., FOUR SEASONS AT MIRAGE HOMEOWNERS ASSOCIATION, INC., HOBBS ARCHITECTURAL FOUNTAINS, AND F&W MECHANICAL CORP., DEFENDANTS, AND MENK CORPORATION, DEFENDANT/THIRD-PARTY PLAINTIFF,
STEADFAST INSURANCE COMPANY, THIRD-PARTY DEFENDANT/ FOURTH-PARTY PLAINTIFF-RESPONDENT,
PENN NATIONAL INSURANCE, FOURTH-PARTY DEFENDANT-APPELLANT, AND K. HOVNANIAN COMPANIES, LLC AND HOVNANIAN ENTERPRISES, INC., DEFENDANTS/FIFTH-PARTY PLAINTIFFS,
PENN NATIONAL INSURANCE, PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, PENN NATIONAL SECURITY INSURANCE COMPANY, AND F&W MECHANICAL CORP., FIFTH-PARTY DEFENDANTS.
On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-2345-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued June 4, 2008
Before Judges Lihotz, Simonelli and King.
In this insurance coverage action, fourth-party defendant Pennsylvania National Mutual Casualty Insurance Company (PNMC), appeals from two sets of Law Division orders. PNMC is the liability insurer for defendant F&W Mechanical Corp. (F&W). F&W was the employer of plaintiff's decedent, Krum T. Krastanov, who drowned while swimming in a man-made lake at the construction site owned by defendants K. Hovnanian/Shore Acquisitions, LLC, K. Hovnanian at Barnegat I, LLC, and K. Hovnanian Construction Management, Inc. (collectively Hovnanian).
The first set of orders addressed in this appeal, dated March 23, 2007, denied PNMC's summary judgment motion and granted summary judgment in favor of third-party defendant/fourth-party plaintiff, Steadfast Insurance Company (Steadfast), the liability insurer for Hovnanian. The second set of orders dated June 8, 2007, denied PNMC's motion for reconsideration and awarded Steadfast attorney's fees and costs. The result of these determinations was that PNMC was to defend and indemnify Hovnanian against the wrongful death action filed by plaintiff, who is Krastanov's widow.
On appeal, PNMC argues the trial court erred in granting summary judgment to Steadfast and in concluding that PNMC's coverage was primary. PNMC maintains that absent contractual indemnification, the scope of an additional insured endorsement cannot be expanded to cover the independent negligent acts of the additional insured. We affirm the applicability of coverage, however, we reverse the determination that the PNMC policy is primary.
The facts in the underlying wrongful death action, which gave rise to this coverage matter are undisputed. F&W is a plumbing contractor that entered into a subcontract with K. Hovnanian Construction Management, Inc. to install plumbing systems in a residential construction project owned by Hovnanian Enterprises, Inc. The construction project was part of an adult residential community known as the Four Seasons at Mirage (the property). Krastanov, an employee of F&W, was a member of the five-man crew working on the property site. The crew's regular hours were 7 a.m. to 3:30 p.m.
Shaun Morgan was the F&W on-site crew leader. Krastanov generally drove to Morgan's home, then traveled to and from the job site in a company van driven by Morgan. Mark Stevens was F&W's vice-president for plumbing, who managed the F&W teams at the various job sites.
On August 23, 2002, Morgan's crew finished early and waited for Stevens at the company van. Stevens paid the crew and reviewed the plans for the next day. Thereafter, Stevens left the crew. Shortly after Stevens left, at approximately 3:10 p.m., Krastanov decided to "cool-off" by swimming in the man-made lake located on the property. Rather than going home, the crew drove toward the lake and Krastanov jumped into the water. He drowned.
Plaintiff initially filed a workers' compensation claim. That complaint was dismissed for failure to prosecute.*fn1
Plaintiff then filed a twenty-four count complaint against Hovnanian, defendant/third-party plaintiff, Menk Corporation, the original owner of the property, which built the lake; defendants the Wentworth Group and Wentworth Property Management of New Jersey, Inc., which served as the property management company responsible for maintenance of the property; and the Four Seasons at Mirage Homeowners Association, Inc.
Menk Corporation filed a third-party complaint against Steadfast and Hovnanian filed a third-party complaint against F&W and its carrier, PNMC. Steadfast also filed a fourth-party declaratory judgment complaint against PNMC. The parties then submitted motions for summary judgment on the indemnification and insurance coverage issues.
In its cross-motion for summary judgment, Hovnanian argued it was entitled to indemnification based on their February 25, 2003, prime subcontracting agreement with F&W. Reciting the language of the agreement's indemnification clause, Hovnanian argued that "there is a broad indemnification agreement and, in fact, the parties agreed that it was supposed to be liberally construed to afford Hovnanian the protection." Thus, Hovnanian maintained F&W assumed all liability for injuries arising out of or related to the performance of the contract.
After determining plaintiff's claims against Hovnanian were for "Hovnanian's own negligence in creating a dangerous condition on the property in question," the trial court rejected Hovnanian's interpretation of the scope of the indemnification clause because the contract did not provide in "unequivocal terms" that F&W would indemnify Hovnanian against losses resulting from Hovnanian's negligent acts. Azurak v. Corporate Prop. Investors, 175 N.J. 110, 111-12 (2003); Mantilla v. NC Mall Assocs., 167 N.J. 262, 275 (2001).
Turning to Steadfast's summary judgment motion, the trial judge reviewed the insurance clause of the agreement and the liability policy provisions of the PNMC policy and agreed with Steadfast that Hovnanian was an additional insured. The critical question was whether Krastanov's death arose out of F&W's work, and thus, invoked that coverage. PNMC argued Krastanov's actions were not the type contemplated by the policy, the crew shift had concluded its days work when the incident occurred, and the injury did not arise out of Krastanov's employment.
In reaching an affirmative conclusion to the coverage question, the trial court relied on the provision in the prime subcontracting agreement. First, F&W was required to supervise its employees on the site, as follows:
4.1 Prime Subcontractor's On Site Representative shall be present on the site at all times that Prime Subcontractor has employees on the site for the purpose of supervising their work, making decisions on behalf of the Prime Subcontractor and to coordinate Prime Subcontractor's work so as to eliminate or minimize interference with the work of other subcontractors working on the site . . . .
Second, other contract provisions obliged safety precautions and programs, including:
7.2 The Prime Subcontractor shall be responsible during its performance of the work required herein, for initiating, maintaining and supervising all safety precautions and programs required so as to prevent injury to all persons, property and the work. Prime Subcontractor shall be responsible for protecting against damage, injury or loss to:
7.3 All person involved in the work and all other persons who may be in any way affected thereby[.]
7.6 The Prime Subcontractor agrees to be fully responsible for initiating, providing, maintaining and supervising all safety, health and environmental precautions and programs required during its performance of the work required herein so as to prevent injury and illness to all persons and damage to all property and the work . . . .
The court found the language of the safety provisions represented the scope of the contractor's work.
Additionally, the trial judge accepted the conclusion that Krastanov was still "on the clock" when the incident occurred and Morgan, the F&W crew leader who was present, could have stopped his employee from jumping in the lake. Finally, the court reasoned that Krastanov would not have been inside the gated community but for his employment.
The trial judge then concluded PNMC's policy was primary, because the court found no applicable contract provision creating excess insurance. Steadfast's motion was granted and PNMC's motion was denied. Later orders denied PNMC's request for reconsideration and awarded Steadfast's request for reimbursement of attorney's fees and costs incurred in defending the wrongful death litigation. This appeal followed.*fn2
In deciding a summary judgment motion, the trial court's "'function is not . . . to weigh the evidence and determine the truth . . . but to determine whether there is a genuine issue for trial.'" Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed. 2d. 202, 212 (1986)). The trial judge must consider "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." Ibid. The thrust of Brill is "when the evidence 'is so one-sided that one party must prevail as a matter of law,' . . . the trial court should not hesitate to grant summary judgment." Ibid. (quoting Liberty Lobby, supra, 477 U.S. at 252, 106 S.Ct. at 2512, 91 L.Ed. 2d at 214)). If there is no genuine issue of fact, we must then decide whether the lower court's ruling on the law was correct. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Keeping these principles in mind, we review the issues presented on appeal.
Hovnanian has not appealed the order denying indemnification. PNMC's appeal challenges whether the incident is a covered event under the insurance clause of the prime subcontracting agreement and whether PNMC's policy is primary.
Addressing the coverage question, PNMC first advances the argument that Hovnanian's right to coverage as an additional insured under its policy was coextensive with the indemnity obligation. The trial court's conclusion that Hovnanian was not entitled to indemnification eliminates its entitlement to seek insurance coverage. Second, PNMC focuses on the actions of the employee and argues Krastanov engaged in a purely personal risk, unrelated to work, making the trial court's overly broad reading of the additional insured endorsement error. To assess the legal obligations between the parties, we must examine F&W's contract with Hovnanian.
The prime subcontracting agreement between Hovnanian and F&W, dated February 25, 2003, consists of general provisions in sections one to fifty, with specific work and safety provisions added by attachment. We focus on the main agreement terms.
Paragraph six of the prime subcontracting agreement contains both the indemnity provisions and F&W's obligation to maintain insurance. The relevant portions of the clauses are:
6.1 Prime Subcontractor shall secure and maintain for the duration of the contract such insurance as will protect it . . . from such claims for bodily injury, death or property damage as may arise in the performance of Prime Subcontractor's services under this Agreement, such coverage to be equal or greater that the minimum limits hereinafter set forth.
6.2 The Prime Subcontractor hereby agrees to assume the entire responsibility and liability for any and all injuries or death of any and all persons and any and all losses or damage to property caused by or resulting from or arising out of any act, neglect or negligence, omission or agreement on the part of the Prime Subcontractor, its agents, officers, employees, subcontractors or servants in connection with this Agreement or with the prosecution of the work hereunder, whether covered by the insurance specified herein or not. Prime Subcontractor shall indemnify, defend and save harmless the Contractor and Affiliate, their agents, officers, employees, affiliated entities, government entities which Contractor and Affiliate have agreed to indemnify . . . from any and all claims, losses, damages, fines or penalties, legal suits or actions including reasonable attorney's fees, expenses and costs which may arise out of any and all such claims, losses, damages, legal suits or actions for the injuries, deaths, losses and/or damages to persons or property.
6.3 Should any Court be called upon to interpret the following paragraphs regarding indemnification and/or insurance protection, it is hereby specifically stated to be the intention of the parties hereto to have these terms interpreted in the broadest legally permissible fashion in favor of the Contractor and Affiliate, and in such a way as to provide the Contractor and Affiliate with the greatest possible protection. It is anticipated by the parties that this protection will be provided by the purchasing of appropriate insurance. Without any limitation to the obligations set forth in subparagraph 6.2, Prime Subcontractor further agrees that Prime Subcontractor's indemnification to Contractor and Affiliate hereunder shall extend to and include any imputed or vicarious liability of Contractor or Affiliate arising from any acts, negligence, omission or agreement of Prime Subcontractor . . . . This indemnity from Prime Subcontractor shall extend to and include, but shall not be limited to, matters as to which Prime Subcontractor and Contractor or Affiliate each may be alleged to be or found jointly, severally or concurrently liable for negligence or other fault or liability arising from the same incident, accident or state of facts. In such case, Prime Subcontractor will indemnify Contractor and Affiliate for their negligence, as well as pay attorney's fees and expenses. However, this indemnity from Prime Subcontractor to Contractor and Affiliate shall not be construed to extend to or include claims, losses, damages or expenses of any kind arising from the sole negligence of Contractor or Affiliate.
6.4 Prime Subcontractor shall assume and defend, at its sole expense, any suit, claim or legal or other proceedings for which indemnity is hereby required, with legal counsel subject to approval by Affiliate.
6.5 MINIMUM LIMITS OF INSURANCE COVERAGE . . . .
Comprehensive General Liability (Incl. Contractual Liability and Product/Completed Operations Coverage): $1,000,000 Combined Single Limit (CSL)
6.6 Within seven (7) days of this Agreement, the Prime Subcontractor shall deliver to Affiliate . . . an insurance certificate and insurance carrier endorsement naming "Hovnanian Enterprises, Inc. its subsidiaries and affiliated companies as owner and general contractor as an additional insured" (not a certificate holder) evidencing the above specified coverages. Prime Subcontractor shall name owner and general contractor as an additional insured on a Form CG 20 10 endorsement to an ISO CGL policy. In no event shall the additional insured endorsement naming or applying to the owner or general contractor contain any terms, conditions or exclusions other than those contained in the 11/85 version of the CG 20 10 endorsement, nor shall the Prime Subcontractor's policy be endorsed or amended in any way that reduces or narrows the coverage afforded to the owner and general contractor by the 11/85 version of the CG 20 10 endorsement. All insurance required to be obtained and actually secured by Prime Subcontractor herein is agreed to be primary, not excess or concurrent, any insurance policy clause notwithstanding. Prime Subcontractor's failure to timely provide the required insurance certificates and endorsements shall not be construed as a waiver of the insurance required by this Agreement . . . .
The PNMC policy contained a "schedule of names and addresses amendment," which stated "the following are insureds on this policy" and then listed Hovnanian under "premises no: 1" and contained the designation, "owners, lessees or contractors[,] see CG2010." The "11/85 version of the CG 20 10 endorsement" is attached. That endorsement states: "WHO IS INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of 'your work' for that insured by or for you."
The term "your work" is defined in Section V at item 22 and
(1) Work or operations performed by you or on your behalf[.] . . . .
(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your work"; and
(2) The providing of or failure to provide warnings or instructions.
We first examine whether Hovnanian's entitlement to coverage as an additional insured was independent of its contractual right to indemnification. The prime subcontractor agreement must be construed in accordance with the general rules for construction of contracts. The judicial task is to determine the intent of the parties from the language used, the surrounding circumstances, and the objectives sought to be achieved. Moore v. Nayer, 321 N.J. Super. 419, 440 (App. Div.), certif. granted, 162 N.J. 132 (1999), appeal dismissed 164 N.J. 187 (2000). "We are . . . obliged to construe the [contract] clause[s] in a manner consonant with the essential purpose and with the objects the parties were striving to achieve." Vitty v. D.C.P. Corp., 268 N.J. Super. 447, 452 (App. Div. 1993). "'[I]t has long been the law in this State that when the contract is clear the court is bound to enforce the contract as it finds it. The law will not make a better contract for parties than they themselves have seen fit to enter into[.]'" Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 273 (2006) (quoting James v. Fed. Ins. Co., 5 N.J. 21, 24 (1950)). We look to the terms of the parties' agreement to examine the risks F&W was to insure against.
Clearly, paragraph 6.1 mandates F&W to carry insurance to cover its own acts of negligence that "may arise in the performance of Prime Subcontractor's services under this Agreement." The language of paragraph 6.2, although broader in scope, as it addresses "all injuries or death of any and all persons" that are "caused by or resulting from or arising out of" the "prosecution of the work" under the Agreement, specifically addresses acts "on the part of the Prime Subcontractor, its agents, officers, employees, subcontractors or servants in connection with this Agreement[.]" The clause then discusses the scope of indemnification, which the trial court concluded did not extend to the negligence or fault of the indemnitee, Hovnanian. Paragraphs 6.3 to 6.5 further clarify the indemnification obligations and the limits of coverage.
In paragraph 6.6, we find the contractual obligation with respect to insurance. It is here F&W agrees to provide coverage to Hovnanian as an additional insured in the coverage amounts specified in paragraph 6.5. The coverage afforded to Hovnanian as owner and general contractor, however, is limited by "the 11/85 version of the CG 20 10 endorsement," which circumscribes coverage "to liability arising out of F&W's work." A fair reading of the prime subcontractor agreement does not make the insurance coverage specifically dependent on the applicability of the indemnification clause, and no language requires a contractual liability endorsement solely to cover the obligations assumed by the subcontractor under the indemnity provisions.
"[T]he question whether a party is insured at all may be a separate matter susceptible of resolution by reference to any relevant matter such as an underlying contract, here the [prime subcontractor] agreement, which clarifies the intendments of the parties in apportioning responsibility and providing for insurance coverage." Pennsville Shopping Ctr. Corp. v. Am. Motorists Ins. Co., 315 N.J. Super. 519, 523 (App. Div. 1998), certif. denied, 157 N.J. 647 (1999). Our review concludes F&W's insurance obligations, although intertwined, are sufficiently separate from and not dependent upon the indemnification provisions in its prime subcontracting agreement. Thus, the terms of the insurance policy, specifically, the unequivocal language of the CG 20 10 endorsement, control the coverage extended to Hovnanian. We, like the trial judge, must assess whether the incident resulting in Krastanov's death arose out of F&W's work, as required by that endorsement.
It is axiomatic that the primary object of all insurance is to insure. When considering interpretation of the contract provisions, we note "'that although insurance policies are contractual in nature, they are not ordinary agreements; they are 'contracts of adhesion' and, as such, are subject to special rules of interpretation.'" County of Hudson v. Selective Ins. Co., 332 N.J. Super. 107, 112-13 (App. Div. 2000) (quoting Gibson v. Callaghan, 158 N.J. 662, 669 (1999)). Consequently, insurance contracts "should be construed liberally in [the insured's] favor to the end that coverage is afforded to the full extent that any fair interpretation will allow." Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482 (1961) (citations and quotations omitted); S.T. Hudson Eng'g, Inc. v. Pa. Nat. Mut. Cas. Co., 388 N.J. Super. 592, 603 (App. Div. 2006), certif. denied, 189 N.J. 647 (2007). Construing insurance policies also requires a broad search "for the probable common intent of the parties in an effort to find a reasonable meaning in keeping with the express general purposes of the policies." Royal Ins. Co. v. Rutgers Cas. Ins. Co., 271 N.J. Super. 409, 416 (App. Div. 1994).
Other generally accepted policy interpretation rules include: (1) the insured has the burden "to bring the claim within the basic terms of the policy[,]" Reliance Ins. Co. v. Armstrong World Indus., Inc., 292 N.J. Super. 365, 377 (App. Div. 1996); (2) [w]here an insurer claims the matter in dispute falls within exclusionary provisions of the policy, it bears the burden of establishing that claim, Hartford Accident & Indem. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. 18, 26 (1984); (3) [c]overage clauses are interpreted liberally, whereas exclusions are construed strictly, Butler v. Bonner & Barnewall, Inc., 56 N.J. 567, 576 (1970); Erdo v. Torcon Const. Co., 275 N.J. Super. 117, 121 (App. Div. 1994); and (4) "[w]here the language of a policy will support two meanings, one favorable to the insured and the other favorable to the insurer, the interpretation sustaining coverage must be applied." Franklin Mut. Ins. Co. v. Sec. Indem. Ins. Co., 275 N.J. Super. 335, 340 (App. Div.), certif. denied, 139 N.J. 185 (1994); Harrah's Atl. City, Inc. v. Harleysville Ins. Co., 288 N.J. Super. 152, 160 (App. Div. 1996) (quoting Weedo v. StoneE-Brick, Inc., 81 N.J. 233, 247 (1979)).
Our determination on the applicability of coverage is bottomed on the interpretation of the phrase "arising out of" as used in an additional insured endorsement. The phrase has been the subject of many reported opinions resolving declaratory judgment disputes clarifying liability obligations between two carriers.
Several cases that involve coverage disputes between landlords and tenants examine whether the injury arose out of the tenant's use of the property. See Alexander v. Nat'l Fire Ins., 454 F.3d 214, 216 (3d Cir. 2006) (individual unit owner was an additional insured on a condominium association liability policy in respect of injury occurring on common element of premises); Liberty Vill. Assocs. v. W. Am. Ins. Co., 308 N.J. Super. 393, 396 (App. Div.), certif. denied, 154 N.J. 609 (1998) (tenant's policy covering landlord as additional insured was implicated in an accident, which occurred off the tenant's premises, as a prospective customer approached the tenant's store); Harrah's, supra, 288 N.J. Super. at 159-60 (retail store's liability policy covered the additional insured casino-landlord for injury to store's patron arising out of the use of leased premises when patron was hit by car in casino parking lot); Franklin, supra, 275 N.J. Super. at 340 (restaurant-tenant's policy obligated to cover office building-landlord as additional insured for customer's slip and fall injury on steps as she left restaurant).
Coverage disputes between automobile and homeowner's liability carriers present the question of whether the action causing the injury arose out of the use of an automobile.*fn3 See Penn Nat'l Ins. Co. v. Costa, 400 N.J. Super. 147, 151-52 (App. Div. 2008) (coverage under auto policy afforded insured for injury found to arise out of maintenance of automobile when an employee slipped on insured's driveway and hit his head on a tire jack used by insured to change tire on his personal pickup truck); Diehl v. Cumberland Mut. Fire Ins. Co., 296 N.J. Super. 231, 236 (App. Div.), certif. denied, 149 N.J. 144 (1997) (the risk of the accident, where a dog in the open cargo area of a pick-up truck bit a pedestrian, fell within the coverage provided by the automobile liability policy); Westchester Fire Ins. Co. v. Cont'l Ins. Co., 126 N.J. Super. 29, 37-38 (App. Div. 1973), aff'd o.b., 65 N.J. 152 (1974) (injury to bicyclist when auto insured's passenger threw a stick out the window was found to arise out of use of the vehicle, mandating coverage).
In the construction context, cases addressing coverage disputes between subcontractors and owners/general contractors have examined whether an injury arose out of the work of the subcontractor. See Federal Home Loan Mortgage Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 444 (3d Cir. 2003); Hudson, supra, 332 N.J. Super. at 115-16 (the subcontractor's employee's presence at the worksite, and the ensuing accident, were sufficiently connected such that the injury arose from the general contractor's work, requiring the contractor to cover the loss).
Both parties heavily rely upon Hudson, as support for their respective proffered position. In Hudson, supra, we examined an additional insured endorsement to a general contractor's liability policy that contained language identical to the one at bar. 332 N.J. Super. at 112. A subcontractor's employee slipped on the marble steps of the courthouse. Id. at 111. He was in the building gathering information to prepare an estimate for subcontracting services with respect to the general contractor's contract for restoration of the County's Courthouse. Ibid. The contract between the County and the general contractor specifically required the County be named as an additional insured "insofar as the work and obligations performed under the Contract are concerned . . . ." Id. at 112. The subcontractor's employee sued the County, which sought coverage under the general contractor's policy. Id. at 110. We concluded the coverage applied because the "arising out of" language of the endorsement covered "administrative work of a type ordinarily performed by a contractor," which would include furnishing necessary information to any potential subcontractor. Id. at 115.
None of these reported decisions, including Hudson, are directly on point with the facts before us. However, from these cases we glean parameters that apply beyond the specific factual circumstances recited in the decisions and guide our review of this matter.
First, we know that "New Jersey courts have given a broad and liberal interpretation to common insurance policy language pertaining to coverage for additional insured parties for injuries 'arising out of' work performed by the main policyholder." Federal Home Loan Mortgage, supra, 316 F.3d at 444. The phrase "arising out of" therefore, must be interpreted in a comprehensive manner to mean "originating from" or "growing out of." Westchester, supra, 126 N.J. Super. at 38.
Second, in order for the coverage obligation to arise, we must find "a substantial nexus" between the injury and the subcontractor's work, County of Hudson, supra, 332 N.J. Super. at 114; Harrah's, supra, 288 N.J. Super. at 159; Franklin, supra, 275 N.J. Super. at 341; Westchester, supra, 126 N.J. Super. at 38, although it is not necessary that there be a direct causal link between the two. Harrah's, supra, 288 N.J. Super. at 158; Westchester, supra, 126 N.J. Super. at 38. Moreover, the wording of the endorsement makes clear that coverage is not contingent on whether the subcontractor had liability for the accident. See Harrah's, supra, 288 N.J. Super. at 158. Again, "'arising out of' means causally connected with, not proximately caused by." Pep Boys v. Cigna Indem. Ins. Co. of N. Am., 300 N.J. Super. 245, 250 (App. Div. 1997) (quoting McCabe v. Old Republic Ins. Co., 425 Pa. 221, 228 (1967)).*fn4
Finally, the context in which the liability arises is important. We must examine whether the act causing the injury was a "sufficiently foreseeable consequence of the [subcontractor's work] to mandate coverage." Westchester, supra, 126 N.J. Super. at 39. The purposeful use of the "arising out of" language defines what has been called the "landscape of risk as contemplated by the policy[.]" Weedo, supra, 81 N.J. at 247; Harrah's, supra, 288 N.J. Super. at 158. "The inquiry, . . . is whether the occurrence which caused the injury . . . was in the contemplation of the parties to the insurance contract a natural and reasonable incident or consequence of the [subcontractor's work] and, thus, a risk against which they may reasonably expect those insured under the policy would be protected." Franklin, supra, 275 N.J. Super. at 341.
In the context of the this analysis, PNMC maintains Krastanov's specific actions of swimming in the lake were unrelated to F&W's performance of the contract thus, there existed no identifiable substantial nexus to F&W's work to enable a determination that coverage was available. Succinctly, the injury caused by the negligent condition on Hovnanian's land should not be F&W's responsibility.
The trial judge disagreed, determining (1) the incident occurred on the property that was the subject of the subcontractor's work; (2) Krastanov would not have been inside the gated community "but for the subcontractor's work"; (3) Krastanov was "still on the clock"; (4) the contract with Hovnanian specifically defined F&W's work to include supervision of employees; and (5) a deviation from safety precautions was a contemplated risk for which F&W obtained insurance.
Although we reject the first three reasons cited by the trial court, we conclude the remaining findings satisfy the necessary substantial nexus requirement. The fact that F&W's work placed Krastanov on the property is not the substantial nexus required to impose liability upon the insurer and does not support a finding that F&W's business presence was the origin of Krastanov's death. Accord Lindstrom by Lindstrom v. Hanover Ins. Co. ex rel. N.J. Auto. Full Ins. Underwriting Ass'n, 138 N.J. 242, 252 (1994). However, a fair reading of F&W's contractual assumption of responsibility for safety procedures stated in paragraph 7.2 and 7.6 of the prime subcontractor agreement, coupled with definition of "your work" stated in paragraph 22(a)(1) of the liability policy leads to the reasonable conclusion that F&W's obligation to supervise "all safety precautions and programs" and thus, the safety of its employees reasonably falls within the scope of the subcontractor's work.
We reject PNMC's argument that Krastanov's decision to go swimming was purely personal and was outside the business purpose of the policy. While it is clear the lake area was not part of the F&W plumbing operations, nevertheless, the work crew's supervision and safety, while on the property, was F&W's responsibility.
We conclude, there exists a causal link between an act--F&W's obligation to supervise its employees on the property--and its consequences--Krastanov's departure from the work crew to cool off in the lake--thus, triggering PNMC's obligation to insure. We concur with the trial judge that plaintiff's claim, although unpredictable, was "causally connected with" the performance of the subcontractor's work duties, within the meaning of the endorsement clause.
We now address whether the PNMC policy issued to F&W is primary. PNMC's policy included an "other insurance" provision as follows:
4. Other Insurance
If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:
a. Primary Insurance
This insurance is primary except when
b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. below.
b. Excess Insurance
This insurance is excess over:
(2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.
When this insurance is excess, we will have no duty under Coverage A or B to defend the insured against any "suit" if any other insurer has a duty to defend the insured against that "suit".
PNMC argues the language of its policy and Steadfast's policy deems the respective insurance to be excess and "contain the exact same 'other insurance' provision," such that they are "mutually repugnant" and, thus, inoperative. Thus, the respective policies are deemed to be co-primary. We agree.
The term "you" is defined in the policy to include "the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy." Hovnanian is added as an "insured" by amendment to the policy. Thus, the reference to "you" in paragraph 4(b)(2) applies to both F&W and Hovnanian because by definition, they are both insureds under the policy.
When "other insurance" clauses in two different policies are identical, they are deemed to be "mutually repugnant" and both insurers are required to apportion the costs of the settlement and fees. Cosmopolitan Mut. Ins. Co. v. Cont'l. Cas. Co., 28 N.J. 554, 562 (1959); Sonoco Prods. Co. v. Fire & Cas. Ins. Co. of Conn., 337 N.J. Super. 568, 577 (App. Div. 2001); Universal Underwriters Ins. Co. v. CNA Ins. Co., 308 N.J. Super. 415, 420 (App. Div. 1998). Our review of the policy clauses presented requires each insurer to share the costs associated with defending against plaintiff's negligence claims. We reverse the trial court's determination on this issue, concluding coverage must be shared between PNMC and Steadfast.
Affirmed in part and reversed in part.