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Krastanov v. K. Hovnanian/Shore Acquisitions

August 6, 2008

STEPHANIE A. KRASTANOV, INDIVIDUALLY AND AS GENERAL ADMINISTRATRIX AND ADMINISTRATRIX AD PROSEQUENDUM OF THE ESTATE OF KRUM T. KRASTANOV, DECEASED, PLAINTIFFS,
v.
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,
v.
STEADFAST INSURANCE COMPANY, THIRD-PARTY DEFENDANT/ FOURTH-PARTY PLAINTIFF-RESPONDENT,
v.
PENN NATIONAL INSURANCE, FOURTH-PARTY DEFENDANT-APPELLANT, AND K. HOVNANIAN COMPANIES, LLC AND HOVNANIAN ENTERPRISES, INC., DEFENDANTS/FIFTH-PARTY PLAINTIFFS,
v.
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.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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.

I.

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.

II.

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 ...


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