April 15, 2009
DANIEL SHERWOOD AND JEAN SHERWOOD, PLAINTIFFS-APPELLANTS,
KELIDO, INC., INDIVIDUALLY AND T/A DUNKIN' DONUTS OF MADISON, NEW JERSEY; DREWNIAK BUILDING MANAGEMENT INDIVIDUALLY; MARK DREWNIAK INDIVIDUALLY; MADISON SHOPPING CENTER; AND DUNKIN' DONUTS, DEFENDANTS, AND ESSEX INSURANCE CO., DEFENDANT-RESPONDENT, AND MARK DREWNIAK AND DREWNIAK BUILDING MANAGEMENT, LTD., DEFENDANTS/THIRD-PARTY PLAINTIFFS,
BEN SOWIZRAL, INDIVIDUALLY AND T/A TOP OF THE LINE CONSTRUCTION, RICHARD FERRARA, INDIVIDUALLY AND T/A WIZZARD ELECTRIC, AND SUBASH SAPRA, INDIVIDUALLY AND T/A SAPRA GROUP, AND ESSEX INSURANCE CO. THIRD-PARTY DEFENDANTS.
On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-1288-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted January 6, 2009
Before Judges Wefing, Parker and LeWinn.
Plaintiffs Daniel and Jean Sherwood appeal from the November 16, 2007 order of the trial court granting summary judgment to defendant Essex Insurance Co. (Essex) dismissing their complaint with prejudice. For the reasons that follow, we affirm.
The pertinent factual background may be summarized as followed.*fn1 On August 5, 2003, Daniel Sherwood, an employee of Building Inspectors Underwriters, Inc., was performing an electrical inspection in the basement of a Dunkin' Donuts that was undergoing renovation. Defendant Kelido, Inc., the owner of the building, had contracted the renovation work to Mark Drewniak, owner of Drewniak Building & Management, L.L.C. (DBM), who served as general contractor. Drewniak in turn hired Ben Sowizral of Top of the Line Construction (TOL) as an employee of DBM to serve as foreman and subcontractor; Sowizral was uninsured at the time of hire.
As Sherwood prepared to ascend the stairs from the basement, one of the walls caved in and covered him in mud, debris and cinderblocks. As a result, plaintiff sustained numerous serious injuries to his legs and knees.
Plaintiffs initially sued Kelido, Dunkin' Donuts of Madison, New Jersey, DBM, Drewniak and others. Plaintiffs then amended their complaint to include Essex, which had issued a general liability coverage policy to DBM.
Essex's policy provided liability coverage of $2,000,000, but included a subsidence exclusion endorsement that stated:
This policy does not apply to any liability for "Bodily Injury", "Personal Injury", disease or illness, including death . . . directly or indirectly arising out of, caused by, resulting from, contributed to or aggravated by the subsidence, settling, sinking, slipping, falling away, caving in, shifting, eroding, mud flow, rising, tilting, bulging, cracking, shrinking or expansion of foundations, walls, roofs, floors, or ceilings, or any other movements of land or earth, regardless of whether the foregoing emanates from, or is attributable to, any operations performed by or on behalf of any insured. The foregoing applies regardless of whether the first manifestation of same occurs during the policy period or prior or subsequent thereto.
It is further agreed that there is no coverage nor defense under this policy for any claims, loss, costs, or expense arising from any allegations against any insured resulting from or contributing to or aggravated by subsidence as described in the first paragraph of this endorsement.
Plaintiffs participated in private binding arbitration with DBM and Sowizral. Essex did not participate but had counsel present to observe the arbitration.
The arbitrator found that the collapse of the basement wall was caused by "the negligent backfilling of excessively watered soil without compl[iance] with standards regarding composition of fill and tamping." The arbitrator further found that DBM was "directly attributable" for the collapse because it had failed "to take appropriate remedial action" despite being aware of the "dangerous condition of the foundation wall before the accident . . . ." Therefore, the arbitrator concluded that DBM had engaged in "negligent conduct."
The arbitrator also found, based upon the medical proofs, that Daniel Sherwood had suffered numerous injuries to his lumbar region, right hip and both knees and legs, which required him to undergo six separate surgeries, and caused permanent "significant pain, weakness, restriction of motion and scarring[.]" The arbitrator determined that these injuries had a "substantial" negative impact on Daniel Sherwood's "peace of mind and ability to cope with daily life," resulting in the onset of depression. The arbitrator awarded plaintiffs $3,000,000.
Plaintiffs thereafter filed a motion for summary judgment against Essex seeking to enforce the arbitration award. Drewniak and DBM assigned their rights to all "contractual and/or bad faith claims under the [p]olicy relating to the amount of the [a]ward above the [p]olicy limits (i.e. $1,000,000)" to plaintiffs.
Essex filed a cross-motion for summary judgment against plaintiffs and a motion for summary judgment against DBM and Drewniak. In addition to asserting the subsidence exclusion in the policy, Essex further contended that Drewniak had made material misrepresentations in obtaining liability coverage on behalf of DBM. Specifically, Essex claimed that Drewniak represented that DBM had no employees and did not perform excavation work. Therefore, Essex argued that the policy should be void ab initio.
On November 16, 2007, the trial court heard argument on the motions and granted Essex's cross-motion for summary judgment against plaintiffs, as well as its motion for summary judgment against DBM and Drewniak. In dismissing with prejudice any and all claims against Essex, the trial court stated that Essex had "no duty to defend or indemnify [DBM] under [its policy] for any and all claims asserted against [DBM]" in this matter.
In its decision, the trial court found that Drewniak had made material misrepresentations to Essex:
Mr. Drewniak gave [Essex] information that was inaccurate . . . that he would not be performing his business in the manner in which [Essex] thought he would be performing it, and, . . . misrepresenting how he was going to be performing his business. [Essex] was led to believe that [it] could insure him under a particular general liability insurance policy. That misrepresentation . . . would seem to be sufficient to negate the insurance policy in total because . . . the nature of the misrepresentations that were given to the insurance company were so important and vital in making or allowing them to make a determination as to whether or not they were going to insure Mr. Drewniak and his business, that they made a decision to insure based upon that information that was provided to them.
The trial court also found the language of the subsidence exclusion to be "unambiguous[,]" adding that "[e]very single word in [the] exclusion is and can be understood by anyone picking up this document and being able to read it." The court further found that the subsidence exclusion was "legitimate," and that it clearly "kick[ed] into effect" because Drewniak had made material misrepresentations to Essex regarding his excavation work. Therefore, the court concluded, when DBM performed such work, it "violated the clause in the insurance policy and . . . [Essex] had every right to deny coverage based upon the facts giving rise to the unfortunate accident."
In deciding a motion for summary judgment, a trial court 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." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Rule 4:46-2(c). An appellate court "review[s] the trial court's grant of summary judgment de novo, employing the same legal standard used by the motion judge: whether there are material facts in dispute and, if not, whether the undisputed facts viewed most favorably to the non-moving party nonetheless entitle the moving party to a judgment as a matter of law." Rutgers - The State Univ. v. Fogel, 403 N.J. Super. 389, 393 (App. Div. 2008) (citing, inter alia, Brill, supra, 142 N.J. at 540.)
With that standard of review in mind, we turn to plaintiffs' arguments, which are as follows:
ESSEX INSURANCE COMPANY CANNOT DISCLAIM COVERAGE BASED UPON ITS SUBSIDENCE EXCLUSION
A. APPLICATION OF ESSEX'[S] SUBSIDENCE EXCLUSION IS DISAVOWED BY THE "PROXIMATE-CAUSE" DOCTRINE
B. THE SUBSIDENCE EXCLUSION IS AMBIGUOUS DUE TO ITS FAILURE TO DEFINE THE TERM "OPERATIONS"
C. ESSEX'[S] SUBSIDENCE EXCLUSION IS AGAINST PUBLIC POLICY AND ITS APPLICATION RENDERS IT "SHAM INSURANCE"
THE COURT ERRED IN FINDING DBM MADE MATERIAL MISREPRESENTATIONS PERMITTING ESSEX TO VOID COVERAGE AB INITIO
A. THERE WAS INSUFFICIENT PROOF BEFORE THE COURT TO DETERMINE THE "MATERIALITY" OF THE ALLEGED MISREPRESENTATIONS
B. ESSEX CANNOT CLAIM THE ALLEGED MISREPRESENTATION REGARDING EXCAVATION WAS MATERIAL BECAUSE IT ARGUES THAT IT DOES NOT INSURE FOR THE SAME
C. ESSEX COULD NOT RELY UPON DBM'S ALLEGED MATERIAL MISREPRESENTATIONS OF NOT RETAINING EMPLOYEES AND DOING EXCAVATION ON THE SITE
D. ESSEX SHOULD HAVE TAKEN AFFIRMATIVE ACTION TO CONFIRM THE TRUTH OF THESE ALLEGED MATERIAL MISREPRESENTATIONS BASED UPON A LIMITED AFFIRMATIVE DUTY TO INVESTIGATE
E. PLAINTIFFS WERE UNABLE TO CONDUCT ANY DISCOVERY REGARDING THE ISSUE OF DBM'S ALLEGED MATERIAL MISREPRESENTATIONS DUE TO ESSEX'[S] LATE ENTRY INTO THE LITIGATION
PLAINTIFFS SHERWOOD HAVE STANDING TO ASSERT A CLAIM AGAINST ESSEX FOR INSURANCE COVERAGE DUE TO THE NEGLIGENCE OF THE INSURED, DBM
Plaintiffs' first argument, that the policy's subsidence exclusion is "disavowed" by the doctrine of proximate cause, is based upon Search EDP, Inc. v. Am. Home Assurance Co., 267 N.J. Super. 537, 543 (App. Div. 1993), certif. denied, 135 N.J. 466 (1994). There we held:
"[w]here a peril specifically insured against sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produces the result for which recovery is sought, the insured peril is regarded as the proximate cause of the entire loss." Put another way "recovery may be allowed . . . where the insured risk itself set into operation a chain of causation in which the last step may have been an excepted risk."
[Ibid. (quoting 5 Appleman, Insurance Law and Practice, § 3083 at 309-311 (1970)); (emphasis added).]
In that case, the plaintiff employment agency, insured under both a general liability insurance policy and an errors and omissions policy issued by defendant, had hired an employee without performing an adequate background check. When that employee subsequently committed a violent assault against a co-worker, the victim sued, asserting that her injuries were directly attributable to the agency's professional negligence. We concluded that the agency had been professionally negligent in failing to perform a background check, and that such negligence was the proximate cause of the victim's injuries. We further recognized that the purpose of an errors and omissions policy, which directly protects an insured against professional negligence, but which excluded coverage for bodily injury, was to protect an insured who commits an act of professional negligence. If an act of professional negligence causes actionable damage to another, but if the insured's right to protection depends not on the nature of the act but rather on the nature of the resulting damage, we believe that the stated policy objective would be substantially nullified. We thus conclude that the errors and omissions policy here will fairly fulfill its stated objective only by reading the bodily injury exclusion as excepting bodily injury claims alleged to have resulted from an act of professional wrongdoing.
[Id. at 545.]
We conclude that plaintiffs' reliance upon Search EDP, Inc. is misplaced. That case is factually distinguishable from this matter to a degree rendering it inapposite to plaintiffs' claim. As noted, the insurance policy in dispute in Search EDP, Inc. was an errors and omissions policy that covered professional negligence. Because we determined that the victim's damages in that case were caused by the agency's professional negligence, id. at 544, we concluded that coverage was justified pursuant to the proximate cause doctrine notwithstanding a policy exclusion for bodily injury.
Moreover, the "'peril'" which resulted in Daniel Sherwood's injuries was not "'specifically insured against'" under Essex's policy with DBM. Id. at 543. The factors that caused Daniel Sherwood's injuries were expressly excluded from coverage under the policy's subsidence exclusion, which denied coverage for "'[b]odily injury' . . . directly or indirectly arising out of, caused by [or] resulting from, . . . caving in . . . or any . . . movement of . . . earth, regardless of whether the foregoing emanates from, or is attributable to, any operations performed by or on behalf of any insured." Thus, the actions and/or conditions that led to the collapse of the basement wall were not covered under Essex's general liability contract with DBM.
We concur with the trial court's determination that the language of the subsidence exclusion was "unambiguous" and could be "understood by anyone picking up this document and being able to read it." Even assuming that DBM's negligence was the proximate cause of Daniel Sherwood's injuries, the particular negligent conduct at issue was clearly not covered by the policy.
In light of our conclusion that plaintiffs are barred from relief based upon the express language of the subsidence exclusion in the insurance policy, we find plaintiffs' remaining arguments to be "without sufficient merit to warrant discussion a written opinion[.]" R. 2:11-3(e)(1)(E). We add only the following brief comments.
The term "operations" in the policy is not ambiguous. Rather, plaintiffs' effort to construe that term as connoting the act of waterproofing the foundation wall, rather than the excavation work itself, would be an inappropriately "strained construction" of the policy. Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537 (1990). Here, the arbitrator found that the wall collapse was caused by the negligent backfilling of soil that had become "excessively watered" by heavy rains, and the contractor's failure "to take appropriate remedial action" before engaging in that excavation-related activity. When read in the context of the entire subsidence exclusion provision, the term "operations" is unambiguous.
Next, we reject plaintiffs' argument that enforcement of the subsidence exclusion renders the policy "sham insurance" because it is "written so as to void coverage whenever a contractor places a shovel into the ground." Here, it must be remembered that Drewniak's material misrepresentations induced Essex to issue this liability policy. Moreover, the policy's subsidence exclusion was consistent with the insurer's understanding that Drewniak/DBM would not be engaging in "excavation" work. Drewniak/DBM willingly and knowingly entered into this policy. As the arbitrator found, Drewniak had been "intentionally" deceptive in accepting the policy and then hiring Sowizral, who carried no liability insurance, as his "employee" to perform the excavation.
Drewniak's misrepresentations to Essex were clearly "material," as those misstatements went the crux of the nature of the work to be performed and as to which liability insurance was sought. As the trial court found, there was "no dispute as to the information that was provided to Essex by . . . Drewniak with regard to the qualifications that he was to have in order for Essex to take the risk of insuring [him]." The trial court further observed that, "in reading the facts presented by [the arbitrator] it is very evident and has not been disputed that . . . Drewniak misrepresented many things with regard to how he operated his business."
Plaintiffs' contention that Essex could not reasonably have relied upon Drewniak's material misrepresentations, "due to common knowledge as to the operations of how general contractors operate," is without merit and has no basis in the law or in the facts of this case. Moreover, Essex had no "limited affirmative duty to conduct an investigation" based upon DBM's company name. Merely because the word "building" occurs in that name does not mean that Essex was thereby "on notice to do further investigation as to whether DBM had employees and the type of work it undertook[,]" as plaintiffs contend.
Here, the underwriter for Essex personally interviewed Drewniak who stated "that he was the sole officer of [DBM] and that DBM ha[d] no employees." Audit information on DBM for the period from 1999 to 2003 "showed that . . . Drewniak was [DBM]'s Executive Supervisor and that [DBM] did not have any employees." Drewniak also "answered negatively" on his insurance application to specific questions regarding "excavation . . . [and] earth moving."
An insured bears the responsibility of responding truthfully to "specific question[s] in the insurance application . . . ." Progressive Cas. Ins. Co. v. Hanna, 316 N.J. Super. 63, 70 (App. Div. 1998). An insurer's "duty to investigate . . . arises 'only when [an] independent investigation . . . discloses sufficient facts to seriously impair the value' of the application." Ledley v. William Penn Life Ins. Co., 138 N.J. 627, 639 (1995) (quoting Gallagher v. New England Mut. Life Ins. Co., 19 N.J. 14, 22 (1995)). Here, as in Ledley, the representations Drewniak made in his interview with Essex's underwriter "did not reveal any information that contradicted or even hinted at the falsity of [those] representations." Ibid. We conclude that Essex had no "limited affirmative duty" to investigate under the circumstances present here.
Plaintiffs were not prejudiced by their inability to conduct discovery "regarding the issue of DBM's alleged material misrepresentations[.]" The principal basis for summary judgment against plaintiffs was the subsidence exclusion in the policy. Moreover, we note that plaintiffs filed their summary judgment motion in October 2007, ten months after filing their declaratory judgment against Essex in February 2007. Therefore, it appears that plaintiffs considered discovery complete at that time.
Finally, plaintiffs' argument that they have standing to assert a claim against Essex due to DBM's negligence is rendered moot by the trial court's ruling that relief was barred by the subsidence exclusion in the policy.*fn2