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Northeast Stucco Systems, Inc. v. Hartford Fire Insurance Co.


May 1, 2009


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-2836-07.

Per curiam.


Argued March 30, 2009

Before Judges Sabatino and Simonelli.

In this insurance coverage dispute, Northeast Stucco Systems, Inc. ("Northeast Stucco") appeals an order of the Law Division dated July 18, 2008. The order in question dismissed Northeast Stucco's complaint in New Jersey against defendant,

The Hartford Fire Insurance Company ("The Hartford"), without prejudice to the same underlying claims for coverage being litigated in the courts of New York. We affirm.

The relevant chronology, which largely arises in New York, is as follows. Northeast Stucco was a subcontractor on a project to build a Costco store in Port Chester, New York. On September 10, 2001, Vincent Leone, a union carpenter, was seriously injured at the Costco job site when he fell from an unsecured ladder. At the time of his accident, Leone had been working for another subcontractor on the site, Discovery Construction, Inc. ("Discovery"). Both Northeast Stucco and Discovery had their principal places of business in New Jersey. The record indicates that Discovery is now defunct.

Pursuant to the terms of its subcontract, Discovery agreed "to furnish at own cost and to indemnify and hold harmless" Northeast Stucco "from any and all liability, damages, losses, claims and expenses." Discovery further agreed to furnish a certificate of insurance naming Northeast Stucco as an additional insured.

At the time of Leone's accident, Northeast Stucco was insured by Cumberland Mutual Insurance Company ("Cumberland Mutual"). Northeast Stucco also had procured a potentially applicable policy with Travelers Insurance Company ("Travelers"). Discovery, meanwhile, was insured by a commercial policy with The Hartford.

In December 2002, Leone and his wife brought a personal injury action ("the Leone action"), Docket No. 21148/02, in the Supreme Court of New York in Westchester County, arising out of his September 2001 worksite accident. The Leones sued "Northeast Stucco Systems, NY, Inc." (a misidentified and nonexistent entity), as well as the project's general contractor, developer and property owner (collectively, "the Port Chester defendants").

Discovery, Leone's employer, was not initially named as a defendant in his lawsuit, presumably because of workers' compensation exclusivity principles. However, the Port Chester defendants filed third-party complaints against Discovery and Northeast Stucco (identifying the latter by its proper corporate name). In answering the third-party complaint, Northeast Stucco asserted cross-complaints for indemnification against Discovery, invoking the terms of the subcontract. The Leones thereafter filed a separate personal injury action against Northeast Stucco, this time identifying the company properly. All of these various pleadings and claims were consolidated in the original Leone action, under Docket No. 21148/02.

While the Leone action was still pending, Cumberland Mutual brought a separate declaratory judgment action in the Supreme Court of New York, Westchester County, under Docket No. 03047/05 ("the Cumberland Mutual declaratory action"). Cumberland Mutual sued the Leones, Northeast Stucco, Travelers, and Discovery, among other defendants. In its complaint, Cumberland Mutual disclaimed coverage of Northeast Stucco for the Leone accident, and asserted the potential applicability of the Travelers policy.

On October 5, 2005, the court in the Leone action granted the Leones partial summary judgment on the issue of Northeast Stucco's liability. In its decision, the court specifically found that Northeast Stucco "had the authority to supervise and control [Mr. Leone's] work." Following that ruling, the parties in the Leone action participated in mediation.

The mediation process resulted in a settlement of the Leone action before trial. On January 3, 2006, all parties settled that case, including certain third-party claims, for $1.8 million. Northeast Stucco, through its insurance carrier, Cumberland Mutual, settled with the Leones for $975,000. Through the terms of a mutual release, Cumberland Mutual agreed to pay Northeast Stucco's portion of the settlement to the Leones, and the carrier further "agree[d] that it will not seek reimbursement of said indemnity or defense costs from Northeast Stucco nor shall it seek reimbursement of any costs and fees incurred in the declaratory action . . . [.]" As part of the settlement agreement, Northeast Stucco expressly preserved its rights to obtain indemnification from Discovery.

In April 2006, Cumberland Mutual amended its declaratory judgment action to include Discovery's insurer, The Hartford. In particular, Cumberland Mutual sought reimbursement of the settlement proceeds that it was paying to the Leones on behalf of Northeast Stucco.

On May 19, 2006, the trial court in the Leone action granted default judgment as to liability on Northeast Stucco's cross-claims for indemnification against Discovery, and ordered an inquest*fn1 on damages. The court conducted the inquest on August 1, 2006, and found that the settlement with the Leones was "fair and reasonable under the facts and circumstances of this case." Consequently, the New York court awarded to Northeast Stucco "the sum of $975,000, to be paid by Discovery Construction Incorporated, as indemnification of its contractual liability -- as indemnification and contribution under its contractual liability to Northeast Stucco." The final judgment against Discovery was entered on December 20, 2006. The judgment totaled $1,026,446.95, including prejudgment interest.

Concurrent with these developments, Cumberland Mutual's declaratory action against Northeast Stucco was settled by a mutual release dated September 19, 2006. That same month, also by release, Cumberland Mutual's claims against Travelers were settled for $250,000. That latter release contained a stipulation providing that, in the event that Cumberland Mutual was successful in its action against The Hartford, a credit would be applied for the $250,000 it received from Travelers. Both releases specified that they were to be construed and interpreted in accordance with New Jersey law.

Accordingly, Cumberland Mutual's declaratory action against The Hartford was dismissed without prejudice, through a "Stipulation of Discontinuance" dated October 27, 2006 and filed under Docket No. 030407/05. The full text of the Stipulation read as follows:

IT IS HEREBY STIPULATED AND AGREED, by and between the undersigned, the attorneys of record[,] plaintiff, Cumberland [Mutual] Insurance Co. and defendant, [The] Hartford Insurance Company[,] in the above entitled action, that whereas no party hereto is an infant or incompetent person for whom a committee has been appointed and no person not a party has an interest in the subject matter of the action, the above entitled action be, and the same hereby is discontinued without prejudice, without costs to either party as against the other and subject to the plaintiff's right to refile the action within sixty (60) days of the date hereof. This Stipulation may be filed without further notice with the Clerk of the Court. In the event plaintiff seeks to recommence the action, it is further agreed that venue will be at [the] New York State Supreme Court, Westchester County, and nowhere else. [(Emphasis added).]

The record does not shed light on the genesis of the Stipulation's above-quoted language specifying that the venue for further litigation between the insurers would be "nowhere else" other than the New York Supreme Court in Westchester County. We were advised at oral argument that the language was drafted by New York counsel.

One hundred and thirty-six days later, on March 12, 2007, Northeast Stucco filed a complaint against The Hartford in the Superior Court of New Jersey, Middlesex County ("the New Jersey action"), seeking a judgment against The Hartford for the full amount of the default judgment entered against Discovery in the New York Supreme Court. The complaint alleged that Discovery is judgment-proof and that Northeast Stucco is thereby entitled to bring a direct action against The Hartford as Discovery's insurer.

In the certification pursuant to Rule 4:5-1 accompanying the New Jersey action, counsel for Northeast Stucco stated that "the matter in controversy is related to litigation between Cumberland Mutual and [The] Hartford which has been pending in the Supreme Court of New York, Westchester County and it is anticipated that said action will be reinstated." However, as of the time of oral argument in this appeal, the New York litigation has not been reinstituted.

The Hartford filed an answer contending, among other things, that Northeast Stucco lacked standing. The Hartford further asserted that the New Jersey action was precluded by the earlier proceedings in the New York courts in the Leone action and in the Cumberland Mutual declaratory action.

The parties in the New Jersey action cross-moved for summary judgment. In its Statement of Material Facts filed pursuant to Rule 4:46-2, Northeast Stucco acknowledged that although it is the sole named plaintiff in the New Jersey action, "Cumberland Mutual Insurance Company now brings this suit against The Hartford Fire Insurance Company, insurer of Discovery Construction, to enforce [Northeast Stucco's] judgment against Discovery." In its main brief on the present appeal, Northeast Stucco again concedes that "the real party in interest here is Cumberland [Mutual]."

Following oral argument, the Law Division granted summary judgment to The Hartford, without prejudice to the dispute being litigated further in the courts of New York. The court reciprocally denied Northeast Stucco's own summary judgment motion. In essence, the court determined that Northeast Stucco lacked standing in these circumstances to bring its claims against The Hartford in New Jersey, and that it was instead preferable that the litigation in the courts of New York, which had been filed first, be reactivated. The court did not rule on any substantive issues of indemnification or coverage.

Northeast Stucco appeals the trial court's summary judgment rulings, arguing that the court improperly rejected its standing to sue The Hartford in this state. Northeast Stucco further argues that the court misapplied the "first filed" doctrine by deferring to the courts of New York, since the New York litigation is no longer pending. In this regard, it stresses that Northeast Stucco and Discovery are both New Jersey corporations, that the pertinent indemnification documents were entered into in this state, and that substantive New Jersey law is likely to apply.

As we have often recognized, an appellate court reviews a grant of summary judgment de novo, applying the same standard governing the trial court under Rule 4:46. Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007). Generally, the 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., 142 N.J. 520, 540 (1995); see also R. 4:46-2(c).

We are satisfied that the Law Division did not err in granting summary judgment to The Hartford, without prejudice to future proceedings in the courts of New York, given the idiosyncratic procedural history of this matter and the explicit venue provision in the opposing insurers' Stipulation of Discontinuance in the Cumberland Mutual declaratory action. Our conclusion in this regard does not require extensive elaboration.

To be sure, under certain circumstances, the New Jersey direct action statute, N.J.S.A. 17:28-2, and case law allow a party or its insurer to maintain an action in our courts against another party's insurer in order to recover losses sustained by, or sums paid or incurred on behalf of, that plaintiff. See, e.g., Tooker v. Hartford Accid. Indemn. Co., 136 N.J. Super. 572 (App. Div. 1975); Kindervater v. Motorists Gas. Ins. Co., 117 N.J.L. 131 (E. & A. 1936). This matter, however, arises under distinctive circumstances.

It is undisputed that the real plaintiff in interest here is Cumberland Mutual, not Northeast Stucco. Significantly, Cumberland Mutual entered into an agreement with The Hartford in the Stipulation of Continuance to have future litigation of their respective interests arising out of the Leone settlement re-filed in "the New York State Supreme Court, Westchester County, and nowhere else." The parties' agreement in designating a prospective forum should be honored, not disregarded. See, e.g., Shelter Systems Group Corp. v. Lanni Builders Inc., 263 N.J. Super. 373 (App. Div. 1993); Air Economy Corp. v. Aero Flow Dynamics, 122 N.J. Super. 456, 457-58 (App. Div. 1973). The fact that Northeast Stucco is the nominal plaintiff in the New Jersey action should not allow that very explicit forum agreement to be circumvented. Moreover, the mutual choice of forum is not nullified by differences between the particular theories of coverage now raised against The Hartford from those that were originally asserted in the declaratory action.

Northeast Stucco has acknowledged, both here and in the Law Division, that it will suffer no substantive harm by litigating the open issues with The Hartford in the courts of New York rather than in New Jersey. Although New Jersey law may well be applicable to the pertinent indemnification and insurance coverage documents, the New York courts are more than competent to apply our law if necessary. Northeast Stucco also maintains that the claims that it and Cumberland Mutual wish to litigate against The Hartford are not time-barred, due to accrual and tolling principles that we need not evaluate here.

We recognize that the so-called "first filed" doctrine ordinarily applies to situations where the litigation filed initially in another state is still pending. The first filed doctrine instructs that "a New Jersey state court ordinarily will stay or dismiss a civil action in deference to an already pending, substantially similar lawsuit in another state, unless compelling reasons dictate that it retain jurisdiction." Sensient Colors, Inc. v. Allstate Ins. Co., 193 N.J. 373, 386 (2008) (citing O'Loughlin v. O'Loughlin, 6 N.J. 170, 179 (1951)); see also Continental Ins. Co. v. Honeywell Int'l, Inc., ____ N.J. Super. ____, ____ (App. Div. 2009) (slip op. at 29). Even so, general principles of comity support the Law Division judge's sensible and equitable conclusion that the carriers' instant dispute, which arises out of two prior related New York lawsuits with overlapping parties, is best pursued in the courts of our sister state. Sensient Colors, supra, 193 N.J. at 387 (invoking comity principles); Continental, supra, _____ N.J. Super. at _____ (slip op. at 31) (quoting Sensient Colors, supra, 193 N.J. at 387).

The Law Division's order dated July 18, 2008 is affirmed.

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