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Township of Lakewood v. Epic Management


July 20, 2009


On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-3116-04.

Per curiam.


Argued March 24, 2009

Before Judges Parker, Yannotti and LeWinn.

Third-party defendant CJ Contractors, Inc. (CJ) appeals from an order entered on July 20, 2007, awarding counsel fees and costs to third-party plaintiff, Epic Management, Inc., (Epic) in the amount of $219,310.80 for defense of the claims made by plaintiff Township of Lakewood (Lakewood) against Epic and Epic's action against CJ for indemnification and reimbursement of those fees and costs.*fn1

The facts relevant to this appeal are as follows. Epic was awarded a contract by Lakewood to construct a minor league baseball stadium. In June 2000, Epic contracted with CJ to provide drywall, carpentry and asphalt shingle work for the project. The contract contained indemnification provisions in Articles 23.1 and 30.1. In Article 23.1, CJ agreed to indemnify and hold Epic harmless "[t]o the fullest extent permitted by law . . . for any and all damage or injury of any kind or nature whatever . . . to all persons, whether employees of [CJ] or otherwise and to all property, caused by, resulting from, arising out of or occurring in connection with the execution of the Work."

In Article 30.1, CJ agreed to hold Epic harmless and indemnify it "to the fullest extent as permitted by law" for any claim in arbitration or suit "for negligence, tort, or otherwise . . . made or asserted against Epic arising out of, or in connection with the work or services performed hereunder by [CJ]."

Lakewood sued Epic because the stadium roof leaked. The project specifications called for ISO insulation board for the roof. The architect's drawings did not have any reference to ISO insulation board, however, and CJ installed most of the roof without it.

Various experts attributed the leaks to various factors, including failure to have sufficient space between the shingles and metal decking, and roof nails installed incorrectly causing the asphalt shingles to dimple and protrude in the areas where the ISO board was not installed. After Epic was sued by Lakewood, Epic invoked the indemnification provisions under its contract with CJ. The underlying action was settled and only the third-party claims remained. In February 2007, Epic moved to compel CJ to provide defense and indemnification and that motion was granted on March 30, 2007. Thereafter, the parties settled with Lakewood. CJ and the other defendants contributed to the settlement, but Epic did not. Epic received $35,000 from the other defendants on its cross-claim.

After the settlement, Epic moved for indemnification of legal fees incurred in defending Lakewood's action and pursued its indemnification claims against CJ. On July 20, 2007, the trial court granted Epic's motion and ordered CJ to pay $219,310.80 for Epic's fees and costs. The parties then entered a stipulation of dismissal on January 3, 2008, stating:

The matter in difference in the above entitled action having been amicably adjusted by and between the parties, it is hereby stipulated and agreed that the same be and it is hereby dismissed without costs against any party and with prejudice, except claims for indemnification by third-party plaintiff Epic Management, Inc. ("Epic") against third-party defendant CJ Contractors, Inc. ("CJ") concerning the attorney's fees and costs awarded to Epic and against CJ, pursuant to the order entered . . . on July 20, 2007. [Emphasis added.]

The stipulation of dismissal renders CJ's appeal of the March 30, 2007 order moot, except for CJ's claim that the trial court erred by requiring it to indemnify Epic for the fees and costs incurred in defending Lakewood's claims. Consequently, we will address CJ's arguments only with respect to indemnification of the fees and costs awarded to Epic in the July 20, 2007 order. R. 2:8-2.

We begin our analysis with CJ's argument that the indemnification clauses are conflicting and ambiguous. CJ contends that the ambiguity arises because Article 23.1 refers to "Work," which would encompass all damages arising from the defective roof, while Article 30.1 narrows CJ's liability to "work or services" performed by it, which would not include damages arising from Epic's negligence. Relying on Ramos v. Browning Ferris Industries, Inc., 103 N.J. 177, 191 (1986), CJ argues that the trial court should have construed these conflicting provisions against Epic as the drafter of the contract and denied its motion to compel defense and indemnification. CJ further argues that Meder v. Resorts Int'l Hotel, Inc., 240 N.J. Super. 470, 478-80 (App. Div. 1989), certif. denied, 121 N.J. 608 (1990), supports its position. We disagree.

Contract construction is a matter of law, "but where [a contract's] meaning is uncertain or ambiguous and depends upon parole evidence admitted in aid of interpretation, the meaning of the doubtful provisions is a question of fact." Anthony L. Petters Diner, Inc. v. Stellakis, 202 N.J. Super. 11, 27 (App. Div. 1985) (citing Michaels v. Brookchester, Inc., 26 N.J. 379, 387 (1958)). In order to determine the intentions of the parties to a contract, "the court must consider the relations of the parties, the attendant circumstances, and the objects they were trying to attain." Ibid. "An agreement must be construed in the context of the circumstances under which it was entered into, and it must be accorded a rational meaning in keeping with the express general purpose." Ibid. (citing Tessmar v. Grosner, 23 N.J. 193, 201 (1957)).

In Leitao v. Damon G. Douglas Co., 301 N.J. Super. 187 (App. Div. 1997), we undertook an analysis of the principles governing construction of indemnification agreements:

The guiding principles in construing indemnification agreements are well-settled. Although such agreements are interpreted in accordance with the rules governing construction of contracts generally, see Cozzi v. Owens Corning Fiber Glass Corp., 63 N.J. Super. 117, 121 (App. Div. 1960); Longi v. Raymond-Commerce Corp., 34 N.J. Super. 593, 603 (App. Div. 1955), ambiguous clauses should be strictly construed against the indemnitee. Ramos v. Browning Ferris Indus. of S. Jersey, Inc., 103 N.J. 177, 191 (1986). A contract will not be construed to indemnify the indemnitee against losses resulting from its own negligence unless such an intention is expressed in unequivocal terms. George M. Brewster & Son, Inc. v. Catalytic Const. Co., 17 N.J. 20, 33 (1954). This general rule is fortified by N.J.S.A. 2A:40A-1 which specifies that an indemnification agreement in a construction contract purporting to hold harmless the indemnitee for losses or damages resulting from its "sole negligence" is a violation of public policy. Carvalho v. Toll Bros. and Developers, 143 N.J. 565, 578 (1996); see also N.J.S.A. 2A:40A-2.

We hasten to add that "there is no essential public policy impediment to an indemnitor undertaking to indemnify the indemnitee in respect of the indemnitee's own negligence." Doloughty v. Blanchard Const. Co., 139 N.J. Super. 110, 116 (Law Div. 1976). Even in the context of an indemnity agreement in a construction contract, it is not against public policy for the indemnitor to promise to hold harmless the indemnitee for the indemnitee's own negligence as long as the indemnitee is not solely at fault. See Carvalho[, supra,] 143 N.J. at 578; Bradford v. Kupper Assocs.[,] 283 N.J. Super. 556, 584 (App. Div. 1995), certif. denied, 144 N.J. 58 (1996). This principle "derives from the judicial recognition that ordinarily the financial responsibility for the risk of injury during the course of a construction project is shifted in any event by the primary parties to their insurance carriers." Doloughty[, supra,] 139 N.J. Super. at 116. The impact of the indemnity agreement "is therefore, in practical effect, the parties' allocation between themselves of the total required insurance protection for the project." Ibid. The parties ought to be free to determine how the insurance burdens will be distributed between them and "who will pay for specific coverage for specific risks." Ibid. The freedom to allocate risk for the ultimate responsibility for injuries on the job is predicated upon other policies as well. We note the plethora of suits by injured workers against the owners of premises and general contractors. As other jurisdictions have recognized, "[t]hose suits are brought in many instances as attempts to escape the limitations of work[ers'] compensation and are often encouraged by work[ers'] compensation carriers seeking subrogation recoveries." Willey v. Minnesota Mining & Mfg. Co., 755 F.2d 315, 323 (3d Cir. 1985); see also Westinghouse Elec. Co. v. Murphy, Inc., 425 Pa. 166, 173 n. 5 (Pa. 1967). Exposure to such liability "explains why owners seek to have contractors and subcontractors bear the risk of insuring against claims by their own workers." Willey[, supra,], 755 F.2d at 323. Although agreements indemnifying the indemnitee for its own negligent acts are perhaps antithetical to the policy of compelling tortfeasors to bear responsibility for conduct heedless of the risks to others, the practical reality is that, through insurance or otherwise, allocation of financial responsibility is often part of the bargaining process. See Jamison v. Ellwood Consol. Water Co., 420 F.2d 787, 789 (3d Cir. 1970). [Id. at 191-93.]

Indemnification and hold harmless agreements in construction contracts are governed by N.J.S.A. 2A:40A-1, which provides:

A covenant, promise, agreement or understanding in, or in connection with or collateral to a contract, agreement or purchase order, relative to the construction, alteration, repair, maintenance, servicing, or security of a building, structure, highway, railroad, appurtenance and appliance, including moving, demolition, excavating, grading, clearing, site preparation or development of real property connected therewith, purporting to indemnify or hold harmless the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee, his agents, or employees, is against public policy and is void and unenforceable; provided that this section shall not affect the validity of any insurance contract, workmen's compensation or agreement issued by an authorized insurer.

Despite CJ's arguments to the contrary, the relevant indemnification clauses are neither ambiguous nor contradictory. Nor are they void and unenforceable because they purport to indemnify Epic for its "sole negligence." After reviewing the record before us, we are satisfied that the trial court correctly determined that Articles 23.1 and 30.1 are neither ambiguous nor contradictory and are clearly enforceable. Pursuant to Articles 23.1 and 30.1, CJ's indemnification obligation extends to work performed by it.

We next address CJ's argument that the trial court erred in compelling CJ to provide defense and indemnification because there was no apportionment of liability among all of the defendants. We find no merit in this argument. The apportionment of liability is not specifically relevant to the defense and indemnification provisions; it is only relevant to the amount to be paid by CJ. But for the parties' settlement, apportionment would have been determined by the finder of fact after hearing all of the evidence. In the settlement, the parties themselves apportioned liability, rendering this issue moot.

CJ further argues that the cause of action by Lakewood against Epic did not "arise out of"*fn2 the work performed by CJ because CJ claims that it was Epic who directed CJ to install the roof as it did without the ISO insulation board. Because it is the roof that gave rise to Lakewood's cause of action, CJ claims that it cannot be required to defend and indemnify Epic. Again, we disagree.

The record indicates that it is not merely the absence of the ISO insulation board that caused the leaking roof. The experts found that there was insufficient space between the shingles and the metal decking and the nails were incorrectly installed causing the shingles to dimple. Lakewood's expert found "[w]ithin a reasonable degree of architectural certainty" that "[t]he shingle roof system installed violates good roofing practice . . . . [and] is in failure due to the installation procedure used. It must be removed and replaced." Under these circumstances, clearly CJ's responsibility for installation of the roof falls within the "arising out of" language in Article 23.1, albeit another party may be responsible as well for the absence of the ISO insulation board. Since the parties settled, however, that issue is not relevant to CJ's indemnification of Epic for fees and costs.

The appeal from the March 30, 2007 order granting summary judgment in favor of Epic and ordering CJ to indemnify Epic is, therefore, dismissed in part as moot. R. 2:8-2. We affirm the trial court's determination that CJ is responsible for indemnifying Epic for fees and costs pursuant to Articles 23.1 and 30.1. But, we are unable to address the amount of fees and costs awarded in the July 20, 2007 order because CJ has not provided us with a transcript of the July 20, 2007 argument, nor has it provided us with a certification of services or other documentation regarding fees and costs so that we can determine whether the amount of fees and costs awarded was appropriate. Accordingly, CJ's appeal of the trial court's award of fees and costs is affirmed in part and dismissed for insufficiency of the record.

Affirmed in part and dismissed.

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