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J. Fletcher Creamer & Son, Inc. v. Pennsylvania Manufacturers Association Insurance Co.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 4, 2009

J. FLETCHER CREAMER & SON, INC., PLAINTIFF-APPELLANT,
v.
PENNSYLVANIA MANUFACTURERS ASSOCIATION INSURANCE COMPANY, AND THE ST. PAUL FIRE & MARINE INSURANCE COMPANY, AS SUCCESSOR IN INTEREST TO TRAVELERS INSURANCE COMPANY, DEFENDANTS-RESPONDENTS.

On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-9004-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 17, 2009

Before Judges Winkelstein, Fuentes and Gilroy.

Plaintiff, J. Fletcher Creamer & Son, Inc., appeals from the August 22, 2008 order that dismissed its complaint with prejudice for failure to state a claim upon which relief could be granted, and denied its cross-motion for leave to file a second-amended complaint. We reverse and remand for further proceedings consistent with this opinion.

I.

On November 15, 2007, plaintiff filed a declaratory judgment action against defendants, Pennsylvania Manufacturers Association Insurance Company (PMA) and the St. Paul Fire & Marine Insurance Company (St. Paul), seeking a declaration that the two insurers were obligated to defend and indemnify it for a property damage claim asserted by Public Service Electric & Gas Company (PSE&G). In June 2008, the insurers filed separate motions, each seeking to dismiss plaintiff's complaint for failure to state a claim upon which relief could be granted. Plaintiff cross-moved for leave to file a second-amended complaint. On August 22, 2008, the trial court entered an order, supported by an oral decision, granting defendants' motions to dismiss with prejudice and denying plaintiff's cross-motion.

II.

Plaintiff is a multi-faceted contracting company. PMA insured plaintiff under a commercial general liability (CGL) policy of insurance from December 3, 1997 through March 31, 1999. St. Paul insured plaintiff under a similar policy for the period from March 31, 1999 through June 28, 1999. PSE&G is a public utility that owns and maintains a 375,000 volt oil-filled pipe transmission cable in and near the east end of the 10th Street railroad tunnel in Jersey City. Metromedia Fiber Network, Inc. (Metro), is a business that provides digital communications infrastructure solutions.

On February 3, 1999, while installing a fiber optic cable on behalf of Metro, plaintiff cut through PSE&G's transmission cable, causing approximately $2,500,000 in damages. Immediately following the accident, plaintiff participated in the repair of the cable. Nevertheless, on June 28, 1999, the cable failed because water entered it, allegedly as a result of the February 3, 1999 accident, causing PSE&G to suffer additional damages.

On February 2, 2005, PSE&G filed a complaint against plaintiff and Metro, only referencing the damage claim of February 3, 1999. On service of the summons and complaint, plaintiff tendered the pleadings to PMA. PMA defended plaintiff under a reservation of rights. In November 2005, PMA ascertained that PSE&G was alleging damages not only from the February 3, 1999 incident, but also from the June 28, 1999 cable failure. Because PMA's insurance policy expired prior to the second incident, PMA advised plaintiff on April 24, 2006, to "place the subsequent carrier to PMA on notice regarding the 6/28/99 occurrence. Once that is accomplished, discussions will take place with that carrier regarding sharing of the defense costs and allocation of damages from potentially two separate occurrences."

On August 2, 2007, plaintiff advised St. Paul of the June 1999 incident and of PMA's contention that that claim should be covered by St. Paul as a separate incident. On August 16, 2007, PMA disclaimed coverage for any damages relating to the June 1999 incident, advising plaintiff that it would "continue to defend [plaintiff] with regard to PSE&G's complaint," but only as to "the 'property damage' caused by the 2/3/99 'occurrence' which took place during [its] policy period." As a result, plaintiff tendered the June 1999 claim to St. Paul.

Because of a coverage dispute by the two insurers concerning the June 1999 claim, St. Paul requested that plaintiff enter into a Standstill Agreement with it and PMA, under which all parties would withhold instituting suit against each other regarding coverage for the June 1999 claim. On October 19, 2007, St. Paul sent plaintiff a letter reserving "its right to disclaim [coverage] based upon the fact that there was no 'event' as that term is used in the policy," and "the accident which is the subject of [PSE&G's] complaint . . . happened on February 3, 1999."

On November 15, 2007, plaintiff filed a declaratory judgment action against PMA and St. Paul, seeking judgment declaring that either, or both, insurers were obligated to defend and indemnify plaintiff with respect to all claims asserted by PSE&G. On December 20, 2007, PSE&G settled its claim against plaintiff for $685,000. The two insurers funded the settlement. In the interim, notwithstanding the coverage dispute between the two insurers, PMA provided plaintiff a defense to the PSE&G lawsuit until the matter settled. On May 16, 2008, plaintiff filed an amended complaint, seeking reimbursement from the insurers for expenses it incurred in defending its interests after the insurers disclaimed coverage.

On June 13, 2008, St. Paul filed a motion to dismiss plaintiff's complaint for failure to state a claim upon which relief could be granted, pursuant to Rule 4:6-2(e). On June 18, 2008, PMA filed a similar motion. Plaintiff cross-moved for leave to file a second-amended complaint, not only seeking reimbursement of attorneys' fees and costs, but also a declaration that the two insurers owed a duty to defend and indemnify it for all losses arising from the February and June 1999 incidents.

At oral argument on August 22, 2008, although not expressly asserted in the complaint, the court and counsel agreed that plaintiff's claim was essentially for attorneys' fees as a successful litigant pursuant to Rule 4:42-9(a)(6) and Transamerica Ins. Co. v. Nat'l Roofing, Inc., 108 N.J. 59 (1987). The court granted defendants' motions to dismiss plaintiff's complaint and denied plaintiff's cross-motion to amend, finding that, "as a matter of law[,] the complaint fails to state a cause of action that the plaintiff . . . was a successful litigant, as that is defined under [Rule 4:42-9(a)(6)]." It reasoned that the present matter was distinguishable from Transamerica because here, neither defendant had filed a "declaratory judgment, counterclaim or cross-claim" seeking to disclaim coverage.

The fact that the insurance company filed a declaratory judgment [in Transamerica] was a very explicit and legal step to declining coverage and also required the defendant insurance company to retain counsel. And all the Supreme Court did in that case was reject the Appellate Division's decision that the insured was a successful claimant and said it was an issue for the trial court to decide.

In this case, [plaintiff] cannot be a successful claimant. What we have here is a proactive advisable move by [plaintiff] to hire counsel, but doing the prudent thing and hiring counsel to address coverage issues does not translate into becoming a successful litigant.

Having granted defendants' motions to dismiss, the court denied plaintiff's cross-motion to file a second-amended complaint as moot. A conforming order was entered that day.

III.

On appeal, plaintiff argues that the trial court erred in granting defendants' motions to dismiss for failure to state a claim on which relief can be granted. Plaintiff contends that the trial court applied the wrong standard of review on the motions, and misapplied the principle of Transamerica. Plaintiff also asserts that, because the court erred in granting defendants' motions, the court should have granted its cross-motion for leave to file a second-amended complaint, as such motions are to be liberally granted. We agree.

On a Rule 4:6-2(e) motion to dismiss a complaint for failure to state a claim, the court applies an indulgent standard. "[T]he plaintiff is entitled to a liberal interpretation of [the] contents [of the complaint] and to the benefits of all its allegations and the most favorable inferences which may be reasonably drawn" therefrom. Burg v. State, 147 N.J. Super. 316, 319 (App. Div.) (quoting Rappaport v. Nichols, 31 N.J. 188, 193 (1959)), certif. denied, 75 N.J. 11 (1977). Every reasonable inference is accorded the plaintiff, Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 746 (1989), and the motion is "granted only in rare instances and ordinarily without prejudice." Pressler, Current N.J. Court Rules, comment 4.1.1 on R. 4:6-2(e) (2009).

While the "inquiry is limited to examining the legal sufficiency of the facts alleged on the face of the complaint," Printing Mart-Morristown, supra, 116 N.J. at 746, the reviewing court must "view the allegations with great liberality and without concern for the plaintiff's ability to prove the facts alleged in the complaint." Sickles v. Cabot Corp., 379 N.J. Super. 100, 106 (App. Div.), certif. denied, 185 N.J. 297 (2005). Accordingly, "the test for determining the adequacy of a pleading [is] whether a cause of action is 'suggested' by the facts." Printing Mart-Morristown, supra, 116 N.J. at 746 (quoting Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 192 (1988)). In applying this test, a court treats the plaintiff's version of the facts as set forth in his or her complaint as uncontradicted and accord it all legitimate inferences. Banco Popular N. Am. v. Gandi, 184 N.J. 161, 166 (2005). On appeal, our standard of review is the same as the trial court's. Donato v. Moldow, 374 N.J. Super. 475, 483 (App. Div. 2005).

Pursuant to Rule 4:42-9(a)(6), a court is permitted to award counsel fees to a successful claimant "[i]n an action upon a liability or indemnity policy of insurance". Accordingly, as long as the facts alleged in plaintiff's complaint "suggested" that it was a successful claimant, the trial court was obliged to deny the motions to dismiss. Printing Mart-Morristown, supra, 116 N.J. at 746.

IV.

We conclude that in deciding the motions to dismiss, the trial court applied the wrong standard of review; the relevant inquiry is not whether plaintiff was a successful claimant pursuant to case law, but whether plaintiff's amended pleading, as construed by the court, "suggested" a cognizable cause of action by its facts. Ibid. As previously stated, "the plaintiff's ability to prove the facts alleged in the complaint" is not afforded any weight on a motion to dismiss; the only inquiry necessary is whether, accepting plaintiff's allegations as true, the complaint provides a claim upon which relief can be granted. Sickles, supra, 379 N.J. Super. at 106.

Contrary to the above standard of review, the court delved into the merits of the dispute, determining that, taking plaintiff's allegations as true, it could not be deemed a successful claimant under Transamerica. Yet, this determination was one to be made on a motion for summary judgment or at trial, not on a motion to dismiss. Banco Popular, supra, 108 N.J. at 61-62 (reversing a grant of a motion to dismiss, explaining that "[t]he issue was not whether the Bank's allegations were true or whether they could be proved, but only whether they were made"). Moreover, we conclude the trial court misinterpreted the Court's decision in Transamerica.

In Transamerica, the insurer filed a declaratory judgment action seeking a declaration that it did not owe coverage to its insured in an underlying action for damage to a school roof. 108 N.J. at 61-62. However, in the midst of the action, the underlying dispute was settled, the insurer having contributed to the settlement on behalf of the insured. Id. at 62.

The insured thereafter sought attorneys' fees, "contending that a voluntary dismissal of the complaint with prejudice was a resolution in its favor." Ibid. We agreed, determining that the insured was "a successful claimant since the reason for the mootness dismissal was that [the insurer] finally undertook its defense and indemnification in the underlying suit." Id. at 63. On certification granted, the Court reversed, concluding that a dismissal for mootness is not an adjudication on the merits.

Id. at 64-65. The Court remanded to the Law Division to "determine whether [the insurer's] policy covered the damages claimed" in the underlying lawsuit. Id. at 65. In so doing, the Court provided the Law Division with the following instruction: "If the court finds that [the insurer's] policy afforded coverage, [the insured] would be a successful claimant under Rule 4:42-9(a)(6), and the court, in the exercise of its discretion, may determine the appropriateness and amount of any counsel fees to be awarded." Ibid.

Here, the court attempted to distinguish Transamerica from the instant dispute based upon the fact that, in Transamerica, the insurer filed the declaratory judgment seeking to disclaim coverage; "and that has a lot of serious implications, including the necessity of incurring attorneys fees because if you're sued and you're a company you can't even do it pro se, you are required to go hire an attorney and defend against the claim." Conversely, here, "there is no pleading that was ever filed by either of these two defendants that rejected coverage."

Essentially, the court determined that retaining a lawyer in plaintiff's situation was the "prudent thing to do," but that "the practical need for it does not translate into being a successful litigant under [Rule 4:42-9(a)(6)]." It found that "to even reach the issue of whether one is a successful litigant[,] at a minimum there must be some legal action taken . . . that requires a legal response . . . by the insured before the issue can even come up." Not so.

There is no support in Transamerica for the proposition that, for an insured to be a successful litigant, the insurer must take some legal action requiring a legal response. See S.T. Hudson Engineers, Inc. v. P.A. Nat'l Mutual Casualty Co., 388 N.J. Super. 592, 597 (App. Div. 2006) (upholding an award of counsel fees to an insured, pursuant to Rule 4:42-9(a)(6), after the insured filed a declaratory judgment action against its insurer seeking insurance coverage and a defense), certif. denied, 189 N.J. 647 (2007).

The trial court also sought to distinguish the facts of this case where, "in Transamerica[,] there was a dismissal in the insured's favor." However, Transamerica does not require a dismissal on the merits in the insured's favor. As stated infra, after the parties in Transamerica informed the trial court of the settlement of the underlying complaint, the court dismissed the insurer's complaint and the insured's counterclaim as moot. Id. at 62. The Court reversed our decision affirming the trial court's action, determining that a dismissal for mootness is not an adjudication of the merits. Id. at 64-65. The Court remanded to the trial court to determine whether the policy afforded coverage to the insured. Id. at 65. Thus, the trial court erred in distinguishing Transamerica from the present matter on the basis that there was a dismissal in the insured's favor in Transamerica.

Although defendants contributed jointly towards settlement of the underlying dispute, both denied coverage as to the June 1999 incident. This determination left plaintiff in a position where, three months after being notified about PMA's denial of coverage and less than one month after St. Paul's, it was forced to file a declaratory judgment action against both defendants seeking indemnification for the June 1999 incident. It did so in anticipation of a trial in the underlying dispute, and expended counsel fees in proceeding with the action. Had it not filed that complaint, plaintiff could have been put in the position where it was responsible for a portion of the settlement amount, notwithstanding that plaintiff was continually insured throughout the relevant period.

To date, there has been no adjudication as to which insurer owes coverage for the June 1999 incident. Pursuant to Transamerica, we reverse and remand for a determination of that issue. Id. at 65. If the court determines that there is coverage under either policy, then plaintiff would be deemed a successful claimant against that particular defendant for the purpose of pursuing counsel fees and costs pursuant to Rule 4:42-9(a)(6). Ibid.

V.

After granting defendants' motions, the trial court denied as moot plaintiff's motion for leave to amend its declaratory judgment complaint. Specifically, plaintiff sought to add a prayer for "[j]udgment against either or both PMA and St. Paul declaring that [plaintiff] was owed a duty to defend and indemnify against the June 28 claim." Essentially, pursuant to the Court's holding in Transamerica, plaintiff sought to amend its complaint to reinstate its prior claim seeking a declaration of coverage so it could pursue its claim for reimbursement of attorneys' fees and costs.

Because the trial court inappropriately granted defendants' motions to dismiss, on remand, the court should reconsider plaintiff's motion for leave to amend pursuant to Rule 4:9-1. See Pressler, Current N.J. Court Rules, comment 4.1.1 on R. 4:6-2 (2009) ("[A] complaint should not be dismissed under this rule where a cause of action is suggested by the facts and a theory of actionability may be articulated by amendment of the complaint."); Di Cristofaro v. Laurel Grove Memorial Park, 43 N.J. Super. 244, 252 (App. Div. 1957) (In determining the sufficiency of a pleading on a motion to dismiss, opportunity should be given to amend if necessary.).

We reverse and remand to the trial court for further proceedings consistent with this opinion.

20090804

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