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Preferred Mutual Insurance Co. v. Gonzalez

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 17, 2009

PREFERRED MUTUAL INSURANCE COMPANY, EUSEBIO MARTINEZ, VICTORIA MARTINEZ, MARIA MARTINEZ, PLAINTIFFS-RESPONDENTS, AND ELEUTERIO GONZALEZ, INDIVIDUALLY AND T/A LA ESPERANZA GROCERY, PLAINTIFFS,
v.
GERMANIA GONZALEZ, DEFENDANT, AND GENERAL SECURITY PROPERTY AND CASUALTY INSURANCE COMPANY, DEFENDANT-APPELLANT.

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-2199-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 17, 2009

Before Judges Winkelstein and Gilroy.

Defendant General Security Property and Casualty Insurance Company (General Security) appeals from the January 18, 2008 order of the Law Division that granted summary judgment in favor of plaintiff Preferred Mutual Insurance Company (Preferred Mutual) and its insureds, plaintiffs Eusebio Martinez, Victoria Martinez and Maria Martinez (collectively, the landlord); and from a second order of the same date that denied its cross-motion for summary judgment. We reverse.

I.

This is a declaratory judgment action in which Preferred Mutual and the landlord seek to enforce the assignment of a liability insurance policy issued by General Security to its insured, plaintiff Eleuterio Gonzalez, individually, and t/a La Esperanza Grocery (the tenant).*fn1 To place this appeal in context, it is necessary to state the combined procedural history and statement of facts not only of this declaratory judgment action, but also of the underlying personal injury negligence action leading to the assignment of the insurance policy.

The personal injury negligence action arose out of a slip and fall accident that occurred in front of a commercial building located at 3513 Park Avenue, Union City. The building is owned by the landlord. On the date of the accident, Preferred Mutual insured the landlord for third-party liability coverage. Located on the first floor of the building is the La Esperanza Grocery store, operated by the tenant, and a laundromat operated by a third party, each commercial unit having its own entrance onto the public sidewalk.

Paragraph 8 of the lease between the tenant and the landlord obligated the tenant to "obtain or provide and keep in full force for the benefit of the [l]andlord, during the term hereof, general public liability insurance, insuring the [l]andlord against any and all liability or claims of liability arising out of, occasioned by or resulting from any accident or otherwise in or about the leased premises." The lease required that the policy contain personal injury liability limits of $250,000 per person and $500,000 per accident. Contrary to this provision, the tenant did not name the landlord as an additional insured on its General Security policy.

Paragraph 8 also provided for contractual indemnification of the landlord by the tenant:

The [t]enant also agrees to and shall save, hold and keep harmless and indemnify the [l]andlord from and for any and all payments, expenses, costs, attorney fees and from and for any and all claims and liability for losses or damage to property or injuries to persons occasioned wholly or in part by or resulting from any acts or omissions by the [t]enant or the [t]enant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors, or for any cause or reason whatsoever arising out of or by reason of the occupancy or business of the tenant.

On April 10, 2001, Germania Gonzalez,*fn2 the plaintiff in the underlying negligence action, parked her motor vehicle in front of the La Esperanza Grocery store; exited the motor vehicle; crossed the public sidewalk and entered the grocery store where she remained for approximately forty-five minutes while drinking coffee and purchasing groceries from the store. After she finished shopping, Germania Gonzalez exited the grocery store. As she crossed the sidewalk to return to her car, she slipped on two plastic light covers lying on the sidewalk in front of an entranceway to an apartment located on one of the upper floors of the building. Subsequent to the accident, Germania Gonzalez filed suit naming the landlord and the tenant as defendants.*fn3

Neither Preferred Mutual nor General Security were parties to the negligence action.

The landlord filed an answer in the personal injury action, asserting a cross-claim against the tenant, demanding that the tenant assume the landlord's defense and indemnify the landlord against any and all losses pursuant to Paragraph 8 of the lease. On motion for summary judgment by the landlord, the initial trial judge entered an order on April 12, 2004, denying the motion. As to the motion for indemnity based on the last sentence of Paragraph 8, the order provided that the motion is denied "without prejudice, subject to a factfinder's determination as to whether [p]laintiff's alleged loss resulted from acts or omissions by the tenant or arising out of the business of La Esperanza Grocery as defined under the cases."

Tried in November 2004, before a jury and a different trial judge, the jury found the landlord liable in the amount of $200,000. The jury also determined that the tenant was not negligent. The issue of contractual indemnity was not submitted to the jury; rather, the court requested that the parties submit post-trial motions. The court conducted arguments on the cross-motions on January 7, 2005.

At conclusion of oral argument, the trial court: 1) denied landlord's claim for contractual indemnification under Paragraph 8 of the lease because the provision did not expressly require the tenant to indemnify the landlord for the landlord's "sole negligence"; and 2) determined that the tenant had breached the lease by failing to name the landlord as an additional insured on the tenant's insurance policy. In reaching its decision, the trial court reasoned:

[S]o that [is] why [the initial trial judge] put in her order, the way she did, that we had to wait for the jury trial to determine whether or not [the tenant] was negligent at all. If [the tenant] was negligent at all, [he] would have bought the whole thing. However, since [the tenant] was not negligent, it means the sole negligence was the landlord. If it's the sole negligence of the landlord, it's not covered in the indemnity section in that language. So, therefore, the indemnity section fades.

However, the lease is very clear, as far as I can see, that the lease required that the tenant obtain additional insurance, at least naming . . . the landlord [as] an additional insured, which he did not do. That's a fact.

I'm . . . saying that the language means that [the tenant] should have gotten insurance, naming the landlord as an additional insured. He did not do that. And, as such, he breached his contract.

Well, no matter how much you argue right now, I think . . . it's very clear that . . . no indemnification is . . . allowed under the indemnification clause.

Because . . . the lease did not say the sole negligence of the landlord.

However, on the cross-claim for insurance, we then have to compare the policies . . . .

If he doesn't have an insurance policy -- because if -- [the tenant] had obtained and named the landlord as an additional insured, then the landlord would have had coverage. The only thing that . . . comes down off that is a comparison of policies, if, in fact, the landlord has two policies, [the tenant's] . . . additional insured and his own.

Very good. Then what -- my only ruling, my only ruling is that your client breached the contract by . . . not obtaining insurance naming the landlord. Right[?] That's . . . my verdict, okay? It's a decision. It's a clear decision.

The court entered a conforming order that day and included a provision requiring the parties to submit copies of their insurance policies for the court to determine what portion of the liability judgment would have been covered under the tenant's policy if the tenant had named the landlord as an additional insured thereon.

On March 15, 2005, the court entered an order of judgment in the personal injury action confirming the jury verdict. On the same day, the court conducted a hearing concerning the amount of damages that the tenant owed the landlord as the result of the tenant's breach of the lease by failing to name the landlord as an additional insured on the tenant's insurance policy.

After reviewing the parties' insurance policies, the court determined that the tenant's policy "would have been primary and as such, the coverage would have [covered] the entire amount of the judgment or verdict against the [landlord] under that policy and therefore the damages to the [landlord] as a result of the breach and failure to add the [landlord] as the additional . . . insured would allow for the entire judgment to be owed by [the tenant] to the [landlord]." On April 25, 2005, the court entered a confirming order in favor of the landlord and against the tenant "for the full amount of the verdict awarded by the jury at [the] plenary liability and damage [t]rial of plaintiff's [c]omplaint November, 2004 of $200,000.00 to which will be added any pre-judgment and post-judgment interest to which plaintiff is entitled . . . ."

The landlord appealed the personal injury action only. No party appealed from the April 25, 2005 order, entering judgment against the tenant. We affirmed. Preferred Mutual satisfied the personal injury judgment in full, after which the tenant assigned all his rights in the General Security insurance policy to the plaintiffs in exchange that they not seek satisfaction of the April 25, 2005 judgment against him individually.

On April 28, 2006, plaintiffs filed this declaratory judgment action, alleging that General Security is obligated to indemnify them and pay their counsel fees. Paragraph No. 3 of the first count of the declaratory judgment complaint provides that: "In post[-]trial proceedings, [the trial judge] held that the tenant . . . had breached the duty of naming the landlord as an additional insured, contrary to lease provisions, and found that such was a breach of contract, and entered judgment accordingly." Paragraph No. 1 of the second count of the complaint provides in pertinent part that: "[A]ccording to the terms of the lease between the landlord and tenant, [the tenant] agreed to indemnify the landlord. A judgment in favor of the landlord has been entered against the tenant, and a demand for indemnity according to policy terms has been made and refused." This action was assigned to a trial judge other than the judge who tried the personal injury action. The two parties filed cross-motions for summary judgment.

On January 18, 2008, the court determined that the tenant's failure to secure insurance was not a covered loss under General Security's policy. The court interpreted the order of April 25, 2005, as entering a judgment of "indemnity" in favor of the landlord predicated upon the indemnification clause contained in Paragraph 8 of the lease. In colloquy with counsel, the court stated:

There's no dispute that the tenant was found free of negligence and therefore that did not trigger . . . the indemnity clause regarding the tenant's indemnifying the landlord on that basis.

However[,] there was a lease agreement in effect and the lease agreement also contained language dealing with arising out of the tenant's business or operations.

[A]t this juncture . . . the only issue before me is whether or not there is coverage for this claim by the tenant because an assignment has been given to Preferred Mutual.

It is the court's position that it is not the failure to procure insurance that I view as the covered loss. What I view as the covered loss is the factual finding that the injury occurred to the plaintiff arising out of the business of the tenant, i.e.[,] she was shopping in the tenant's store and was injured after shopping and leaving the tenant's store.

So if I grant that motion, I find indemnity under the lease because that's the only way he could have entered a judgment against [the] tenant because he concedes that there was no negligence against the tenant. . . .

Following the argument of counsel, the court rendered its decision reasoning:

Okay. As I've indicated earlier after supplementing the record, I gave the factual background of the case. For purposes of my ruling I once again want to emphasize that the court finds the only issue before it today is the fact that there was a judgment, an assignment of that judgment and whether or not there is coverage for the occurrence that led to the assignment of the judgment.

I've read the papers and we've had extensive argument. The court finds as follows. The order entered . . in April of 2005 entered . . . judgment in favor of the landlord against the tenant. That application arose out of a cross[-]claim for indemnification. That application was vigorously opposed by counsel both pre and post[-]trial . . . .

There was an initial application made under indemnification [provision]. That took place back in 2004. [The judge] ruled at that time that it would have to await a factual determination as to whether or not the incident arose out of the operation or the business of the tenant.

A trial was held, there's undisputed evidence before me, there's no factual dispute that the plaintiff testified how the accident occurred.

Judgment was entered at that time only against the landlord. The tenant was found free of negligence. As a result of that finding, a judgment was entered against the landlord and then the landlord proceeded to pursue its cross[-]claim. Again vigorously defended and there is a disagreement regarding [the same trial judge's] ultimate decision and findings.

This court finds that when one makes a motion for indemnification and it's granted, there has to be a basis to grant it. While [the judge] does not specifically use the words in the transcript, he finds -- I think there's enough that has been discussed previously that a finding was made that this cross[-claim] was granted because it arose out of the tenant's business. That order was dated April 25, 2005.

I don't know if there was an appeal filed on the primary action but there was no appeal taken of [the April 25, 2005] order. Therefore[,] the court finds that that order is binding at this time. And the only way that that judgment could have been entered is if it arises out of the contract.

Contrary to the argument on the cross[-]motion the court finds that the occurrence is the fall down, not the failure to obtain insurance. This is a simple assignment of a judgment issue. The only defenses that have been validly raised here are there's no coverage because one, this isn't an occurrence . . . . I reject that argument finding the occurrence is the actual fall down that led to the trial.

So what we have here is nothing more than an assignment of a judgment in which the person takes the risk by getting the assignment that there's coverage and I find that there's coverage, there's no dispute that under the terms of the policy the liability arising out of a lease is covered. Accordingly, on January 18, 2008, the court entered two orders granting summary judgment to Preferred Mutual and the landlord, and denying General Security's cross-motion for summary judgment. It is from these two orders that General Security appeals.

II.

A trial court will grant summary judgment to the moving party "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c); see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). "An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." R. 4:46-2(c).

On appeal, "the propriety of the trial court's order is a legal, not a factual, question." Pressler, Current N.J. Court Rules, comment 3.2.1 on R. 2:10-2 (2009). "We employ the same standard that governs trial courts in reviewing summary judgment orders." Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

On appeal, General Security argues that the trial court erred in construing the April 25, 2005 order entering judgment against the tenant as an order of indemnity pursuant to Paragraph 8 of the lease based on the court's "finding that the injury incurred to the plaintiff arising out of the business of the tenant." General Security contends that the April 25, 2005 order was entered on the second trial judge's determination that tenant had breached his lease by failing to name the landlord as an additional insured on the tenant's insurance policy. General Security asserts that the failure to name the landlord as an additional insured is not a covered event or occurrence under its policy. We agree.

Plaintiffs are assignees of the tenant's rights under General Security's commercial liability insurance policy. Accordingly, plaintiffs' rights "are limited to the rights of the assignor and are subject to all the equities and defenses that could have been asserted against the assignor before assignment." Conestoga Title Ins. Co. v. Premier Title Agency, Inc., 328 N.J. Super. 460, 464 (App. Div.), aff'd o.b., 166 N.J. 2 (2000). Simply stated, as assignees, plaintiffs succeeded to the position of the tenant and may only recover under General Security's insurance policy if the tenant can recover.

The question to be resolved is whether the April 25, 2005 judgment entered against the tenant was based on a covered event or occurrence under General Security's insurance policy. To resolve that question, the court must determine whether the judgment was entered under the indemnification provision of Paragraph 8 of the lease, or for breach of tenant's obligation to name the landlord as an additional insured on General Security's policy. See Antenucci v. Mr. Nick's Mens Sportswear, 212 N.J. Super. 124, 131 (App. Div. 1986) (holding that a tenant who breaches a lease agreement to provide liability insurance coverage for the landlord will be liable for losses sustained by the landlord flowing from that breach).

Plaintiffs argue that, because the preamble of the April 25, 2005 order references plaintiffs "seeking a judgment of indemnity" against the tenant, such language forecloses a review of the transcripts of the January and April 2005 trial court proceedings to determine the court's reasoning in entering the judgment, contending that "appeals are taken from orders and judgments and not from opinions, oral decisions, informal written decisions, or reasons given for the ultimate conclusion." Do-Wop Corp. v. City of Rahway, 168 N.J. 191, 199 (2001). Plaintiffs assert that General Security did not appeal from the April 25, 2005 order, and therefore, it cannot now contest that the April 25, 2005 order is a "judgment of indemnity" entitling plaintiffs to indemnification under its policy. We reject plaintiffs' arguments.

General Security was not a party to the underlying negligence action, nor were any issues raised in that action concerning General Security's obligation under the policy. Because General Security was not a party to the underlying negligence action, it is not estopped from arguing that the April 25, 2005 judgment is based on the tenant having committed a non-covered occurrence, just as Preferred Mutual, also a non-party to the negligence action, may argue to the contrary. The reference in the April 25, 2005 order to plaintiffs seeking "a judgment of indemnity" is only contained in the prefatory portion of the order; the dispositional portion of the order is silent as to the reason for its entry. Accordingly, it is necessary for the court to review the transcripts of the proceedings leading to the entry of that order to understand the second trial judge's reasoning in entering it.

Because neither party challenges the April 25, 2005 order, but only questions the basis for its entry, reviewing the January and April 2005 transcripts of the proceedings leading to the entry of the order does not violate the aforestated principle of Do-Wop Corp. Indeed, the transcript of the January 18, 2008 summary judgment proceeding discloses that the third trial judge reviewed the transcript of the January 7, 2005 proceeding.

We conclude that the third trial judge mistakenly read the transcript of the January 7, 2005 motion proceeding as if the second judge had found that the landlord's cross-claim "was granted because it arose out of the tenant's business." That was not the premise on which the second judge entered judgment in favor of the landlord. The second judge determined that the indemnification provision contained in Paragraph 8 was not applicable because it did not provide that it would apply to injuries caused by the landlord's sole negligence. Rather, the second trial judge found that the tenant had breached the lease by not naming the landlord as an additional insured on General Security's policy.

The judge then requested the parties to submit copies of their insurance policies for the purpose of determining whether, if the landlord had been named on the tenant's policy, the policy would have provided primary coverage for the accident. The judge so found. Accordingly, the second judge concluded that the landlord suffered damages equivalent to the amount of the judgment which would have been fully covered by the tenant's policy. That was the basis on which the April 25, 2005 order was entered.

Although that order may be deemed an order of indemnity, that is, it fulfills the duty of the tenant "to make good any loss, damage, or liability incurred by another," Black's Law Dictionary 772 (7th ed. 1999), it is not an order based on the indemnification provision contained in Paragraph 8. Because the April 25, 2005 order was based solely on the tenant's failure to name the landlord as an additional insured on the tenant's policy, as acknowledged by the third judge and not questioned on appeal, "that is not a covered loss [under the policy]."

Our conclusion is reinforced by our review of the transcript of the April 15, 2005 court proceeding leading to the entry of the April 25, 2005 order after the court considered the parties' policies. There, the court stated:

Right. And having reviewed the policies and having seen the only analysis available to me, it appears that if in fact [the tenant] . . . had obtained the policy coverage allowing for the landlord to be named as an additional insured, that that policy which would have been [G]eneral [S]security [P]roperty and Casual[ty] Insurance Company would have been primary and as such, the coverage would have [covered] the entire amount of the judgment or verdict against the [landlord] under that policy and therefore the damages to the [landlord] as a result of the breach and failure to add the [landlord] as the additional . . . insured would allow for the entire judgment to be owed by [tenant] to the [landlord].

Reversed and remanded for the trial court to enter an amended order granting summary judgment to General Security in accordance with this opinion.


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