August 23, 2010
TRANSCONTINENTAL CONTRACTING, INC., D/B/A TRANSCONTINENTAL STEEL, PLAINTIFF-RESPONDENT,
THE BURLINGTON INSURANCE COMPANY, DEFENDANT-APPELLANT, AND SCOTTSDALE INSURANCE, DALE GROUP AND CRC INSURANCE SERVICES, INC., DEFENDANTS-RESPONDENTS, AND SKANSKA USA BUILDING, INC., PLAINTIFF/INTERVENOR-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-265-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 4, 2010
Before Judges Wefing, Messano and LeWinn.
Plaintiff, Transcontinental Contracting, Inc. (Transcontinental), is engaged in private and public construction projects in New York and New Jersey. In September 2003, Transcontinental was awarded a construction contract with the New York City Economic Development Corporation (EDC) to perform work on a project at the St. George Ferry Terminal on Staten Island. Skanska USA Building, Inc. (Skanska) was the construction manager of the project. The construction contract contained the following indemnification provision, which is pertinent to our decision:
The Contractor shall defend, indemnify and hold harmless EDC and the City, the Construction Manager, the Architect/Engineer, and their respective parent companies . . . from any and all claims, damages, judgments, liabilities and causes of action whatsoever . . . to which they may be subject arising out of (i) the act or omissions of the Contractor, its Subcontractors, agents, employees or material suppliers, and any and all persons on the Work Site or in connection with the Contract Work or (ii) any negligence, fault or default of the Contractor, its Subcontractors, agents, employees or material suppliers.
The obligation of the Contractor to indemnify, defend and hold harmless the Indemnified Parties shall include but not be limited to the payment of any and all actual costs and actual legal fees as may be incurred by the Indemnified Parties.
Through the Dale Group, a retail insurance broker, and CRC Insurance Services, Inc., a wholesale broker, Transcontinental obtained three successive one-year surplus lines policies from defendant, Burlington Insurance Company (Burlington). Each policy contained the identical Cross-Liability Exclusion, which provided:
This Insurance does not apply to any actual or alleged "bodily injury", "property damage", "personal injury", or "advertising injury" to:
1. Any business enterprise in which any insured owns an interest, is a partner, or which is a parent, affiliate, subsidiary or sister company of any insured;
2. Any business enterprise directly or indirectly controlled operated or managed by a business enterprise described in 1 above;
3. A present, former, future or prospective partner, officer, director, stockholder or employee of any insured;
4. Any insured; or
5. The spouse, child, parent or sibling of any of the above as a consequence of 1, 2, 3, or 4 above.
The 2004-2005 policy also included a Contractual Liability Limitation stating that the policy did not apply to "'[b]odily injury' or 'property damage' for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement."
On October 23, 2004, Neil DeFeo, a Transcontinental employee, was injured on the construction site when a wrench fell eight feet from a scaffold and struck his right shin. On May 23, 2005, another Transcontinental employee, Carlyle Constantine, was seriously injured when he fell from scaffolding while working at the project site. DeFeo and Constantine filed separate personal injury actions in New York, naming New York City (NYC), the EDC, and Skanska as defendants.
When Burlington received notice of these two claims, it declined to cover them, asserting that the Cross-Liability Exclusion barred coverage, and that the amended definition of an "insured contract" in the Contractual Liability Limitation section in the 2004-2005 policy excluded from coverage "[t]hat part of any . . . contract or agreement pertaining to [Transcontinental's] business (including an indemnification of a municipality in connection with work performed for a municipality) under which [it] assume[s] the tort liability of another party to pay for 'bodily injury' or 'property damage' to a third person or organization."
On January 11, 2006, Transcontinental filed a declaratory judgment action against Burlington, Dale and CRC, seeking to require defendants to indemnify, hold harmless and defend Transcontinental in the two personal injury actions brought by its employees. Skanska filed a complaint as intervenor in the litigation on September 25, 2006, also seeking a declaratory judgment that Burlington was required to indemnify and defend the two personal injury actions.
On December 21, 2007, Burlington filed a motion for summary judgment seeking a declaration that (1) New York law should control and (2) Transcontinental and Skanska were not covered under the policy. Transcontinental filed a cross-motion for summary judgment against Burlington and a motion to amend its complaint to include fraud counts. On March 3, 2008, Skanska and CRC also filed cross-motions for summary judgment.
Following oral argument on April 4, 2008, the trial judge issued an order on May 8, 2008, denying Burlington's motion for summary judgment; granting Transcontinental's and Skanska's cross-motions for summary judgment;*fn1 directing Burlington to provide Skanska, the EDC and the City with a defense in the two personal injury actions; and ordering Transcontinental and Skanska to file motions for attorneys' fees and costs in connection with the declaratory judgment action as well as the underlying personal injury actions. Transcontinental thereupon withdrew its motion to amend its complaint.
On November 25, 2008, the trial judge entered an order awarding counsel fees to Skanska and Transcontinental, ordering Burlington to reimburse Skanska and Transcontinental for all "reasonable and necessary attorneys' fees incurred" in defending the personal injury actions, and further ordering Burlington to pay all such fees "to be incurred in the future by Skanska, Transcontinental, NYC and/or EDC in connection with the defense and/or prosecution of the claims asserted" in the personal injury actions.
Burlington now appeals from the trial judge's orders of May 8 and November 25, 2008.*fn2 We reverse.
At the outset of his opinion the trial judge determined that New Jersey law would apply.*fn3 The judge then proceeded to focus on the Contractual Liability Limitation in the 2004-2005 policy, stating:
Now, in 2004-2005 . . . the coverage of third parties to whom Transcontinental was contractually obligated, specifically New York, EDC and Skanska, were [sic] eliminated. Contractual liability endorsement, which altered the definition of an insured contract . . . eliminated coverage for that part of any contract or agreement pertaining to your business under which you would assume . . . liability of another party to pay for bodily injury or property damage. The practical effect of this limitation was to eliminate the coverage that it had for the past two years and to eliminate the coverage that Burlington knew Transcontinental was contractually obligated to provide. At no time did Transcontinental request this change, did any broker on behalf of Transcontinental request this change, and Transcontinental never received notice of the change.
The . . . 2004-2005 policy, as it applies to insuring contractual liability is clearly ambiguous. If you read it without the added rider it clearly covers them. The rider clearly excludes them. It even uses some of the same language to define what's covered and what's excluded.
Having thus found the policy ambiguous, the trial judge noted that he would interpret the policy by giving its "words their plain, ordinary meaning." The judge noted further that "ambiguous language in an insurance policy is often construed in favor of the insured. When an insurance policy's language fairly supports two meanings, one that favors the insurer and one that favors the insured, the policy should be construed to sustain coverage."
This reasoning, in turn, led the judge to observe that "the insured's reasonable expectations are brought to bear on misleading terms and conditions of insurance contracts and genuine ambiguities are resolved against the insurer." The judge concluded:
Here it's clear that the clear and reasonable expectation of Transcontinental was that the additional insureds would be covered. This policy makes no sense without such an interpretation and there was no sense in them buying this policy unless the contractual liability that they had and knew they had would be covered. It made no sense to go to Burlington if they were going to be excluded.
In addition, in the contract of the third year, the clear and reasonable expectation was that they would have the same protections they had in the first two years; that is, an insurance policy that protected them and covered them from the contractual liability as they were protected in years one and two of the contract. Thus, the coverage including New York City, the EDC and Skanska is in effect.
We are satisfied that the trial judge erred in finding the entire policy ambiguous based solely on the Contractual Liability Limitation in the 2004-2005 contract. The judge failed to consider the effect of the Cross-Liability Exclusion which consistently appeared in each of the three successive contracts. Under that exclusion, coverage was not available for any bodily injury, property damage or personal injury to "[an] employee of any insured . . . ." It is undisputed that the two underlying personal injury actions were brought by employees of Transcontinental, the named insured in Burlington's policy.
As noted, the policies Burlington issued to Transcontinental were surplus lines policies. Surplus lines policies are, by definition, high risk policies which ordinarily are not available through authorized insurers. N.J.S.A. 17:22-6.42 provides: "If certain insurance coverages of subjects resident, located, or to be performed in this State cannot be procured from authorized insurers, such coverages, hereinafter designated 'surplus lines,' may be procured from unauthorized insurers . . . ."
"A 'surplus lines insurer' is 'an unauthorized insurer in which an insurance coverage [in New Jersey] . . . may be placed' through operation of surplus lines law . . . . Surplus lines insurance is often a source of last resort for the placement of liability or property insurance on unusual risks." Piermount Ironworks, Inc. v. Evanston Ins. Co., 197 N.J. 432, 435 (2009) (internal citations and quotation marks omitted). Surplus lines providers take on additional risks, inherent in these types of policies; therefore, it is not unusual for such policies to limit the scope of that risk by express contract terms. Id. at 441.
We concur with Burlington that our decision in American Wrecking Corp. v. Burlington Ins. Co., 400 N.J. Super. 276 (App. Div. 2008) is dispositive in its favor. There, on facts virtually identical to those present here, including the presence of a Cross-Liability Exclusion in the policy at issue, we held that the exclusion precluded coverage for any injuries suffered by employees of any insured under the policy. Id. at 285. There, as here, "any insured" included "others for whom American Wrecking [the named insured] was 'performing operations.'" Id. at 279.
We rejected "the insureds' contention that th[e] policy exclusion was ambiguous," id. at 284, and concluded that "since we are dealing with a commercial policy and since the [C]ross-[L]iability [E]xclusion is unambiguous, the insureds' reasonable expectations were not violated." Id. at 285. We also rejected "the insureds' claim that the [C]ross-[L]iability [E]xclusion violates public policy[,]" noting that "'public policy considerations alone are not sufficient to permit a finding of coverage in an insurance contract when its plain language cannot fairly be read to otherwise provide that coverage.'" Ibid.
We discern no reason why the rationale and result in American Wrecking should not apply here. Transcontinental's efforts to distinguish this case from American Wrecking are unavailing. The fact that Transcontinental did not "have an opportunity to bargain for the exclusion[,]" is of no consequence. That exclusion appeared in each of the three contracts Transcontinental procured from Burlington.
We reject as without merit Transcontinental's contention that "the American Wrecking court ignored decades of New Jersey Supreme Court and Appellate Division precedent in failing to consider all reasonable interpretations for the conflicting provisions." Transcontinental does not direct us to any "dictates of the Supreme Court" which it contends "intermediate appellate court[s]" must follow that would lead to a different result.
Because we conclude that the trial judge erred in failing to apply the express terms of the Cross-Liability Exclusion in the contract, pursuant to which summary judgment for Burlington should have been entered, we see no need to address the arguments respecting the Contractual Liability Limitation provision.
The orders of May 8 and November 25, 2008 are hereby reversed and the matter is remanded for further proceedings in conformity with this opinion.