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Epic Management, Inc. v. Harleysville Insurance Company of New Jersey


August 31, 2010


On appeal from Superior Court of New Jersey, Chancery Division, Ocean County, Docket No. C-117-08.

Per curiam.


Argued May 25, 2010

Before Judges Wefing, Grall and LeWinn.

Plaintiff, Epic Management, Inc. (Epic), the general contractor for the Township of Lakewood on a project to a build a baseball stadium, filed a declaratory judgment action against the insurers of Epic's subcontractor, CJ Contractors, Inc. (CJ), seeking a determination that CJ's insurers, defendants Harleysville Insurance Company of New Jersey (Harleysville), Travelers Property Casualty Company of America (Travelers) and Selective Insurance Company of America (Selective) are responsible for payment of a $219,310.80 judgment Epic recovered against CJ. That judgment represents costs Epic incurred in defending against a negligence action brought by Lakewood to recover damages for the stadium's leaking roof. Lakewood's claims in that underlying litigation were settled; Epic obtained a release; and CJ's insurers funded the entire settlement but did not pay the judgment Epic obtained against CJ. On CJ's appeal from the judgment in favor of Epic, we affirmed. Twp. of Lakewood v. Epic Mgmt., Inc., No. A-2866-07 (App. Div. July 20, 2009) (slip op. at 9).

Epic commenced this declaratory action against the insurers who are the defendants after learning that CJ had dissolved and was insolvent. On cross-motions for summary judgment, the trial judge determined that the insurers' policies do not cover Epic's claims. The judge also rejected Epic's claim that the insurers, by providing a defense to CJ in the Lakewood action, acquired the status of real parties in interest and the obligation to pay CJ's judgment.*fn3

Based on our review of the record presented on appeal, we affirm because defendants are entitled to judgment as a matter of law.*fn4 Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (2004). Selective did not insure CJ or Epic; there is no evidence that the damage was the result of an "occurrence" involving covered property damage during the term of the Travelers' policy; Harleysville's policy does not cover Epic's attorneys fees and costs; and the insurers are not real parties in interest.

These facts are relevant to the work performed for Lakewood and the discovery of problems with the roof. Lakewood retained Epic to serve as the general contractor for the construction of a new baseball stadium on April 19, 2000. On July 28, 2000, Epic and CJ entered into a subcontract, pursuant to which CJ was to perform "all drywall, carpentry and asphalt shingle roofing work" on the stadium. According to Lakewood, the stadium roof had "missing and damaged asphalt shingles," "protruding and loose nails," and "dimpling of the steel decking underside."

The subcontract between Epic and CJ includes three provisions relevant to CJ's obligation to provide a defense. Article 23.1 of the subcontract between Epic and CJ provides:

[T]he Subcontractor hereby assumes entire responsibility and liability for any and all damage or injury of any kind or nature whatever . . . to all persons, whether employees of the Subcontractor or otherwise, and to all property, caused by, resulting from, arising out of or occurring in connection with the execution of the Work; and if any claims for such damage or injury . . . be made or asserted, whether or not such claims are based upon Epic's or the Owner's alleged active or passive negligence or participation in the wrong . . . the Subcontractor agrees to indemnify and save harmless Epic and the Owner . . . from and against any and all such claims . . . including legal fees and disbursements that Epic or the Owner . . . may directly or indirectly sustain . . . . [(Emphasis added).]

Article 30.1 provides:

If . . . any suit in contract, for negligence, tort, or otherwise is made or asserted against Epic arising out of, or in connection with work or services performed hereunder by the subcontractor, then the subcontractor shall hold Epic . . . harmless and indemnify Epic and such other parties to the fullest extent as determined by law for any such claims. This indemnity includes the payment by the subcontractor of attorneys' fees and costs incurred by Epic in the defense of such claims and actions. [(Emphasis added).]

Further, Article 23.2 provides:

Before commencing the Work, the Subcontractor shall procure and maintain, at its own expense, until completion and final acceptance of the Project at least the following insurance from insurance companies satisfactory to Epic:

3. Comprehensive General Liability including blanket contractual, products and completed operations . . . .

CJ commenced work on September 29, 2000 and substantially completed its work by March 9, 2001. Thereafter, it performed some "punchlist" items, which were completed around March 2003.

The stadium opened on April 11, 2001. A letter dated May 8, 2007, written by a representative of Harleysville to CJ, includes this information. In July 2001, Lakewood hired a superintendent of public property. "Shortly thereafter," the superintendent met with a representative of the "Blue Claws," the baseball organization using the stadium. During that meeting, the Blue Claws' representative reported roof leaks. In Township of Lakewood, supra, slip op. at 3, we noted that Lakewood commenced the underlying litigation because of leaks in the stadium's roof.

On review of the trial judge's determination on these motions for summary judgment and the record that has been provided to us on appeal, we treat the material facts as undisputed.*fn5 When, as here, "the facts are not contested and the trial court's decision turns on a question of law, the 'trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.'" Dempsey v. Alston, 405 N.J. Super. 499, 509 (App. Div.) (quoting Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995)), certif. denied, 199 N.J. 518 (2009). In these circumstances, an appellate court's review is de novo.

Id. at 509 (citing Toll Bros., Inc. v. Twp. of W. Windsor, 173 N.J. 502, 549 (2002)). Moreover, "[t]he interpretation of an insurance contract is a question of law which [the appellate court] decide[s] independently of a trial court's conclusions." Polarome Int'l, Inc. v. Greenwich Ins. Co., 404 N.J. Super. 241, 260 (App. Div. 2008), certif. denied, 199 N.J. 133 (2009).

Applying the standards governing our review, we address the orders entered in favor of each defendant-insurer separately below.


A. Claims Under the Travelers Policy

Travelers insured CJ from September 21, 2000 through September 21, 2001 pursuant to a Commercial General Liability (CGL) policy that was modified by endorsements. Epic is not included as a named insured under that policy, but Epic is included in a certificate of insurance issued by the broker acting as Travelers' agent. The trial judge, apparently resolving the issue of the import of the broker's certificate in Epic's favor, turned to consider whether Epic, as a named insured, had a claim covered by the policy.

Although the judge mistakenly referred to the policy as a "claims-made policy," the judge addressed the Travelers policy as one triggered by an occurrence within the policy period. The judge concluded that there was insufficient evidence to warrant a finding of an "occurrence" within the policy period under a fair reading of the policy terms. The judge's findings on the relevant facts are supported by the record.

The policy issued by Travelers requires it to pay "those sums that the insured [CJ] becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies" that "is caused by an 'occurrence' that takes place in the 'coverage territory.'"

By letter dated September 14, 2005, Epic sought coverage under the Travelers policy as an additional insured. Travelers denied coverage. In a letter dated November 1, 2005, Travelers denied coverage to Epic on the ground that Epic was not a named insured. As noted above, the trial judge did not grant summary judgment to Travelers on that basis. The judge concluded that there was inadequate evidence of an "occurrence" during the policy period.

The Travelers policy defines an "occurrence" to mean "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (emphasis added). "Property damage" is defined as

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.

"[T]he time of the occurrence of an accident within the meaning of an indemnity policy is not the time the wrongful act is committed but the time when the complaining party is actually damaged." Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 452 (1994) (citing Hartford Accident & Indemn. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. 18 (1984)). "[A]n 'occurrence' generally occurs 'when the complaining party is actually damaged.'" Aetna Cas. & Surety Co. v. Ply Gem Indus., Inc., 343 N.J. Super. 430, 453 (App. Div.) (quoting Owens-Illinois, Inc., supra, 138 N.J. at 452), certif. denied, 170 N.J. 390 (2001).

The trial judge found:

[A]ll that is evident from the pleadings and documents in this record with respect to the . . . complaints is that the [product] which [the insured] manufactured, and upon which these suits against [the insured] are based, was installed within the policy periods and caused damage to other property at some point in time. There is no allegation as to when the property damage occurred and thus, no way to determine, without more, whether the allegations of property damage caused by the insured's product were covered claims because they occurred during the policy periods. [Id. at 453-54.]

The evidence relevant to the date on which the leaking occurred supports that finding. The evidence about the date on which the Blue Claws' representative complained about the leaking is too uncertain to permit Epic to defeat Travelers' motion for summary judgment.

Even if we were to accept Epic's arguments that the "occurrence" here is of a nature that would permit a finding that the damage occurred at the time CJ performed the work, there is an alternate basis for the conclusion that Epic's claim is not covered as a matter of law. That alternate basis for affirmance is adequate to permit us to affirm the grant of summary judgment in favor of Travelers regardless of the date of occurrence.

This policy excludes coverage for claims based on the insured's performance of his or her work. The policy's exclusions from property damage include the following:

2. Exclusions

This insurance does not apply to:

j. Damage to Property "Property damage" to: . . . .

(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or

(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it. . . . .

Lakewood's claims of "missing and damaged asphalt shingles," "protruding and loose nails," and "dimpling of the steel decking underside" clearly fall within the scope of those exclusions. Accordingly, the grant of summary judgment to Travelers is affirmed.

B. Claims Under the Harleysville Policy

Harleysville issued a "Contractors' Business Owners Policy" to CJ for two annual policy periods between September 21, 2001 and September 21, 2003. The "Business Owners Liability Coverage" section provides in pertinent part:


1. Business Liability. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury," "property damage," "personal injury" or "advertising injury" to which this insurance applies. . . .

a. This insurance applies only:

(1) To "bodily injury" or "property damage:"

(a) That occurs during the policy period; and

(b) That is caused by an "occurrence. . . . "

b. We will have the right and duty to defend any "suit" seeking those damages. . . .


1. Applicable to Business Liability Coverage - This insurance does not apply to:

b. "Bodily 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. This exclusion does not apply to liability for damages:

(1) Assumed in a contract or agreement that is an "insured contract"; . . .

[(Emphasis added.)]

In pertinent part, the policy defines the term insured contract as follows:


6. "Insured Contract" means: . . . .

g. That part of any other contract or agreement pertaining to your business under which you assume the tort liability of another to pay damages because of a "bodily injury" or "property damage" to a third person or organization, if the contract or agreement is made prior to the "bodily injury" or "property damage." Tort liability means a liability that would be imposed by law in the absence of any contract or agreement. [(Emphasis added.)]

By letter dated December 9, 2005, Harleysville advised that it would defend CJ under a reservation of rights to raise a challenge under the policy's exclusion for contractual liability.

After entry of the order in the underlying litigation that requires CJ to indemnify and defend Epic, Harleysville advised CJ that it had no obligation to indemnify CJ for any award of attorneys' fees. Harleysville also advised, however, that it would indemnify CJ to the extent that CJ was contractually obligated to indemnify Epic for Epic's tort liability not otherwise excluded by Harleysville's policy.

When the underlying litigation with Lakewood was settled, Harleysville notified CJ by letter dated September 10, 2007 that it had no further obligation to defend the claim and withdrew its defense. Harleysville specifically explained that because the potentially covered claims for indemnity were settled, the only outstanding issue was Epic's entitlement to attorneys' fees, which were not covered under the policy.

There is no dispute that the subcontract between CJ and Epic is an "insured contract" within the meaning of the policy, and the trial judge concluded that it is. The issue here is whether the judge was correct in concluding that the relief Epic sought - fees and costs of its defense in the Lakewood litigation - is not available under the policy.

We agree that the policy language cannot be construed to provide coverage for the cost of Epic's defense. "An insurance policy generally should be interpreted according to its plain and ordinary meaning." Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 272-73 (2001). While "policies should be construed liberally in [the insured's] favor to the end that coverage is afforded to the full extent that any fair interpretation will allow," id. at 273 (citations and quotations omitted), when the language of the policy is not ambiguous, "a court should not engage in a strained construction to support the imposition of liability" and "should not write for the insured a better policy of insurance than the one purchased." Ibid. (citations and quotations omitted). "A 'genuine ambiguity' arises only where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage." Id. at 274 (citation and quotations omitted).

There is no room for confusion here. The "insured contract" provision extends coverage to CJ for "tort liability of another to pay damages because of a 'bodily injury' or 'property damage' to a third person or organization." Further, that tort liability is limited to "a liability that would be imposed by law in the absence of any contract or agreement." Thus, the policy plainly provides that it will pay what Epic is obligated to pay in damages to a third party, here Lakewood. That is what Harleysville did.

Whatever may be said about Epic's obligation to pay its own attorneys' fees and costs, those fees and costs are clearly not "damages" to Lakewood. The fees and costs are payments due for goods and services received by Epic in connection with the Lakewood litigation. While the fees and costs can be viewed as damages payable by CJ to Epic under the subcontract, the fees and costs are not part of Epic's tort liability to a third party.

With respect to the grant of summary judgment in favor of Harleysville, we need not decide whether Harleysville's obligation to cover the damages was triggered under the policy. Summary judgment was proper because Harleysville would not be required to pay Epic's cost and fees in the underlying litigation in any event.

The parties have relied on decisions of courts in other jurisdictions. Those cases involve the issue presented here - fees and costs incurred by one entitled to indemnification under an insured contract - and under policy provisions that are in pertinent part the same as those in this policy. The courts have reached different results.

Epic relies on Golden Eagle Insurance Co. v. Insurance Co. of the West, 121 Cal. Rptr. 2d 682, 688-89 (Ct. App. 2002). In that case, the insurer argued that "because the policies' definitions of insured contract refer only to the assumption of tort liability and do not expressly include the assumption of defense costs," the defense costs of the contractor are not covered by the subcontractor's policy. Id. at 687-88. The court rejected that argument.

The Golden court reasoned that "in accordance with the objectively reasonable expectations of the insured, . . . the indemnitee's defense costs are sums the insured is legally obligated to pay as damages because of property damage." Id. at 684. The court relied, in part, on an August 1996 Fire Casualty & Surety Bulletin, which the court found persuasive on the point. The bulletin explained that more recent CGL policies that specifically address fees and costs incurred by the indemnitee merely "clarif[y] coverage that existed under previous versions of the form . . . ." Id. at 689.

Harleysville relies on a federal court decision applying Wyoming law, Progressive Casualty Insurance Co. v. Brown's Crew Car, 27 F. Supp. 2d 1288, 1293 (D. Wyo. 1998). The same issue was raised under a policy that provided that "[t]ort liability means liability that would be imposed by law in the absence of any contract or agreement . . . ." Ibid. The court found that "[a] contractual obligation to pay defense costs . . . does not fall into the definition of an 'insured contract' under the Policy" because "[t]he Policy's definition of 'insured contract' is limited to an agreement by the insured to assume another's 'tort liability,' not defense costs." Ibid.

We find the decision in Progressive more persuasive. More importantly, we find the reasoning of Progressive to be more consistent with the approach to interpretation of insurance polices employed by the courts of this State.

Accordingly, for the foregoing reasons, we affirm the grant of summary judgment in favor of Harleysville.

C. Claims Under the Selective Policy

Summary judgment was properly awarded to Selective. There is no dispute that neither CJ nor Epic was an insured under that policy. The Selective policy was issued to a different entity - CJ Contractors of NJ. Moreover, it was issued more than two years after CJ substantially completed the roofing work.


Epic presents another argument independent of the terms of any of the policies. Epic contends that the trial court erred in concluding that the insurers were not "real parties in interest" because they handled the underlying litigation. The argument lacks sufficient merit to require discussion beyond noting that the authorities upon which Epic relies have no relevance here. R. 2:11-3(e)(1)(E). None of those cases stands for the proposition that an insurer can be held liable for payment of a judgment obtained against its insured that is not covered by the policy.

One case upon which Epic relies, Bussell v. DeWalt Products Corp., 259 N.J. Super. 499, 511 (App. Div. 1992), certif. denied, 133 N.J. 431 (1993), involved a corporation that could have been a "real party in interest," and we held that the corporation would be liable for a judgment entered against another corporation if successor liability could be established. Id. at 510-11.

In Kernan v. One Washington Park Urban Renewal Associates, 154 N.J. 437, 456 (1998), the issue was whether a trustee in bankruptcy and the management company of a bankrupt property owner could be added to a complaint after the statute of limitations expired. The Court determined that the parties could be added because the bankrupt entity, the trustee and the management company were all insured by the same company. Ibid. Because the insurer had notice of the proceedings initiated by the plaintiff, the Court found no prejudice and permitted the amendment.

Shubeck v. Ondek, 167 N.J. Super. 121, 123-24 (Law Div. 1979), involved a plaintiff, a passenger injured in an automobile accident, who attempted to bind the negligent driver to the prior verdict in a suit against the other driver. The court found that the negligent driver's insurance carrier was the "real party in interest" in the previous suit and had control of the litigation. Id. at 124-25. The court held that the negligent driver, through its carrier, would be estopped from denying liability because the issue was already litigated and determined in a prior action. Id. at 125.

None of the foregoing decisions involves circumstances remotely similar to those present here. Accordingly, we conclude that Epic has not shown legal error in the trial judge's rejection of this claim.


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