August 12, 2011
TUSCANY BISTRO, INC., PLAINTIFF-APPELLANT,
SIRIUS AMERICA INSURANCE COMPANY, DEFENDANT-RESPONDENT, AND SASCO INSURANCE SERVICES, INC. AND WAYNE BRENGAL, DEFENDANTS.
On appeal from Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-994-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted October 6, 2010
Before Judges Fuentes and Gilroy.
Plaintiff Tuscany Bistro, Inc. is a New Jersey corporation that owned and operated a restaurant business located in the Village of Pluckemin, Bedminster Township. Defendant Sirius America Insurance Co. sold plaintiff a commercial policy insuring against loss from a fire. After the restaurant was heavily damaged from a fire, defendant denied coverage under the policy, claiming plaintiff had violated a material condition of the policy requiring it to maintain a fire suppression system.
Plaintiff filed a declaratory judgment action against defendant seeking a judicial determination of coverage.
Defendant moved for summary judgment arguing plaintiff had violated a material condition of the policy. The motion judge agreed with defendant's position and dismissed plaintiff's complaint with prejudice. Plaintiff now appeals. We affirm.
IOn July 14, 2003, plaintiff applied for a business owner's insurance policy through Sasco Insurance, Inc., an agent of defendant. The policy was underwritten by G&G Underwriters, LLC (G&G). The loss control form attached to plaintiff's application indicated the insured informed the agent the restaurant was equipped with a central station fire alarm system and a central burglar alarm system. Defendant issued the policy and gave plaintiff a $375 credit against the premium because of the dual-alarm systems.
G&G arranged to have the restaurant inspected by H&S Technical Services. The risk assessment report prepared by H&S Technical does not mention having found or inspected a centrally monitored fire alarm system. We note, however, that the report consists mainly of a check-off list of items grouped together under particular categories. The information relating to fire protection measures was under section 5, denoted "PROTECTION." Check marks placed next to preprinted categories indicate the existence of sprinklers, "hardwired" smoke alarms, and three fire extinguishers. The box for "Manual Fire Alarm" is checked "No." By contrast, the section in the report denoted "BURGLARY" has the word "Yes" checked in the boxes asking whether there was a burglary alarm system connected to a central station.
Plaintiff's policy contained a protective safeguards - automatic fire alarm endorsement under which, as a condition of coverage, plaintiff was required to install and maintain an automatic fire alarm protecting the "entire building," connected to a central station or reporting to a public or private fire alarm station. Plaintiff was also required to inform defendant of any defect or suspension of service.
The actual language used in the policy read as follows:
A. As a condition of this insurance, you are required to maintain the protective safeguard described below.
Insurance under Part 1 for loss caused by, or resulting from, fire is suspended and we do not insure such loss if you fail to immediately notify us when you:
* Know of any suspension of service or impairment in the working order of the protective safeguard; or
* Fail to maintain in complete working order such protective safeguard under your control.
B. If the policy covers more than on [sic] location and a premises is designated below, this Condition applies only to such designated premises.
Designated Premises Location(s):
Protective safeguard, as used in this endorsement, means an automatic fire alarm protecting the entire building and connected to a central station or reporting to a public or private fire alarm station.
Under a different section of the policy denoted as protective safeguards - hood and duct protection - coverage modification, the policy puts the insured on notice that loss caused by or resulting from a fire will not be covered if the insured does not notify the carrier when it
* Know[s] of any suspension of service or impairment in the working order of the fixed automatic fire extinguishing systems or the grease removal systems; or
* Fail[s] to maintain in complete working order such fixed automatic fire extinguishing systems or grease removal systems under [their] control.
The inspection conducted by defendant's underwriter on September 24, 2003, did not ascertain whether the fire suppression system was operational.
IIOn July 17, 2004, plaintiff's restaurant was heavily damaged from a fire. A fire investigation report commissioned by defendant revealed that the fire protection system was not operational at the time of the fire. Specifically, the report found:
The control panel set internal alarm contacts were found to be non-functional on the common and normally open, and common and normally closed contact terminals, when the system was activated to an alarm condition. Terminals 27, 28, and 29.
Significantly, the Napco Magnum Fire Alert MRA 6000-Series Fire Alarm Control Panel contains and includes a preprogrammed PROM (Programmable Read-Only Memory) chip and internal multifunction digital keypad.
Notably, examination of the internal chip was found to contain serious defects and irregularities, that had the system been utilized, it would have been evident to the insured.
Furthermore, pursuant to my report dated July 28th 2004, my on-site inspection revealed that one of the signal circuit wires was found to be unattached from the circuit board of the Fire Alarm Control Panel and the backup rechargeable batteries also appeared to be damaged, (not from the fire). Moreover, another signal circuit wire was also found to be extremely loose on the circuit board.
Consequently, the fire alarm system was found to be non-functional and unable to function as intended during my on-site inspection, as such, it is my expert opinion, within a reasonable degree of professional, scientific, and technical certainty, that the system was unable to annunciate the fire and smoke condition when the loss occurred, due directly to its nonfunctional condition prior to the fire.
Furthermore, there was no evidence that the system was connected for remote station monitoring, either directly through its on-board system terminals, or through the other alarm control panel which was at the premises.
I would also like to emphasize that there was no physical evidence that the fire caused the system to become non-functional, as stated above.
Based on these findings, defendant denied liability under the policy. Plaintiff filed a declaratory judgment action seeking coverage under the policy. After initial motion practice concerning discovery, the matter came before the trial court by way of defendant's summary judgment motion arguing plaintiff's failure to maintain an operational fire suppression system violated the express condition of coverage contained in the policy. Defendant relied on the report that found the fire suppression system was inoperable before the fire. Thus, of particular significance are the following comments made by plaintiff's counsel's during oral argument before the motion judge:
THE COURT: The expert opined that the fire alarm system was found to have been nonfunctional prior to the fire because the alarm panels, PROM memory chip contained serious defects and irregularities that would have been apparent to the insured if the system had been utilized.
Signal circuit wires were detached from the control panel circuit board. Back-up rechargeable batteries were damaged by non-fire causes. Another signal circuit wire on the circuit board was extremely loose.
Basically, what the expert testified is no one could have used this and believed that this . . . was a working fire alarm system, and I don't think that is disputed.
Is that correct, [addressing plaintiff's counsel by name]?
PLAINTIFF'S COUSNEL: Judge, we don't have an expert report. I think that's the expert's opinion. I don't know that he's testified. He has a certification, and he's attached his report and had a summary as to what his -
THE COURT: But it's summary judgment, and you haven't . . . countered that - the fact that he says there were wires, unattached wires off this board, another very loose wire, the batteries, the back-up batteries were useless
PLAINTIFF'S COUNSEL: We don't dispute that, your Honor.
Plaintiff argued, however, that the policy's protective safeguard endorsement: (1) was ambiguous and unenforceable because, if read literally, it required plaintiff to install the fire alarm system throughout the entire building, as opposed to just the restaurant property; (2) was not mentioned in the policy's declaration sheet and thus unenforceable and inconsistent with plaintiff's reasonable expectations of coverage under Lehrhoff v. Aetna Cas. & Sur. Co., 271 N.J. Super. 340 (App. Div. 1994); (3) was a mere condition subsequent to the issuance of the policy to reduce the premium, not a warranty by plaintiff; and (4) was waived by defendant's failureto promptly deny plaintiff's claim.
In response, defendant maintained that the protective safeguard endorsement was a clear condition of coverage.
According to defendant, plaintiff's uncontested failure to maintain the fire alarm system as operational was a material breach of the policy warranting denial of coverage.
The court issued a comprehensive oral opinion finding the protective safeguard endorsement to be an unambiguous condition of coverage under the clear terms of the policy. While acknowledging the adhesive nature of insurance policies, the court emphasized that its function was to enforce such policies as written, provided they were not otherwise unenforceable as a matter of law or equity. The court found plaintiff breached a material condition of coverage by failing to maintain the fire alarm system.
IIIBecause this is an appeal from the trial court's grant of summary judgment, we will review the facts in the light most favorable to plaintiff. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); R. 4:46-2(c). Here, the question before us concerns only the trial court's application of principles of insurance law to an otherwise undisputed factual record.*fn1
Plaintiff reiterates the arguments it raised before the trial court. We reject plaintiff's arguments substantially for the reasons expressed by the trial court. The legal principles applicable here have been recently reaffirmed by our Supreme Court:
Contracts for insurance are unique, and we take a particularly vigilant role in ensuring their conformity to public policy and principles of fairness. Generally, when interpreting an insurance policy, we give the policy's words their plain, ordinary meaning.
Critically important to our analysis is the principle that to fulfill the expectations of the parties, we will enforce the terms of an insurance policy as written if the language is clear. If the policy terms are clear, we interpret the policy as written and avoid writing a better insurance policy than the one purchased.
If the terms are not clear, but instead are ambiguous, we construe them against the insurer and in favor of the insured to give effect to the insured's reasonable expectations.
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. Ambiguous policies are those that are overly complicated, unclear, or written as a trap for the unguarded consumer. When construing an ambiguous clause in an insurance policy[,] we consider whether clearer draftsmanship by the insurer would have put the matter beyond reasonable question. Most important, the rule that contracts of insurance will be construed in favor of the insured and against the insurer will not be permitted to have the effect of making a plain agreement ambiguous and then construing it in favor of the insured.
[Passaic Valley Sewerage Comm'rs v. St. Paul Fire & Marine Ins. Co., ___ N.J. ___, ___ (2011) (slip op. at 13-15) (internal quotations and citations omitted).]
The trial court correctly found the terms of the protective safeguard endorsement were unambiguous and enforceable. The fire alarm system was clearly denoted in the policy as a condition of coverage. Plaintiff's failure to comply with this endorsement constitutes valid grounds for denying coverage.
This is not a Lehrhoff case because the endorsement was clearly communicated to plaintiff via a reduction in premium. Affirmed.