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Essex Insurance Co. v. New Jersey Pan-African Chamber of Commerce & Industry, Inc.

Superior Court of New Jersey, Appellate Division

August 27, 2013

ESSEX INSURANCE COMPANY, Plaintiff-Respondent,
v.
NEW JERSEY PAN-AFRICAN CHAMBER OF COMMERCE & INDUSTRY, INC.; VACCARO ASSOCIATES, LLC; MLB CONSTRUCTION AND CONSULTING, INC.; FRENCH & PARRELLO ASSOCIATES, P.A.; GRAY, WATT & PARTNERS; COLLECTIVE CONCRETE, INC.; ATLANTIC SHEET PILE, INC.; NORTHEAST, [1] INC.; STEVEN A. TARDY, individually and in his official capacity as agent/employee of FRENCH & PARRELLO ASSOCIATES, P.A.; JAMES WATT, individually and in his official capacity as agent/ employee of GRAY, WATT & PARTNERS; DAVID ZOLTAK, individually and in his official capacity as agent/ employee of NORTHEAST, INC.; MELBER GEOVANNY TINITANA; WORK ARCHITECTURE AND DESIGNS, INC.; and CONCRETE CONSTRUCTION AND COUNSELING, INC., Defendants, and HAROLD BERLOW,

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 16, 2013.

On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2320-08.

Francis X. Garrity argued the cause for appellants (Garrity, Graham, Murphy, Garofalo & Flinn, P.C., attorneys; Mr. Garrity, on the brief).

Daniel R. Bryer (Clausen Miller, P.C.) of the Illinois bar, admitted pro hac vice, argued the cause for respondent (Clausen Miller, P.C. and Mr. Bryer, attorneys; Thomas D. Jacobson and Mr. Bryer, on the brief).

Before Judges Axelrad, Sapp-Peterson and Nugent.

PER CURIAM.

This is a declaratory judgment action in which defendants, Harold Berlow and 700 Bangs Avenue, LLC (Bangs), appeal two orders granting summary judgment in favor of plaintiff, Essex Insurance Company. We affirm.

Bangs owns property on which a condominium was being built in Asbury Park. Berlow is one of fourteen managing members of Bangs and is also the president of MLB Construction and Consulting, Inc. (MLB), a general contractor, and the company with which Bangs contracted to construct the condominium. The property on which the condominium was being constructed is adjacent to a building owned by the New Jersey Pan-African Chamber of Commerce & Industry, Inc. (PACCI).

During the course of the construction project's excavation activities, the excavator exposed an area where a section of the PACCI building's wall did not extend down into the earth as far as the adjoining wall of defendants' property. As a result, PACCI's wall collapsed, ultimately requiring demolition of the entire structure. In addition to the property damage sustained by PACCI, an employee of one of MLB's subcontractors, Melber Geovanny Tinitana, sustained injuries after being struck by falling brick and mortar during the collapse.

In PACCI's complaint, it alleged that defendants negligently dug beneath PACCI's building, removed soil, and undermined the building's foundation. PACCI also alleged that defendants' excavation operations "jar[red] and cause[d] the surrounding land to vibrate, " causing the soil under PACCI's building to erode and subside, and causing further damage to PACCI's building. PACCI further asserted that defendants were vicariously liable for the negligent acts and omissions of their agents and employees, and that defendants' actions were wanton, willful, reckless and malicious.

In his complaint, Tinitana alleged that the cracking and ultimate collapse of the PACCI building was caused by defendants' excavation activities, and that these activities were negligent, careless and reckless, and constituted a violation of New Jersey regulations. The complaint additionally described Tinitana as an employee of both Bangs and another company subcontracted by MLB.

After the litigation commenced, defendants tendered their defense in the two lawsuits to Essex, seeking coverage under the Commercial General Liability (CGL) policy issued to Bangs for the period covering August 15, 2007 to August 15, 2008. Under the terms of the policy, Essex covered "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' . . . . caused by an 'occurrence' that takes place in the 'coverage territory[.]' . . . [and] during the policy period[.]" The policy also contains an "Additional Conditions Endorsement, " including two exclusions that are pertinent here:

This insurance does not apply to "bodily injury[, ]" "property damage[, ]" "personal injury[, ]" "advertising injury" or any injury, loss, or damages, including consequential injury, loss or damage, arising out of, caused by or contributed to or as a result of:

1.

(A) "movement of land or earth" regardless whether emanating from, aggravated by, or attributable to any operations performed by or on behalf of any insured, and regardless whether first manifestation of same occurs during the policy period or prior or subsequent thereto. "Movement of land or earth" includes instability, subsidence, settling, sinking, slipping, falling away, caving in, shifting, eroding, rising, tilting, bulging, cracking, mud flow, mudslide, earthquake, shrinking or expansion of ground, slabs, footings, foundations, walls, roofs, floors, ceilings or any other real property or part thereof[.] . . .
. . . .
(D) If contractors or subcontractors are used, it is a condition of coverage that you use only those that are insured, and carry at a minimum Commercial General Liability coverage with limits at least equal to the limits of this policy, name you as an additional insured on their policy and you require and secure certificates of insurance confirming same. . . .
. . . .
Further, there is no coverage under this policy for "bodily injury[, ]" "personal injury" or "property damage" sustained by any contractor, self-employed contractor, and/or subcontractor, or any employee, leased worker, temporary worker or volunteer help of same.

Moreover, the policy excludes injury, loss or damage resulting from "alleged negligence or other wrongdoing in the hiring, training, placement, supervision, or monitoring of others by insured[, ]" as well as "property damage" to "[t]hat 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[.]"

Essex ultimately agreed to defend both Bangs and Berlow under a reservation of its rights. The written reservation contained the following language:

Specification of the above [reservations] shall not be deemed a waiver of any provision, term, exclusion, definition or condition of the Policy. Essex reserves the right to deny coverage based upon grounds other than those expressly set forth in this letter and to supplement and/or amend this letter to address additional coverage issues as they arise, and any additional facts that may come to our attention. Essex further reserves the right to initiate an action for declaratory judgment with respect to Essex's rights and obligations under the Policy.

Notwithstanding its defense of defendants under the reservation, Essex initiated a declaratory judgment action seeking a judgment determining that it was under no duty to defend or indemnify defendants in either lawsuit. The motion judge initially granted its motion, but upon reconsideration, vacated his order in part, finding that defendants were entitled to coverage in the PACCI lawsuit, except for the claims of negligent supervision. Subsequently, Essex moved for reconsideration and, upon reconsideration, the court granted summary judgment in its favor. The present appeal followed.

On appeal, defendants raise the following points for our consideration:

POINT I
THE MOTION JUDGE ERRED IN CONCLUDING THAT COVERAGE FOR 700 BANGS AVENUE, LLC AND HAROLD BERLOWE WAS PRECLUDED BY THE EARTH MOVEMENT EXCLUSION IN THE ESSEX POLICY.
POINT II
THE MOTION JUDGE ERRED IN CONCLUDING THAT COVERAGE FOR 700 BANGS AVENUE, LLC AND HAROLD BERLOWE WAS PRECLUDED BY THE SUBCONTRACTORS' EMPLOYEES EXCLUSION IN THE ESSEX POLICY.

The factual record is not in dispute. Rather, the issue on appeal involves the trial court's interpretation of the exclusions contained in the insurance policies. An insurance policy is a form of contract, and interpretation of its provisions is a question of law subject to de novo review. Selective Ins. Co. of Am. v. Hudson E. Pain Mgmnt., 210 N.J. 597, 605 (2012). Thus, we owe no deference to the trial court's legal interpretation of the policy provisions. Kieffer v. Best Buy, 205 N.J. 213, 222–23 (2011).

The policy language at issue excludes coverage for "bodily injury" and "property damage" arising out of "movement of land or earth." Movement is defined as a non-exclusive occurrence. Although the word "excavation" is not specifically referenced, the exclusion is clear and unambiguous. The policy language also excludes coverage for injuries sustained by "any" subcontractor.

Generally, insurance policies are construed in accordance with principles that govern the interpretation of contracts; the parties' agreement "will be enforced as written when its terms are clear in order that the expectations of the parties will be fulfilled." Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010). The terms of insurance contracts are given their "'plain and ordinary meaning, '" with ambiguities resolved in favor of the insured. Ibid. (quoting Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992)). See also Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 273 (2001) (noting that if language in an insurance policy "'supports two meanings, one favorable to the insurer and the other to the insured, the interpretation favoring coverage should be applied'") (citation omitted).

In other words, to give effect to the reasonable expectations of the parties, courts will enforce the terms of an insurance policy as written if the language is clear, but on the other hand, construe the terms against the insurer only if the language is ambiguous. Passaic Valley Sewerage Com'rs v. St. Paul Fire & Marine Ins. Co., 206 N.J. 596, 608 (2011). See also Selective Ins., supra, 210 N.J. at 605 ("[C]overage provisions are to be read broadly, exclusions are to be read narrowly, potential ambiguities must be resolved in favor of the insured, and the policy is to be read in a manner that fulfills 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." Hurley, supra, 166 N.J. at 274 (citation and internal quotation marks omitted). Ambiguous policies are those that are "overly complicated, unclear, or written as a trap for the unguarded consumer." Zacarias v. Allstate Ins. Co., 168 N.J. 590, 604 (2001). "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." Passaic Valley, supra, 206 N.J. at 608.

However, "courts cannot 'write for the insured a better policy of insurance than the one purchased.'" Flomerfelt, supra, 202 N.J. at 441 (quoting Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529 (1989)). The rule of construing insurance policies in favor of the insured may not be used to make a plain agreement ambiguous and then construe it in favor of the insured. Passaic Valley, supra, 206 N.J. at 608.

Here, the policy contains an endorsement that clearly and unambiguously excludes from coverage any losses from "'movement of land or earth.'" The definition of "movement of land or earth" excludes defendants' excavation activities complained of in the two lawsuits. Both lawsuits were premised upon activities by defendants involving the digging, removal, or movement of soil, which in turn caused the PACCI building's wall to collapse. Such activities fall within the definition of "movement of land or earth." Indeed, in their brief, defendants state that, "literally speaking, excavating soil from a parcel of land in anticipation of laying a foundation for a building is encompassed within the words 'movement of land or earth.'"

We reject defendants' contention, based upon the cases they cite, that the exclusions at issue here apply only to natural phenomena. All of the cases cited by defendants are distinguishable because they involved exclusions that did not explicitly, as is the case here, define earth movement as including non-natural activities. Here, the definition specifically includes earth movement "emanating from, aggravated by, or attributable to any operations performed by or on behalf of any insured[.]"

For example, in Ariston Airline & Catering Supply Co. v. Forbes, 211 N.J.Super. 472, 482 (Law Div. 1986), the policy at issue excluded losses resulting from "earth movement, including but not limited to earthquake, landslide, mud flow, earth sinking, earth rising or shifting." The Law Division found that this definition was "far from clear, " and held that "the words 'earth movement' must be interpreted as referring to a natural phenomenon akin to" those phenomena specifically enumerated in the definition. Ibid.

Similarly, in Pioneer Tower Owners Association v. State Farm Fire & Casualty Co., 908 N.E.2d 875, 875-76 (N.Y. Ct. App. 2009), the New York Court of Appeals held that a policy did not exclude damage resulting from excavation where the policy defined "earth movement" as "the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not." It found that the definition of "earth movement" could reasonably include unnatural causes of earth movement, but could also reasonably be limited to only natural causes, and adopted the narrower reading, which resulted in coverage. Id. at 878.

Defendants also cite Murray v. State Farm Fire & Casualty Co., 509 S.E.2d 1 (W.Va. 1998), which interpreted a policy defining earth movement as "the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not. . . . includ[ing] but . . . not limited to earthquake, landslide, mudflow, sinkhole, subsidence and erosion[, ]" id. at 8, but contained a lead-in clause noting that such losses were excluded "regardless of . . . the cause of the excluded event" and "regardless of . . . whether the event . . . arises from natural or external forces." Id. at 13. The Murray court found that the lead-in clause was ambiguous and interpreted the earth movement provision as excluding only losses arising from "natural forces from beyond or outside the property." Ibid. See also Cox v. State Farm Fire & Cas. Co., 459 S.E.2d 446 (Ga.Ct.App. 1995) (interpreting the same provision to encompass only natural phenomena under the doctrine of ejusdem generis).[3] However, other courts interpreting the same language have held the opposite. See State Farm Fire & Cas. Co. v. Bongen, 925 P.2d 1042, 1046 (Alaska 1996) (finding that the two "regardless of" clauses unambiguously demonstrated that the policy "encompasses both natural phenomena and human processes" and declining to apply ejusdem generis "'when the context manifests a contrary intention'") (quoting Black's Law Dictionary (6th ed. 1990)). See also Chase v. State Farm Fire & Cas. Co., 780 A.2d 1123, 1128-29 (App. D.C. 2001) (holding the same, and collecting cases to demonstrate that a "large majority" of courts interpreting the same policy language have found that the exclusion unambiguously excludes non-natural earth movement).

These cases demonstrate that, contrary to defendants' claims, earth movement exclusions are not universally interpreted to encompass only naturally occurring earth movement. Rather, such exclusions are interpreted on a case-by-case basis in accordance with the specific exclusion's language. Moreover, the specific language in the exclusion negates the notion that there is an ambiguity in the terms of the exclusions, and defendants' claims to the contrary are without sufficient merit to warrant further discussion. R. 2:11-3(e)(1).

Further, unlike the circumstances in Lehrhoff v. Aetna Cas. & Sur. Co., 271 N.J.Super. 340, 347 (App. Div. 1994), upon which defendants rely to assert that their reasonable expectations were informed by the declaration page, which cannot now be contradicted by "a policy's boilerplate unless the declarations page itself clearly so warns the insured, " nothing in the declarations page raises a reasonable expectation of coverage for excavation. The fact that Essex called Bangs a "LANDOWNER - BUILDING UNDER CONSTRUCTION" recognizes that Bangs was obtaining insurance to cover the construction of a building; however, contrary to defendants' assertions, building construction does not so necessarily include excavation that the description "LANDOWNER - BUILDING UNDER CONSTRUCTION" would, without more, raise in defendants such a reasonable expectation of coverage for excavation that Essex could not exclude such coverage by specific language in the policy itself.

We additionally note that this case, unlike Lehrhoff, involves sophisticated insureds involved in the building construction business, not an average layperson purchasing automobile insurance. See Werner Indus., Inc. v. First State Ins. Co., 112 N.J. 30, 38 (1988) (declining to go against the unambiguous language of an insurance contract on public policy grounds where the contract covered commercial risks and involved sophisticated insureds). Further, as noted by Essex, the supplemental declarations page of the policy specifically provides that certain forms are "made part" of the policy.

Finally, defendants urge that the motion judge improperly relied upon an unpublished decision from this court, Sherwood v. Kelido, Inc., A-1585-07 (App. Div. April 15, 2009). Because our standard of review is de novo and our determination of the issues is reached independent of consideration of an unpublished opinion, we decline to address this point, other than to reiterate that generally, unpublished cases do not constitute precedent. R. 1:36-3.

Next, Bangs argues that coverage was not precluded by the subcontractor exclusion because (1) Essex was estopped from raising this issue on summary judgment because it failed to notify Bangs in a timely manner of its intention to assert that exclusion; and (2) the exclusion does not apply here because Tinitana's employer was a subcontractor of MLB, not Bangs. We find no merit to this argument.

An insurance carrier may be estopped from asserting the inapplicability of insurance to a particular claim, despite a clear contractual provision excluding coverage under certain circumstances. Griggs v. Bertram, 88 N.J. 347, 355-56 (1982). The most frequent situation giving rise to such estoppel occurs where a carrier undertakes to defend a lawsuit against the insured, with knowledge of facts relevant to a basis for non-coverage, without a valid reservation of rights. Id. at 356.

Upon notice of a claim from an insured or notice of an event that may give rise to a claim, an insurer is entitled to a reasonable period of time within which to investigate whether the claim or event involves a risk covered by the terms of the policy. Once an insurer has had a reasonable opportunity to investigate, or has learned of grounds for questioning coverage, it is then under a duty to promptly inform its insured of its intention to disclaim coverage or of the possibility that coverage will be denied or questioned. Id. at 357.

Defendants contend that Bangs failed to raise the subcontractor exclusion in its January 27, 2009 letter to defendants agreeing to provide a defense, albeit with a reservation of rights, against Tinitana's claims. Although plaintiff concedes that its January 27, 2009 letter did not expressly raise the subcontractor employee exclusion, plaintiff notes that in its November 10, 2 009 letter, it advises defendants that the intent of the letter was to "supplement[] and amend[] [its] previous letter in this matter." In the letter, plaintiff expressly states that based upon the subcontractor employee exclusion, there was no coverage for Tinitana's second amended complaint.

Tinitana's complaint specifically listed Bangs and a company subcontracted by MLB. Seven months later, in his second amended complaint, Tinitana clarified that Bangs was not his employer. Less than three months later, Essex issued a supplemental reservation of rights letter asserting the applicability of the subcontractor exclusion. Thus, less than one year passed between when Essex received a copy of Tinitana's original complaint and Essex ultimately learned the identity of Tinitana's true employer and issued its supplemental reservation of rights letter. Moreover, in addition to stating specific reasons for its initial reservation of rights, Essex also "reserve[d] the right to deny coverage based upon grounds other than those expressly set forth in [the] letter, and to supplement and/or amend [the] letter to address additional coverage issues as they arise, and any additional facts that may come to [Essex's] attention." This is exactly what Essex did, and defendants have failed to demonstrate any prejudice by the delay in asserting this defense.

Turning to the subcontractor exclusions, the policy language states:

If contractors or subcontractors are used, it is a condition of coverage that you use only those that are insured, and carry at a minimum Commercial General Liability coverage with limits at least equal to the limits of this policy, name you as an additional insured on their policy and you require and secure certificates of insurance confirming same. . . .
. . . .
Further, there is no coverage under this policy for "bodily injury[, ]" "personal injury" or "property damage" sustained by any contractor, self-employed contractor, and/or subcontractor, or any employee, leased worker, temporary worker or volunteer help of same.

Defendants contend that because the first paragraph refers to "you" (the insured) using contractors or subcontractors, the reference to contractors and subcontractors in the third paragraph is limited to Bangs's contractors and subcontractors. As such, because Tinitana was not an employee of a contractor or subcontractor of Bangs, but rather an employee of a subcontractor of MLB, Bangs contends the exclusion does not apply to Tinitana. In addition, Bangs also maintains that the purpose of the subcontractor exclusion was to protect Essex from having to offer workers' compensation insurance to Bangs for employees of Bangs's subcontractors in the event those subcontractors failed to carry workers' compensation insurance.

In contrast, Essex notes that the plain language of the exclusion precludes coverage for losses "'sustained by any contractor, self-employed contractor, and/or subcontractor, or any employee . . . of same[, ]'" and argues that the use of the word "any" in the third paragraph signals that this paragraph of the exclusion was intended to cover all contractors or subcontractors regardless of their affiliation with Bangs, as opposed to the first paragraph, which was explicitly limited to contractors and subcontractors the insured used.

"When the terms of an insurance contract are clear, courts must interpret the policy as written and avoid writing a better policy for the insured." Homesite Ins. Co. v. Hindman, 413 N.J.Super. 41, 46 (App. Div. 2010) (citing President v. Jenkins, 180 N.J. 550, 562 (2004)). Moreover, in construing the terms of an insurance contract, "[w]e will not read one policy provision in isolation when doing so would render another provision meaningless." Id. at 47 (citing Hardy v. Abdul-Matin, 198 N.J. 95, 103-04 (2009)).

The fact that the first and third paragraphs of the subcontractor exclusion fall under the same subsection of the Additional Conditions Endorsement evidences a correlation between the two paragraphs. Both address issues pertaining to subcontractors. However, the first paragraph specifically refers to contractors and subcontractors, "you" meaning the insured, while the third paragraph specifically refers to "any" contractor or subcontractor, as well as "any" employee of same.

Nor is it evident from the language that the exclusion was intended only to protect Essex from becoming an alternative source of workers' compensation insurance in the event a Bangs contractor or subcontractor fails to provide it. See Flanigan v. Munson, 175 N.J. 597, 606 (2003) ("'In interpreting a contract, [i]t is not the real intent but the intent expressed or apparent in the writing that controls.'") (citation omitted) (alteration in original). The construction urged by Bangs seeks to alter the clear and unambiguous language and limit its applications to subcontractors employed solely by Bangs, thereby reading into the exclusion language that it does not contain. See Flomerfelt, supra, 202 N.J. at 441 ("[C]ourts cannot 'write for the insured a better policy of insurance than the one purchased.'") (citation omitted).

Finally, because we conclude the earth movement exclusion applies, we need not address whether summary judgment was appropriate based upon the property damage exclusion contained in the policy.

Affirmed.


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