January 23, 2018
appeal from Superior Court of New Jersey, Law Division,
Monmouth County, Docket No. L-4617-15.
E. Borowsky, Jr., argued the cause for appellant (Borowsky
& Borowsky, LLC, attorneys; Frank E. Borowsky, Jr. and
Stuart M. Berger, on the brief).
Kenneth M. Portner argued the cause for respondents (Weber
Gallagher Simpson Stapleton Fires & Newby, LLP,
attorneys; Kenneth M. Portner, on the brief).
Judges Fisher, Fasciale and Moynihan.
consider whether a third party may take advantage of an
estoppel doctrine - first recognized in Merchants
Indemnity Corp. v. Eggleston, 37 N.J. 114 (1962) - that
has been found to apply when an insurer, while reserving its
rights or otherwise declining to provide coverage, fails to
clearly request its insured's consent to the
insurer's control of the defense. Unlike the trial judge,
we cannot conclude the insurer here should be estopped from
denying coverage because there is no clear evidence that the
ostensibly defunct insured changed its position to its
detriment even if the insurer assumed the defense without
consent. We also reject the argument that Eggleston permits
avoidance of estoppel only if the insurer uses certain magic
words in communicating with its insured; the insurer's
disclaiming letter here could reasonably be interpreted as
conveying an offer rather than a unilateral declaration of a
right to control the defense. For these and the other reasons
that follow, we reverse the summary judgment entered in favor
of the parties seeking estoppel - the victim of the
insured's alleged negligence and its property-damage
insurer - and also affirm the denial of the insurer's
motion for summary judgment.
briefly outline the circumstances that inspired this
declaratory judgment action and consider those circumstances
in the light most favorable to plaintiff Northfield Insurance
Company, the opponent of the summary judgment motion filed by
defendant Mt. Hawley Insurance Company. Brill v. Guardian
Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
2012, Empress Properties, Inc. hired CDA Roofing Consultants,
LLC, to perform roof installation work on the Empress Hotel
in Asbury Park; CDA subcontracted some of the necessary labor
to Labrusciano Construction, LLC. The work was deemed
completed in July 2012.
Empress Hotel is located on Asbury Avenue, less than 1000
feet from the Atlantic Ocean. Superstorm Sandy made landfall
on the Jersey Shore on October 29, 2012, causing roof damage,
which caused further water damage to the Hotel's
interior. CDA was insured by Northfield when the
roof-installation work was performed as well as when the
record suggests that CDA did not notify Northfield of the
claim asserted by Empress Properties and Mt. Hawley,
Empress's insurer. Instead, by letter dated November 28,
2012, Mt. Hawley's attorney advised Northfield of the
circumstances and its potential claim against CDA for the
resulting damages. On January 24, 2013, Northfield wrote to
Mt. Hawley's attorney to deny the claim based on its
investigation and the view of Northfield's expert that
the damage was caused by Sandy's winds, not CDA's
negligence. Five days later, Northfield wrote to CDA to
advise of its investigation of Mt. Hawley's claim and
quoted from numerous policy provisions and exclusions to
support its position - based on an "assessment of the
information presently available" - that coverage for Mt.
Hawley's claim was excluded; Northfield did state,
however, that while one provision excluded any "damage
to the roof that occurred after [CDA's] work was
completed, " that exclusion would not apply "if the
damaged work or the work out of which the damage arises was
performed on [CDA's] behalf by a subcontractor."
Northfield acknowledged that "[r]esulting water damage
to the rooms inside the hotel" would be covered "to
the extent [CDA] is legally responsible for these
damages." Northfield also asserted that in expressing
these views it was not admitting or waiving any available
coverage defense or limitation, that it was reserving any
rights it might possess "in connection with these
matters whether stated or not in this letter, " and that
it was reserving "the right to modify its coverage
position at any time upon receipt of additional
information." And the letter urged CDA, if sued, to
"promptly" forward any complaint for
than a year later - on March 17, 2015 - Empress and Mt.
Hawley filed a complaint against CDA and Labrusciano. Among
other things, Empress and Mt. Hawley claimed: that cracks
developed in the ceilings of several rooms on the hotel's
top floor in early October 2012; that CDA was immediately
notified; that CDA denied responsibility and took no action;
that emergency repair work was undertaken; that the roof
collapsed on October 22, 2012 - a week before Sandy's
landfall; and that the roof collapse left the top floor
exposed to the elements that Sandy soon provided. Mt. Hawley
and Empress asserted that the pre-Sandy roof problems were
caused by the negligence of either CDA or Labrusciano or
9, 2015, Northfield wrote to CDA to advise that it was
"disclaiming any obligation to indemnify."
Northfield explained, over the course of a number of pages of
its letter, the reasons for its actions, including: (1)
CDA's failure to timely advise of the claim, noting that
CDA was served with the summons and complaint on April 26,
2015, but Northfield was not advised until Mt. Hawley gave it
notice on June 4, 2015; (2) some of the damages claimed in
the suit included replacing the roof CDA was contracted to
install and the policy excluded "property damage"
to "[CDA's] product" or "[CDA's]
work"; and (3) another exclusion precluded coverage
because there was no evidence that "Labrusciano agree[d]
to defend, indemnify and hold [CDA] and the project owner
harmless from all liability arising out of that work"
and no evidence that Labrusciano "agree[d] to add [CDA]
and the project owner as an additional insured on
while denying an obligation to indemnify, Northfield
volunteered to provide a defense; that is, Northfield stated
[n]otwithstanding [a denial of coverage, it was] willing to
provide [CDA] with a courtesy ...