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Northfield Insurance Co. v. Mt. Hawley Insurance Co.

Superior Court of New Jersey, Appellate Division

March 28, 2018

NORTHFIELD INSURANCE COMPANY, Plaintiff-Appellant,
v.
MT. HAWLEY INSURANCE COMPANY as Subrogee of EMPRESS PROPERTIES, INC., and EMPRESS PROPERTIES, INC., Defendants-Respondents, and CDA ROOFING CONSULTANTS, LLC, LABRUSCIANO CONSTRUCTION, LLC a/k/a and t/a LABRUSCIANO ROOFING, and LABRUSCIANO ROOFING; LABRUSCIANO ROOFING, LLC, a/k/a and t/a LABRUSCIANO CONSTRUCTION, LLC and LABRUSCIANO ROOFING, Defendants.

          Argued January 23, 2018

          On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-4617-15.

          Frank 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).

          Before Judges Fisher, Fasciale and Moynihan.

          OPINION

          FISHER, P.J.A.D.

         We 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.

         We 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).

         In June 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.

         The 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 storm hit.

         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 Northfield's "consideration."

          More 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 both.

         On June 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 Labrusciano's policy."

         But, while denying an obligation to indemnify, Northfield volunteered to provide a defense; that is, Northfield stated that

[n]otwithstanding [a denial of coverage, it was] willing to provide [CDA] with a courtesy ...

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