Coverage

A year ago, I reported on a published Appellate Division case, Cypress Point Condominium Assoc., Inc. v. Adria Towers, L.L.C., 441 N.J. Super. 369 (App. Div. 2015), in which the court decided that the consequential damages caused by a subcontractor’s work in the construction of a condominium complex was potentially covered by the developer’s insurance policy. Cypress Point was appealed to the New Jersey Supreme Court, Cypress Point Condominium Assoc., Inc. v. Adria Towers, L.L.C., 2016 N.J. LEXIS 847 (Aug. 4, 2016), which affirmed the Appellate Division’s decision, finding that there was coverage for the damages caused by the subcontractor’s faulty workmanship.

After the construction of the condominium complex, several condominium owners began experiencing roof leaks and water infiltration into their units. The common areas also suffered damage caused by water intrusion into the common areas and interior structures. The condominium association brought suit against the developer and several subcontractors, alleging faulty workmanship during construction. The issue in this case was whether the developer’s insurers owed coverage for such damages.

Initially, the trial court had ruled in favor of the insurers, finding no coverage. But, as I reported a year ago, the Appellate Division reversed, finding that the CGL policies did potentially cover these damages. The insurers filed a petition for certification to the New Jersey Supreme Court to try to overturn this ruling, which petition was granted. However, ultimately, the Supreme Court agreed with the Appellate Division and affirmed its decision, finding that coverage did exist.

The condominium association claimed that after the project was completed, the water infiltration caused mold growth and other damage to the common areas and the individual units. As a result, there was a loss of use of those areas. The Supreme Court held that these damages qualified as “property damage” under the policy.

Next, the Court looked at whether an “occurrence,” as defined by the policy took place. An occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Court found that an “accident” encompassed unintended and unexpected harm caused by negligent conduct. No one claimed that the subcontractors intentionally performed substandard work that led to the water damage. Thus, the Court held that the consequential harm caused by their negligent work was an “accident.”

After finding that these claims were covered by the policies, the Court turned to whether any exclusions applied and, if applicable, any exceptions to the exclusions. The policies contained numerous exclusions for the cost to repair the contractor’s own work, the “your work” exclusion. However, the policies also contained an exception to the exclusion (the subcontractor exception) in that this exclusion did not apply “if the damaged work or the work out of which the damage arises was performed by a subcontractor.” Because the water damage was alleged to have arisen from the faulty workmanship of subcontractors, the exception to this exclusion applied. Hence, the Supreme Court found that the water damage was a covered loss.

Accordingly, the Court held that the trial court incorrectly granted summary judgment in favor of the insurers because the association’s claims of consequential water damage resulting from the defective subcontractor workmanship constituted both an “occurrence” and “property damage” under the terms of the policies.

The Defendant Elmer McCray rear-ended Plaintiff Vanessa Rivera (“Rivera”) while she operated a vehicle owned by her mother, Janet Torres-White, who was insured by NJM. Rivera had her own insurance under a special policy issued by National Continental Insurance Company. Rivera settled her personal injury claim against McCray for his policy limits of $15,000. The issue in the published decision of Rivera v. McCray, 2016 N.J. Super. LEXIS 65  (App. Div. 2016) was whether Rivera had recourse to $85,000 of the $100,000 UIM coverage in her mother’s NJM policy.

NJM claimed that she was not entitled to UIM coverage under its policy based on a step-down provision. Under NJM’s policy, there is no UIM coverage if the injured insured is not a named insured under its policy but is a named insured under another policy “providing similar coverage” that is less than NJM policy’s UIM liability limit. Under the NJM provision, the maximum liability limit for such an insured shall “step down” to the liability limit “under any insurance providing coverage to that insured as a named insured.”

The trial court agreed with NJM and concluded that Rivera did have “similar coverage” that triggered the step-down provision. As a result, Rivera was left with zero UIM benefits because she had no benefits under her own special policy. Her policy was a “special policy” under N.J.S.A. 39:6A-3.3 (a policy available to certain Medicaid recipients of limited income) which provides no UIM coverage at all.

The Appellate Division noted that New Jersey courts have enforced UIM step-down provisions if  “expressed in clear and unambiguous language.” A UIM step-down provision can limit the amount of UIM coverage available to an individual who is not a named insured to the limit of UIM coverage that the individual may recover under his or her own policy.

In McCray, NJM did not dispute that Rivera may qualify as an “insured” under her mother’s policy. However, NJM contended that Rivera was not entitled to collect any UIM benefits under its policy because she may recover zero benefits under her own policy.

The Appellate Division disagreed with NJM as to the application of its step-down provision. The Court found that it did not apply because it required that the insured be a named insured under one or more policies providing “similar coverage.” The Appellate Division concluded that the plaintiff’s special policy did not provide “similar coverage” because it provided no UIM coverage at all.

The Court was not compelled to reach a different result based upon an argument that Rivera presumably, due to her financial circumstances, chose a policy with no UIM coverage. Her mother bought UIM coverage which covered her and her family members driving her vehicle. Thus, the Court found that her mother’s reasonable expectations as to this step-down coverage should not be frustrated by denying her daughter benefits.

However, NJM had an alternate argument that the plaintiff did not reside with her mother and, hence, did not qualify as an insured under its policy. NJM argued that the plaintiff’s own policy indicated a different address than her mother’s address. It claimed that she was not a resident of her mother’s household and, thus, did not qualify as a family member entitled to coverage under its policy. Rivera disputed NJM’s claim and contended that she did reside with her mother.

Because the trial court never reached the residency issue, the Appellate Division remanded the matter back to the trial court to permit a period of discovery as to this issue. Thus, the Appellate Division reversed on the “similar coverage” issue and found that the step-down provision was not triggered. However, the Court permitted NJM to pursue its alternate argument that the plaintiff did not reside with her mother and, therefore, would not be entitled to UIM coverage under her mother’s policy.

Plaintiff Damon Barley (“Barley”) filed a lawsuit against Steven Quadrel (“Quadrel”) for injuries suffered when Quadrel punched him in the jaw.  Barley sued Quadrel based upon intentional tort and negligence. Quadrel’s parents submitted a notice of claim to Citizens Insurance Company of America (“Citizens”) for coverage under their homeowners policy. Citizens denied coverage. In Barley v. Massachusetts Bay Insurance Company, et al,  2016 N.J. Super. Unpub. LEXIS 547 (App. Div. March 14, 2016), Barley filed suit as Quadrel’s subrogee to obtain coverage under Quadrel’s policy for this injury.

Barley and Quadrel were fellow high school students on the wrestling team. When Quadrel punched Barley, he broke his jaw. Although Quadrel did not intend this precise injury, he never disputed that he intentionally inflicted the blow. Quadrel testified at deposition that he was angry and intended “to make him feel the sting of a punch.”

Initially, Citizens issued a reservation of rights letter. Then, after it investigated, it denied coverage for the claim. Citizens cited to the exclusion in the policy that payments to others do not apply to bodily injury “which is expected or intended by one or more insureds even if the bodily injury … is of a different kind, quality or degree than expected or intended.”

Barley and Quadrel settled their lawsuit pursuant to a consent judgment entered against defendant on the negligence count only for $1 million plus prejudgment interest. The intentional assault count was dismissed with prejudice. Quadrel then assigned all rights to coverage under his policy to plaintiff Barley. Barley then filed this declaratory judgment action against the insurer.

Both plaintiff and defendants moved for summary judgment in the declaratory judgment action. The trial court judge granted the defendant carrier summary judgment, finding that “it’s really uncontroverted that what he did was not a negligent act, but an intentional act of punching the other guy and that’s not covered by the policy.”

The Appellate Division affirmed, agreeing with the trial court judge that the policy did not provide coverage. It pointed out that it was obligated to read the language of the policy in accordance with its plain and ordinary meaning. The court found that this incident did not qualify as an “accident resulting in bodily injury” and, further, that the denial of coverage was supported by the exclusion cited by the carrier.

Note that even though the parties dismissed the intentional assault count, that did not preclude the carrier from denying coverage. In this case, the court looked at the underlying facts of the incident without reference to the parties attempting to bring this matter within coverage of the policy by settling based upon the negligence count and dismissing the intentional act count.