EVANSTON INSURANCE COMPANY VS. A&R HOMES DEVELOPMENT, LLC (L-4547-16, HUDSON COUNTY AND STATEWIDE) ( 2019 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2328-17T3
EVANSTON INSURANCE
COMPANY,
Plaintiff-Respondent,
v.
A&R HOMES DEVELOPMENT,
LLC, JOSE APONTE, ENNOBLE
REACH MANAGEMENT
CORPORATION, KUEI MEI
and TSENG, and LIEN YI TSENG,
Defendants,
and
DAVID SHARKEY,
Defendant-Appellant.
______________________________
Argued February 5, 2019 – Decided February 19, 2019
Before Judges Gilson and Natali.
On appeal from Superior Court of New Jersey, Law
Division, Hudson County, Docket No. L-4547-16.
Francis X. Garrity argued the cause for appellant
(Garrity, Graham, Murphy, Garofalo & Flinn, PC,
attorneys; Jane Garrity Glass, of counsel; Francis X.
Garrity, on the briefs).
April T. Villaverde argued the cause for respondent
(Kennedys CMK LLP, attorneys; April T. Villaverde,
of counsel and on the brief).
PER CURIAM
In this insurance coverage dispute, defendant David Sharkey appeals from
a December 15, 2017 Law Division order granting plaintiff Evanston Insurance
Company (Evanston) summary judgment, and a December 15, 2017 order
denying his cross-motion for summary judgment.1 We affirm the court's orders
on two independent bases.
First, we conclude that Sharkey was bound by the court's October 13, 2017
default judgment, in which the court concluded that Evanston "owe[d] no
coverage obligation" to defendants, A&R Homes Development, LLC (A&R),
and its owner, Jose Aponte, for any claims asserted by Sharkey. Second, we
agree with the court that the comprehensive general liability (CGL) policy
issued by Evanston did not provide coverage for Sharkey's third-party bodily
injury claim, in any event.
1
It appears the court mistakenly referred to Sharkey as "[p]laintiff" in its
December 15, 2017 order denying his cross-motion.
A-2328-17T3
2
I.
In June 2015, A&R, a general contractor, was hired by defendants Kuei
Mei Tseng and Lien Yi Tseng to build a four story, three-unit apartment building
with a rear parking lot on their property in Jersey City. A&R subsequently
retained YVPV Construction, LLC, (YVPV) as a subcontractor for the project.
On March 23, 2016, Sharkey, an employee of YVPV, was working at the
construction site when he fell approximately twenty feet and sustained bodily
injuries. Sharkey filed a complaint on May 4, 2016, against the Tsengs, A&R,
Jose Aponte, and Ennoble Reach Management Corp., alleging that their
negligence caused his injuries.
At the time of Sharkey's accident, A&R was insured by Evanston under a
CGL policy that promised to pay "those sums that [A&R] becomes legally
obligated to pay as damages because of 'bodily injury' . . . caused by an
'occurrence' . . . ." The Evanston policy defined "Bodily Injury" as "bodily
injury, sickness or disease . . . ." "Occurrence" is defined as "an accident . . . ."
The policy contains a common declarations page, which explains that the policy
includes the "declarations, together with the [c]ommon [p]olicy [c]onditions and
[c]overage [f]orm(s) and any [e]ndorsement(s) . . . ."
A-2328-17T3
3
Immediately following the declarations page is a schedule of attached
forms. Under the general liability section, Evanston explicitly identified the
following form as part of the policy: "EXCLUSION – EMPLOYER'S
LIABILITY AND BODILY INJURY TO CONTRACTORS OR
SUBCONTRACTORS" (capitalized emphasis in original) (subcontractor
employee exclusion). The subcontractor employee exclusion provides that the
Evanston policy does not apply to:
"Bodily Injury" to any:
(1) Contractor or subcontractor while working on
behalf of any insured;
(2) Employee, volunteer worker, leased employee or
temporary worker of such contractor or
subcontractor; or
(3) Additional subcontractor, including the
employees, volunteer workers, leased employees
or temporary workers of such contractor or
subcontractor indicated in Paragraph (1) above.
The exclusion further states that it applies "even if the claim against any insured
alleges negligence or any other wrongdoing in the . . . selection, hiring, or
contracting . . . supervision or monitoring . . . or training . . . of any contractor
or subcontractor for whom any insured is or was legally responsible . . . ."
A-2328-17T3
4
A&R submitted Sharkey's complaint to Evanston and requested a defense
and indemnity. Relying on the subcontractor employee exclusion, Evanston
agreed to defend A&R and Aponte under a reservation of rights, but cautioned
A&R that "to the extent . . . Sharkey could be considered an employee of A&R
. . . or an employee . . . of . . . a contractor or subcontractor, there is no coverage
for the Sharkey [l]awsuit."
Evanston's investigation confirmed that Sharkey was employed by YVPV
to perform construction work at the Jersey City project. Accordingly, it filed a
complaint pursuant to the Declaratory Judgment Act, N.J.S.A. 2A:16-50 to -62,
naming all defendants, and sought an order that it was "not obligated to defend
or indemnify [A&R] or . . . Aponte for the Sharkey [l]awsuit" because coverage
was excluded pursuant to the subcontractor employee exclusion. Evanston also
served the declaratory judgment complaint on Sharkey and named him as an
interested party.
After Aponte, A&R, Ennoble, and the Tsengs failed to answer the
complaint, Evanston moved for default judgment. In an October 13, 2017 order,
the court granted Evanston's motion and ordered that Evanston "owe[d] no
coverage obligation to . . . A&R . . . and Jose Aponte for any claims that have
been or may be asserted by . . . Sharkey . . . ." Despite receiving notice of
A-2328-17T3
5
Evanston's motion, Sharkey did not object to the court entering the default
judgment.
Several months after the default judgment was entered, Sharkey sought
discovery from Evanston. Thereafter, Evanston moved for summary judgment
against Sharkey. Sharkey opposed the motion and cross-moved for summary
judgment, seeking an order "declaring and adjudging that . . . [the] Evanston
[policy] . . . affords insurance coverage to A&R . . . with respect to defense and
indemnity as to [his] bodily injury claim" arising from the March 23, 2016
accident.
Evanston made two arguments in support of summary judgment. First, it
argued that the October 13, 2017 default judgment resolved any insurance
coverage issues related to Sharkey's claims and Sharkey was bound by that
judgment. Second, Evanston maintained that the policy unambiguously
excluded Sharkey's claims because he sustained "bodily injury" while an
"employee" of a "subcontractor" of A&R.
In opposing Evanston's motion, and in support of his request for a
declaratory judgment, Sharkey claimed that he was not bound by the October
13, 2017 default judgment. Additionally, Sharkey argued that he had a
reasonable expectation of coverage because the declarations page of the
A-2328-17T3
6
Evanston policy confirmed that A&R obtained commercial general liability
coverage, but the declarations page did not refer to any exclusion limiting that
broad coverage. Sharkey also asserted that the subcontractor employee
exclusion was ambiguous and unenforceable, as its title, "Employer's Liability
. . . ," suggested that it related only to A&R's worker's compensation liability.
Finally, Sharkey contended that the subcontractor employee exclusion did not
apply, as YVPV was not working "on behalf of" A&R.
After hearing oral arguments, the court entered orders on December 15,
2017 granting Evanston's motion and denying Sharkey's cross-motion. In its
accompanying written statement of reasons, the court concluded that the October
13, 2017 default judgment was binding on Sharkey, as he could have "objected
or otherwise intervened on the motion for default judgment as a party to this
declaratory action."
The court also considered Sharkey's substantive arguments and
determined that the Evanston policy's declarations page "did not create any
reasonable expectations of coverage, notwithstanding the fact that a non-party
to the insurance policy has asserted such an expectation." In examining the
subcontractor employee exclusion, the court explained that the language is
"clear, unambiguous, and thus, enforceable." Finally, the court noted that
A-2328-17T3
7
YVPV was hired by A&R as a subcontractor, and was therefore working "on
behalf of" A&R. This appeal followed.
Sharkey raises two primary arguments on appeal. First, he maintains that
he is not bound by the October 13, 2017 default judgement because his joinder
under the Declaratory Judgment Act permitted him to seek an adjudication that
his claim was covered by the Evanston policy.
Second, he argues, as he did in the trial court, that the declarations page
in the Evanston policy created a reasonable expectation that a standard
commercial general liability policy would cover a subcontractor's employee's
claims. Specifically, Sharkey asserts that the declarations page expressly listed
multiple risks that were "not covered," but failed to mention the s ubcontractor
employee exclusion, which suggested coverage was extended for that risk.
Relying on Lehrhoff v. Aetna Cas. & Sur. Co., 271 N.J. Super. 340 (App.
Div. 1994), Sharkey contends that A&R's reasonable expectation of coverage
"cannot be contradicted by the policy’s boilerplate unless the [d]eclarations . . .
clearly so warn[] the insured." He also asserts that the declarations page created
a reasonable expectation of coverage based on the reference to classification
code number 91581 for "contractors-subcontracted work," and related rating
A-2328-17T3
8
information.2 Having considered these arguments in light of the record and
applicable legal principles, we conclude the court correctly determined that
Sharkey was bound by the October 13, 2017 default judgment, and that the
Evanston policy did not cover Sharkey's claim.
II.
We disagree with Sharkey's assertion that the court's October 13, 2017
default judgment was not binding on him. Pursuant to N.J.S.A. 2A:16-56,
"[w]hen declaratory relief is sought, all persons having or claiming any interest
which would be affected by the declaration shall be made parties to the
proceeding." A declaratory judgment will only have an effect on persons joined
as interested parties. N.J.S.A. 2A:16-57; see also Tal v. Franklin Mut. Ins. Co.,
172 N.J. Super. 112, 116 (App. Div. 1980) ("The failure to join [an interested
party] robs the resulting judgment of any binding effect on [him or] her.");
Constant v. Pacific Nat'l Ins. Co., 84 N.J. Super. 211, 222 (Law Div. 1964)
("[T]he intent of the . . . Declaratory Judgment Act was only to be binding over
those parties before the court . . . .").
2
On appeal, Sharkey has abandoned the argument he made before the trial court
that the subcontractor employee exclusion was ambiguous and did not apply to
his claim.
A-2328-17T3
9
Evanston properly joined Sharkey as an interested party to the declaratory
judgment action, as he was the party injured in his underlying negligence action.
As such, pursuant to the Declaratory Judgment Act, we conclude Sharkey is
bound by the court's default judgment in Evanston's favor. As the trial court
correctly noted, "Sharkey could have objected or otherwise intervened on the
motion for default judgment as a party to this declaratory action." See Riehle v.
Margolies, 279 U.S. 218, 225 (1929) ("A judgment of a court having jurisdiction
of the parties and of the subject matter operates as res judicata, in the absence
of fraud or collusion, even if obtained upon a default.").
III.
In ruling on a summary judgment motion, a trial court must "consider
whether the competent evidential materials presented, when viewed in the light
most favorable to the non-moving party, are sufficient to permit a rational
factfinder to resolve the alleged disputed issue in favor of the non-moving
party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). An
appellate court reviews a grant of summary judgment de novo, using the same
standard as the trial court. Turner v. Wong, 363 N.J. Super. 186, 198-99 (App.
Div. 2003). Thus, we must determine whether a genuine issue of material fact
is present and, if not, evaluate whether the trial court's ruling on the law was
A-2328-17T3
10
correct. See Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162,
167-69 (App. Div. 1998).
Even if the default judgment was not binding on Sharkey, we conclude
that the court correctly granted Evanston's motion on the merits. Guided by the
principles regarding interpretation of insurance contracts detailed below, we are
not persuaded that there is any ambiguity in the Evanston policy as it relates to
coverage for Sharkey's claim. The declarations page clearly states that the
policy includes the "declarations, together with the [c]ommon [p]olicy
[c]onditions and [c]overage [f]orm(s) and any [e]ndorsement(s) . . . ." On the
next two pages of the policy, Evanston, in capitalized letters, listed the forms
schedule and explicitly identified the subcontractor employee exclusion.
"The interpretation of an insurance contract is a question of law for the
court to determine, and can be resolved on summary judgment." Adron, Inc. v.
Home Ins. Co., 292 N.J. Super. 463, 473 (App. Div. 1996) (citing Weedo v.
Stone-E-Brick, Inc., 155 N.J. Super. 474, 479 (App. Div. 1977), rev'd on other
grounds, 81 N.J. 233 (1979)). Further, whether an insured's expectations are
objectively reasonable is a question of law to be determined by the court.
Bromfeld v. Harleysville Ins. Cos., 298 N.J. Super. 62, 79 (App. Div. 1997).
A-2328-17T3
11
Our analysis is guided by well-established principles concerning
interpretation of insurance contracts. Insurance policies are subject to special
scrutiny, as they are contracts of adhesion. Gibson v. Callaghan, 158 N.J. 662,
669 (1999). While insurance companies are "expert[s] in [their] field" that
unilaterally prepare "complex instruments," insureds are typically "laymen
unversed in insurance practices and provisions." Ibid.
As a general rule, "[a]n insurance policy is a contract that 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). When an
ambiguity does exist, the ambiguity is resolved against the insurer and in favor
of coverage. Kopp v. Newark Ins. Co., 204 N.J. Super. 415, 420 (App. Div.
1985). However, "not every 'far-fetched interpretation of a policy will be
sufficient to create an ambiguity requiring coverage' . . . ." Mem'l Props., LLC
v. Zurich Am. Ins. Co., 210 N.J. 512, 528 (2012) (quoting Cobra Prods., Inc. v.
Fed. Ins. Co., 317 N.J. Super. 392, 400-01 (App. Div. 1998)). "A genuine
ambiguity exists when the 'phrasing of the policy is so confusing that the average
policyholder cannot make out the boundaries of coverage.'" Simonetti v.
Selective Ins. Co., 372 N.J. Super. 421, 428-29 (App. Div. 2004) (quoting Lee
v. Gen. Accident Ins. Co., 337 N.J. Super. 509, 513 (App. Div. 2001)). "[W]hen
A-2328-17T3
12
considering ambiguities and construing a policy, courts cannot 'write for the
insured a better policy of insurance than the one purchased.'" Flomerfelt, 202
N.J. at 441 (quoting Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J.
517, 529 (1989)).
Further, courts must not read one provision of a policy in a way that would
render another provision meaningless. Homesite Ins. Co. v. Hindman, 413 N.J.
Super. 41, 47 (App. Div. 2010). However, "[i]n exceptional circumstances,
'even an unambiguous contract has been interpreted contrary to its plain meaning
so as to fulfill the reasonable expectations of the insured.'" Gibson, 158 N.J. at
671 (quoting Werner Indus., Inc. v. First State Ins. Co., 112 N.J. 30, 35-36
(1988)).
Generally, "in the absence of fraud or inequitable conduct on the part of
the carrier," "an insured is chargeable with knowledge of the contents of an
insurance policy." Edwards v. Prudential Prop. & Cas. Co., 357 N.J. Super. 196,
204 (App. Div. 2003). "Normally, insurance purchasers are expected to read
their policies and 'the law may fairly impose upon [them] such restrictions,
conditions and limitations as the average insured would ascertain from such
reading.'" Sears Mortgage Corp. v. Rose, 134 N.J. 326, 348 (1993) (quoting
Bauman v. Royal Indem. Co., 36 N.J. 12, 25 (1961)).
A-2328-17T3
13
IV.
As noted, Sharkey, relying on Lehrhoff, contends that its reasonable
expectation of coverage, gleaned from the declarations page, cannot be
frustrated by the subcontractor employee exclusion unless Evanston warned
A&R on the declarations page that the policy did not cover liability A&R's
subcontractor's negligence. We disagree.
In Lehrhoff, we reversed an order dismissing a complaint that sought
uninsured motorist coverage because the policy's exclusion was insufficient to
overcome the insured's reasonable expectations of coverage based on the
insurer's representations on the declarations page. Lehrhoff, 271 N.J. Super. at
342. We concluded that the insured was entitled to coverage based on the
reasonable expectations doctrine because:
[A] conscientious policyholder, upon receiving the
policy, would likely examine the declaration[s] page to
assure himself that the coverages and their amounts, the
identity of the insured vehicle, and the other basic
information appearing thereon are accurate and in
accord with his understandings of what he is
purchasing. We deem it unlikely that once having done
so, the average automobile policyholder would then
undertake to attempt to analyze the entire policy in
order to penetrate its layers of cross-referenced,
qualified, and requalified meanings. Nor do we deem
it likely that the average policyholder could
successfully chart his own way through the shoals and
reefs of exclusions, exceptions to exclusions,
A-2328-17T3
14
conditions and limitations, and all the rest of the
qualifying fine print, whether or not in so-called plain
language. We are, therefore, convinced that it is the
declaration[s] page, the one page of the policy tailored
to the particular insured and not merely boilerplate,
which must be deemed to define coverage and the
insured's expectation of coverage. And we are also
convinced that reasonable expectations of coverage
raised by the declaration[s] page cannot be contradicted
by the policy's boilerplate unless the declaration[s]
page itself clearly so warns the insured.
[Id. at 346-47.]
The declarations page in Lehrhoff is distinguishable from that in the
Evanston policy. In Lehrhoff, the court noted that the declarations page
expressly identified the policyholder and his son in the list of drivers. Id. at 349.
As a result, the court determined that the declarations page gave the policyholder
a reasonable expectation that his son was covered that could not be overcome
by the contradictory, difficult-to-locate language in the policy that limited
family members to residents of the household. Id. at 349-50. Conversely,
Sharkey asserts that the Evanston policy's declarations page should have
included language specifying what was excluded from coverage. Further,
A&R's insurance broker obtained the Evanston policy and was familiar with
commercial liability insurance, unlike the average, unversed automobile
A-2328-17T3
15
insurance policyholder, who is likely to rely on the declarations page. Id. at
346-47.
Additionally, in Zacarias v. Allstate Ins. Co, 168 N.J. 590 (2001), the
Supreme Court limited Lehrhoff's holding and explained "[w]e do not, however,
interpret Lehrhoff to require an insurer to include an . . . exclusion on the policy's
declarations sheet in all cases." Id. at 602. The Court stated that "an insurance
contract is not per se ambiguous because its declarations sheet, definition
section, and exclusion provisions are separately presented." Id. at 603.
The Zacarias court enforced the insurance contract as written, finding "no
ambiguity, inconsistency, or contradiction between the declarations sheet and
the body of plaintiff's policy" because "the declarations sheet alerts the insured
that the coverages and limits of liability" are contingent on the policy's
provisions and "the exclusion itself is written in direct and ordinary terms." Id.
at 602-03. Further, in Zacarias, the declarations sheet included the language
"SUBJECT TO THE FOLLOWING FORMS AND ENDORSEMENTS,"
indicating the coverages and limits of liability. Id. at 593; see also Morrison v.
Am. Int'l Ins. Co. of Am., 381 N.J. Super. 532, 539 (App. Div. 2005) ("Lehrhoff
. . . does not establish a bright[-]line rule that the declaration[s] page controls
A-2328-17T3
16
where important additional terms of the policy are not included on the
declaration[s] page but are reflected elsewhere.").
Here, the declarations page, similar to that in Zacarias, states "[t]hese
declarations, together with the [c]ommon [p]olicy [c]onditions and [c]overage
[f]orm(s) and any [e]ndorsement(s), complete the [Evanston] policy." Even
though the declarations page lacked any reference to the subcontractor employee
exclusion, it clearly identified the exclusion in capitalized letters in the form
schedule.
In sum, we conclude that no ambiguity exists in the Evanston policy
because the declarations page and the policy's terms and exclusions clearly alert
the average policyholder to the "boundaries of coverage." See Simonetti, 372
N.J. Super. at 428-29. In our view, construing the policy in accordance with
Sharkey's interpretation would be writing "for the insured a better policy of
insurance than the one purchased." Flomerfelt, 202 N.J. at 441 (quoting Walker
Rogge, Inc., 116 N.J. at 529).
Affirmed.
A-2328-17T3
17