Alexander v. National Fire Insurance

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
7-13-2006
Alexander v. Natl Fire Ins Co
Precedential or Non-Precedential: Precedential
Docket No. 05-1560
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 05-1560
____________
JEFFREY ALEXANDER; GAIL ALEXANDER
v.
NATIONAL FIRE INSURANCE OF HARTFORD,
Appellant
v.
SHELBY INSURANCE COMPANY;
UNITED STATES FIDELITY AND GUARANTY
COMPANY,
Third-Party Defendants
____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 03-cv-01511)
District Judges: The Honorable Michael M. Baylson
and Juan R. Sanchez
____________
Argued June 13, 2006
Before: FISHER, ALDISERT and LOURIE,* Circuit Judges.
(Filed July 13, 2006)
Steven J. Polansky, Esq. (ARGUED)
Walter F. Kawalec, III, Esq.
Marshall, Dennehey, Warner, Coleman & Goggin
200 Lake Drive East, Suite 300
Cherry Hill, NJ 08012
Counsel for Appellant
Allan C. Molotsky, Esq. (ARGUED)
Tracey N. Kilcullen, Esq.
Post & Schell, P.C.
1600 J.F.K. Boulevard
Four Penn Center, 13th Floor
Philadelphia, PA 19103
Counsel for Appellees and Third-Party Defendants
____________
OPINION OF THE COURT
____________
ALDISERT, Circuit Judge.
This appeal by National Fire Insurance Company of
*
The Honorable Alan D. Lourie, United States Circuit
Judge for the Federal Circuit, sitting by designation.
2
Hartford (“National Fire”), the insurer of the Sunnyside Up
Condominium Association, requires us to decide whether its
policy covers claims incurred when a second-story exterior
wooden deck attached to one of the association’s units collapsed
and caused injuries to a number of people who were on the deck.
The unit was owned by Jeffrey and Gail Alexander. After
National Fire refused to defend or participate in the settlement
of the personal injury claims, the Alexanders filed a complaint
in the United States District Court for the Eastern District of
Pennsylvania seeking to declare that National Fire’s policy
issued to the Condominium Association covered the incident.
In a summary judgment dated March 3, 2004, the District Court
determined that the Alexanders’ loss was indeed covered by the
National Fire policy. In a later summary judgment dated
January 19, 2005, the District Court held that the coverage
provided by National Fire for this loss was primary, and that the
two policies issued separately to the Alexanders by third-party
defendants Shelby Insurance Co. and United States Fidelity and
Guaranty Company (“USF&G”) were excess. National Fire
appeals both grants of summary judgment. We will affirm.1
I.
A.
The Sunnyside Up Condominium Association, which is
located in Sea Isle City, New Jersey, consists of two
1
The District Court had jurisdiction over this diversity
action pursuant to 28 U.S.C. § 1332. We have jurisdiction to
hear this appeal pursuant to 28 U.S.C. § 1291.
3
condominium units—one on the first floor and one, the
Alexanders’, on the second—both of which had wooden decks,
stacked one on top of the other. From August 25 to September
1, 2001, the Alexanders leased their unit to Agnes Cunningham.
On August 26, 2001, the Alexanders’ deck collapsed with 11
people on it. Following the collapse, negligence causes of
action were brought against the Alexanders in the New Jersey
Superior Court in Cape May County that alleged that the
collapse was caused by the Alexanders’ negligent construction
and maintenance of the deck. Those claims have all been
settled, so what remains is the allocation of the payment of the
settlement and defense costs among the three insurance
companies who are parties to the present suit.
B.
Following the collapse, the Alexanders hired a contractor,
Dennis A. Funk, to examine the damage. After inspecting the
deck, Funk drafted a letter that detailed the construction of the
deck and the reasons for its collapse. Funk’s letter was
presented to the District Court in the instant litigation, and
because National Fire did not object to its introduction, the
Court considered the letter as “stating uncontested facts.” Mar.
3, 2004 D. Ct. Op., app. at 324a. The relevant portions of
Funk’s letter are as follows:
While reviewing the photos of the deck collapse
the other day in your office it was clear what
caused the support system to fail. But first I
would like to describe how the deck was
constructed. At the house bound side the deck
4
joists were supported against the ledge board
using a series of metal joist hangers. Those
hangers support the joists with a small shelf that
fits up under the bottom side of the joist. The
ledger is installed first, followed usually by the
joist hangers, then the joists, and the finally [sic]
the decking. Joist hangers are used at this end
because the joists cannot be nailed through the
ledger board, they can only be toe-nailed to the
ledger board. Prior to the common use of joist
hangers, a wood shelf, usually a wood 2 x 4 or a
2 x 3 was nailed to the ledger and the deck joists
were notched to sit ontop [sic] of this shelf. On
the outward end of this deck, the deck joists were
attached to the deck box joist by nailing through
the box joist into the individual joist ends. After
the joists were nailed another box joist was
installed on the outward end to support the
decking system between the 4 x 4 vertical
columns.
The failure of the deck system occurred due to the
deterioration of the nails used to support the
outbound end of the deck joists. . . . .
Letter of Dennis Funk, app. at 37a (emphasis added).2
2
National Fire used drawings in its appellate brief to
illustrate the explanation given by Funk. The Alexanders argue
that this is an improper supplementation of the evidence in the
appellate record. Alexanders Br. at 34 (citing Rule 10(a),
5
C.
The Condominium Association was organized under a
Master Deed of Declaration of Condominium (the “Master
Deed”). Relevant to the present dispute, Subsection F of the
Master Deed addresses the Alexanders’ deck as follows:
F. COMMON ELEMENTS
1. Common Elements subject to Exclusive
Easements:
a. Any balcony or patio to which
there is a direct access from the
interior of a unit shall constitute a
common element subject to
exclusive easement for the
exclusive use of the owner of such
Federal Rules of Appellate Procedure). Because our resolution
of this appeal will be based upon the interaction of the terms of
the Master Deed, the National Fire policy and the New Jersey
Condominium Act, rather than the factual distinctions illustrated
in the drawings, we need not delve into this question. See infra
sections III-IV.
6
unit. The unit owner shall be
responsible for the removal of snow
from any such balcony or patio and
for the maintenance and repair of
the same which shall not be a
common expense.
Master Deed, app. at 134a. Subsection G specified that the
owners of both units shall each have a 50% interest in the
Association’s common elements, and Subsection L specified
that common expenses, as defined by the New Jersey
Condominium Act, N.J. Stat. Ann. §§ 46:8B-1 to -38 (2006),
shall be shared equally between the two unit owners. Master
Deed, app. at 135a-138a. Subsection N of the Master Deed
addressed the owners’ duties of maintenance and repair as
follows:
N. MAINTENANCE AND REPAIR: The
Association, at its expense shall be
responsible for the cleaning, maintenance,
repair and any required replacement of the
Common Elements, as defined by the
Condominium Act which include . . . any
and all erection permitted to be
constructed on said common area under
the Zoning Laws of the City of Sea Isle
City, etc. Individual Condominium Unit
Owners shall be responsible at their own
expense for the maintenance, repair and
replacement of all portions of their
individual Units as defined by the
7
Condominium Act, which responsibility
shall include the maintenance and repair of
the inside of all walls forming or dividing
each Condominium Unit, plumbing
systems, electrical systems, interior side of
windows, etc., within each unit. . . .
Master Deed, app. at 138a.
Significant to this latter provision, on May 28, 1997, one
of the two 4x4 vertical post columns supporting the deck was
replaced. The costs of this repair were apparently split equally
between the unit owners. These vertical posts, however, were
not the components of the deck that failed.
D.
At the time of the deck collapse, the Alexanders
maintained condominium unit insurance coverage with USF&G.
They also maintained separate homeowners liability and
umbrella liability insurance coverage with Shelby. As
heretofore stated, the Condominium Association maintained
insurance coverage with National Fire.3 The National Fire
3
Subsection O of the Master Deed required that such
coverage be maintained:
O. INSURANCE: The Association shall arrange for
casualty insurance coverage to cover the Common
Elements. . . . All insurance coverage purchased
by the Association shall be for the benefit of the
8
policy provided first-party property coverage and third-party
general liability coverage to the Condominium Association.
The National Fire policy generally described the rights of
the insured as follows:
1. Insuring Agreement
a. We will pay those sums that the
insured becomes legally obligated
to pay as damages because of
“bodily injury” or “property
damage” to which this insurance
applies. We will have the right and
duty to defend the insured against
any “suit” seeking those damages.
However, we will have no duty to
defend the insured against any
“suit” seeking damages for “bodily
injury” or “property damage” to
which this insurance does not
apply. . . .
National Fire policy, app. at 95a.
Association, each Condominium Unit Owner and
for their respective Mortgagees as their respective
interests may appear. . . .
Master Deed, app. at 140a.
9
The National Fire policy also contained an endorsement
CG20041185 that made the individual unit owners, such as the
Alexanders, insureds, but only under limited circumstances:
ADDITIONAL INSURED -
CONDOMINIUM UNIT OWNERS
***
WHO IS AN INSURED (Section II) is amended
to include as an insured each individual unit
owner of the insured condominium, but only with
respect to liability arising out of the ownership,
maintenance or repair of that portion of the
premises which is not reserved for that unit
owner’s exclusive use or occupancy.
National Fire policy, app. at 107a.
Pursuant to these policies, at all relevant times in the deck
collapse litigation, the Alexanders were defended by third-party
defendants Shelby and/or USF&G. At some point in the
underlying litigation, National Fire refused to provide coverage
to the Alexanders. This refusal sparked the current dispute.
II.
On March 3, 2003, the Alexanders filed a declaratory
judgment action against National Fire in the District Court.
District Judge Baylson presided over this stage of the litigation.
In their complaint, the Alexanders sought a declaration that
National Fire is obligated (1) to cover the Alexanders as
10
additional insureds under the Condominium Association’s
policy; (2) to defend and indemnify them in the underlying
litigation; and (3) to reimburse the Alexanders for their defense
fees and those fees incurred for the present action. Compl., app.
at 16a. National Fire filed its answer on May 23, 2003.
National Fire and the Alexanders filed cross-motions for
summary judgment on October 14 and October 15, 2003,
respectively. In its motion for summary judgment, National Fire
argued that it was not obligated to cover the Alexanders as
additional insureds because the deck was reserved for the
Alexanders’ exclusive use and was therefore not a common
element. National Fire Mot. for Summ. J., supp. app. at 5.
In a memorandum opinion dated March 3, 2004, the
District Court granted the Alexanders’ motion for summary
judgment. The Court held that National Fire’s policy covered
the Alexanders as additional insureds because the portion of the
deck structure that collapsed was a common element. It did,
however, decline to make a final judgment on whether National
Fire’s policy constituted excess or primary coverage because the
Court concluded that the issue could not be addressed without
the joinder of Shelby, which it described as an “indispensable
party.”
Both parties moved for reconsideration. The Court
denied both motions in a May 5, 2004 opinion. Additionally, on
that date, the Court permitted National Fire to file a third-party
complaint against Shelby and USF&G, which National Fire filed
on June 16, 2004. Following the filing of answers from Shelby
and USF&G, the question of the primacy of National Fire’s
insurance coverage could then be adjudicated.
11
On August 4, 2004, the case was transferred from District
Judge Baylson to District Judge Sanchez. National Fire then
filed a motion for summary judgment on October 25, 2004 on
the issues of the primacy of its coverage and the allocation of
the costs of the underlying litigation. Shelby and USF&G filed
a joint cross-motion for summary judgment on November 8,
2004 on these same issues.
In an opinion dated January 19, 2005, the Court granted
Shelby’s and USF&G’s motion for summary judgment,
concluding that National Fire’s coverage was primary and
Shelby’s and USF&G’s were excess. National Fire was
subsequently ordered to reimburse Shelby and USF&G for all
legal fees and judgment and settlement payments incurred in the
underlying tort litigation. This appeal of both grants of
summary judgment followed.4
4
Because this is an appeal from grants of summary
judgment, our review is plenary. Oritani Sav. and Loan Ass’n
v. Fid. and Deposit Co. of Maryland, 989 F.2d 635, 637 (3d Cir.
1993). “On review the appellate court is required to apply the
same test the district court should have utilized initially.”
Id. (citation and quotations omitted). “A court may grant
summary judgment only when the submissions in the record
‘show that there is no genuine issue as to any material fact and
that the moving party is entitled to judgment as a matter of
law.’” Id. (quoting Rule 56(c), Federal Rules of Civil
Procedure). “In determining whether summary judgment is
appropriate, ‘[t]he evidence of the non-movant is to be believed,
and all justifiable inferences are to be drawn in his favor.’” Id.
(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
12
III.
A.
This appeal requires us to address the interaction of the
Alexanders’ Master Deed, the New Jersey Condominium Act,
and the relevant insurance policies issued by National Fire,
Shelby and USF&G. In so doing, we must first determine how
New Jersey courts treat these rules and documents. To this end,
we observe that both a condominium deed and the
Condominium Act are regarded as defining the “rights and
responsibilities of a condominium unit owner and a governing
association.” Davis v. Metuchen Gardens Condo. Ass’n, 790
A.2d 184, 185 (N.J. Super. Ct. App. Div. 2002).
In considering the treatment of insurance policies,
however, we note “that although insurance policies are
(1986)). “The inquiry is ‘whether the evidence presents a
sufficient disagreement to require submission to a jury or
whether it is so one-sided that one party must prevail as a matter
of law.’” Id. (quoting Anderson, 477 U.S. at 251-252).
We review the District Court’s interpretation of the
insurance policies de novo. N. Ins. Co. of New York v.
Aardvark Assoc., Inc., 942 F.2d 189, 191 n.2 (3d Cir. 1991).
Our review of questions of law is also de novo. N. Penn Gas
Co. v. Corning Natural Gas Corp., 897 F.2d 687, 688 (3d Cir.
1990). Finally, it is undisputed that New Jersey law applies to
this case. See Mar. 3, 2004 D. Ct. Op., app. at 320a. The
National Fire policy was made in New Jersey, and the covered
property is located in Sea Isle City, New Jersey.
13
contractual in nature, they are not ordinary agreements; they are
‘contracts of adhesion’ and, as such, are subject to special rules
of interpretation.” County of Hudson v. Selective Ins. Co., 752
A.2d 849, 852 (N.J. Super. Ct. App. Div. 2000). Consequently,
“insurance contracts should be construed liberally in [the
insured’s] favor to the end that coverage is afforded to the full
extent that any fair interpretation will allow. . . . Further, when
a policy contains an ambiguity, i.e., the phrasing chosen by the
insurer does not permit the average insured to ‘make out the
boundaries of coverage,’ the ambiguity must be construed in
favor of the insured.” Harrah’s Atlantic City, Inc. v.
Harleysville Ins. Co., 671 A.2d 1122, 1125 (N.J. Super. Ct. App.
Div. 1996) (citations and quotations omitted); County of
Hudson, 752 A.2d at 852 (“[W]here the language of a policy
will support two meanings, one favorable to the insured and the
other favorable to the insurer, the interpretation sustaining
coverage should be applied.”). Relevant to our present analysis,
“where the policy provision under examination relates to the
inclusion of persons other than the named insured within the
protection afforded, a broad and liberal view is taken of the
coverage extended. But, if the clause in question is one of
exclusion or exception, designed to limit the protection, a strict
interpretation is applied.” Erdo v. Torcon Const. Co., Inc., 645
A.2d 806, 808 (N.J. Super. Ct. App. Div. 1994) (citation
omitted; emphasis removed).
In determining whether an insurance company has a duty
to defend under the terms of its policy, we are not limited to the
facts and allegations contained within the four corners of the
underlying complaint; rather, “facts outside the complaint may
trigger the duty to defend.” SL Indus., Inc. v. Am. Motorists
14
Ins. Co., 607 A.2d 1266, 1272 (N.J. 1992). “Insureds expect
their coverage and defense benefits to be determined by the
nature of the claim against them, not by the fortuity of how the
plaintiff, a third party, chooses to phrase the complaint against
the insured.” Id. Accordingly, it is proper to consider evidence
not set forth in the underlying litigation in determining whether
National Fire owed any duties to the Alexanders in that
litigation.
B.
National Fire contends that the District Court erred in
holding that the portion of the support system of the deck that
failed was a common element and therefore subject to the
coverage provided by National Fire. It points to the uncontested
fact that the cause of the collapse was the failure of the nails
connecting the deck joists to the first box joist. From this it
argues that “because each of these elements solely supported the
Alexanders’ deck – and had no connection with the other deck
nor role in supporting the other deck – the nails, deck joist and
box joist were limited common elements.” It supports this
contention with a detailed analysis of Dennis Funk’s
conclusions surrounding the construction and collapse of the
deck. National Fire then goes on to argue that although its
policy obligates it to cover the unit owners for the ownership,
maintenance and repairs of the Condominium Association’s
common elements, it is not obligated to cover “limited common
elements,” which it defines as those elements “exclusively
15
reserved for [a] unit owner’s exclusive use or occupancy.”5
National Fire Br. at 22 (citing National Fire policy, app. at
257a). It then asks us to conclude from these polysyllogisms
that the support structure directly supporting the Alexanders’
wooden deck was not a common element, and that all liability
for the injuries sustained from the deck’s collapse must be
5
New Jersey law defines common elements as:
(i) the land described in the master deed;
(ii) as to any improvement, the foundations, structural and
bearing parts, supports, main walls, roofs, basements,
halls, corridors, lobbies, stairways, elevators, entrances,
exits and other means of access, excluding any
specifically reserved or limited to a particular unit or
group of units;
***
(viii) such other elements and facilities as are designated in the
master deed as common elements.
N.J. Stat. Ann. § 46:8B-3(d) (2006) (emphasis added).
Conversely, limited common elements are “those common
elements which are for the use of one or more specified units to
the exclusion of other units.” N.J. Stat. Ann. § 46:8B-3(k)
(2006). This distinction coincides with the exclusions in the
endorsement to the National Fire policy that adds the
Alexanders as additional insureds. See National Fire policy,
app. at 107a (stating that coverage is excluded for those
common elements “reserved for [a] unit owner’s exclusive use
or occupancy”).
16
pinned on the Alexanders’ insurance carriers, Shelby and
USF&G.
C.
We decline National Fire’s invitation to engage in a
detailed factual analysis of which part of the support structure
failed and whether that portion exclusively supported the
Alexanders’ deck.6 Rather, by examining the nature of the right
of use granted in the Master Deed—an easement—we conclude
that the surface of the Alexanders’ deck was a limited common
6
National Fire argues that the District Court erred in
treating as uncontested the Alexanders’ allegation in their
motion for summary judgment that “the structural support
system of the deck, which included the deck joists, constituted
a shared common element in that it supported both the Plaintiffs’
deck and the deck directly beneath it.” May 5, 2004 D. Ct. Op.,
app. at 343a (analyzing paragraph 67 of the Alexanders’ motion
for summary judgment). The record on this issue is convoluted;
it is unclear what exactly the parties argued below and which
specific facts the District Court believed that National Fire had
conceded. Nevertheless, because we do not need to rely on the
District Court’s apparent conclusion that National Fire waived
various arguments to affirm the District Court’s ultimate
decision—and the District Court itself offered independent
reasons for its decision—we do not reach this question. See
Morse v. Lower Merion School Dist., 132 F.3d 902, 904 n.1 (3d
Cir. 1997) (citations omitted) (“We may affirm the lower court’s
ruling on different grounds, provided the issue which forms the
basis of our decision was before the lower court.”).
17
element, i.e., a common element reserved for the Alexanders’
exclusive use, whereas the entire deck support structure was a
common element.
IV.
A.
In reaching this conclusion, we note that in the
cumulative experience of the judiciary, the present scenario is
rather novel. The case that most resembles the facts here in
applying the distinction between common and limited common
elements is Society Hill Condominium Association v. Society
Hill Associates, 789 A.2d 138 (N. J. Super. Ct. App. Div. 2002).
In analyzing how much of a condominium unit is a common
element by using the Condominium Act and the parties’ master
deed, the Society Hill court applied a bright-line distinction and
determined that those elements “inside” the owners’ units are
not common elements (i.e., materials extending to the drywall);
whereas those “outside” the units are common elements (i.e.,
elements in the structure beyond the drywall). Id. at 143-145.7
Another case that addresses the distinction between
common and limited common elements is Ellenheath
Condominium Association, Inc. v. Pearlman, 683 A.2d 582 (N.J.
Super. Ct. App. Div. 1996), in which an individual unit owner’s
underground fuel oil storage tank had begun leaking and had to
7
The District Court in this case did not believe that the
teachings of Society Hill were applicable because of this
inside/outside distinction. See Mar. 3, 2004 D. Ct. Op., app. at
332a.
18
be replaced. The unit owner sued the condominium association
for the cost of the replacement. Using the definition of
“common element” found at N.J. Stat. Ann. § 46:8B-3(d)(ii), the
court determined that because each storage tank was specifically
reserved for the use of a particular unit, the tanks were not
common elements. Id. at 583.
We agree with the District Court that Ellenheath is
distinguishable. See Mar. 3, 2004, D. Ct. Op., app. at 332a.
Although the Alexanders’ deck was reserved for their exclusive
use, which prevents at least a portion of it from being a common
element, unlike the storage tank in Ellenheath, the Alexanders’
deck also had a support structure that benefitted more than one
unit owner, making elements of that structure pure common
elements.
B.
Recognizing that the unique nature of the facts and the
law in Society Hill prevents us from using inductive reasoning
by analogy to apply its exact holding to the case at hand, we turn
our analysis to the language of the Alexanders’ Master Deed.
The Deed specifically refers to balconies and patios as
“Common Elements subject to Exclusive Easements.” Master
Deed, app. at 134a. It then proceeds to state that:
Any balcony or patio to which there is a direct
access from the interior of a unit shall constitute
a common element subject to exclusive easement
for the exclusive use of the owner of such unit.
The unit owner shall be responsible for the
removal of snow from any such balcony or patio
19
and for the maintenance and repair of the same
which shall not be a common expense.
Id. The District Court interpreted the Deed as distinguishing
between two elements of the deck’s structure: the surface and
the structure supporting the deck—with the former constituting
a limited common element and the latter a common element.
Mar. 3, 2004 D. Ct. Op., app. at 329a-330a.
We agree with this distinction, and reach this conclusion
based on an examination of the easement granted to the
Alexanders in the Master Deed. “An easement is a
nonpossessory incorporeal interest in another’s possessory estate
in land, entitling the holder of the easement to make some use of
the other’s property.” Borough of Princeton v. Bd. of Chosen
Freeholders, 755 A.2d 637, 644 (N.J. Super. Ct. App. Div. 2000)
(citation and quotations omitted). “The extent of the easement
created by a conveyance is fixed by the conveyance.” Eggleston
v. Fox, 232 A.2d 670, 672 (N.J. Super. Ct. App. Div. 1967)
(quoting Restatement of Property § 482 (1944)). The scope of
the easement “should be interpreted to give effect to the
intention of the parties ascertained from the language used in the
instrument . . . and to carry out the purpose for which it was
created.” Restatement (Third) of Property § 4.1 (2000);
Borough of Princeton, 755 A.2d at 644 (“The polestar of
contract construction is to discover the intention of the parties as
revealed by the language used by them.”). Moreover, “when
there is any ambiguity or uncertainty about an easement grant,
the surrounding circumstances, including the physical conditions
and character of the servient tenement, and the requirements of
the grantee, play a significant role in the determination of the
20
controlling intent.” Hyland v. Fonda, 129 A.2d 899, 904 (N.J.
Super. Ct. App. Div. 1957). The extent of the dominant
tenement’s duty to repair the property subject to the easement is
also determined by the conveyance. Restatement of Property §
485.
Considering the Master Deed as a whole, we see no
indication that the easement extends beyond the use of the
surface of the deck. First, the easement is solely for the use of
the patio or balcony; it makes no mention of the rights or duties
surrounding the support structure. Second, the clause following
the grant of the easement qualifies the scope of the easement.
That provision, which speaks about the repair and maintenance
of the patio or balcony, addresses the Alexanders’ duty to
remove snow from the patio or balcony, indicating that the focus
of the grant is on the deck’s surface. Third, such a bright-line
distinction is not foreign to the Master Deed, because the
“Maintenance and Repair” clause of Subsection N defines the
parties’ rights as beginning and ending at the inside of the walls
and windows. See Master Deed, app. at 138a (emphasis added)
(stating that “Individual Condominium Unit Owners shall be
responsible at their own expense for the maintenance, repair and
replacement of . . . the inside of all walls forming or dividing
each Condominium Unit [and the] interior side of windows, etc.,
within each unit”). Fourth, in 1997, when one of the 4x4
vertical posts supporting the deck was replaced, the unit owners
shared the cost of the replacement as a common expense. There
is therefore a history in the Condominium Association of
regarding the support structure as a common element, the
maintenance of which is a common expense. Cf. Cumberland
County Improvement Auth. v. GSP Recycling Co., Inc., 818
21
A.2d 431, 438 (N.J. Super. Ct. App. Div. 2003) (“[T]he terms of
the parties’ written agreement may be explained or
supplemented by evidence of their course of dealing.”).
Finally, as a practical matter, it makes no sense for the
parties to have divided the support structure into various
subparts, some of which are common and some of which are
not. If we were to adopt National Fire’s view, the Alexanders
would be responsible for the maintenance and repair of the deck
joists and first box joists, and the Association would be liable
for the rest of the support structure. Both parties would have to
inspect and maintain the underside of the deck, and liability for
repairs would turn on the appraisal of what elements support
which structure. Based on the Master Deed, the National Fire
Policy and the New Jersey Condominium Act, it makes far
greater sense—and comports with what we believe to be the
parties’ intent—to classify the entire support structure as a
common element.
This bright-line distinction between common and limited
common elements comports with the New Jersey statutory
definition of what constitutes a common element and what is a
limited common element, see N.J. Stat. Ann. § 46:8B-3(d)(ii)
(stating that common elements include the supports, structural
and bearing parts of an improvement, unless those structural
elements were “specifically reserved” to a particular unit); N.J.
Stat. Ann. § 46:8B-3(k) (defining limited common element), and
reaches a result similar to the inside/outside distinction of
Society Hill. Consequently, for these reasons we conclude that
the support structure, which includes the deck joists, is a
common element. The surface is a limited common element.
22
See Polselli v. Nationwide Mut. Fire Ins. Co., 126 F.3d 524, 528
n.3 (3d Cir. 1997) (“In the absence of any precedent of the
[state] Supreme Court, we must predict how that court would
decide this issue.”).
Having concluded that the support structure is a common
element, it necessarily follows that National Fire’s policy covers
the Alexanders for this incident. Endorsement CG20041185 of
the National Fire policy provides that the Alexanders, as
additional insureds, are covered “with respect to liability arising
out of the ownership, maintenance or repair” of the “portion of
the premises” not reserved for their exclusive use. National Fire
policy, app. at 107a. Because our conclusion that the deck’s
support structure is a common element necessarily means that it
was not a “portion of the premises” reserved for the Alexanders’
exclusive use, and because the support structure was the cause
of the deck’s collapse, National Fire is obligated to insure the
Alexanders for liability arising out of the collapse. See National
Fire policy, app. at 95a (stating that National Fire will defend
against and “pay those sums that the insured becomes legally
obligated to pay as damages because of ‘bodily injury’ or
‘property damage’ to which this insurance applies”).
V.
Our next task is to determine whether National Fire is
liable as a primary or excess insurer. In his January 19, 2005
opinion, Judge Sanchez held that National Fire was liable as a
primary insurer, and that third-party defendants Shelby and
USF&G were excess insurers. National Fire now challenges
that ruling on two bases, arguing that (1) Judge Sanchez was
23
collaterally estopped by Judge Baylson’s prior comments on the
issue, and (2) Judge Sanchez erred in holding that National Fire
was a primary, and not excess, insurer. We reject National
Fire’s challenges and will affirm Judge Sanchez’s grant of
summary judgment to Shelby and USF&G.
A.
“Collateral estoppel, also known as issue preclusion,
prevents relitigation of a particular fact or legal issue that was
litigated in an earlier action.” Seborowski v. Pittsburgh Press
Co., 188 F.3d 163, 169 (3d Cir. 1999) (citing Parklane Hosiery
Co., Inc. v. Shore, 439 U.S. 322, 326 (1979)). In his March 3,
2004 opinion, Judge Baylson expressed a preliminary opinion
on the nature and scope of coverage provided by National Fire
under the policy, stating:
The Court is of the opinion that the
insurance policy issued to the condominium
association by defendant constitutes an “excess
insurance” policy. That is, Defendant must pay
only those insurance proceeds in excess of what is
paid under the terms of any other insurance policy
held by the plaintiffs. However, the Court also
believes that Plaintiffs’ own insurance policy,
issued directly to Plaintiffs by the Shelby
Insurance Company (“Shelby”), also constitutes
an “excess insurance” policy. As such, New
Jersey law would deem both insurance policies to
be primary and would require each insurer to
share the costs associated with defending
24
Plaintiffs in the negligence claim pending against
them. Universal Underwriters Ins. Co. v. CNA
Ins. Co., 706 A.2d 217, 219 (N.J. Super. Ct. App.
Div. 1998) (quoting Cosmopolitan Mut. Ins. Co.,
147 A.2d at 534); Harrison v. Ford Motor Credit
Co., 655 A.2d 931 (N.J. Super. Ct. App. Div.
1998) (quoting Cosmopolitan Mut. Ins. Co. v.
Continental Cas. Co., 147 A.2d 529 (N.J. 1959)).
However, the Court declines to make a
final holding on this point. Although Defendant
did raise the issue of “other insurance,” as an
alternative defense, the Court does not believe
that it can properly define the scope of Defendant
and Shelby’s insurance obligation in the absence
of Shelby. In this respect, the Court finds Shelby
to constitute an indispensable party.
Mar. 3, 2004 D. Ct. Op., app. at 333a-334a (emphasis added).
Then, in his May 5, 2004 opinion, Judge Baylson again
addressed the nature of his prior treatment of the excess/primary
coverage issue: “the Court expressly declined to rule on the
issue of excess insurance absent the presence of Shelby, which
the Court deemed to be a necessary party . . ..” May 5, 2004 D.
Ct. Op., app. at 345a. Judge Baylson also characterized his
statement on excess coverage in his prior opinion as being
merely a “preliminary opinion.” Id. Addressing yet again the
nature of the May 5, 2004 discourse, Judge Sanchez, in his final
disposition of the matter, observed that
25
National Fire misconstrues Judge Baylson’s
decision when it argues collateral estoppel bars
finding it is the primary insurer. Judge Baylson
found National Fire was obligated to cover the
Alexanders and specifically reserved the question
of whether it was a priamry [sic] or excess
carrier.
Jan. 19, 2005 D. Ct. Op., app. at 372a n.1 (emphasis added).
Judge Sanchez later held that National Fire was the primary
insurer, and that USF&G and Shelby were excess.
We agree with Judge Sanchez. Judge Baylson expressly
declined to issue a definitive ruling on the matter of
primary/excess coverage. Accordingly, there was no final,
definitive ruling on the subject that could have barred later
relitigation. Houbigant, Inc. v. Fed. Ins. Co., 374 F.3d 192, 204
(3d Cir. 2004) (citation omitted) (stating that for collateral
estoppel to apply “a final judgment on the merits [must have
been] issued in the prior proceeding”).8
8
We also seriously doubt whether there was privity
between the Alexanders and Shelby on the matter of excess
coverage. “Privity generally involves a party to earlier litigation
so identified in interest with a party to later litigation that they
represent the same legal right.” E.I.B. by I.J. v. J.R.B., 611 A.2d
662, 663 (N.J. Super. Ct. App. Div. 1992). In the earlier
litigation to which Shelby was not a party, the Alexanders would
have been interested in maximizing their coverage, irrespective
of the primacy of the insurer, whereas Shelby would have been
seeking to minimize its exposure. We need not reach this
26
B.
National Fire next contends that Judge Sanchez erred in
holding that National Fire was the primary insurer of the
damaged property. National Fire argues that, under its policy,
it is not a primary insurer of this property, but rather an excess
insurer. Because the policies issued by USF&G and Shelby to
the Alexanders state that their coverage shall be excess over
“other valid and collectible insurance except insurance written
specifically to cover as excess over . . . this policy,” see Shelby
policy, app. at 231a, ¶ 8; USF&G policy, app. at 193a, ¶ 8,
National Fire then argues that because its policy is also excess,
the burden of coverage should therefore be shared between all
three companies as co-primaries. See National Fire Br. at 45
(citing Harrison, 655 A.2d at 933 (stating that when no single
policy “can operate as a policy of ‘excess’ insurance . . . [t]he
excess insurance provisions are [thus] mutually repugnant [and
so] the general coverage of each policy applies and each
company is obligated to share in the cost of the settlement and
expenses”).
We reject National Fire’s arguments. The policy issued
by National Fire provides that it is primary coverage, and only
qualifies itself as excess coverage in a few instances, none of
which are triggered in the present case. In defining the nature
of its coverage, the National Fire policy states:
question, however, because clearly there was no prior ruling
barring later relitigation.
27
4. Other Insurance
If other valid and collectible insurance is
available to the insured for a loss we cover
under Coverages A or B of this Coverage
Part, our obligations are limited as follows:
a. Primary Insurance
This insurance is primary except
when b. below applies. . . .
b. Excess Insurance
This insurance is excess over:
***
(2) Any other primary insurance
available to you covering
liability for damages arising
out of the premises or
operations for which you
have been added as an
additional insured by
attachment of an
endorsement.
National Fire policy, app. at 102a-103a (emphasis added). The
term “you” in section 4(b)(2) is defined in the policy as referring
to the “Named Insured shown in the Declarations, and any other
person or organization qualifying as a Named Insured under this
28
policy.”9 Id. at 95a. The policy then goes on to define the
singular term “insured” as “any person or organization
qualifying as such under Section II - Who Is An Insured.” Id.
It cannot be seriously doubted that the Condominium
Association is the Named Insured and the Alexanders are
additional insureds. Although the term “Named Insured” is not
defined in the policy, the declarations page for the National Fire
policy lists the Condominium Association as Named Insured.
Id. at 40a. That someone may be an additional insured does not
mean that they are a Named Insured—the two terms are not
interchangeable. Simply put, Named Insured means Named
Insured. See Botti v. CNA Ins. Co., 824 A.2d 1120, 1125 (N.J.
Super. Ct. App. Div. 2003) (citations omitted) (“[T]he term
9
National Fire argues that Judge Sanchez’s analysis of
the meaning of section 4(b)(2) was fatally flawed because he
mistakenly cited the definitions for “you” and “your” from the
USF&G policy and not the National Fire policy. We disagree.
Although Judge Sanchez may have cited the wrong insurance
policy for the definitions of “you” and “your,” this did not affect
his ultimate legal conclusion. The definitions of “you” and
“your” provided in the USF&G and Shelby insurance policies
are substantially similar to the National Fire policy. Compare
Shelby policy, app. at 215a, and USF&G policy, app. at 180a,
with National Fire policy, app. at 95a. All three clearly state
that “you” and “your” refer to the Named Insured shown in the
declarations. National Fire’s policy merely adds that “you” and
“your” additionally encompasses anyone else who qualifies as
a Named Insured under this policy. National Fire does not argue
that the Alexanders qualify as a Named Insured.
29
“named insured” is self-defining . . . [and] refers only to the
names so appearing in the declaration”); Black’s Law
Dictionary (“Named Insured. In insurance, the person
specifically designated in the policy as the one protected and,
commonly, it is the person with whom the contract of insurance
has been made.”).
Having then determined that the Condominium
Association is the Named Insured, it is clear that National Fire
is the primary insurer for this incident. Substituting the
Condominium Association, who is the Named Insured, for the
words “you” in section 4(b)(2) produces the following result:
“This insurance is excess over . . . any other primary insurance
available to [the Condominium Association] covering liability
for damages arising out of the premises or operations for which
[the Condominium Association has] been added as an additional
insured by attachment of an endorsement.” Consequently, the
National Fire policy will only be deemed excess in the current
circumstances if there is other primary insurance available to the
Condominium Association or if the Association has been added
as an additional insured by endorsement to another policy.
The only other insurance policies that could possibly
provide this protection for the Condominium Association are
those issued by USF&G and Shelby. Those policies, however,
only name the Alexanders as Named Insured. USF&G policy,
app. at 175a; Shelby policy, app. at 211a. The Condominium
Association is not named, by endorsement or otherwise, on
either policy as an insured. Accordingly, per the operation of
section 4(b)(2) of the National Fire policy, National Fire’s
coverage is primary.
30
Bringing this analysis to a close, the final matter that
must be dealt with is whether the USF&G and Shelby policies
also provide primary coverage for this incident. As already
noted, however, the Shelby and USF&G polices provide that
their coverage shall be excess over “other valid and collectible
insurance except insurance written specifically to cover as
excess over” these policies. Shelby policy, app. at 231a, ¶ 8;
USF&G policy, app. at 193a, ¶ 8. The Alexanders, as the
holders of the Shelby and USF&G policies, possess “other valid
and collectible insurance” from National Fire. See supra section
IV. Accordingly, because the National Fire policy was not
specifically written to be excess to the Shelby or USF&G
policies, per the operation of the three policies’ “other
insurance” provisions, National Fire is the sole primary insurer
of the Alexanders for the liability arising out of the collapse of
the deck and USF&G and Shelby are excess.
********
We will affirm the judgments of the District Court. The
National Fire policy covers the Alexanders as additional
insureds. Consequently, because the deck’s support structure is
a common element of the Condominium Association, National
Fire is required to cover the Alexanders for the failure of that
structure. Moreover, the coverage provided by National Fire is
primary, and that of Shelby and USF&G are excess.
_____________________________
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