Newport Associates Development Co. v. Travelers Indemnity Co.

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
12-29-1998
Newport Assoc Dev v. Travelers Indemnity
Precedential or Non-Precedential:
Docket 97-5527
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Recommended Citation
"Newport Assoc Dev v. Travelers Indemnity" (1998). 1998 Decisions. Paper 287.
http://digitalcommons.law.villanova.edu/thirdcircuit_1998/287
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Filed December 29, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 97-5527
NEWPORT ASSOCIATES DEVELOPMENT COMPANY;
NEWPORT MARINE HOLDING, INC.,
Appellants
v.
THE TRAVELERS INDEMNITY COMPANY OF ILLINOIS;
FRENKEL & CO., INC.
FRENKEL & CO., INC.,
Defendant/Third-Party Plaintiff
v.
INDUSTRIAL RISK SPECIALISTS, INC.,
Third-Party Defendant
On Appeal from the United States District Court
for the District of New Jersey
D.C. Civil Action No. 94-cv-01514
(Honorable John W. Bissell)
Argued November 5, 1998
Before: SCIRICA and ALITO, Circuit Judges,
and GREEN, District Judge*
(Filed December 29, 1998)
_________________________________________________________________
*The Honorable Clifford Scott Green, United States District Judge for the
Eastern District of Pennsylvania, sitting by designation.
SHELDON M. FINKELSTEIN,
ESQUIRE (ARGUED)
Hannoch Weisman
4 Becker Farm Road
Roseland, New Jersey 07068-3788
Attorney for Appellants
HARRY ROBINSON, III, ESQUIRE
(ARGUED)
Gennet, Kallmann, Antin &
Robinson
6 Campus Drive
Parsippany, New Jersey 07054
Attorney for Appellee,
The Travelers Indemnity Company
of Illinois
OPINION OF THE COURT
SCIRICA, Circuit Judge.
Newport Associates Development Company and Newport
Marine Holding, Inc. ("Newport") appeal the District Court's
grant of summary judgment in favor of The Travelers
Indemnity Company of Illinois ("Travelers").1 The District
Court held that the insurance policy issued by Travelers to
Newport unambiguously did not cover a breakwater owned
by Newport. We will affirm.
I.
Newport is a subsidiary of the LeFrak Organization,
_________________________________________________________________
1. The District Court granted Travelers' summary judgment motion in an
order dated March 22, 1995. Claims against Frenkel & Co., Newport's
broker, remained pending at that time. Those claims were later settled,
and upon motion of Frenkel and Newport, the court entered an order
finalizing its March 22, 1995 order. We have jurisdiction under 28
U.S.C. S 1291. The District Court had diversity jurisdiction under 28
U.S.C. S 1332 following this action's removal from New Jersey state
court.
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which has been involved for several years in the
development of the Jersey City waterfront. This
development includes the Newport Marina ("the marina"),
managed by another LeFrak Organization subsidiary, Mid-
State Management Corporation. The marina contains
various buildings, docks, berths for boats, and a
breakwater. The breakwater is located about 120 feet from
the dock's end and is designed to limit wave action in the
area in which the boats are moored.
In early 1990, Mid-State Management Corporation hired
an independent insurance broker, Frenkel & Co., Inc.
("Frenkel"), to procure an insurance policy for the marina.
Michael Feinstein of Frenkel met several times with
Newport employee Arthur Klein to discuss the scope of
coverage under the proposed policy. Feinstein also visited
the marina on April 9, 1990 and took photographs of the
site. Ultimately, Feinstein drafted a policy containing, in
part, the following language:
Buildings and Structures: [for the amount of] $600,000
Concrete Pier, under buildings [and structures]: [for
the amount of] $1,750,000
Slips, consisting of metal slips, walkways, ramps,
pilings, power cables and other integral parts
collectively called "slips": [for the amount of]
$2,000,000.
Business Interruption: [for the amount of] $300,000
all as defined in forms attached hereto and located as
indicated or subsequently reported to and agreed to by
The Travelers. In no event shall liability exceed any
specific sublimit shown in this policy for any insured
loss, coverage or location(s).
In his deposition, Feinstein stated he always intended to
cover "everything in the water" under the insurance policy
and he believed the phrase "and other integral parts" would
include a breakwater. However, Feinstein acknowledges he
was not aware of the existence of the breakwater at the
time he drafted the policy. Nor could Arthur Klein recall
whether he specifically instructed Feinstein to include the
breakwater.
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Feinstein submitted his draft of the policy to Travelers
and another insurer, Chubb Insurance Company. Feinstein
also submitted photographs of the marina, taken on April
9, 1990, as well as a map that described the marina and
showed the breakwater. Travelers issued an insurance
policy incorporating verbatim Feinstein's description of the
slips, but the policy did not incorporate the map or
photographs. Newport purchased the policy from Travelers
to provide coverage for the marina from February 1, 1992
to February 1, 1993.
In December 1992, the breakwater was severely damaged
by a storm. Newport submitted a claim for damages under
the policy. Travelers denied the claim, stating that the slips
insured did not include the breakwater, and Newportfiled
suit for breach of contract. The District Court found that
the policy unambiguously did not cover the breakwater and
accordingly entered summary judgment in favor of
Travelers.
II.
On appeal from the grant of summary judgment, we
review the evidence de novo and in the light most favorable
to the nonmoving party. See Antol v. Perry, 82 F.3d 1291,
1294-95 (3d Cir. 1996). We apply the same test as the
district court: that is, we determine "whether there is a
genuine issue of material fact and, if not, whether the
moving party is entitled to judgment as a matter of law." Id.
at 1295. We will affirm a grant of summary judgment in a
breach of contract action only where the contract is
unambiguous and the moving party is entitled to judgment
as a matter of law. See Tamarind Resort Assocs. v.
Government of Virgin Islands, 138 F.3d 107, 111 (3d Cir.
1998). There is no dispute that New Jersey insurance and
contract law governs in this case.
Under New Jersey law, the words of an insurance
contract should be given their everyday and common
meaning. See Longobardi v. Chubb Ins. Co., 582 A.2d 1257,
1260 ( N.J. 1990) ("[T]he words of an insurance policy
should be given their ordinary meaning, and in the absence
of an ambiguity, a court should not engage in a strained
4
construction to support the imposition of liability."). The
test for ambiguity is whether the policy's phrasing is "so
confusing that the average policyholder cannot make out
the boundaries of coverage." Weedo v. Stone-E-Brick, Inc.,
405 A.2d 788, 795 (N.J. 1979). Whether the contract terms
are clear or ambiguous is a question of law. See Sumitomo
Mach. Corp. v. Alliedsignal, Inc., 81 F.3d 328, 332 (3d Cir.
1996) (applying New Jersey law); Nester v. O'Donnell, 693
A.2d 1214, 1220 (N.J. Super. Ct. App. Div. 1997).
In determining whether a contract is ambiguous, a court
"must ``consider the words of the agreement, alternative
meanings suggested by counsel, and extrinsic evidence
offered in support of those meanings.' " Pennbarr Corp. v.
Insurance Co. of N. Am., 976 F.2d 145, 151 (3d Cir. 1992)
(applying New Jersey law) (quoting International Union, UAW
v. Mack Trucks, Inc., 917 F.2d 107, 111 (3d Cir. 1990)). If
the nonmoving party presents a reasonable alternative
reading of the contract, then a question of fact as to the
meaning of the contract exists which can only be resolved
at trial. See Tigg Corp. v. Dow Corning Corp., 822 F.2d 358,
361 (3d Cir. 1987); Landtect Corp. v. State Mut. Life
Assurance Co., 605 F.2d 75, 80 (3d Cir. 1979). Thus, the
dispositive question is whether Newport provided a
reasonable reading of the contract, raising a question of
fact as to the meaning of the contract and requiring
resolution at trial.
The insurance policy in this case covers, inter alia,
"[s]lips, consisting of metal slips, walkways, ramps, pilings,
power cables and other integral parts collectively called
``slips.' " The parties dispute whether the breakwater falls
within this provision. Travelers argues that the paragraph
applies only to slips and their physically attached,
component parts. Newport urges that the phrase "other
integral parts" covers the breakwater because a breakwater
is functionally necessary to the operation of the slips.
The District Court held that the policy language
unambiguously does not cover the breakwater. The court
reasoned:
All objective indicia demonstrate that this text is
unambiguous and must be construed as Travelers
argues.
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(1.) A breakwater is not a slip or berth for a vessel.
(2.) In the specific definition of "slips" in the policy,
all specifically listed components of that term which
immediately precede the phrase "and other integral
parts" are (by description and reasonable construction
at least) physically attached to the structures in which
the boats are berthed. Accordingly, it is reasonable to
construe the phrase "and other integral parts" as being
consistent in nature with its specific antecedents. The
unattached breakwater, forty yards out into the
Hudson River, serving a function very different from
the slips (or "slips"), could not under any reasonable
expectation of the parties at the time of contracting be
included as an "other integral part" covered by the
insurance policy.
(3.) Dictionary definitions of "integral parts" connote
component "parts which together constitute a whole."
The Random House Dictionary (unabridged ed. 1967).
The excerpt from the Random House Pocket Dictionary
which Feinstein consulted is not inconsistent. A
breakwater is not such a part of the structure where
vessels are berthed.
Newport Assocs. Dev. Co. v. Travelers Indem. Co., No. 94-
1514, slip op. at 11 (D.N.J. Mar. 21, 1995). Therefore, the
District Court concluded, "The only reasonable construction
of the terminology is that the breakwater lying offshore
from the vessel berthing structure was not an ``integral part'
thereof and hence covered as part of the ``slips' as defined
in that policy." Id. at 12.
We agree with this construction of the language. As the
New Jersey Supreme Court has made clear, words in an
insurance contract should be given their everyday meaning.
See Longobardi, 582 A.2d at 1260. Here, the policy
language refers to "slips" and "other integral parts" of slips,
such as "walkways," "ramps," "pilings," and "power cables."
These parts are all physically attached components of the
slips themselves, whereas the breakwater is an entirely
separate structure located 120 feet from the end of the
dock in the Hudson River. Common sense suggests that the
term "other integral parts" was meant to refer not to the
6
breakwater, but to the various component parts of the slips
that could not be exhaustively identified by name. We
believe this interpretation is the only one consistent with
the provision's references to "slips, walkways, ramps,
pilings, [and] power cables."
Newport cites Zanfagna v. Providence Wash. Ins. Co., 415
A.2d 1049 (R.I. 1980) for the proposition that an item need
not be physically attached to the insured property to be
considered an "integral part." In Zanfagna, the disputed
items were "electrical fixtures, appliances and interior doors
that at the time of the theft were being temporarily stored
in a garage while awaiting incorporation within the main
structure." 415 A.2d at 1051. Thus, the items in question
were physical components that simply had not yet been
incorporated. In this case, however, the breakwater was an
entirely separate structure that was never to be integrated
into the insured property.
Newport also argues the policy language must be
construed in light of extrinsic evidence purportedly showing
that the parties intended the breakwater to be covered. We
agree that extrinsic evidence is relevant to determining
whether ambiguity exists. See, e.g., American Cyanamid Co.
v. Fermenta Animal Health Co., 54 F.3d 177, 181 (3d Cir.
1995). However, "the focus must remain on the language
chosen by the parties, and a text unambiguous when
accorded the commonly understood meaning of its words
cannot be disregarded unless the extrinsic evidence is such
as might cause a reasonable fact finder to understand the
text differently." Id. at 182.
Newport cites as extrinsic evidence of coverage the
photographs sent to Travelers which depict, in the
background of some photographs, parts of the breakwater
(as well as a diagram depicting but not labeling the
breakwater) and the statement of Mr. Feinstein that he
"intended" to cover everything in the water. This evidence is
weak at best. The map and photographs were not
incorporated into the policy. The mere presence of an item
in a map or photograph that the insurer saw is not enough
to place it within the realm of coverage when there is no
textual support for coverage in the policy itself.
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Similarly, Mr. Feinstein's statement that he intended the
policy to cover "everything in the water" is unpersuasive. As
the District Court noted, this statement was made only
after litigation ensued. Indeed, "Feinstein did not know
about the breakwater at the time he drafted the policy
language and there is no evidence that he discussed it with
anyone from Newport at that time." Newport, slip op. at 12.
Moreover, it is "undisputed that the inclusion of the
breakwater in the policy language was not expressed to
Travelers either orally or in writing." Id. If the parties had
intended the breakwater to be included, they could have
used the unambiguous term "breakwater" in the policy.
They did not do so.
Far from causing a reasonable fact finder to "understand
the text differently," American Cyanamid, 54 F.3d at 182,
the extrinsic evidence fully supports the District Court's
construction of the policy. Consequently, we agree with the
District Court that the policy unambiguously excluded the
breakwater from coverage.
III.
Newport also invokes the doctrines of "reasonable
expectations" and "contra preferentum" in its argument for
reversal. We believe those doctrines are inapplicable here.
The doctrine of reasonable expectations states that an
insurance contract generally is to be construed "so as to
fulfill the reasonable expectations of the insured." Werner
Indus., Inc. v. First State Ins. Co., 548 A.2d 188, 191 (N.J.
1988); see also Sparks v. St. Paul Ins. Co., 495 A.2d 406,
412 (N.J. 1985) (same). As a result, where language in an
insurance contract is ambiguous, courts usually will
construe the language in favor of the insured. See, e.g.,
Nationwide Mut. Fire Ins. Co. v. Pipher, 140 F.3d 222, 227
(3d Cir. 1998) (noting that ambiguous terms "should be
construed against [insurer] so as to provide coverage to its
insured"); Doto v. Russo, 659 A.2d 1371, 1376 (N.J. 1995)
("New Jersey courts often have construed ambiguous
language in insurance policies in favor of the insured and
against the insurer."); Mazzilli v. Accident & Casualty Ins.
Co., 170 A.2d 800, 803 (N.J. 1961) ("If the controlling
language of the policy will support two meanings, one
8
favorable to the insurer, and the other favorable to the
insured, the interpretation sustaining coverage must be
applied.").
As discussed supra, the policy language in this case was
unambiguous. Accordingly, we do not find it necessary to
inquire whether Newport reasonably expected that the
breakwater was covered by the policy. But we note that
with the exception of an after-the-fact statement by Mr.
Feinstein, who was not even aware of the breakwater's
existence when he drafted the policy, there is no evidence
that anyone believed the breakwater was covered by the
policy. The policy of liberally construing insurance
contracts cannot override the plain language of the text and
the absence of extrinsic evidence supporting Newport's
position. As the New Jersey Supreme Court has held,
"[a]lthough Courts should construe insurance policies in
favor of the insured, they should not write for the insured
a better policy of insurance than the one purchased."
Longobardi, 582 A.2d at 1260 (quoting Walker Rogge, Inc. v.
Chelsea Title & Guar. Co., 562 A.2d 208, 214 (N.J. 1989)).
Newport also relies on the doctrine of "contra
preferentum," which states that "as between two reasonable
and practical constructions of an ambiguous contractual
provision . . . the provision should be construed less
favorably to that party which selected the contractual
language." United States v. Seckinger, 397 U.S. 203, 216
(1970). According to Newport, the insurance policy should
be construed against Travelers because Travelers selected
the policy language and "Frenkel [Feinstein's company]
acted as, if anything, Traveler's broker." (Appellant's Reply
Br. at 3.) But this contention is belied by Newport's own
statement describing Frenkel's role as a middleman: "As an
insurance broker, Frenkel was ``one who act[ed] as a
middleman between the insured and the insurer, and who
solicit[ed] insurance from the public under no employment'
from any specific insurance company." (Appellant's Br. at
4-5 (quoting Boulton Agency, Inc. v. Phoenix Worldwide
Indus. Inc., 698 So. 2d 1248, 1250 (Fla. Dist. Ct. App.
1997)).
In fact, Feinstein met with Newport's employee Klein
several times to discuss the scope of insurance coverage to
9
be purchased, and Feinstein acted at Klein's direction while
drafting the policy. The District Court found that Feinstein
was not the agent of Travelers, but of Newport:"Newport
had its broker [Feinstein] draft and describe the items to be
included under the Travelers' policy. This broker
represented his client, Newport." Newport, slip op. at 8
(citation omitted).
Regardless of whether Feinstein's role is better
characterized as a middleman or as Newport's agent, the
crucial fact is that Travelers did not unilaterally impose the
policy on Newport. As we recently observed in a case
applying New Jersey insurance law, the doctrine of contra
preferentum is based on the fact that "insurance contracts
are in most instances ``nonnegotiable' " since they tend to be
drafted solely by the insurance industry. Pittston Co. v.
Allianz Ins. Co., 124 F.3d 508, 521 (3d Cir. 1997). When a
contract is drafted by the insured or jointly negotiated, the
doctrine does not apply:
[T]he dispositive question is not whether the insured is
a sophisticated corporate entity, but rather whether the
insurance contract is negotiated, jointly drafted or
drafted by the insured. In such instances, we conclude
that the doctrine of contra preferentum should not be
invoked to inure to the benefit of the insured.
Id. Here, the insurance policy was drafted by an
independent broker who was hired by Newport and acted in
consultation with Newport employees. The drafted policy
was then shopped to at least two different insurance
companies. Newport selected Travelers after reviewing its
proposed policy, and Travelers adopted the broker's policy
language without any changes to the provisions at issue.
Under these circumstances, we believe the contract was
either drafted by Newport or jointly drafted, and the
doctrine of contra preferentum does not operate in
Newport's favor.
IV.
Accordingly, we will affirm the judgment of the District
Court.
10
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
11