DIACO CONSTRUCTION, INC., ETC. VS. OHIO SECURITY INSURANCE COMPANY (L-3485-16, PASSAIC COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE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-2717-17T3
DIACO CONSTRUCTION, INC.,
d/b/a GRADE CONSTRUCTION,
Plaintiff-Appellant,
v.
OHIO SECURITY INSURANCE
COMPANY,
Defendant-Respondent.
Argued December 5, 2018 - Decided August 2, 2019
Before Judges Fuentes, Accurso and Moynihan.
On appeal from the Superior Court of New Jersey, Law
Division, Passaic County, Docket No. L-3485-16.
Francis X. Garrity argued the cause for appellant
(Garrity Graham Murphy Garofalo & Flinn, attorneys;
Francis X. Garrity, of counsel; Jane G. Glass, on the
briefs).
John Thomas Coyne argued the cause for respondent
(Mc Elroy Deutsch Mulvaney & Carpenter, LLP,
attorneys; John Thomas Coyne, on the brief).
PER CURIAM
Plaintiff Diaco Construction, Inc. lost an excavator in the Elizabeth River
in the course of constructing concrete headwalls and outlets for stormwater
runoff pursuant to its contract with the City of Elizabeth. A Diaco employee
was operating the excavator on the riverbank when he sensed it slipping into the
river. Trying to avert disaster, the operator turned the machine and tried to drive
it across the river. The effort was not a success as the excavator got stuck three-
quarters of the way across. Although nothing leaked into the river from the
wreck, the excavator was a total loss and it cost Diaco over $300,000 to remove
it a week later following oral demand by the City and the Department of
Environmental Protection.
Defendant Ohio Security Insurance Company, Diaco's insurance carrier,
paid Diaco $134,904.87 on its first-party direct claim, consisting of $95,000 for
loss of the excavator, and $28,750 for debris removal and to test for and contain
any fluids that might leak into the river. Diaco subsequently made a third-party
liability claim for the cost of removal, which Ohio declined. Diaco filed this
declaratory judgment action to resolve the coverage question.
The parties made cross-motions for summary judgment, agreeing on the
essential facts. As relevant here, the Ohio commercial general liability (CGL)
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coverage form1 provides in the "coverages" section for bodily injury and
property damage liability:
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. . . .
b. This insurance applies to "bodily injury"
and "property damage" only if:
(1) The "bodily injury" or "property
damage" is caused by an "occurrence" that takes
place in the "coverage territory". . . .
The policy defines "property damage," in relevant part, as follows:
17. "Property damage" means:
a. Physical injury to tangible property,
including all resulting loss of use of that property. All
such loss of use shall be deemed to occur at the time of
the physical injury that caused it; or
b. Loss of use of tangible property that is not
physically injured. All such loss of use shall be deemed
to occur at the time of the "occurrence" that caused it.
The policy also contains the following exclusions:
1
Ohio's policy is written on the 2012 Insurance Services Office, Inc. (ISO)
form. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 772 (1993)
(describing how CGL forms are produced by the insurance industry).
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2. Exclusions
This insurance does not apply to:
....
j. Damage to Property
"Property damage" to:
....
(5) That particular part of real property
on which you or any contractors or
subcontractors working directly or indirectly on
your behalf are performing operations, if the
"property damage" arises out of those operations;
or
(6) That particular part of any property
that must be restored, repaired or replaced
because "your work" was incorrectly performed
on it.
....
m. Damage to Impaired Property or Property
Not Physically Injured
"Property damage" to "impaired property" or
property that has not been physically injured, arising
out of:
(1) A defect, deficiency, inadequacy or
dangerous condition in "your product" or "your
work"; or
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(2) A delay or failure by you or anyone
acting on your behalf to perform a contract or
agreement in accordance with its terms.
"Impaired property" is defined as follows:
8. "Impaired property" means tangible property,
other than "your product" or "your work", that cannot
be used or is less useful because:
a. It incorporates "your product" or "your
work" that is known or thought to be defective,
deficient, inadequate or dangerous; or
b. You have failed to fulfill the terms of a
contract or agreement;
if such property can be restored to use by the repair,
replacement, adjustment or removal of "your product"
or "your work" or your fulfilling the terms of the
contract or agreement.
"Your product" and "your work" are defined, in relevant part, as follows:
21. "Your product":
a. Means:
(1) any goods or products, other than
real property, manufactured, sold, handled,
distributed or disposed of by:
(a) You;
(b) Others trading under your name;
or
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(c) A person or organization whose
business or assets you have acquired; and
(2) Containers (other than vehicles),
materials, parts or equipment furnished in
connection with such goods or products.
....
22. "Your work":
a. Means:
(1) Work or operations performed by
you or on your behalf; and
(2) Materials, parts or equipment
furnished in connection with such work or
operations.
Plaintiff asserted the Elizabeth River qualified as tangible property under
the Ohio policy, and the presence of the excavator thus constituted "physical
injury to tangible property." Plaintiff further contended the excavator in the
river amounted to a trespass and interference with navigation, causing loss of
use regardless of whether anyone tried to navigate the river while the excavator
remained stuck. Because, plaintiff asserted, "the presence of the excavator in
the river, even temporarily, constituted 'physical injury to tangible property[,]'
. . . the costs attendant to its [legally necessary] removal qualified as 'property
damage.'" Plaintiff claimed that because the river is "owned by the citizens of
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New Jersey" the excavator "constituted damages and a trespass to this third
party, not to the City," plaintiff's contracting partner, and thus the "impaired
property" exclusion did not apply. Plaintiff further asserted the "damage to
property" exclusion was also inapplicable because it "was not performing work
on the river and no one has asserted that its work was 'incorrectly performed.'"
Plaintiff argued "[t]he exclusion simply does not apply to the facts of this case,"
and Ohio did not rely on it in declining coverage.
Defendant Ohio countered that the only coverage available to plaintiff was
a first-party claim under the inland marine section of the policy, which provided
for, among other things, loss of the excavator and the expense of debris removal.
Ohio contended the fact that the coverage plaintiff purchased was not sufficient
to cover the full expense of removing the excavator from the river, did not make
its removal a third-party liability claim under the CGL portion of the policy.
Ohio argued plaintiff could not establish "property damage" under either
the "physical injury" or "loss of use" policy definitions. First, Ohio contended
the submerged portion of the excavator did not "injure" the river any more than
the portion protruding above the waterline "injured" the surrounding air.
Second, neither the City, the State, nor anyone else alleged it suffered any
monetary damage due to "loss of use" of the river.
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Ohio further argued that even if plaintiff could establish that the excavator
in the river constituted an "injury to" or "loss of use of" the river, and thus
"property damage" under the policy, the "impaired property" exclusion bars
coverage because: a) plaintiff had a contractual obligation to remove its
construction equipment, including the excavator, from the site upon completion
of the project; and b) upon removal, the river was restored to its original
condition.
Ohio also contended the "damage to property" exclusion (j)(5) also barred
coverage because plaintiff was "performing operations on 'that particular part'
of the river entered by the excavator" when the accident occurred. Ohio noted
plaintiff did not dispute that its contract with the City provided "that the Work
will occur on the site of an earthen levee, ponding/containment area and the
Elizabeth River," nor that it was required to construct the "ponding/containment
area" by the construction of a cofferdam in the river. Plaintiff specifically
admitted the concrete headwalls it was constructing extended below the
waterline, requiring it "to perform work in and on the river itself, not merely on
the banks."
Ohio contended the "damage to property" exclusion (j)(6) would also
apply because any "property damage" to the river caused by the presence of the
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excavator requiring "restoration" or "repair" would be as a result of plaintiff
"incorrectly perform[ing]" its work on that area. Ohio contended "[t]he
'incorrectly performed' work was the negligent operation of the excavator ,
leading to its partial submersion." According to Ohio, the only reason it did not
disclaim on the basis of exclusion (j) when it initially denied coverage was that
it was not aware at that time that plaintiff's contract obligated it to perform work
in the river in addition to on the banks.
Finally, Ohio also argued that coverage was barred by the "voluntary
payments" clause of the policy which prohibits the insured from voluntarily
making any payment, except at its own cost, or assuming any obligation or
incurring any expense without Ohio's consent.
After hearing argument on the cross-motions, the trial court judge issued
a comprehensive written opinion dismissing plaintiff's complaint. After
detailing the undisputed facts, the court concluded plaintiff could not establish
"property damage" under the CGL portion of the policy.
The judge began his analysis by rejecting plaintiff's characterization of
the City's demand for removal of the excavator as a "claim" under the policy
because the City never filed suit or even issued a written demand. The judge
also rejected plaintiff's assertion that the excavator's presence in the river
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constituted a trespass or created an obstruction to navigation, noting "at no time
has any party suggested that due to the presence of the excavator, the use of the
river was curtailed in any way. Thus, the 'loss of use' prong, of the 'property
damage' definition is not satisfied."
The judge concluded plaintiff failed to satisfy the "physical injury" prong
because it could not establish any detrimental alteration of the river. See Phibro
Animal Health Corp. v. Nat'l Union Fire Ins. Co., 446 N.J. Super. 419, 436-40
(App. Div. 2016) (interpreting the same ISO definition to hold stunted growth
of broiler chickens to constitute "physical injury" based on harm to the chickens'
physical condition). The judge found, based on the undisputed facts, that "the
river was not detrimentally altered. Its appearance, shape, color, and dimension
remained exactly the same. Once the excavator was removed, nothing was
required to repair any damage or harm to the river because no damage or harm
was done."
Although finding no coverage under the policy, the judge went on to
conclude that even if plaintiff could have established property damage, the
"impaired property" and "damage to property" exclusions provided an additional
basis for denial of coverage. Specifically, the judge found plaintiff was
contractually obligated to remove its equipment from the job site and, upon the
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excavator's removal from the river, it was immediately restored to its prior
condition, thus precluding coverage under the "impaired property" exclusion.
The judge found the "damage to property" exclusion applied as it was undisputed
that plaintiff was performing work on the river itself when the excavator got
stuck and plaintiff's work was ongoing when the accident occurred.
Plaintiff appeals, reprising the arguments he made in the Law Division.
Although we review the trial court judge's interpretation of the Ohio policy de
novo, see id. at 428, we find no flaw in the judge's analysis of the policy
language. Plaintiff simply could not establish property damage under the terms
of the CGL policy. Assuming the river constituted tangible property, the
excavator's temporary stalled presence therein inflicted no more physical injury
on the river than the excavator would have inflicted on the ground had it broken
down along the bank and had to be towed away. As plaintiff could not establish
any loss of use of the river by anyone, it failed to establish it was entitled to
coverage under the CGL portion of the policy. Although that determination is
dispositive of the appeal, we note our agreement with the judge's construction
of the exclusion clauses as well.
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Having considered plaintiff's arguments and reviewed the record on the
motions, we affirm, substantially for the reasons expressed by Judge Mongiardo
in his cogent and well-reasoned written opinion of January 22, 2018.
Affirmed.
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