MATCHAPONIX ESTATES, INC. VS. FIRST MERCURYÂ INSURANCE COMPANY (L-4399-15, MIDDLESEX 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NOT FOR PUBLICATION WITHOUT THE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-4784-15T4
MATCHAPONIX ESTATES, INC.
and NCV DEVELOPERS,
Plaintiffs-Respondents,
v.
FIRST MERCURY INSURANCE COMPANY,
Defendant-Appellant.
_________________________________
Argued May 24, 2017 – Decided July 10, 2017
Before Judges Manahan and Lisa.
On appeal from Superior Court of New Jersey,
Law Division, Middlesex County, Docket No. L-
4399-15.
Daniel Pickett argued the cause for appellant
(Carroll, McNulty & Kull, LLC, attorneys;
Kristin V. Gallagher and Mr. Pickett, of
counsel and on the briefs).
David M. Hutt argued the cause for respondents
(Hutt & Shimanowitz, P.C., attorneys; Mr. Hutt
and Bryan D. Plocker, of counsel and on the
brief).
PER CURIAM
In this insurance coverage dispute, First Mercury Insurance
Company (First Mercury) appeals from an order denying its motion
for summary judgment, as well as a second order granting summary
judgment in favor of Matchaponix Estates, Inc. (Matchaponix) and
NCV Developers (NCV). We affirm.
We discern the following facts and all reasonable inferences
drawn therefrom in the light most favorable to the party against
whom summary judgment was entered. Brill v. Guardian Life Ins.
Co. of Am., 142 N.J. 520, 523-24 (1995). The underlying personal
injury action involves Jeannine Bleich, who claimed to be injured
while riding her bicycle along the roadway in a development built
by Matchaponix and NCV. Bleich attributed her accident and
resulting injury to a sinkhole, which caused her to be propelled
forward onto the pavement.
In November 2014, Bleich and her husband filed a complaint
naming NCV as a defendant. The complaint was thereafter amended
to add Matchaponix as a defendant. The complaint alleged
Matchaponix and NCV were negligent in their management and
maintenance of the development.
At the time of the accident, Matchaponix and NCV were insured
under a commercial general liability policy (CGL) issued by First
Mercury. The CGL included an endorsement-subsidence exclusion,
which provided,
This insurance does not apply to:
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"Bodily injury" or "property damage"
directly or indirectly arising out of[,]
caused by, resulting from, contributed to,
aggravated by or related to the subsidence,
settling, settlement, expansion, sinking,
slipping, falling away, tilting, caving in,
shifting[,] eroding, rising, heaving,
landslide, flood or mud flow, earthquake,
volcanic eruption or other tectonic processes
or any other movement, of land or earth,
however caused, and whether by natural,
manmade, accidental or artificial means. This
exclusion applies regardless of any other
cause or event that contributes concurrently
or in any sequence to the "bodily injury" or
"property damage."
We shall have no duty or obligation on
our part under this insurance to defend,
respond to, investigate or indemnify any
insured against any loss, claim, "suit," or
other proceeding alleging damages arising out
of or related to "bodily injury" or "property
damage" to which this endorsement applies.
This exclusion also applies to any
obligation to, share damages with, repay or
indemnify someone else who must pay damages
because of such "bodily injury" or "property
damage."
In response to the underlying action, Matchaponix and NCV
submitted a claim to First Mercury.1 By letter dated January 8,
2015, First Mercury disclaimed coverage based on the CGL's
subsidence exclusion provision.
1
Matchaponix and NCV filed a claim prior to the commencement of
the underlying action for which First Mercury denied coverage.
3 A-4784-15T4
In July 2015, Matchaponix and NCV commenced a declaratory
judgment action. First Mercury filed its answer and affirmative
defenses in September 2015. Matchaponix and NCV, as well as First
Mercury, simultaneously filed motions for summary judgment. On
April 27, 2016, the trial court issued a preliminary ruling on the
parties' motions granting summary judgment in favor of Matchaponix
and NCV.
At the conclusion of oral argument held on May 6, 2016, the
court granted Matchaponix and NCV's motion for summary judgment
and denied First Mercury's motion for summary judgment. On the
same day, the court entered orders memorializing its decision.
The orders stated in part:
2. First Mercury shall pay on behalf of
Matchaponix and NCV all sums that Matchaponix
and/or NCV become legally obligated to pay,
through judgment settlement or otherwise, in
connection with the [Underlying Litigation;]
3. First Mercury shall pay on behalf of
Matchaponix and NCV all costs, including
attorneys' fees, and related litigating
expenses that Matchaponix and NCV incur in the
defense of the Underlying Litigation;
The court entered a consent order for final judgment in
connection with its summary judgment rulings on June 9, 2016.
Pursuant to the order, the parties agreed upon the amount of legal
fees incurred by Matchaponix and NCV, totaling $37,927.94. The
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order reserved First Mercury's right to appeal the May 6, 2016
orders. This appeal followed.
First Mercury raises the following argument on appeal:
[POINT I]
THE TRIAL COURT IMPROPERLY LIMITED THE
APPLICATION OF THE SUBSIDENCE EXCLUSION TO
"CATASTROPHIC" EVENTS.
A. STANDARD OF REVIEW.
B. THE PLAIN TERMS OF THE SUBSIDENCE
EXCLUSION DOES NOT LIMIT ITS
APPLICATION TO "CATASTROPHIC"
EVENTS.
C. THE SUBSIDENCE EXCLUSION
PRECLUDES COVERAGE FOR NCV
DEVELOPERS AND MATCHAPONIX.
D. THE SUBSIDENCE EXCLUSION IS
UNAMBIGUOUS.
First Mercury raises the following argument in its reply brief:
[POINT I]
LEGAL ARGUMENT.
A. THE SUBSIDENCE EXCLUSION
PRECLUDES COVERAGE FOR THE
UNDERLYING ACTION.
B. COURTS HAVE FOUND THE SUBSIDENCE
EXCLUSION TO BE UNAMBIGUOUS AND
ENFORCEABLE AND THE TRIAL COURT AND
[MATCHAPONIX AND NCV] FAILED TO CITE
TO ANY CASE HOLDING TO THE CONTRARY.
C. [MATCHAPONIX AND NCV'S] READING
OF THE EXCLUSION RENDERS ITS TERMS
MEANINGLESS AND INEXPLICABLE.
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D. [MATCHAPONIX AND NCV] PROVIDE NO
EVIDENTIARY SUPPORT OF WHAT THEIR
EXPECTATIONS WERE.
E. THE SUBSIDENCE EXCLUSION IS NOT
RENDER AMBIGUOUS BECAUSE IT MIGHT
NOT APPLY TO A HYPOTHETICAL,
ALTERNATIVE SITUATION.
F. BASED UPON THE ALLEGATIONS OF THE
COMPLAINT[,] FIRST MERCURY HAD NO
DUTY TO DEFEND.
Our review of a ruling on summary judgment is de novo,
applying the same legal standard as the trial court. Coyne v.
N.J. Dep't of Transp., 182 N.J. 481, 491 (2005); Tymczyszyn v.
Columbus Gardens, 422 N.J. Super. 253, 261 (App. Div. 2011),
certif. denied, 209 N.J. 98 (2012). Thus, we consider "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." Liberty Surplus Ins. Corp. v.
Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007) (quoting Brill,
supra, 142 N.J. at 536). "Summary judgment must be granted if
'the pleadings, depositions, answers to interrogatories[,] and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact challenged
and that the moving party is entitled to a judgment or order as a
matter of law.'" Town of Kearny v. Brandt, 214 N.J. 76, 91 (2013)
(quoting R. 4:46-2(c)).
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Here, the factual record is not in dispute. If there is no
genuine issue of material fact, we must then "decide whether the
trial court correctly interpreted the law." Massachi v. AHL
Servs., Inc., 396 N.J. Super. 486, 494 (App. Div. 2007), certif.
denied, 195 N.J. 419 (2008). We review de novo the trial court's
legal determinations, including its construction of an insurance
contract. Polarome Int'l, Inc. v. Greenwich Ins. Co., 404 N.J.
Super. 241, 260 (App. Div. 2008), certif. denied, 199 N.J. 133
(2009).
Matchaponix and NCV's expert's opinion was undisputed. See
D'Alessandro v. Hartzel, 422 N.J. Super. 575, 581 (App. Div. 2011)
(requiring expert testimony concerning construction or design
defects). The expert opined that that this sinkhole was caused
by underground leakage from a storm-water pipe leading to a nearby
inlet installed by Matchaponix and NCV. First Mercury did not
present its own expert. As such, the only issue on appeal before
us is the trial court's interpretation of the CGL and whether this
condition falls within the subsidence exclusion.
The interpretation of an insurance policy upon established
facts is a question of law for the court to determine. Simonetti
v. Selective Ins. Co., 372 N.J. Super. 421, 428 (App. Div. 2004).
Our standard of review is plenary. Manalapan Realty, L.P. v. Twp.
Comm. of Manalapan, 140 N.J. 366, 378 (1995). "Generally, '[w]hen
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interpreting an insurance policy, courts should give the policy's
words their plain, ordinary meaning.'" Nav-Its, Inc. v. Selective
Ins. Co. of Am., 183 N.J. 110, 118 (2005) (quoting President v.
Jenkins, 180 N.J. 550, 562 (2004)). "An 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) (citing Kampf
v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960)).
In construing the CGL, the court held:
To determine the cause of the hole
. . ., [Matchaponix and NCV] retained an
expert, who concluded that "[b]ased on the
location of the pavement failure and the shape
of the hole, it is our opinion, based on a
reasonable degree of engineering certainty,
that the formation of the hole is attributed
to a loss of support from soil migration into
a potential break or crack within the [storm-
water] pipe below the area of interest. The
pavement failure is, based on a reasonable
degree of engineering certainty, the result
of a construction related deficiency in the
utility installation." Notably, First Mercury
admits that it has not retained an expert to
contradict [] the opinions of [Matchaponix and
NCV's] expert.
Matchaponix and NCV argue that First
Mercury should be required to defend and
indemnify them under the [CGL] because Bleich
alleges bodily injuries resulting from riding
her bicycle into a hole in [the] roadway
caused by a construction-related deficiency.
Because the hole was not caused by the
subsurface movement of the Earth, such as a
tectonic shift of the plates, the Subsidence
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Exclusion of the [CGL] is not applicable, and
to the extent that the exclusion is
applicable, that provision is ambiguous, thus
requiring those doubts to be resolved in favor
[of] the insured.
. . . .
The language of the Subsidence Exclusion
plainly envisions a scenario in which solid
Earth collapses downward because of a natural
occurrence, such as a floor or an earthquake,
or human activities, such as industrial mining
or ground water pumping. It is abundantly
clear that the exclusion does not apply to a
scenario in which solid Earth seeps into a
break or crack in a [storm-water] pipe
resulting from a construction related
deficiency, thus causing a hole in the
pavement of a roadway. To conclude otherwise
would lead to [a] jarringly anomalous result,
running contrary to the fundamental principles
of fairness and common sense. Because
[Matchaponix and NCV's] expert has opined that
the pavement failure is the result of a faulty
installation of the [storm-water] pipe below
[the roadway], which is neither disputed nor
refuted by First Mercury, the Subsidence
Exclusion does not apply, and thus,
[Matchaponix and NCV] are entitled to coverage
under the [CGL], and reimbursement for monies
expended in their defense.
While we affirm the order of summary judgment in favor of
Matchaponix and NCV, we do so for different reasons than those
articulated by the court. Because we review judgments, not
decisions, we may affirm on any ground. Serrano v. Serrano, 367
N.J. Super. 450, 461 (App. Div. 2004) (quoting Isko v. Planning
Bd. of Livingston Twp., 51 N.J. 162, 175 (1968)) ("Although we
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affirm for different reasons, a judgment will be affirmed on appeal
if it is correct, even though 'it was predicated upon an incorrect
basis.'"), rev'd on other grounds, 183 N.J. 508 (2005).
Exclusions in insurance policies are construed narrowly.
Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997). They
will be enforced if the language is "specific, plain, clear,
prominent, and not contrary to public policy." Ibid. (quoting
Doto v. Russo, 140 N.J. 544, 559 (1995)). Because an insurance
policy is a contract of adhesion, ambiguous policy language is
interpreted in favor of the insured to give effect to the insured's
reasonable expectations. Doto, supra, 140 N.J. at 555-56.
Ambiguity is present when "the phrasing of the policy is so
confusing that the average policyholder cannot make out the
boundaries of coverage." Nunn v. Franklin Mut. Ins. Co., 274 N.J.
Super. 543, 548 (App. Div. 1994) (quoting Weedo v. Stone-E-Brick,
Inc., 81 N.J. 233, 247 (1979)). On numerous occasions, our courts
have resolved unclear policy language in favor of the insured.
See, e.g., Sparks v. St. Paul Ins. Co., 100 N.J. 325, 336 (1985);
Search EDP, Inc. v. Am. Home Insurance, 267 N.J. Super. 537, 542
(App. Div. 1993), certif. denied, 135 N.J. 466 (1994); and
Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 273-74 (2001).
However, "[i]f the words used in an exclusionary clause are
clear and unambiguous, 'a court should not engage in a strained
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construction to support the imposition of liability.'"
Flomerfelt, supra, 202 N.J. at 442 (quoting Longobardi v. Chubb
Ins. Co., 121 N.J. 530, 582 (1990)). "[T]he burden is on the
insurer to bring the case within the exclusion." Ibid. (quoting
Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 41 (1998)).
We have also extended coverage where the language is
unambiguous, but the denial of coverage would frustrate the
insured's reasonable expectations. Sparks, supra, 100 N.J. at
338. Thus, even when the policy language is clear, but denial of
coverage contravenes the insured's reasonable expectations, our
courts have ruled for the insured.
In Werner Industries, Inc. v. First State Insurance. Co., 112
N.J. 30 (1988), our Supreme Court explained the underlying
rationale for the reasonable expectations doctrine. That doctrine
is triggered despite unambiguous language where "the insurance
contract is inconsistent with public expectations and commercially
accepted standards." Id. at 35 (quoting Sparks, supra, 100 N.J.
at 338). In such instances, "judicial regulation of insurance
contracts is essential in order to prevent overreaching and
injustice." Ibid. (quoting Sparks, supra, 100 N.J. at 338).
We disagree with the court that the exclusion language was
ambiguous. From our reading of the CGL language, its literal
language plainly excludes from coverage any losses from the
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movement of land or earth "however caused, and whether by natural,
manmade, accidental or artificial means." By its literal terms,
the subsidence exclusion's application is not limited, as the
court determined, to soil migration by natural causes. Here, the
factual predicate for the occurrence was the manmade movement of
earth. Despite our finding as to the issue of ambiguity, our
determination as to whether the exclusionary language should be
applied does not end here. Id. at 35 (quoting Sparks, supra, 100
N.J. at 338).
We next turn to the issue of the reasonable expectations of
Matchaponix and NCV. Ibid. In doing so, we apply "an objective
standard of reasonableness" in determining what a policyholder's
reasonable expectations are. Clients' Sec. Fund of the Bar of
N.J. v. Sec. Title & Guar. Co., 134 N.J. 358, 372 (1993); see also
Progressive, supra, 166 N.J. at 274. Due to "the stark imbalance
between insurance companies and insureds in their respective
understanding of the terms and conditions of insurance policies[,]
. . . '[t]he objectively reasonable expectations of applicants and
intended beneficiaries regarding the terms of insurance contracts
will be honored even though painstaking study of the policy
provisions would have negated those expectations.'" Zacarias v.
AllState Ins. Co., 168 N.J. 590, 594-95 (2001) (quoting Sparks,
supra, 100 N.J. at 338-39).
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As the court noted at oral argument, by interpreting the
exclusion in the manner argued for by First Mercury, the exclusion
would apply to the mere act of putting a shovel in the ground,
digging a hole, and then failing to cover it up. The court held
that given the potential applicability of the exclusion to the
"shovel in the ground" occurrence, it rendered the exclusion
ambiguous. While, we disagree with the court's holding on the
issue of ambiguity, we conclude that the potential, if not actual,
applicability of the exclusion to such an occurrence would clearly
have not been aligned with the indemnity coverage that Matchaponix
and NCV believed they procured.2
"[C]ourts have a special responsibility to prevent the
marketing of policies that provide unrealistic and inadequate
coverage." Sparks, supra, 100 N.J. at 341. This "unrealistically
narrow" interpretation of the subsidence exclusion would be
entirely in discord with Matchaponix and NCV's reasonable
expectations as land developers regarding the type of coverage
provided to them under the CGL. Ibid.
Affirmed.
2
First Mercury's counsel was non-committal in response to the
court's "shovel in the ground" hypothetical and its application
to the exclusion. We received a similar response from counsel
when we inquired about the "shovel in the ground" scenario during
oral argument.
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