THERESA WEAR VS. SELECTIVE INSURANCE COMPANY WOODBURY MEDICAL CENTER ASSOCIATES, LLP VS. SELECTIVE INSURANCE COMPANY (L-1583-13, GLOUCESTER COUNTY AND STATEWIDE)(CONSOLIDATED)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5526-15T1
A-0033-16T1
THERESA WEAR and RICHARD
WEAR,
Plaintiffs/Intervenors-
Appellants, APPROVED FOR PUBLICATION
v. July 20, 2018
APPELLATE DIVISION
SELECTIVE INSURANCE COMPANY,
Defendant-Respondent.
________________________________
WOODBURY MEDICAL CENTER
ASSOCIATES, LLP,
Plaintiff-Respondent,
v.
SELECTIVE INSURANCE COMPANY,
Defendant-Appellant.
________________________________
Argued April 18, 2018 – Decided July 20, 2018
Before Judges Koblitz, Manahan and Suter.
On appeal from Superior Court of New Jersey,
Law Division, Gloucester County, Docket No.
L-1583-13.
Bruce H. Zamost argued the cause for
appellants Theresa Wear and Richard Wear (in
A-5526-15) and respondents (in A-0033-16)
(Helmer, Conley & Kasselman, PA, attorneys;
Bruce H. Zamost, of counsel and on the
brief).
Richard J. Mirra argued the cause for
respondent Selective Insurance (in A-5526-
15) and appellant in (A-0033-16) (Hoagland,
Longo, Moran, Dunst & Doukas, LLP,
attorneys; Richard J. Mirra, of counsel and
on the briefs; John C. Simons, on the
briefs).
Mitchell H. Kizner argued the cause for
respondent Woodbury Medical Center
Associates, LLP (Flaster Greenberg, PC,
attorneys; Mitchell H. Kizner, of counsel
and on the brief).
The opinion of the court was delivered by
MANAHAN, J.A.D.
The instant case presents another example of the
complexities sometimes involved with the resolution of insurance
coverage disputes based upon exceptions to coverage. The
principal issue is whether exclusionary language in a policy
issued to Woodbury Medical Center Associates, LLP (Woodbury
Medical) by Selective Insurance Company (Selective) precluded
coverage for an environmental personal injury claim by Theresa
Wear and a per quod claim by Richard Wear (collectively the
Wears).
Having considered the record in light of controlling law,
we affirm in part and reverse in part.
2 A-5526-15T1
I.
Woodbury Medical is the owner of an office building in
Woodbury, New Jersey. Theresa Wear worked in the building as a
registered nurse (RN) for Underwood Medical Center. She claimed
to suffer injuries due to exposure to alleged toxic conditions
in the building. In their complaint against Woodbury Medical,
the Wears averred that Theresa was injured due to "exposure to
mold and the HVAC [(heating, ventilation and air conditioning)]
filter fragments from when the HVAC system was activated in the
basement of the property." The Wears further averred that
Woodbury Medical had a duty to keep the premises safe from: "1)
hazardous toxic condition[s]; 2) dangerous air pollutants; 3)
aspergillus fungus/mold hazards; and 4) other environmental
dangers."
Selective issued a commercial umbrella and business owners
insurance policy (the policy) to Woodbury Medical, which was in
effect at the time of the Wears' claim. The policy provided
Woodbury Medical with "protection for business liability for any
bodily injury 'to which this insurance applies.'" The policy
included a fungi or bacteria exclusion:
A. The following exclusion is added to
Paragraph B.1., Exclusions – Application To
Business Liability Coverage:
3 A-5526-15T1
q. Fungi or Bacteria
(1) "Bodily injury[,"] "property
damage" or "personal and
advertising injury" which would
not have occurred, in whole or in
part, but for the actual, alleged
or threatened inhalation of,
ingestion of, contact with,
exposure to, existence of, or
presence of, any "fungi" or
bacteria on or within a building
or structure, including its
contents, regardless of whether
any other cause, event, material
or product contributed concurrently
or in any sequence to such injury
or damage.
(2) Any loss, cost or expenses
arising out of the abating,
testing for, monitoring, cleaning
up, removing, containing,
treating, detoxifying,
neutralizing, remediating or
disposing of, or in any way
responding to, or assessing the
effects of, "fungi" or bacteria,
by an insured or by any other
person or entity.
. . . .
B. The following definition is added [to]
Paragraph F. Liability And Medical Expenses
Definitions:
1. "Fungi" means any type or form
of fungus, including mold or
mildew and any mycotoxins, spores,
scents or by-products produced or
release [sic] by fungi.
[(Emphasis added).]
4 A-5526-15T1
Woodbury Medical notified Selective of the Wears' claim in
May 2011. In August 2012, after conducting an investigation,
Selective issued a denial of coverage letter referencing the
exclusionary language in the policy. The letter stated that the
"policy in effect for Woodbury does not provide coverage for any
and all bodily injuries alleged by Theresa Wear arising out of
her exposure to mold, mildew, fungi or bacteria or medical
expenses" as they were, among other unrelated reasons, "excluded
by virtue of Fungi or Bacteria Exclusion Endorsement Forms . . .
contained in the policies." Selective did not issue a
reservation of rights letter as it took the position that the
anti-concurrent and anti-sequential language in the exclusion
precluded coverage even if there were other causes which may
have contributed to the injury.
Woodbury Medical instituted an action against Selective,
later amended, seeking a declaration that Selective was required
to defend and indemnify Woodbury Medical in the Wears'
litigation. Woodbury Medical moved for partial summary
judgment. Selective filed a cross-motion for summary judgment
maintaining there was no coverage for the claims.
On January 9, 2015, the judge granted Woodbury Medical's
motion for partial summary judgment and ordered that Selective
immediately fund Woodbury Medical's defense in the underlying
5 A-5526-15T1
action, reimburse Woodbury Medical for expenses it already
incurred in the defense of the Wears' litigation, and pay
attorneys' fees incurred by Woodbury Medical in the declaratory
judgment action.1 In a separate order, also dated January 9,
2015, the judge denied Selective's cross-motion for summary
judgment. On January 22, 2015, in a supplemental order, the
judge clarified that the January 9, 2015 order was "to be
considered an interlocutory order applying ONLY to the defense
obligations of Selective . . . ." The supplemental order also
provided that the trial in the declaratory judgment action was
to be adjourned until a resolution was reached in the Wears'
litigation.
In reaching the determination on Selective's obligation to
defend, the judge stated:
The [c]ourt certainly reviewed the
factual basis as alleged by Ms. Ware, [sic]
who claims that she suffered bodily injury
as a result of exposure to hazardous
conditions.
I acknowledge that there is an
allegation that relates to the mold, but I
am in agreement with the plaintiff's
1
On July 17, 2015, the judge awarded $177,550 to Woodbury
Medical for reimbursement of past counsel fees and costs for the
time period of March 3, 2013 through April 2015, pursuant to the
January 9, 2015 order. The judge also awarded $83,635 to
Woodbury Medical for reimbursement of past counsel fees and
costs for the declaratory judgment action.
6 A-5526-15T1
counsel. There also definitely is an
allegation that pertains to the fibers from
the filter, the air conditioning system, or
the filter fragments. It is an environmental
hazard that is claimed. It is something
besides the mold issue, the [c]ourt finds.
I understand your arguments. But I do
find that there has been an indication of
other environmental damages and based on the
case law, I find that there is a duty to
defend in this instance. I have examined the
complaint. I have reviewed the policy
limitations. But if there are any doubts,
they are to be resolved in favor of the
insured.
Based on the cases as cited by
plaintiff's counsel, I do find that the
insurance company is required to defend in
this instance.
[D]efendant does owe the plaintiff the
duty in the underlying lawsuit. It's
appropriate here because there is another
cause for Ms. Ware’s [sic] injuries.
Selective moved for leave to appeal, which we denied.
Selective then moved before the Law Division to stay the order
compelling it to fund Woodbury Medical's defense, which was
denied. Thereafter, Woodbury Medical moved to enforce
litigant's rights and Selective cross-moved for reconsideration
of both the order requiring Selective to provide a defense and
the order denying a stay. The judge granted Woodbury Medical's
motion to enforce litigant's rights and ordered Selective to pay
Woodbury Medical counsel fees for its defense in the Wears'
7 A-5526-15T1
litigation within thirty days. Selective again moved for leave
to appeal, which we denied.2
By agreement of the parties, the Wears' litigation was
submitted to arbitration. At the conclusion of the testimonial
hearing, the arbitrator rendered a one-page written award in
favor of the Wears for $300,000. The arbitrator noted that the
award was for a "claim by RN for workplace exposure to toxic
aspergillus mold."
After the rendering of the award, the Wears and Woodbury
Medical entered into a consent order amicably resolving the
Wears' litigation. The consent order contained the following
essential terms. A judgment would be entered in favor of the
Wears against Woodbury Medical in the amount of $300,000.
Woodbury Medical would assign its coverage rights to the Wears,
who then bore the burden of proceeding against Selective "with
respect to Selective's obligation to indemnify [Woodbury
Medical] for the claims brought and judgment obtained . . .
under liability insurance policies issued by Selective." The
Wears would "never . . . execute upon [Woodbury Medical] or its
assets, or those of its past, present and future principals
. . . in order to collect the [j]udgment, or . . . in any other
2
Selective did not comply with the order mandating payment of
counsel fees, nor has it done so to date.
8 A-5526-15T1
way seek payment of the [j]udgment or any other sum from
[Woodbury Medical] . . . ." The Wears relinquished all claims
against Woodbury Medical whether or not they were successful
against Selective. The order stated: "[N]o injury was suffered
by [the Wears] as a result of exposure to mold at premises owned
by [Woodbury Medical]."
The Wears moved to intervene as plaintiffs in the
declaratory action. Among other arguments, the Wears asserted
Selective was obligated to pay the $300,000 judgment premised
upon our Supreme Court's holding in Griggs v. Bertram, 88 N.J.
347 (1982) and premised upon principles of equitable estoppel
due to Selective's bad faith and wrongful refusal to defend.
The motion to intervene was granted by order on June 26,
2015. The order limited intervention to "coverage and/or
indemnification under the policy of insurance issued to Woodbury
Medical . . . ." The order provided that the Wears were
substituted for Woodbury Medical for the purpose of asserting
indemnification only and not to assert claims for "bad faith" or
failure to defend against Selective.
In support of their motion, the Wears provided an expert
report by Robert J. Laumbach, who opined that mold was not a
cause of Theresa's injuries. Selective moved to bar the expert
report and for summary judgment dismissing the Wears'
9 A-5526-15T1
intervention. Selective argued the consent order was
unenforceable based upon Griggs.
By order of December 23, 2015, the judge denied all
motions. In her attached statement of reasons, the judge found
a Griggs analysis was triggered as Selective wrongfully denied
Woodbury Medical a defense by continuously failing to comply
with the January 9, 2015 order. The judge further noted that
the "Griggs analysis is triggered regardless of whether an
insurer ultimately prevails on the question of coverage pursuant
to Passaic Valley."3 The judge held that the issue of bad faith
pertaining to the settlement remained open "pending future
discovery and/or future [m]otion practice." Regarding the issue
of the expert's report, the judge held the Wears' expert was not
barred from testifying since "[t]he present action, though
related to the underlying Wear matter, is a separate, distinct
case with a separate discovery period."
On January 20, 2016, Selective filed a motion to settle the
form of the December 23, 2015 orders and to determine the scope
of the hearing to be conducted. The Wears cross-moved for
partial summary judgment under the reasonableness prong of the
Griggs analysis. Thereafter, by consent order dated February
3
Passaic Valley Sewerage Comm'rs v. St. Paul Fire & Marine Ins.
Co., 206 N.J. 596 (2011).
10 A-5526-15T1
26, 2016, the Wears and Selective settled the terms of the
December 23, 2015 orders. The consent order provided that the
monetary settlement between Woodbury Medical and the Wears based
upon the arbitration award satisfied the reasonableness prong
under Griggs. The consent order further provided that the sole
issue in contest was whether the settlement between Woodbury
Medical and the Wears was made in good faith. The good faith
issue was to be determined by the judge on the papers submitted.
After argument and after considering the record and papers,
the judge issued an oral opinion in which she held that the
Wears did not meet the second prong of the Griggs settlement
enforcement analysis. The judge found a lack of good faith as
"there [has] been a total effort made by the Wears and Woodbury
Medical to force this issue to be covered by Selective because
they knew of the mold exclusion . . . ." As such, the judge
found the settlement "which places a 100 percent liability on
Selective," to be a sham and concluded the settlement was
unenforceable against Selective. The oral decision was
memorialized in an order. The order also dismissed the
intervenor complaint with prejudice.4
4
The judge also granted Woodbury Medical's motion without
prejudice for an amendment of the July 2015 order regarding the
counsel fees owed by Selective. The judge added fees incurred
by Woodbury Medical for the medical expert provided to the Wears
(continued)
11 A-5526-15T1
The Wears filed a motion for a new trial and judgment
notwithstanding the verdict.5 The motion was denied in an
August 2016 order. The Wears filed an appeal. Selective filed
a separate appeal of numerous orders concerning its duty to
defend and to pay counsel fees as well as the denial of stays.6
We granted Selective's motion to consolidate the appeals.
On appeal, Selective raises the following points:7
POINT I
THE TRIAL COURT ERRED IN GRANTING PARTIAL
SUMMARY JUDGMENT REQUIRING SELECTIVE TO
DEFEND WMCA DESPITE THE CLEAR EXCLUSION OF
COVERAGE FOR INJURIES CAUSED BY MOLD, IN
WHOLE OR IN PART, REGARDLESS OF WHETHER ANY
OTHER CAUSE CONTRIBUTED CONCURRENTLY OR IN
ANY SEQUENCE TO THE ALLEGED INJURIES.
POINT II
THE TRIAL COURT MISCONSTRUED FLOMERFELT V.
CARDIELLO, 202 N.J. 432 (2010) WHICH DOES
NOT APPLY TO THE FACTS OF THIS CASE.
(continued)
to the total sum of fees owed by Selective for the declaratory
action.
5
We note that there was no trial on any of the issues.
6
Selective's notice of appeal recites thirteen discrete orders
including two orders of the Appellate Division denying leave to
appeal.
7
Although the Wears' appeal was filed prior to Selective's
appeal, we address Selective's points on appeal first for
clarity.
12 A-5526-15T1
POINT III
THE TRIAL COURT ORDERS TO COMPEL SELECTIVE
TO ASSUME [WOODBURY MEDICAL]'S DEFENSE
DESPITE THE CONFLICT OF INTEREST BETWEEN
SELECTIVE AND [WOODBURY MEDICAL] AND DESPITE
THE FACT THAT THE COVERAGE ISSUE WOULD NOT
BE RESOLVED IN THE UNDERLING [SIC] ACTION
WAS ERROR.
On appeal, the Wears raise the following points:
POINT I
THE LAW OF THE CASE DOCTRINE WAS VIOLATED
WHEN THE TRIAL JUDGE MADE AN ENTIRELY
CONTRADICTORY RULING ON THE KEY ISSUE,
WHETHER THE SETTLEMENT WAS ONE OF GOOD FAITH
OR BAD FAITH, BASED ON IDENTICAL EVIDENCE.
ON [DECEMBER 23, 2015], THE TRIAL COURT
RULED THAT BAD FAITH WAS ABSENT, IN ITS
ADJUDICATION OF WHETHER JUDICIAL ESTOPPEL
WAS APPLICABLE TO PLAINTIFFS' ADOPTION OF
ONE CAUSATION THEORY OVER ANOTHER. FOUR
MONTHS LATER, ON [APRIL 1, 2016], THE TRIAL
COURT HELD THAT THE SETTLEMENT CONSTITUTED A
BAD FAITH SHAM. WHEN A JUDGE DECIDES NOT TO
FOLLOW THE LAW OF THE CASE DOCTRINE,
DECISIONAL LAW REQUIRES THAT THE JUDGE
EXPLAIN THE REASONS FOR THAT DEPARTURE AND
THE SUBSTANTIALLY DIFFERENT EVIDENCE THAT
WAS NOT PREVIOUSLY AVAILABLE. [R.] 1:6-
2(F). SISLER V. GANNETT CO., 222 N.J.
SUPER. 153 [] (APP. DIV. 1987), CERTIF.
DENIED, 110 N.J. 304 [] (1988). THE TRIAL
COURT FAILED TO DO SO HERE AND IN DOING SO
WRONGLY DECLINED TO ENFORCE THIS GRIGGS
SETTLEMENT AGAINST SELECTIVE.
POINT II
THE LAW OF THE CASE DOCTRINE WAS VIOLATED
WHEN THE TRIAL JUDGE MADE AN ENTIRELY
CONTRADICTORY RULING ON THE KEY ISSUE,
WHETHER THE SETTLEMENT WAS ONE OF GOOD FAITH
OR BAD FAITH, BASED ON IDENTICAL EVIDENCE.
13 A-5526-15T1
ON [DECEMBER 23, 2015], THE TRIAL COURT
RULED THAT THE SETTLEMENT WAS, PRIMA FACIE,
THE PRODUCT OF GOOD FAITH. FOUR MONTHS
LATER, ON [APRIL 1, 2016], THE TRIAL COURT
HELD THAT THE SETTLEMENT CONSTITUTED A BAD
FAITH SHAM. WHEN A JUDGE DECIDES NOT TO
FOLLOW THE LAW OF THE CASE DOCTRINE,
DECISIONAL LAW REQUIRES THAT THE JUDGE
EXPLAIN THE REASONS FOR THAT DEPARTURE AND
THE SUBSTANTIALLY DIFFERENT EVIDENCE THAT
WAS NOT PREVIOUSLY AVAILABLE. [R.] 1:6-
2(F). SISLER V. GANNETT CO., 222 N.J.
SUPER. 153 [] (APP. DIV. 1987), CERTIF.
DENIED, 110 N.J. 304 [] (1988). THE TRIAL
COURT FAILED TO DO SO HERE AND IN DOING SO
WRONGLY DECLINED TO ENFORCE THIS GRIGGS
SETTLEMENT AGAINST SELECTIVE.
POINT III
IT WAS SELECTIVE'S BURDEN TO PROVE THAT THE
SETTLEMENT WAS A BAD FAITH SHAM. HOWEVER,
THE TRIAL COURT WRONGLY SHIFTED THAT BURDEN
TO THE WEARS TO PROVE THAT THE SETTLEMENT
WAS NOT A SHAM, A BURDEN-SHIFTING WHICH
VISITED A MISCARRIAGE OF JUSTICE UPON THE
WEARS.
POINT IV
THE UNIVERSE OF EVIDENCE PRESENTED BY THE
PARTIES WAS IDENTICAL THROUGHOUT THE
CONTRADICTORY TRIAL COURT RULINGS OF
[DECEMBER 23, 2015] ON THE ONE HAND AND THE
RULINGS OF [APRIL 1, 2016] AND [AUGUST 12,
2016] ON THE OTHER. SELECTIVE CHOSE TO
REFRAIN FROM OBTAINING AN EXPERT WITNESS ON
THE GOOD FAITH ISSUE, DESPITE AN EXTENSION
OF TIME TO DO SO. EACH OF SELECTIVE'S
ARGUMENTS THAT THE SETTLEMENT WAS AN UTTER
SHAM WERE ANALYZED AND REJECTED BY THE TRIAL
COURT ON [DECEMBER 23, 2015] AND NOTHING WAS
PRESENTED TO REBUT THE COMPREHENSIVE EXPERT
CONCLUSIONS OF PLAINTIFFS' OCCUPATIONAL AND
ENVIRONMENTAL MEDICINE/INDUSTRIAL HYGIENE
14 A-5526-15T1
EXPERT, ROBERT J. LAUMBACH, M.D., M.P.H.,
C.I.H.
POINT V
THE TRIAL COURT COMMITTED REVERSIBLE ERROR
IN ITS [AUGUST 12, 2016] AND [APRIL 1, 2016]
RULINGS BECAUSE THOSE RULINGS WRONGLY
DISREGARDED PARAGRAPH 1 OF THE CONSENT ORDER
OF [FEBRUARY 26, 2016].
II.
We commence by addressing Selective's argument that the
judge erred in granting partial summary judgment to Woodbury
Medical in holding Selective had a duty to defend. Selective
argues "[t]here was no allegation that [Theresa] suffered
divisible injuries due to separate and discrete etiologies or
that exposure to mold was not a principal cause of her
symptoms." As such, the policy's exclusion, which included
anti-concurrent and anti-sequential language, barred coverage.
Woodbury Medical argues in reply that Selective had a duty to
defend as the Wears alleged alternative causes of injury,
separate and apart from mold.
The judge's determination that Selective had a duty to
defend was decided by the grant of summary judgment. Thus, the
judge's conclusions and interpretation of the record are not
entitled to our deference. We apply the same standard the judge
applied in ruling on summary judgment. W.J.A. v. D.A., 210 N.J.
229, 237 (2012).
15 A-5526-15T1
At the outset, we agree with the judge that, when disputes
arise between the insured and insurer, the duty of an insurer to
defend is generally determined by a side-by-side comparison of
the policy and the complaint, and is triggered when the
comparison demonstrates that if the complaint's allegations were
sustained, an insurer would be required to pay the judgment.
Sears Roebuck & Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh,
340 N.J. Super. 223, 241-42 (App. Div. 2001); see also Danek v.
Hommer, 28 N.J. Super. 68, 77 (App. Div. 1953). "In making that
comparison, it is the nature of the claim asserted, rather than
the specific details of the incident or the litigation's
possible outcome, that governs the insurer's obligation."
Flomerfelt, 202 N.J. at 444 (citation omitted).
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). "Generally, '[w]hen interpreting an insurance
policy, courts should give the policy's words "their plain,
ordinary meaning."'" Nav-Its, Inc. v. Selective Ins. Co., 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,
16 A-5526-15T1
202 N.J. at 441 (citing Kampf v. Franklin Life Ins. Co., 33 N.J.
36, 43 (1960)).
As this court held in New Jersey Manufacturers Insurance
Co. v. Vizcaino, in permitting the dispute of uncovered claims,
courts protect both parties by ensuring that the insurer does
not incur responsibility for uncovered claims and that the
insured is entitled to both defense and indemnity if the dispute
is resolved in its favor. 392 N.J. Super. 366, 370 (App. Div.
2007). In line with those principles, exclusions in insurance
policies are presumptively valid and enforceable "if they are
'specific, plain, clear, prominent, and not contrary to public
policy.'" Flomerfelt, 202 N.J. at 441 (quoting Princeton Ins.
Co. v. Chunmuang, 151 N.J. 80, 95 (1997)). In contrast, courts
will find "a genuine ambiguity to arise where the phrasing of
the policy is so confusing that the average policyholder cannot
make out the boundaries of coverage." Weedo v. Stone-E-Brick,
Inc., 81 N.J. 233, 247 (1979).
Generally, exclusions are narrowly construed. Flomerfelt,
202 N.J. at 442. The insurer has the burden of bringing the
case within the exclusion. Am. Motorists Ins. Co. v. L-C-A
Sales Co., 155 N.J. 29, 41 (1998). Courts must be careful,
however, "not to disregard the 'clear import and intent' of a
policy's exclusion . . . ." Flomerfelt, 202 N.J. at 442
17 A-5526-15T1
(quoting Westchester Fire Ins. Co. v. Cont'l Ins. Cos., 126 N.J.
Super. 29, 41 (App. Div. 1973)). Far-fetched interpretations of
a policy exclusion are insufficient to create an ambiguity
requiring coverage. Stafford v. T.H.E. Ins. Co., 309 N.J.
Super. 97, 105 (App. Div. 1998).
In a situation where "two or more identifiable causes — one
a covered event and one excluded — may contribute to a single
property loss," there is coverage absent an anti-concurrent or
anti-sequential clause in the policy. See Simonetti, 372 N.J.
Super. at 431 (citing Assurance Co. of Am., Inc. v. Jay-Mar,
Inc., 38 F. Supp. 2d 349, 352-54 (D.N.J. 1999)). As noted, the
policy at issue contains within the exclusion language an anti-
concurrent and anti-sequential clause and excludes coverage from
any loss or damage "regardless of whether any other cause,
event, material or product contributed concurrently or in any
sequence to such injury or damage." We do not consider the
exclusion language to be ambiguous. A fair reading of the
exclusion is that, despite other potential causes, mold must be
excluded as a causative factor in order for there to be a
covered loss.
The judge concluded that Selective owed a defense to
Woodbury Medical while acknowledging that mold was averred in
the complaint as a causative factor. The judge found that the
18 A-5526-15T1
complaint averred other "environmental" hazards as causative
factors thus requiring a defense. However, other than
referencing those allegations, the judge did not analyze whether
the anti-concurrent and anti-sequential language in the
exclusion would bar coverage or, at a minimum, raise a
substantial question as to the existence of coverage.
Succinctly, in the absence of a comparison of the complaint
with the exclusion's anti-concurrent and anti-sequential
language, we conclude that the issue of coverage was not of such
clarity at this stage of the action to require Selective to
defend. In reaching our conclusion, we are informed by the
following.
Neither the duty to defend nor the duty to indemnify
"exists except with respect to occurrences for which the policy
provides coverage." Hartford Accident & Indem. Co. v. Aetna
Life & Cas. Ins. Co., 98 N.J. 18, 22 (1984). Here, the judge
cited Flomerfelt as authority, which provides that:
in circumstances in which the underlying
coverage question cannot be decided from the
face of the complaint, the insurer is
obligated to provide a defense until all
potentially covered claims are resolved, but
the resolution may be through adjudication
of the complaint or in a separate proceeding
between insured and insurer either before or
after that decision is reached.
[202 N.J. at 447.]
19 A-5526-15T1
There are two exceptions to this general rule.
The insurer need not provide the defense at
the outset if the allegations include claims
that are not covered by the policy as well
as claims that are covered or if the
question of coverage is not, by its nature,
capable of determination in the underlying
action against the insured. In those
situations, the insurer's obligation to
defend becomes an obligation to reimburse
for defense costs to the extent that the
defense is later determined to have been
attributable to the covered claims and, if
coverage is not determinable in the
underlying action, it is later determined
that there was in fact coverage.
[Muralo Co., Inc. v. Employers Ins. of
Wausau, 334 N.J. Super. 282, 289-90 (App.
Div. 2000).]
In short, "[i]f an insurer believes that the evidence indicates
that the claim is not covered, the insurer is not always
required to provide a defense." Polarome Int'l, Inc. v.
Greenwich Ins. Co., 404 N.J. Super. 241, 274 (App. Div. 2008);
see Passaic Valley, 206 N.J. at 615-18 (explaining that Burd v.
Sussex Mut. Ins., 56 N.J. 383, 393-95 (1970) permits an insurer
to fulfill its defense obligations by reserving rights and
disputing coverage, thereby translating its obligation into one
for reimbursement if it is later adjudged that the claims were
within the policy covenant to pay); see also Grand Cove II
Condo. Ass'n, Inc. v. Ginsberg, 291 N.J. Super. 58, 73-75 (App.
Div. 1996) (discussing problems that can arise with respect to
20 A-5526-15T1
the duty to defend and conversion of that duty to one of
reimbursement).
"Although the duty to defend is broader than the duty to
pay, the duty 'is not broader in the sense that it extends to
claims not covered by the covenant to pay.'" Grand Cove II, 291
N.J. Super. at 72 (quoting Horesh v. State Farm Fire & Cas. Co.,
265 N.J. Super. 32, 38 (App. Div. 1993)). Therefore, "[i]f an
excluded claim is made, the insurer has no duty to undertake the
expense and effort to defeat it, however frivolous it may appear
to be." Ibid. (quoting Horesh, 265 N.J. Super. at 39).
Grand Cove II addressed an alternative to the duty to
defend, "the duty to reimburse."
Where a conflict exists between an
insurer and its insured by virtue of the
insurer's duty to defend mutually-exclusive
covered and non-covered claims against the
insured, the duty to defend is translated
into a duty to reimburse the insured for the
cost of defending the underlying action if
it should ultimately be determined, based on
the disposition of that action, that the
insured was entitled to a defense.
[Burd, 56 N.J. at 390.]
Similarly, where an insurer did not
undertake defense of the case at the
inception of the litigation, the duty to
defend may be converted into a duty to
reimburse. [SL Indus., Inc. v. Am.
Motorists Ins. Co., 128 N.J. 188, 200
(1992).]
[Id. at 73-74 (citations omitted).]
21 A-5526-15T1
In Grand Cove II, this court found the insurance coverage issues
in the case created problems with the trial court's mandate that
the insurance company must immediately assume defense of all the
causes of action of the insured. Id. at 74-75. Such issues
included, but were not limited to: the trial court's concession
that certain claims were not covered, an inherent conflict due
to late-raised claims, and the fact that the underlying
litigation would not resolve the coverage issues. Ibid.
Therefore, we held the "insurers' duty to defend should have
been converted to a duty to reimburse pending the outcome of the
coverage litigation." Id. at 76.
Here, through our comparison of the averments in the
complaint to the policy's exclusion, we conclude it was
premature to order Selective to assume responsibility for the
defense since it was unclear, based on the anti-concurrent and
anti-sequential language in the exclusion, whether any claims
would be covered. Therefore, as in Grand Cove II, we hold that
the duty to defend should be converted to a duty to reimburse
pending resolution of the coverage action.
III.
Given our determination that the decision obligating
Selective to defend was premature, it follows that the decision
holding that Griggs applied was without basis. The predicate
22 A-5526-15T1
for the application of Griggs is whether there was a breach of
duty by Selective by its failure to defend Woodbury Medical.
Only if Selective was determined to be in default of that duty
would it trigger indemnification. In Griggs, our Supreme Court
held:
Where an insurer wrongfully refused
coverage and a defense to its insured, so
that the insured is obliged to defend
himself in an action later held to be
covered by the policy, the insurer is liable
for the amount of the judgment obtained
against the insured or of the settlement
made by him. The only qualifications to
this rule are that the amount paid in
settlement be reasonable and that the
payment be made in good faith.
[Griggs, 88 N.J. at 364 (citing Fireman's
Fund Ins. Co. v. Security Ins. Co. of
Hartford, 72 N.J. 63, 71 (1976) (quoting
N.J. Mfrs. Indem. Ins. Co. v. U.S. Cas. Co.,
91 N.J. Super. 404, 407-08 (App. Div.
1966))).]
As our Supreme Court held in Passaic Valley, a good-faith
challenge to coverage is not a breach of an obligation to
defend. 206 N.J. at 617. Here, we are satisfied that Selective
was within its rights to dispute coverage based upon the
language of the policy's exclusion. Vizcaino, 392 N.J. Super.
at 370.
We are also satisfied that, in reaching its claim decision,
Selective did not breach its duty to act in good faith.
Fireman's Fund, 72 N.J. at 73. Saliently, Woodbury Medical has
23 A-5526-15T1
not argued, as in Griggs, that there was an unreasonable delay
by Selective in regard to its coverage decision so as to
prejudice the defense.
In sum, in the absence by Selective of a breach of its duty
to defend, Griggs was inapplicable.
Having determined that the judge's decision to apply Griggs
to the enforcement of the settlement was a premature finding of
a breach of duty to defend, we vacate the orders that were the
product of that decision. Specifically, those orders are the
consent order between Selective and the Wears dated February 26,
2016, and the order denying enforcement of the settlement.
We also reverse the order dismissing the declaratory
judgment action and remand the action for its resolution. In
conformance therewith, we affirm the decision to allow the Wears
to intervene in the declaratory judgment action.
In reaching our decision, we express no view on the
enforcement of the settlement reached between the Wears and
Woodbury Medical should there be a judicial determination of
coverage.
IV.
Finally, we turn to the judge's award of fees and costs to
Woodbury Medical, premised upon Rule 1:10-3.
24 A-5526-15T1
We review a trial court's order enforcing litigant's rights
pursuant to Rule 1:10-3 under an abuse of discretion standard.
Barr v. Barr, 418 N.J. Super. 18, 46 (App. Div. 2011); see
also Innes v. Carrascosa, 391 N.J. Super. 453, 498 (App. Div.
2007). An abuse of discretion occurs when a decision was "made
without a rational explanation, inexplicably departed from
established policies, or rested on an impermissible basis."
Flagg v. Essex Cty. Prosecutor, 171 N.J. 561, 571 (2002).
The decision to award counsel fees "rests within the sound
discretion of the trial court." Maudsley v. State, 357 N.J.
Super. 560, 590 (App. Div. 2003). We afford trial courts
"considerable latitude in resolving fee applications . . . ."
Grow Co. v. Chokshi, 424 N.J. Super. 357, 367 (App. Div. 2012).
Such "determinations by trial courts will be disturbed only on
the rarest occasions, and then only because of a clear abuse of
discretion." Packard-Bamberger & Co. v. Collier, 167 N.J. 427,
444 (2001) (quoting Rendine v. Pantzer, 141 N.J. 292, 317
(1995)).
We are satisfied that the judge exercised appropriate
discretion with regard to the award of fees and costs to
Woodbury Medical for Selective's non-compliance with the court's
January 9, 2015 order. Selective's motions to stay were denied,
both before the judge and before this court, yet Selective
25 A-5526-15T1
continuously refused to comply with the orders. While Selective
was within its right to seek review of the orders with which it
disagreed, in the absence of a stay or reversal, it was not free
to ignore those orders.
That stated, the quantum of counsel fees was based on those
incurred by Woodbury Medical in the defense of the action as of
January 9, 2015. Since we have determined that the award for
counsel fees based upon Selective's failure to defend was
premature, Woodbury Medical's entitlement to counsel fees is
limited to those incurred in prosecuting the motion to enforce
litigant's rights. Upon remand, Woodbury Medical may seek
reimbursement for those counsel fees and associated costs before
the Law Division.
Affirmed in part. Reversed in part. We do not retain
jurisdiction.
6
26 A-5526-15T1