C.M.S. INVESTMENT VENTURES, INC. VS. AMERICAN EUROPEAN INSURANCE COMPANY (L-1893-16, ESSEX 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NOT FOR PUBLICATION WITHOUT THE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-2056-17T3
C.M.S. INVESTMENT VENTURES,
INC., and ROBERT W. MCCOY,
Plaintiffs-Respondents/
Cross-Appellants,
v.
AMERICAN EUROPEAN
INSURANCE COMPANY,
Defendant-Appellant/
Cross-Respondent,
and
ZEV NADLER, FRED KATZ
AGENCY, INC., and A.G.,
Defendants-Respondents.
_______________________________
Argued February 7, 2019 – Decided May 28, 2019
Before Judges O'Connor, Whipple and DeAlmeida.
On appeal from Superior Court of New Jersey, Law
Division, Essex County, Docket No. L-1893-16.
Steven Verveniotis (Miranda Slone Sklarin
Verveniotis, LLP) of the New York bar, admitted pro
hac vice, argued the cause for appellant/cross-
respondent (Miranda Slone Sklarin Verveniotis,
attorneys; Michael A. Miranda, Steven Verveniotis,
and Justin A. Goldberg, on the briefs).
Gregory E. Riley argued the cause for
respondents/cross-appellants.
Eric S. Schlesinger argued the cause for respondents
(Golden Rothschild Spagnola Lundell Boylan &
Garubo, PC, attorneys; Eric S. Schlesinger and Joseph
C. Valenzuela, of counsel and on the brief).
PER CURIAM
Defendant American European Insurance Company (AEIC) appeals from
orders entered on August 18, 2017, and December 1, 2017, respectively.
Plaintiff C.M.S. Investment Ventures, Inc. (CMS) was granted a declaratory
judgment ordering AEIC to defend and indemnify CMS, as well as pay CMS's
attorney's fees. CMS filed a protective cross-appeal from an October 13, 2017
order granting summary judgment in favor of CMS's insurance broker,
defendants Zev Nadler and Fred Katz Agency, Inc. We affirm the trial court on
the coverage question and its award of attorney's fees, and, as a result, need not
reach the merits of CMS's protective appeal.
CMS was the owner of an apartment building in Irvington, and plaintiff
Robert McCoy and his son were its principals. A.G. resided in a ground-floor
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unit. A.G. had complained to CMS management that a window in her unit was
in disrepair and failed to lock properly. There were no bars installed over the
window. CMS allegedly failed to respond to A.G.'s concerns. On March 29,
2013, an intruder broke into A.G.'s apartment through the window and sexually
assaulted her. A.G. asserted a premises liability claim against CMS. She alleged
CMS breached a duty of care to her by failing to adequately maintain the
property, by failing to keep the premises safe, and by not taking precautions to
protect tenants from reasonably foreseeable criminal activity.
CMS was insured by AEIC. CMS's policy contained a commercial general
liability coverage form, as well as several endorsements. One such endorsement
was an assault and battery exclusion, stating:
THIS ENDORSEMENT CHANGES THE POLICY.
PLEASE READ IT CAREFULLY
ASSAULT AND BATTERY EXCLUSION
This endorsement modifies insurance provided under
the following:
COMMERCIAL GENERAL LIABILITY
COVERAGE PART
LIQUOR LIABILITY COVERAGE PART
We will not provide any coverage under this policy for
any claim, demand or suit based on Assault and Battery,
or out of any act, actual or alleged, or omission in
connection with the prevention or suppression of such
A-2056-17T3
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acts, whether caused by or at the instigation or direction
of any "insured", their employees, patrons or any other
person or entity.
All claims, accusations or charges of negligent hiring,
placement, training, management or supervision arising
from actual or alleged assault or battery are also not
covered and will have no duty to defend any "insured"
person or entity from such claims, accusations and
charges.
In addition:
1. Exclusion
a. Under paragraph 2., Exclusions of Coverage A –
Bodily Injury and Property Damage Liability (Section
I – Coverages) of your Commercial General Liability
Coverage Form is replaced by the following:
This insurance does not apply to:
Expected or intended injury - "Bodily injury" or
"property damage" expected or intended from the
standpoint of the insured.
2. Exclusion
a. Under paragraph 2., Exclusions (Section I – Liquor
Liability Coverage) of your Liquor Liability Coverage
Form is replaced by the following:
This insurance does not apply to:
Expected or intended injury - "Injury" expected or
intended from the standpoint of the insured.
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All other terms and conditions of your policy remain
unchanged.
On May 10, 2013, McCoy, through CMS's insurance broker, Zev Nadler
and Fred Katz Agency, Inc., submitted a general liability loss notice to AEIC
seeking coverage for A.G.'s claim. AEIC opened a claim and assigned the case
to a senior liability casualty adjuster. McCoy spoke with the adjuster and
assumed AEIC would handle the claim.
On May 28, 2013, and November 13, 2013, the adjuster sent letters to
A.G.'s attorney seeking information about the break-in and sexual assault.
A.G.'s attorney did not respond to either letter but instead, on February 5, 2014,
requested AEIC reimburse A.G. for medical payments. The adjuster denied
coverage and invoked an exclusion under CMS's policy for medical payments
incurred as a result of an injury sustained on a normally occupied premises. On
March 19, 2014, the adjuster closed the file but neglected to inform McCoy.
On January 1, 2015, McCoy and his son sold CMS to an investor. The
contract for sale contained no reference to A.G.'s claim because McCoy thought
the claim was resolved.
On January 25, 2015, A.G.'s attorney wrote to AEIC to initiate a claim
under CMS's policy. McCoy was served with A.G.'s complaint on April 3, 2015,
and, on April 6, 2015, AEIC sent a letter to CMS disclaiming coverage. AEIC
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characterized A.G.'s lawsuit as an allegation of assault and battery and utilized
the assault and battery exclusion to deny coverage.
On March 11, 2016, CMS filed a complaint seeking a declaratory
judgment against AEIC for defense and indemnification. CMS moved for
summary judgment and argued the assault and battery exclusion was ambiguous
and AEIC should be estopped from denying coverage. The trial judge agreed
with CMS on both questions. In a written opinion issued on August 18, 2017,
the trial judge explained the phrase "based on assault and battery" was
ambiguous and capable of limitless meaning. Moreover, the clause appeared
under the heading "Liquor Liability Coverage Part," even though the policy
insured a residential building where no alcohol was served. Alternatively, even
if the exclusion was not ambiguous, AEIC was still obligated to cover CMS
because A.G.'s claim sounded in negligence, not assault and battery. The judge
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also found AEIC was estopped from denying coverage, because it waited twenty
months to inform CMS of its coverage decision. 1 This appeal followed. 2
I.
"[W]e review the trial court's grant of summary judgment de novo under
the same standard as the trial court." Templo Fuente De Vida Corp. v. Nat'l
Union Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 199 (2016). A motion for
summary judgment should 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." R. 4:46-
2(c). We "view the evidence in the light most favorable to the non-moving
party[.]" Mem'l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512, 524 (2012).
1
CMS also sued Zev Nadler and Fred Katz Agency, Inc. for negligently
procuring an inadequate insurance policy. On October 13, 2017, the trial court
entered summary judgment in favor of the insurance broker. CMS filed a
protective appeal of the October 13, 2017 order to be addressed in the event we
reversed the trial court's order requiring coverage. As explained below, because
we affirm the trial court's order requiring coverage, we need not address the
October 13, 2017 order.
2
Several weeks before oral argument in this matter, AEIC settled with A.G. On
January 28, 2019, CMS moved to dismiss AEIC's appeal as moot. We denied
the motion on February 5, 2019. As we are affirming the trial court's order
requiring AEIC to provide coverage, it is unnecessary to address CMS's
argument that AEIC's appeal is moot.
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"Rule 4:46-2(c)'s 'genuine issue [of] material fact' standard mandates that the
opposing party do more than 'point[] to any fact in dispute' in order to defeat
summary judgment." Globe Motor Co. v. Igdalev, 225 N.J. 469, 479 (2016)
(alterations in original) (quoting Brill v. Guardian Life Ins. Co. of Am., 142 N.J.
520, 529 (1995)).
"We give special scrutiny to insurance contracts because of the stark
imbalance between insurance companies and insureds in their respective
understanding of the terms and conditions of insurance policies." Zacarias v.
Allstate Ins. Co., 168 N.J. 590, 594 (2001). "[W]e first examine the plain
language of the policy and, if the terms are clear, they 'are to be given their plain,
ordinary meaning.'" Pizzullo v. N.J. Mfrs. Ins. Co., 196 N.J. 251, 270 (2008)
(quoting Zacarias, 168 N.J. at 595). "If the language is clear, that is the end of
the inquiry." Oxford Realty Grp. Cedar v. Travelers Excess & Surplus Lines
Co., 229 N.J. 196, 207 (2017) (quoting Chubb Custom Ins. Co. v. Prudential Ins.
Co. of Am., 195 N.J. 231, 238 (2008)). We refrain from "writing a better
insurance policy than the one purchased." President v. Jenkins, 180 N.J. 550,
562 (2004). "But where an ambiguity arises, we interpret the policy in favor of
the insured and against the insurer." Katchen v. Gov't Emps. Ins. Co., 457 N.J.
Super. 600, 605 (App. Div. 2019).
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"[A]n insurer's duty to defend an action against the insured is measured
by the allegations contained in the complainant's pleadings." Voorhees v.
Preferred Mut. Ins. Co., 246 N.J. Super. 564, 569 (App. Div. 1991). "As a
practical matter, the determination of an insurer's duty to defend requires review
of the complaint with liberality to ascertain whether the insurer will be obligated
to indemnify the insured 'if the allegations are sustained.'" Abouzaid v. Mansard
Gardens Assocs., LLC, 207 N.J. 67, 79 (2011) (quoting Danek v. Hommer, 28
N.J. Super. 68, 77 (App. Div. 1953)). "[T]he complaint should be laid alongside
the policy and a determination made as to whether, if the allegations are
sustained, the insurer will be required to pay the resulting judgment, and in
reaching a conclusion, doubts should be resolved in favor of the insured."
Danek, 28 N.J. Super. at 77. "[I]t 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 v. Cardiello, 202 N.J. 432, 444
(2010).
Turning to the exclusion at issue, the key phrase in need of interpretation
is "any claim, demand or suit based on Assault or Battery[.]" (Emphasis added).
The trial court concluded the use of "based on" as a modifier of "Assault and
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Battery" was subject to a "limitless" number of interpretations such that the
clause was ambiguous.
In other cases, assault and battery exclusions have used the phrase "arising
out of," i.e., "NO coverage of any kind . . . is provided by this policy for Bodily
Injury and/or Property Damage arising out of or caused in whole or in part by
an assault and/or battery." Stafford v. T.H.E. Ins. Co., 309 N.J. Super. 97, 100
(App. Div. 1998) (emphasis added). Our Supreme Court interpreted "arising out
of" to mean "originating from," "growing out of" "or having a substantial nexus
[to]." Flomerfelt, 202 N.J. at 454 (quotation omitted). "Whether used to define
or exclude coverage, the phrase 'arising out of' is given a broad definition."
L.C.S., Inc. v. Lexington Ins. Co., 371 N.J. Super. 482, 493 (App. Div. 2004).
Here, the term "based" is a transitive verb meaning to "make," "form" or
"serve" as the foundation of "any claim, demand or suit[.]" Webster's New
College Dictionary 92 (2d ed. 1999). Use of the preposition "on" followed by
"Assault and Battery" puts a limit on possible claims, demands or suits subject
to the exclusion. Read together, the exclusion applies to claims, demands or
suits where "Assault and Battery" forms or serves as the claim's foundation.
Flomerfelt and L.C.S. suggest an injury can have several proximate
causes, and when one cause is excluded under the policy, it does not necessarily
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mean all causes of the injury are excluded. Flomerfelt, 202 N.J. at 454 ("Each
of those potential definitions [of 'arising out of'] includes a causal link between
the excluded act and the injury, but none requires that the excluded act be the
proximate cause of the injury."); L.C.S., 371 N.J. Super. at 494 (permitting a
negligent hiring claim in light of an assault and battery exclusion because the
plaintiff's injuries were, in part, caused by a "negligent act unrelated to the
assault and battery"); cf. Sealed Air Corp. v. Royal Indem. Co., 404 N.J. Super.
363, 380 (2008) (pollution exclusion was inapplicable because the cause of
action was "based on" securities fraud, not pollution). But see Stafford, 309 N.J.
Super. at 104-05 (use of "arising out of or caused in whole or in part by an
assault and/or battery" increases the type of claims subject to the exclusion). If
A.G.'s claim were based only on the sexual assault, the exclusion would apply;
however, A.G. sued CMS under a premises liability theory alleging CMS's
negligent maintenance of the property caused her injury. New Jersey courts
have held landlords responsible "for creating an unreasonably enhanced risk of
loss resulting from foreseeable criminal conduct." Trentacost v. Brussel, 82 N.J.
214, 222 (1980) (quotation omitted). Thus, A.G.'s claim sounds in negligence,
not an intentional tort, and should have been covered by AEIC.
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We also agree with the trial judge that AEIC was estopped from
disclaiming coverage. "Upon the receipt from its insured of a claim or
notification of an incident that may give rise to a claim, an insurer is entitled to
a reasonable period of time in which to investigate whether the particular
incident involves a risk covered by the terms of the policy." Griggs v. Bertram,
88 N.J. 347, 357 (1982). "Under certain circumstances an insurance carrier may
be estopped from asserting the inapplicability of insurance to a particular claim
against its insured despite a clear contractual provision excluding the claim from
the coverage of the policy." Id. at 355-56. "[O]nce an insurer has had a
reasonable opportunity to investigate, or has learned of grounds for questioning
coverage, it then is under a duty [to] promptly [] inform its insured of its
intention to disclaim coverage or of the possibility that coverage will be denied
or questioned." Id. at 357. "[E]ven an insurer which does not acknowledge
coverage may be estopped by an '[u]nreasonable delay in disclaiming coverage,
or in giving notice of the possibility of such a disclaimer.'" Barrett v. N.J. Mfrs.
Ins. Co., 295 N.J. Super. 613, 618 (App. Div. 1996) (quoting Griggs, 88 N.J. at
357).
"In determining whether an insurer should be estopped from asserting
exclusion defenses under policies because of prejudice to the insured, the test is
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whether the insurer's acts or omissions 'constituted[d] a material encroachment
upon the rights of an insured to protect itself by handling the claim directly and
independently of the insurer.'" Reliance Ins. Co. v. Armstrong World Indus.,
Inc., 292 N.J. Super. 365, 375 (App. Div. 1996) (quoting Griggs, 88 N.J. at 359).
"Prejudice justifying an estoppel against the insurer will be presumed where
'there has been a long lapse of time without any indication by the insurance
carrier of a loss or rejection of coverage, during which the insured justifiably
expects to be protected by the carrier . . . .'" Id. at 375-76 (quoting Griggs, 88
N.J. at 362).
AEIC acted unreasonably by waiting twenty months to disclaim coverage.
Since McCoy first reported the claim, AEIC knew A.G. was sexually assaulted
in her apartment. AEIC was entitled to a reasonable amount of time to
investigate the claim; however, AEIC's adjuster closed the file without rendering
a coverage decision or informing McCoy. Without hearing from AEIC, McCoy
could assume AEIC resolved the claim. Indeed, McCoy sold his interest in CMS
under the impression AEIC handled the claim.
We reject AEIC's argument it needed to wait until it received medical and
police records on January 29, 2015, because the adjuster closed the file months
earlier without further investigating the claim before rendering a coverage
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decision. McCoy was entitled to, but did not receive, fair warning AEIC
intended to disclaim coverage.
II.
The trial judge awarded CMS $181,877.85 in attorney's fees. The judge
arrived at this figure by multiplying a lodestar rate of $350 by the number of
hours spent litigating the coverage issue less the lodestar rate multiplied by the
time spent litigating the insurance broker claim (50.4 hours) and an abandoned
negligence claim (19.45 hours). The judge also applied a ten percent across -
the-board cut for services he determined excessive. He then combined that
figure with disbursements incurred in litigating the coverage question less
disbursements incurred for the insurance broker and negligence claims. The
judge looked to numerous sources to justify the $350 lodestar rate. The judge
also considered counsel's forty years of experience and certification as a civil
trial attorney and determined the fee award was reasonable under RPC 1.5(a).
On appeal, both parties assail the fee award. AEIC argues the lodestar
rate should have been $190, to reflect the market rate in the community and the
rate counsel for AEIC was paid. CMS argues, on cross-appeal, the trial judge
should not have deducted time spent litigating the insurance broker or
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abandoned negligence claims and erred by assessing a ten percent reduction to
the fee award. We disagree with both parties and affirm the fee award.
Rule 4:42-9(a)(6) specifically permits a fee award in an action upon a
liability or indemnity policy of insurance in favor of a successful claimant. A
"trial judge has broad discretion as to when, where, and under what
circumstances counsel fees may be proper and the amount to be awarded."
Passaic Valley Sewerage Comm'rs v. St. Paul Fire & Marine Ins. Co., 206 N.J.
596, 619 (2011) (quoting Iafelice ex rel. Wright v. Arpino, 319 N.J. Super. 581,
590 (App Div. 1999)). "In setting the lodestar, a trial court must first determine
the reasonableness of the rates proposed by prevailing counsel in support of the
fee application." Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 22 (2004).
"Generally, a reasonable hourly rate is to be calculated according to the
prevailing market rates in the relevant community[] . . . for similar services by
lawyers of reasonably comparable skill, experience, and reputation." Rendine
v. Pantzer, 141 N.J. 292, 337 (1995) (quoting Rode v. Dellarciprete, 892 F.2d
1177, 1183 (3d Cir. 1990)). Next, the "court must determine whether the time
expended in pursuit of the 'interests to be vindicated' . . . is equivalent to the
time 'competent counsel reasonably would have expended to achieve a
comparable result[.]'" Furst, 182 N.J. at 22 (quoting Rendine, 141 N.J. at 336).
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"The court must not include excessive and unnecessary hours spent on the case
in calculating the lodestar." Ibid. "Whether the hours the prevailing attorney
devoted to any part of a case are excessive ultimately requires a consideration
of what is reasonable under the circumstances." Id. at 22-23.
The trial judge did not abuse his discretion in arriving at a lodestar rate of
$350. AEIC based its proposed figure of $190 on a certification of its claims
examiner who attested to the market rate for coverage litigation and insurance
defense in northern New Jersey. However, as the trial court pointed out, this
figure only represents the market for counsel representing insurance companies,
not claimants seeking coverage. Insurance companies have significantly more
bargaining power than claimants in fee negotiations, and, in exchange, provide
the lawyer with the security their bills will be paid. Comparatively, counsel for
a claimant takes on more risk than counsel for the insurer in the form of volume
of work and non-payment. The trial judge concluded counsel for CMS should
not be paid a similar fee as counsel for AEIC because their respective
cost/benefit analyses were different. Moreover, AEIC could have, but failed to,
provided CMS with counsel at a negotiated rate under a reservation of rights.
We also conclude the trial judge exercised appropriate discretion in
deducting time spent on litigating the insurance broker and abandoned
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negligence claims from CMS's fee award. Initially, it was unclear whether the
assault and battery exclusion had been added to the policy, which prompted
CMS to bring a negligence claim against AEIC. It became evident in discovery
that AEIC did add the assault and battery exclusion to the policy. Accordingly,
CMS dropped the negligence claim. CMS also alleged AEIC's disclaimer of
coverage was due in part to the broker's negligent procurement of a policy unfit
for a residential building. This claim was essentially a contingency plan in the
event CMS lost the coverage question.
The intent behind Rule 4:42-9(a)(6) "is that one covered by a policy is
entitled to the full protection provided by the coverage, and that benefit should
not be diluted by the insured's need to pay counsel fees in order to s ecure its
rights under the policy." Liberty Village Assocs. v. W. Am. Ins. Co., 308 N.J.
Super. 393, 406 (App. Div. 1998). Rule 4:42-9(a)(6) is properly used as a basis
to obtain attorney's fees in successful actions to obtain coverage when an insurer
refuses to indemnify or defend an insured's liability to a third party. Here, even
if successful, CMS's negligence claims against AEIC did not bear on whether,
under the policy, AEIC was obligated to defend CMS against A.G.'s claim.
Therefore, it was proper for the trial judge to exclude any fees incurred litigating
those claims because both fell outside the gambit of Rule 4:42-9(a)(6).
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Finally, we reject the argument that the trial judge's ten-percent reduction
to CMS's fee award was unreasonable. In calculating the lodestar, it is not the
"time actually expended" but the "time reasonably expended" that matters.
Rendine, 141 N.J. at 335 (emphasis in original) (quoting Copeland v. Marshall,
641 F.2d 880, 891 (D.C. Cir. 1980)). It was not arbitrary to use a wholesale
reduction to account for the time the trial judge found excessive.
Affirmed.
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