Opinion
DOCKET NO. A-2498-13T2
09-10-2015
JOHN MANTZOURANIS, Plaintiff, v. JUAN PRATOLONGO and GOODFELLAS RESTAURANT, INC., Defendants/Third-Party Plaintiffs-Appellants/Cross-Respondents, v. LIBERTY MUTUAL INSURANCE CORPORATION, Third-Party Defendant-Respondent/Cross-Appellant.
Law Offices of William E. Staehle, attorneys for appellants/cross-respondents (D. Scott Conchar, of counsel and on the brief; Christina P. Fisher, on the brief). Connell Foley LLP, attorneys for respondent/cross-appellant (William P. Krauss, of counsel and on the brief; Edmund J. Caulfield, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Espinosa and Rothstadt. On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-9418-11. Law Offices of William E. Staehle, attorneys for appellants/cross-respondents (D. Scott Conchar, of counsel and on the brief; Christina P. Fisher, on the brief). Connell Foley LLP, attorneys for respondent/cross-appellant (William P. Krauss, of counsel and on the brief; Edmund J. Caulfield, on the brief). PER CURIAM.
In this insurance coverage dispute, defendants/third-party plaintiffs, Juan Pratolongo and Goodfellas Restaurant, Inc. (Goodfellas), and third-party defendant, Liberty Mutual Insurance Corporation (Liberty), appeal from the Law Division's December 20, 2013 summary judgment order. In its order, the court determined the priority and extent of coverage for injuries sustained by plaintiff, John Mantzouranis. Plaintiff was injured when Pratolongo, Goodfellas' valet, struck plaintiff with another customer's leased vehicle, which was insured by Liberty. Goodfellas was insured under a commercial business policy issued by the Travelers Indemnity Company (Travelers). After Liberty settled plaintiff's claim, Liberty and defendants filed cross-motions for summary judgment on the third-party complaint.
The motion judge denied both motions for summary judgment but ruled on two underlying issues — the primacy and extent of Liberty's coverage obligations under its policy. With regard to the former, the judge found that the Liberty and Travelers policies were "mutually repugnant," as each provided only excess coverage, and that the two policies were therefore "co-primary." As to the latter, the judge determined Liberty's obligation was not limited to the statutory minimums but rather extended to "the full limits of [its] policy."
N.J.S.A. 39:6B-1 requires coverage in the amount of no less than $15,000 per person and $30,000 per accident.
On appeal, defendants argue the court erred in determining Liberty's policy provided only excess coverage, but correctly determined Liberty's coverage extended to the full policy limits. Conversely, Liberty argues the court correctly determined the two policies were co-primary, but erred in determining Liberty's policy was not limited to the statutory minimum coverage for the accident.
We have considered the parties' arguments in light of our review of the record and the applicable legal principles. We agree with the court's determination that Liberty's obligation under the policy extended to its full policy limits. However, we find the court erred in determining the Liberty policy provided only excess coverage and was therefore co-primary with the Travelers policy.
Plaintiff alleged in his complaint that on December 15, 2009, he was injured when, while standing in the Goodfellas' parking lot, he was struck by a vehicle operated by Pratolongo. The police report identified the vehicle as being registered to D.L. Peterson Trust, of Sparks, Maryland (DLPT), as a leased vehicle. The registration named Bio-Reference Laboratories, Inc. of Elmwood Park, New Jersey (BRL), as the lessee.
The vehicle was one of many in BRL's motor vehicle fleet, leased under an open-end finance lease agreement with DLPT. The lease required BRL, as lessee, to provide additional insured liability coverage to the lessor, DLPT, with a combined single limit of not less than one million dollars. It also required this additional insured coverage to be "primary coverage." Pursuant to this lease agreement, BRL obtained a commercial policy from Liberty covering a one-year period, beginning July 13, 2009.
The Liberty policy provided business automobile liability insurance in the amount of one million dollars per accident or loss for covered automobiles. The policy covered "insureds" for losses resulting from the "ownership, maintenance or use of a covered 'auto'." The Business Auto Coverage Form defines as "insureds" the policyholder, individuals using a "covered auto" owned, hired, or borrowed by the policyholder, with the policyholder's permission (permissive users), and those liable for the conduct of the policyholder or permissive user. The language of the policy excludes from coverage permissive users "using a covered 'auto' while he or she is working in a business of . . . parking or storing 'autos' unless that business is [the policyholder's]."
Section IV, paragraph 5(a), of the Liberty policy contains the following "Other Insurance" provision:
For any covered "auto" you own, this Coverage Form provides primary insurance. For any covered "auto" you don't own, the insurance provided by this Coverage Form is excess over any other collectible insurance.
However, the policy is modified by an appended endorsement entitled "Lessor-Additional Insured and Loss Payee." This endorsement makes clear that the original policy terms apply unless modified by the endorsement, and amends the policy as follows:
1. Any "leased auto" designated or described in the Schedule will be considered a covered "auto" you own and not a covered "auto" you hire or borrow.Under "Additional Insured—Lessor(s)/Leased Auto(s)," the referenced schedule describes "leased auto" as "[a]ny leased auto," and names as lessor "[a]ny lessor that you have a leasing agreement with which requires you to provide direct primary insurance."
2. For a "leased auto" designated or described in the Schedule, Who Is An Insured is changed to include as an "insured" the lessor named in the Schedule.
Two different pages are entitled schedule, the first page of the endorsement form and a page appended to the form. There is no significant difference in the language of either "schedule."
Goodfellas held a commercial general liability insurance policy, issued by Travelers, that provided coverage in the amount of one million dollars per occurrence and two million dollars in the aggregate for a one-year period beginning March 9, 2009. Section IV of this policy stated the coverage is "excess over any other insurance."
The parties' dispute centers on their conflicting interpretations of the Liberty policy, specifically regarding the extent and primacy of Liberty's obligations. The parties do not dispute that the Travelers policy, by its terms, provides only excess coverage; however, the primacy of the Liberty policy determines whether Travelers coverage in this case is, in fact, excess.
Liberty concedes defendants qualify as insureds under the policy but argues for limiting the extent and primacy of their coverage obligation. Its position with regard to the extent of its obligation is that it must provide only the minimum coverage required by statute because defendants were not party to the Liberty policy and, therefore, could not reasonably have expected coverage beyond these statutory minimums. As to the primacy of its coverage, Liberty contends its policy provides only excess coverage in this case because the lessor endorsement does not apply to defendants. Liberty argues that, because the endorsement does not apply to defendants, defendants cannot benefit from the endorsement's redefinition of leased vehicles as owned vehicles—the categorization that determines whether primary coverage is provided under the policy.
Defendants argue Liberty must provide primary coverage pursuant to the terms of the lessor endorsement, which, in turn, obligates Liberty to defend and indemnify defendants in this litigation. They further contend that Liberty's obligation extends to the full limits of its policy and is not limited to the statutory minimums.
In ruling on the parties' cross-motions, the judge relied upon our decision in Scott v. Salerno, 297 N.J. Super. 437 (App. Div.), certif. denied, 149 N.J. 409 (1997) in invalidating, as against public policy, the provision of Liberty's policy that excluded from coverage any third party in the business of parking or storing vehicles. He determined that Liberty should have been aware these exclusions were void and that, in the absence of such express coverage restrictions, Liberty's obligation could not be limited to the statutory minimums and instead extended to the full limits of its policy.
As to the priority of coverage, the judge determined the Liberty and Travelers policies were co-primary because each provided only excess coverage. He rejected the argument that Liberty's policy was rendered primary by the lessor's endorsement, finding the policy provided only excess coverage because "the only entity that could be subject to th[e] Endorsement in this case is the lessor." As such, because BRL leased rather than owned the vehicle and the policy provided primary insurance coverage only for the policyholder and its lessor, the court found Liberty's policy was in excess of any other collectible insurance. While the Travelers policy was expressly excess under its "Other Insurance" clause, the judge, relying upon the Court's holding in Cosmopolitan Mut. Ins. Co. v. Cont'l Cas. Co., 28 N.J. 554 (1959), found the policies to be co-primary because where, as here, there are two excess policies, they are considered "mutually repugnant" and therefore become co-primary.
This appeal followed.
We review the disposition of a summary judgment motion de novo, applying the same standard as the motion judge. Townsend v. Pierre, 221 N.J. 36, 59 (2015). In deciding a motion for summary judgment, the court considers "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." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 536 (1995) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202, 214 (1986)); see also R. 4:46-2(c). In our de novo consideration, we "do not defer to the trial court's . . . interpretation of the meaning of a statute or the common law." Davis v. Brickman Landscaping, Ltd., 219 N.J. 395, 405 (2014) (citation and internal quotation marks omitted). "The interpretation of an insurance contract is an issue of law which we review de novo, with no special deference to the trial court's interpretation of the law and the legal consequences that flow from the established facts." Arthur Andersen LLP v. Fed. Ins. Co., 416 N.J. Super. 334, 345 (App. Div. 2010) (citing Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009); Homesite Ins. Co. v. Hindman, 413 N.J. Super. 41, 47 (App. Div. 2010)).
"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). "In considering the meaning of an insurance policy, we interpret the language 'according to its plain and ordinary meaning.'" Ibid. (quoting Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992)). A policy "must be interpreted by considering the agreement as a whole." Owens-Illinois, Inc. v. United Ins. Co., 264 N.J. Super. 460, 490 (1993) (citing Prather v. Am. Motorists Ins. Co., 2 N.J. 496, 502 (1949)).
When an . . . endorsement modifies, qualifies or restricts the terms of the original policy, the . . . endorsement controls. The rationale of this principle is that when a specific form of insurance is provided by an endorsement tailored to meet the particular needs of the insured and the [insurer], that language must be followed to carry out the intention of the parties.
[Gabriele v. Lyndhurst Residential Cmty., L.L.C., 426 N.J. Super. 96, 104-05 (App. Div. 2012) (citations and internal quotation marks omitted).]
When faced with conflicting proposed interpretations of a policy's terms, we must determine whether the language of the agreement is clear and unambiguous. Schor v. FMS Fin. Corp., 357 N.J. Super. 185, 191 (App. Div. 2002). If the disputed terms are ambiguous, we "interpret the contract in accordance with the 'reasonable expectations' of the insured." Shotmeyer v. N.J. Realty Title Ins. Co., 195 N.J. 72, 82 (2008) (citation omitted). A genuine ambiguity exists when 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). Where a "policy['s] language supports two meanings, one favorable to the insurer and the other to the insured, the interpretation favoring coverage should be applied." Lundy v. Aetna Cas. & Sur. Co., 92 N.J. 550, 559 (1983). However, "courts must guard against rewriting policies in favor of the insured under the guise of interpreting a contract's reasonable terms." Shotmeyer, supra, 195 N.J. at 82-83.
"These principles are designed to protect insureds from 'technical encumbrances' and 'hidden pitfalls' in their insurance contracts while also providing insurers with 'predictable levels of risk . . . in order to calculate premium rates reliably.'" Arthur Andersen, supra, 416 N.J. Super. at 347 (quoting Shotmeyer, supra, 195 N.J. at 83).
An insurance policy is "a contract to pay a sum of money upon the happening of a particular event." CNA Ins. Co. v. Selective Ins. Co., 354 N.J. Super. 369, 378 (App. Div. 2002) (citations and internal quotation marks omitted). "Primary insurance attaches immediately upon the happening of the occurrence that gives rise to liability." Ibid. (citation and internal quotation marks omitted); see also W9/PHC Real Estate LP v. Farm Family Cas. Ins. Co., 407 N.J. Super. 177, 196-97 (App. Div. 2009).
Policies that offer excess coverage, however, generally "provide[] protection to an insured for liability for an amount above, or in excess of, the maximum coverage supplied by the primary policy." Arico v. Twp. of Brick, 281 N.J. Super. 471, 474-75 (App. Div.), certif. denied, 142 N.J. 515 (1995). "The purpose of [an] excess policy is to protect the insured in the event of a catastrophic loss in which liability exceeds the available primary coverage." CNA Ins. Co., supra, 354 N.J. Super. at 379 (citations and internal quotations marks omitted). Further, "[e]xcess insurers . . . generally have no duty to participate in the defense" of a claim. IMO Indus., Inc. v. Transamerica Corp., 437 N.J. Super. 577, 624 (App. Div. 2014), certif. denied, 222 N.J. 16 (2015).
We have previously distinguished between two types of excess insurance coverage: "primary insurance polic[ies] containing an excess 'other insurance' clause, and . . . true excess polic[ies]." CNA Ins. Co., supra, 354 N.J. Super. at 379. We explained the distinction between the two:
A true excess policy provides coverage conditioned upon the existence of a primary policy[, and] the coverage does not begin until a loss exceeds a specific level . . . .
Customarily, a true excess policy includes a requirement for underlying primary insurance in a specific sum, and lists the underlying primary insurance. A
true excess policy also requires that the same insured must have purchased the underlying coverage for the same risk. Excess policies "expand the amount, but not the scope of coverage."
On the other hand, a primary policy with an "excess other insurance clause" is a device which allows the "primary insurer [to] attempt[] to limit or eliminate its liability where another primary policy covers the risk." The excess "other insurance" clause generally provides that the insurer's liability will be limited to the amount of the loss that exceeds all other valid and collectible insurance up to the limits of the policy. Such a provision makes a primary insurer secondarily liable when other available coverage exists. However, a primary insurance policy that contains an excess "other insurance" clause does not "transform that primary policy into an excess policy."
[Id. at 379-80 (citations omitted).]
Therefore, where two primary policies cover the same loss, one policy's "excess other-insurance clause seeks to make an otherwise primary policy excess insurance" that will not come into effect until the limits of the other policy are exceeded. See W9/PHC Real Estate, supra, 407 N.J. Super. at 197.
If "two policies in question each have an other-insurance clause stating that it is excess over any other policy, the provisions are 'mutually repugnant,' and are disregarded." Id. at 199 (quoting Cosmopolitan Mut. Ins. Co. v. Cont'l Cas. Co., supra, 28 N.J. at 562). "Since neither policy by its terms is a policy of primary insurance, neither can operate as a policy of excess insurance. The excess insurance provisions are mutually repugnant, and as against each other are impossible of accomplishment." Cosmopolitan Mut. Ins. Co., supra, 28 N.J. at 562. "In such instance, the carriers stand on equal footing, with each sharing payment of liability equally until the limit of the smaller policy is exhausted." W9/PHC Real Estate, supra, 407 N.J. Super. at 199.
Applying these definitions, we conclude the Liberty policy provides primary coverage and the Travelers policy provides excess coverage. The Liberty policy provides primary coverage for "any covered 'auto'" owned by the policyholder, and excess coverage for covered autos not owned by the policyholder. However, the endorsement modifies the original policy terms in two ways; it includes as an additional insured any lessor with whom the policyholder has a lease agreement, and includes as an owned vehicle "any auto [the policyholder] lease[s]," essentially redefining ownership of a vehicle to include leasing. Nothing in the policy or the endorsement suggests both modifications apply only to the lessor. In fact, the plain language of the endorsement suggests the opposite. There is no indication in the plain language of the endorsement that Liberty intended to limit the coverage being extended for leased vehicles to only the lessor.
The endorsement further states "[w]ith respect to the coverage provided by this endorsement, the provisions of the Coverage Form apply unless modified by the endorsement." Accordingly, because the endorsement modifies the original policy's definition of ownership, the endorsement's definition controls. See Gabriele, supra, 426 N.J. Super. at 104-05. The endorsement explicitly states that leased vehicles are to be considered owned vehicles, and there is nothing to indicate Liberty intended this modification to apply only to certain portions of the original policy. "If the scriveners of th[is] endorsement[] intended to . . . exclude coverage [under these circumstances], then the endorsement should have expressed that intent." Pep Boys v. Cigna Indem. Ins. Co. of N. Am., 300 N.J. Super. 245, 255 (App. Div. 1997).
Once the modified definition of ownership is read into the original policy's primacy-of-coverage provision, it is clear that primary coverage applies not only to covered vehicles owned by BRL, but also to those leased by BRL.
While this is not an instance in which the language of the policy is unclear or ambiguous, even if it were, our obligation to interpret the contract's ambiguity in favor of coverage and "in accordance with the 'reasonable expectations' of the insured" would dictate the same result. See Shotmeyer, supra, 195 N.J. at 82; Lundy, supra, 92 N.J. at 559. --------
Because the Liberty policy is not, in fact, excess, and the Travelers policy is expressly excess, the Liberty and Travelers policies are not "mutually repugnant," so as to render the Travelers policy co-primary. Therefore, Liberty is the primary insurer and must provide such coverage to insureds under the policy, including defendants. As primary insurer, Liberty also had the obligation under its policy to defend and indemnify defendants, as insureds, in this litigation.
Liberty further argues that, even if its policy is primary, it need provide only the statutory minimum coverage for defendants. While Liberty does not challenge the motion judge's determination that its policy exclusion for parking by third-parties did not apply, it argues that, once this exclusion is excised from the policy, it is obligated to provide only the statutory minimum coverage.
Liberty asserts that, as a third-party permissive user and not a party to the insurance contract, defendants had no detailed knowledge of the coverage maintained on the vehicles its valet parked. Without this knowledge, Liberty argues, defendants could reasonably expect the vehicles its valet parked were insured only to the extent required by statute. Liberty also argues Goodfellas must have understood it could not rely solely on the insurance in place for the vehicles parked by its valet because it obtained comprehensive general liability insurance that affirmatively covered incidents arising from its valet parking services.
Liberty relies primarily on two cases, and the distinctions between them, to support its argument for limiting its obligation to the statutory minimums. It argues the Court's opinion in Proformance Insurance Co. v. Jones, 185 N.J. 406 (2004), supports its contention that its coverage obligation is so limited. In Proformance, the Court invalidated an insurance policy's business-pursuits exclusion and ruled the third-party claimant should therefore receive only the minimum coverage required by law. Id. at 421. In Potenzone v. Annin Flag Co., 191 N.J. 147, 155 (2007), however, the Court refused to limit the insurer's obligation under the circumstances and held the insurer to its full policy limits. In arguing that Proformance, and not Potenzone, is applicable here, Liberty relies on the differences between the claimants in the two cases. Proformance involved a claim by a third-party, an employee of the policyholder's brother, while Potenzone involved a claim by a first-party insured, the policyholder's employee. Liberty argues the attenuated relationship between the policyholder and the driver in this case means the insurance company must provide only the statutory minimum coverage.
Contrary to Liberty's contention, however, neither Proformance nor Potenzone relied on the driver's relationship to the policyholder. In fact, Potenzone emphasized that the distinction between the two cases was how long the provision in question had been invalid and, therefore, whether the insurer should have known the exclusion upon which it relied was invalid. See Potenzone, supra, 191 N.J. at 155. The Court distinguished Proformance, noting that, while the Proformance Court had invalidated the policy exclusion in question for the first time, the loading-and-unloading exclusion at issue in Potenzone had been invalid for over a decade. Ibid. (citation omitted). The Court was willing to hold the insurer to its full policy limits because the insurer should have known by that time the exclusion upon which it relied was invalid, stating: "If the insurer intended to provide [only] the statutory minimum coverage for loading or unloading accidents, it should have amended its policy to expressly provide for [a limit to the] coverage." Id. at 155-56. Further, the Court reasoned, the long-standing invalidity of the exclusion gave all parties the expectation that any such provision in their policy was invalid, whereas in Proformance the same expectation could not be assumed, as the exclusion was being invalidated for the first time. Ibid. (citing Proformance, supra, 185 N.J. at 421).
Here, Liberty's parking-and-storing exclusion was invalidated by this court nearly two decades ago. See Scott v. Salerno, supra, 297 N.J. Super. 437. Thus, the case for holding Liberty to its full policy limits is analogous to, if not more compelling than, that in Potenzone. Liberty had more than ample time to recognize its parking-and-storing exclusion was invalid and to adjust its policy terms accordingly. Despite Liberty's argument to the contrary, defendants' expectations regarding the extent of coverage for vehicles parked by the valet service, reasonable or otherwise, are irrelevant; the determinative factor is whether Liberty had sufficient time to learn its policy's exclusion was invalid. Accordingly, the motion judge correctly concluded that, based on the well-established invalidity of the parking-and-storing exclusion, Liberty's policy must be read as if the exclusion did not exist, and that Liberty must provide maximum coverage under its policy.
Ultimately, because Liberty's policy considers the leased vehicle in question a "covered 'auto' [the policyholder] own[s]" and its parking-and-storing exclusion is invalid, defendants are treated as any other permissive user under the policy. They are therefore entitled to primary coverage up to the full limits of Liberty's policy.
Affirmed in part and reversed in part. Remanded for entry of judgment in accordance with this opinion. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION