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Century 21 Schecher Realty, Inc. v. Kaplan

A-1836-02T2 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTORS;INSURANCE—A subcontractor’s liability policy won’t cover the expected consequence of the subcontractor improperly disposing debris at a job site or a claim by a real estate broker that it lost its commission because of such dumping.

A property owner entered into a series of contracts with a general contractor, giving the contractor the right to remove sand from the land. The general contractor then hired a sub-contractor to perform the actual removal. Unbeknownst to the owner, three times as much soil was removed as was permitted, and soil was taken from sections of the property from which soil removal was prohibited. After the sand removal, the owner contracted to sell the land. This transaction failed to close when the over-mining was discovered. This led to a lawsuit in which a jury returned a verdict in favor of the property owner and the potential purchaser against the general contractor and its sub-contractor. As part of its verdict, the jury was asked to allocate fault among the responsible parties. It found the general contractor to be 89.75 percent at fault and the sub-contractor to be a quarter percent at fault.

The real estate broker for the failed property sale filed a separate lawsuit seeking to recover the real estate commission it lost as a result of the sale not closing. The broker and the general contractor were able to negotiate a settlement under which the contractor paid the broker’s damages and reserved its right to pursue a cross-claim against the sub-contractor. The sub-contractor then defaulted and a default judgment was entered against it in favor of the general contractor.

After the collapse of the transaction, it was discovered that improper debris had been deposited and buried on the land. Thus, the owner again sued the general contractor, seeking the cost of cleaning and restoring the property. The owner and the general contractor negotiated a settlement under which the contractor agreed to clean up the property and pay damages. As with the previous claim, the contractor asserted a cross-claim against the sub-contractor who, again, defaulted.

The sub-contractor maintained a general liability insurance policy during the time it was engaged. The general contractor filed a third-party complaint against the insurance company, asserting that it was a third-party beneficiary of the policy and was a judgment creditor of its insured, the sub-contractor. The sub-contractor had no assets to satisfy the judgments entered against it on the two cross-claims and the general contractor claimed that the insurance company was obligated to pay these judgments on behalf of its insured.

As to the broker’s claim, the lower court concluded that the general contractor was entitled to recover under the sub-contractor’s policy. However, the lower court held that the amount of the insurance company’s obligation was to be measured by the jury verdict in the original trial, which had only assessed a quarter percent of fault against the sub-contractor. As to the property owner’s claim, the lower court concluded that there was no coverage under the insurance policy because the sub-contractor, by burying the debris on the property, must have intended the resulting damage to the land.

On appeal, the general contractor claimed the lower court erred in limiting the insurance company’s obligation to a quarter percent in the sub-contract matter, and that the court erred by finding no coverage for recovery of the property owner’s claim. Conversely, the insurance company contended that it had no obligation to provide coverage for either matter because its policy did not extend to these liabilities.

The Appellate Division held that the insurance policies did not extend to either of the judgments entered against the sub-contractor. Under the policy, the insurance company was obligated to pay all sums which the sub-contractor would be legally obligated to pay as damages because of property damage, “caused by an occurrence.” The policy defined an “occurrence” as “an accident ... which results in . . . property damage neither expected nor intended from the standpoint of the insured.” Accordingly, with respect to the property owner’s claim against the general contractor, the Court held that the cost of restoring the owner’s land was an inherently expected consequence of the improper disposal of debris on the land. Therefore, the insurance policy did not provide coverage.

As to indemnification for the broker’s claim directly against the general contractor, the Court noted that the lower court had concluded that because the insurance company had successfully argued that the jury’s findings on liability should be binding on the general contractor, it was judicially estopped from arguing that finding was not binding on itself. However, the Court noted that the insurance company was not asserting contradictory positions. Therefore, judicial estoppel was inapplicable. The insurance company asserted alternative positions, which is a justifiable legal strategy. It maintained throughout that its policy did not afford any coverage for the events, yet it offered a “backup” position in the event that the lower court rejected its interpretation of the policy. In that event, the insurance company contended that its liability should be measured by the jury verdict. Thus, the company should not have been estopped from contending that there was no “occurrence” and thus no coverage. Furthermore, the Court held that it was a probable consequence that the property would be rendered unsaleable as a result of the actions of both contractors; and the sub-contractor could not reasonably anticipate that its conduct could be considered “accidental” or “unexpected.” For that reason, the Court held that the broker’s claim also was not covered by the policy.

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