(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Eagle Fire Protection Corp. v. First Indemnity of America Insurance Company (A-80-95)
Argued January 29, 1996 -- Decided July 22, 1996
GARIBALDI, J., writing for a majority of the Court.
In May 1989, 185 Monmouth Parkway Associates (Parkway) finalized its plans to renovate an office
building. Pursuant to those plans, on May 8, 1989, Parkway hired Olsen & Hassold, Inc. (Olsen) as general
contractor in charge of the renovation. The contract between Parkway and Olsen envisioned three phases.
Olsen never reached Phase III because of its financial demise.
One of Olsen's obligations under the contract was to hire a surety company that would guarantee
the successful performance of its contractual duties. Olsen purchased a labor and material bond from First
Indemnity of America Insurance Co. (First Indemnity) that provided that First Indemnity, as surety, would
pay claims made by subcontractors of Olsen, as principal, where the contractors had not been paid in full
within ninety days of the completion of the subcontractor's work.
The Phase II of the project included the installation of a sprinkler system. Olsen purchased the
system from Eagle Fire Protection Corp. (Eagle Fire) and hired Eagle Fire to install the system. Eagle Fire
started work on the project in mid-September 1989 and completed it in June or July of 1990. Originally,
Olsen made progress payments but, by May 1990, Olsen had stopped making any payments to Eagle Fire.
Eagle Fire retained counsel, Gerald Massell, Esq., to obtain from Olsen or First Indemnity the money owed
it was for the sprinkler system installation. Massell's efforts were unsuccessful.
On September 11, 1990, Parkway terminated its contract with Olsen. In April 1991, Olsen filed for
bankruptcy. On May 23, 1991, Eagle Fire filed suit against First Indemnity, claiming that the bond rendered
First Indemnity liable for Olsen's sprinkler-system debt. First Indemnity defended by claiming that Eagle
Fire had not timely filed its lawsuit and, thus, was precluded from recovering under the bond. First
Indemnity based its defense on a provision in the bond that stated that no suit could be brought after the
expiration of one year following the date on which Olsen "ceased work" on the contract. Eagle Fire claimed
that it had commenced suit within one year of the day that Olsen ceased work on the contract or that, in the
alternative, any failure to file suit in a timely manner was the fault of First Indemnity's representatives, who
employed delay tactics and misled Eagle Fire into not bringing suit within the specified one-year time
limitation. In support of its arguments, Eagle Fire proffered testimony at trial that: there was presence on
the work site through September 1990 of trailers that Olsen had rented to store partitions that were to be
used in Phase III; Olsen subcontractors were working on the site through, at least, July and August of 1990;
and First Indemnity representatives impermissibly misled or lulled it into not filing suit at an earlier date.
At the close of all the evidence, both parties made motions for judgment as a matter of law. The
trial court denied both motions. Thereafter, the trial court instructed the jury that the work done by
subcontractors of Olsen did not constitute work done by Olsen itself. As such, the presence or absence of
subcontractors on the site after May 23, 1990 was not relevant. The jury returned a verdict in favor of Eagle
Fire, finding that Olsen had ceased work on the project before May 23, 1990, but that the negotiations,
conversations and communications between Eagle Fire and First Indemnity resulted in Eagle Fire being
caused to delay the filing of the suit. The trial court rejected Eagle Fire's application for attorneys' fees.
On appeal, the Appellate Division reversed, finding that the trial court erred in submitting to the jury the issue of whether the one-year statute of limitation period contained in the bond was tolled by First
Indemnity's conduct. The court reasoned that the delay was not caused by any unconscionable conduct on
the part of First Indemnity; therefore, as a matter of law, the limitation period was not tolled by First
Indemnity's ongoing investigation of Eagle Fire's claim. Thus, Eagle Fire's suit was untimely.
The Supreme Court granted Eagle Fire's petition for certification.
HELD: Eagle Fire Protection Corporation commenced suit within one year of the date that the general
contractor, Olsen & Hassold, ceased work under the contract. Complying with the terms of the
surety bond between Olsen & Hassold and First Indemnity, Eagle Fire is entitled to judgment
against First Indemnity as a matter of law. Eagle Fire is not, however, entitled to an award of
attorney's fees.
1. Because Eagle Fire had a direct contract with Olsen, it had standing as a third-party beneficiary under the
surety bond between Olsen and First Indemnity to enforce the bond's provisions. As a third-party
beneficiary, Eagle Fire's rights are determined by the terms of the bond. First Indemnity is chargeable only
according to the strict terms of the surety agreement; its obligation cannot be extended either by implication
or construction beyond the terms of that agreement. (pp. 9-11)
2. Provisions in a contract limiting the time parties may bring suit have been held to be enforceable, if
reasonable. This Court has routinely upheld contractual provisions that create a one-year time limitation in
which claimants may bring suit, despite the six-year statutory limitations period for contract actions. Thus,
the one-year limitations provision in First Indemnity's surety bond was reasonable and enforceable.
(pp. 11-13)
3. The surety bond between Olsen and First Indemnity incorporates the contract by reference; therefore, in
ascertaining the meaning of the bond's provisions, the bond and the contract must be considered as a whole.
Although the bond does not define the term work, the contract provides guidance. The language in the
Scope of the Agreement provision supports Eagle Fire's contention that Olsen ceased its work on the
contract after May 23, 1990. Undisputed testimony demonstrates that Olsen's subcontractors were working
under the contract as late as July or August 1990. The Scope of the Agreement provision provides that
Olsen's "Work" included "furnish[ing] the supervision" of the construction work. Thus, the language of the
contract as well as the limited case law in this area, supports the conclusion that Olsen's work included the
work performed by its subcontractors. To hold otherwise would create too restrictive a result. The bond
contained a provision that bars claimants from bringing suit before the expiration of ninety days after the
date on which the last of the claimant's work or labor was done or performed. If Eagle Fire completed its
work any time after June 10, 1990, the ninety day period would have ended after September 8, 1990, thereby
leaving Eagle Fire with no opportunity to file a complaint against First Indemnity. Such a severe restriction
on the ability to bring suit would be unreasonable and unenforceable. (pp. 13-18)
4. The trial court erred both in its instruction to the jury and in its answer to the jury's question when it
responded that the work done by Olsen's subcontractors does not constitute work done by Olsen itself. The
trial court also erred in denying, after the close of evidence, Eagle Fire's motion for judgment as a matter of
law. Eagle Fire complied with the terms of the labor and material bond and commenced suit against First
Indemnity in a timely manner. Because there was uncontroverted evidence that Olsen continued to work on
the project after May 23, 1990, Eagle Fire is entitled to recover under the bond the amount still owed it by
Olsen for installation of the sprinkler system. (pp. 17-23)
5. Rule 4:42-9(a)(6) provides that attorney's fees are only obtainable when an insurer refuses to indemnify
or defend its insured's third-party liability to another. The rule does not authorize an award of counsel fees
to an insured on a direct suit against the insurer to enforce a casualty or other first-party direct coverage.
Because First Indemnity did not agree to protect Olsen from third-party claims, Rule 4:42-9(a)(6) does not
apply. Accordingly, Eagle Fire is not entitled to counsel fees. (pp. 23-26)
Judgment of the Appellate Division is REVERSED and the matter is REMANDED to the Law
Division for entry of a judgment consistent with this opinion.
JUSTICE POLLOCK, dissenting, would not impute to a general contractor that has stopped work,
the work of unsupervised subcontractors that remain on the job. Likewise, Justice Pollock agrees with the
lower courts that after Olsen ceased work, the presence on the work site of trailers that Olsen had rented is
irrelevant.
JUSTICES HANDLER, O'HERN, STEIN and COLEMAN join in JUSTICE GARIBALDI's opinion.
JUSTICE POLLOCK filed a separate dissenting opinion. CHIEF JUSTICE WILENTZ did not participate.
SUPREME COURT OF NEW JERSEY
A-
80 September Term l995
EAGLE FIRE PROTECTION
CORP., a corporation of
the State of New Jersey,
Plaintiff-Appellant,
v.
FIRST INDEMNITY OF AMERICA
INSURANCE COMPANY,
Defendant-Respondent.
Argued January 29, l996 -- Decided July 22, 1996
On certification to the Superior Court,
Appellate Division, whose opinion is reported
at
289 N.J. Super. 430 (l995).
Gerald J. Massell argued the cause for
appellant (Massell, Massell & Vincent,
attorneys).
Joseph C. Glavin, Jr., argued the cause for
respondent.
Armen Shahinian submitted a brief on behalf
of amicus curiae, The Surety Association of
America (Wolff & Samson, attorneys; Mr.
Shahinian, James D. Ferrucci and Joseph
Monaghan, on the brief).
The opinion of the court was delivered by
GARIBALDI, J.
This appeal concerns the resolution of one question: in
determining the one-year limitation period under which a claimant
must institute a suit in a surety bond, when does a general
contractor "cease work" under a construction contract?
Specifically, we must determine if the work of subcontractors on
a construction site constitutes the work of the general
contractor.
In May 1989, 185 Monmouth Parkway Associates (Parkway), a limited partnership, finalized its plans to renovate an office building. Pursuant to those plans, on May 8, 1989, Parkway hired Olsen & Hassold, Inc. (Olsen), as general contractor in charge of the renovation. The contract between Parkway and Olsen envisioned three phases. In Phase I, Olsen was to remove the asbestos in the building. Phase II consisted of the reconstruction and restoration of the building, and in Phase III, Olsen was to erect certain metal partitions in the building. Olsen never reached Phase III due to its financial demise.
One of Olsen's obligations under the contract was to hire a surety company that would guarantee Olsen's successful performance of its contractual duties. As a result, Olsen purchased a series of bonds from First Indemnity of America Insurance Co. (First Indemnity), who agreed to act as Olsen's
guarantor. The particular bond implicated in this case is a
"labor and material bond." That bond provided that First
Indemnity, as surety, would pay claims made by subcontractors of
Olsen, as principal, where the contractors had not been paid in
full within ninety days of the completion of the subcontractor's
work. In drafting that bond, the parties simply filled in the
blanks of the American Institute of Architects' standard labor-and-material payment-bond form.
The Phase II renovation of the Parkway building included the
installation of a sprinkler system in the building. Olsen
purchased the sprinkler system from Eagle Fire Protection Corp.
(Eagle Fire), and hired it to install the system for $129,437.50.
Eagle Fire started working on the project in mid-September 1989
and completed it in June or July of 1990. Olsen made progress
payments to Eagle Fire from October 1989 to early 1990. However,
a later installment check from Olsen bounced, and by May 1990,
Olsen had stopped making payments to Eagle Fire. When Eagle
Fire's president, William Vinsko, began to sense that he would
have difficulty collecting from Olsen, he attempted to contact
First Indemnity regarding its obligation under the bond.
However, First Indemnity failed to return numerous calls made by
a Parkway representative on Eagle Fire's behalf. Vinsko then
retained counsel, Gerald Massell, Esq., to obtain from Olsen or
First Indemnity the money owed Eagle Fire for the sprinkler
system installation. Massell spoke with an Olsen vice-president
about Olsen's debt in April or May 1990, but was unable to elicit
payment from Olsen. Massell was similarly unsuccessful in his
eight month effort to persuade First Indemnity to pay Olsen's
debt to Eagle Fire.
On September ll, l990, Parkway terminated its contract with
Olsen. In April l99l, Olsen filed for bankruptcy. On May 23,
1991, Eagle Fire filed suit against First Indemnity, claiming
that the bond rendered First Indemnity liable for Olsen's
sprinkler-system debt. The sole defense offered by First
Indemnity was that Eagle Fire had not commenced its suit in a
timely manner, and was thus precluded from recovering under the
bond. First Indemnity based that argument on the following
provision of the bond:
No suit or action shall be commenced
hereunder by any claimant:
b) After the expiration of one (1) year
following the date on which [Olsen] ceased
work on [the] Contract,it being understood,
however, that if any limitation embodied in
this bond is prohibited by any law
controlling the construction hereof such
limitation shall be deemed to be amended so
as to be equal to the minimum period
permitted by such law. (Emphasis added).
Eagle Fire countered that it had, in fact, commenced its suit
within one year of the day that Olsen "ceased work" on the
contract. Eagle Fire argued in the alternative that if its suit
had not been commenced in a timely manner, that was the fault of
First Indemnity's representatives, who employed delaying tactics
and misled Eagle Fire into not bringing suit within the specified
one year window.
The testimony at trial focused on two issues: 1) the date
Olsen "ceased work" under the contract; and 2) the actions taken
by First Indemnity that led Eagle Fire not to file suit until
eight months after its initial contact with the surety company.
To establish its compliance with the bond's limitation
period, Eagle Fire had to prove that Olsen "ceased work" after
May 23, 1990. Edward Puth, a managing agent for Parkway,
testified that Olsen was working under the contract until
September 11, 1990, when Parkway terminated the contract because
of Olsen's financial inability to fulfill its contractual duties.
In support of that conclusion, Puth discussed the presence on the
worksite through September l990 of trailers that Olsen had rented
to store partitions that were to be used in Phase III. Those
trailers led Puth to conclude that Olsen was "working" under the
contract until its ultimate cancellation. Puth admitted that at
some time prior to the cancellation of the contract, although he
could not remember the exact date, Olsen stopped paying the
rental company for the use of trailers. The last time that Puth
saw an Olsen employee on the site was "mid-1990." That employee
was Edward LeHaye, the Vice-President of Olsen's asbestos removal
division, with whom Puth met on that occasion. Puth did not know
the last day that Olsen employees were physically working on the
site.
William Vinsko testified for Eagle Fire that Olsen was
"still on the job" as of January or February of 1990, working in
different parts of the building. Defense counsel read to the
jury Vinsko's deposition testimony, in which he stated that Olsen
had left the site by January 1990. Vinsko testified that Olsen's
subcontractors were working at the site through July and August
of 1990, and perhaps even later.
Ed LaHaye testified for First Indemnity that the last day
that Olsen employees physically worked at the site under the
contract was September 8, 1989. He conceded, however, that when
he resigned from his position with Olsen in August 1990, the
metal partitions were still being stored in trailers on the site.
Eagle Fire also attempted to establish that First Indemnity
impermissibly misled or lulled Eagle Fire into not filing suit on
an earlier date. Massell testified that his first attempt to
obtain payment from First Indemnity was on September 18, 1990,
when he wrote to the surety company to inform it that Olsen had
defaulted on its debt to Eagle Fire. He warned, "If this matter
cannot be settled within twenty (20) days, I will file suit
against First Indemnity." On September 28, 1990, Massell
received a proof of loss form and a short note from Paul Alongi,
Operations Manager at First Indemnity. In the note Alongi
informed Massell that on receipt of the completed proof of loss
form First Indemnity would begin its investigation into the
validity of Eagle Fire's claim. On November 30, 1990, Massell
returned the completed proof of loss to First Indemnity and four
days later he had a telephone conversation with Alongi regarding
the claim. Although Massell made subsequent attempts to reach
Alongi, Massell never heard from Alongi.
From December 7, l990 to February l99l, Massell had several
telephone discussions with Frank Galdieri, an independent claims
adjuster hired by First Indemnity to investigate Eagle Fire's
claim. In a December l0, l990 conversation, Galdieri told
Massell that if Massell felt that First Indemnity was attempting
to stall, he should file suit. Massell memorialized this
conversation in a December 10, 1990 letter that he sent to
Galdieri. After a conversation that Massell had with Galdieri in
February l99l, he began to believe that First Indemnity was
employing stalling tactics and was not negotiating in good faith.
Massell filed suit approximately three months later. Galdieri
testified for First Indemnity, and, in general, did not dispute
Massell's testimony. Massell acknowledged in his testimony that
Galdieri never told him not to file suit.
At the close of all the evidence both parties made a motion
for judgment. The trial court denied both motions. The trial
court instructed the jury, in pertinent part:
If you find that the plaintiff, Eagle Fire Protection,
filed it's action more than one year after the general
contractor, Olsen & Hassold, ceased work at the site,
then you should enter a verdict for the defendant of no
cause of action.
I further instruct you that the work done by
subcontractors of Olsen & Hassold does not constitute
work done by Olsen and Hassold themselves. And
therefore the presence or absence of such
subcontractors at the site after May 23, 1990, is not
relevant. Unless you find that any representative of
the defendant, First Indemnity, misled by accident or
design Mr. Massell so as to cause him to delay filing a
timely suit under the bond and he did not do so, you
should return a verdict for the defendant. (Emphasis
added).
The court also submitted the following special
interrogatories to the jury:
1) Did the work by Olsen and Hassold on the project
cease before May 23, 1990?
2) Did the negotiations, conversations and
communications between the plaintiff and the defendant
result in the plaintiff being caused to delay the
filing of the suit until May 23, 1991?
Prior to answering those interrogatories the jury asked the court
"If there are subcontractors on the site, does that mean that
Olsen and Hassold would be considered to be on the site?" The
trial court stated that "[T]he answer is no." Plaintiff's
counsel who had objected to the court's original instruction
regarding the instruction that subcontractor's work should be
deemed the work of Olsen, also objected to the court's response
to the jury's question. The jury answered both questions in the
affirmative, returned a verdict for Eagle Fire, and assessed
damages at $63,414. On stipulation of the parties, the trial
court reduced the award to $60,825. The trial court rejected
Eagle Fire's ensuing application for attorney's fees.
The Appellate Division reversed. Eagle Fire v. First
Indemnity Insurance Corp.,
280 N.J. Super. 430 (App.Div. 1995).
The court found that the "the proofs raised a factual issue for
resolution by the jury as to whether Olsen was still working or
supervising after May 23, 1990." Id. at 439. Thus, the court
concluded that the trial court properly decided not to rule as a
matter of law on that issue. Id. at 439-40. The panel held
however, that "the trial court erred in submitting to the jury
the issue as to whether the one-year limitation period contained
in the bond was tolled by defendant's conduct." Id. at 440. The
court explained that "the tolling of a contractual or statutory
limitation due to conduct, requires some type of unconscionable
conduct on the part of the insurance company and not mere
negotiations and discussions." Id. at 441. Because Galdieri's
conduct could not be said to have misled or lulled Massell into a
false sense of security, the court concluded as a matter of law
that the Bond's one-year limitation period was not tolled by
First Indemnity's ongoing investigation of Eagle Fire's claim.
Id. at 443-44. Accordingly, the court found that Eagle's Fire's
suit was untimely. Id. at 444.
We granted Eagle Fire's petition for certification.
142 N.J. 457 (1995), and now reverse.
"Suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, the principal." Amelco Window Corp. v. Fed. Ins. Co., 127 N.J. Super. 342, 346 (App.Div. 1974). First Indemnity, the surety,
agreed to be answerable for the debts of Olsen, the principal.
The express language of the Labor and Material Bond entered into
by Olsen and First Indemnity also granted Eagle Fire and any
other Olsen subcontractors standing to enforce the Bond's
provisions. See Schlanger v. Federal Ins. Co.,
44 N.J. 17, 20
(1965) and Amelco Window Corp., supra, 127 N.J. Super. at 346-47.
The bond defined a claimant as
one having a direct contract with the Principal
or with a subcontractor of the Principal
for labor, material, or both, used or reasonably
required for use in the performance of the Contract.
Because Eagle Fire had a direct contract with the principal,
Olsen, it had standing as a third party beneficiary under the
bond between Olsen and First Indemnity. "The Law recognizes that
the third party has an enforceable right if the surety promises
in the bond, either in express words or by reasonable
implication, to pay money to him." Amelco Window Corp., supra,
127 N.J. Super. at 346.
As a third party beneficiary of the bond, Eagle Fire's
rights are determined by the terms of the bond. "It is well
settled that `[a] third party beneficiary's rights depend upon,
and are measured by, the terms of the contract between the
promisor and the promisee." Ribiera & Lourenco Concrete Constr.
Co. v. Jackson Health Care Ass'n,
231 N.J. Super. 16, 21
(App.Div. 1989), aff'd o.b.,
118 N.J. 419 (1990) (quoting Roehers
v. Lees,
178 N.J. Super. 399, 409 (App. Div. 1981)). In
Monmouth Lumber Co. v. Indemnity Ins. Co. of N. America, 21 N.J.
439, 452 (1956), the Court observed, however, that "a surety is
chargeable only according to the strict terms of its undertaking
and its obligation cannot and should not be extended either by
implication or by construction beyond confines of the contract."
First Indemnity argues that time limitations particularly should
be construed strictly in surety bonds guaranteeing the debts of
construction companies since so many of those companies dissolve
within a short period of time.
Contract provisions limiting the time parties may bring suit have been held to be enforceable, if reasonable. See Weinroth v. New Jersey Mfrs. Ass'n Fire Ins. Co., 117 N.J.L. 436, 438 (E. & A. 1936); Ribiera, supra, 231 N.J. Super. at 22-23; A.J. Tenwood Assocs. v. Orange Senior Citizens Housing Co., 200 N.J. Super. 515, 523-24 (App.Div.), certif. denied, 101 N.J. 325 (1985); Staehle v. American Employers' Ins. Co., 103 N.J. Super. 152, 154 (App. Div. 1968).
Holding enforceable a provision in an insurance contract limiting the time in which claimants may bring suit to one year, the Court in Weintroth, supra, observed:
In determining whether any provision in an insurance
contract conflicts with general laws of this state,
the test should be whether the terms provide for, or
permit, that which the statute forbids and prohibit.
We are unable to observe any conflict, as the statute
provides, in effect, that no suit can be instituted
after six years, but does not make it unlawful for
parties to agree by contract that the limitation
shall be for a lesser period.
[Weinroth, supra, 117 N.J.L. at 438].
Similarly, in A.J. Tenwood Associates, supra, the Appellate
Division found that a one-year limitation period contained in the
construction contract was neither unfair nor unreasonable. 200
N.J. Super. at 523. The court observed that although the statute
of limitations in New Jersey for contract actions is six years,
"such a limitation may be waived by express agreement of the
parties." Ibid. (citation omitted). "It is fundamental that in
the absence of a statute barring such agreements, a contractual
stipulation limiting the time for bringing an action upon a
contract to a period less than that prescribed by the foregoing
statute is valid if the stipulated period is reasonable and does
not violate public policy." Id. at 523-24 (citations omitted).
Finally, Ribiera & Lourenco Concrete Constr.Co., supra,
involved a labor and material payment bond that contained the
same one-year limitation provision found in the bond in this
case. 231 N.J. Super. at 22. The Appellate Division found the
provision to be reasonable and therefore enforceable, id. at 22-23, and we affirmed that decision.
118 N.J. 419 (1990).
Indeed, this Court has routinely upheld contract provisions
that create a one-year time limitation in which claimants may
bring suit. Accordingly, the one-year limitation provision in
First Indemnity's surety bond was reasonable and enforceable.
Therefore, Eagle Fire's ability to recover under the bond will
depend on whether Eagle Fire filed suit within one year of the
date that Olsen "ceased work" under the contract. In
ascertaining the meaning of the term "ceased work," the central
goal, as in interpreting contract language generally, is to give
effect to the intent of the parties to the bond. See Washington
Construction Co., Inc. v. Spinella,
8 N.J. 212, 217 (1951);
Township of Wycoff v. Sarna,
136 N.J. Super. 512, 516-517 (App.
Div. 1975).
"It has long been settled law that a surety is chargeable
only according to the strict terms of its undertaking and its
obligations cannot and should not be extended either by
implication or by construction beyond the confines of its
contract." See Monmouth Lumber Co. v. Indemnity Ins. Co. of N.
America,
21 N.J. 439, 452 (1956); Peoples National Bank of N.J.
v. Fowler,
73 N.J. 88, 101, cert. den,
434 U.S. 858, ___ S. Ct.
___, ___ L. Ed.2d ___ (l977). That rule, however, has been
modified, if the language in the construction bond is ambiguous.
In V. Petrillo & Son, Inc. v. American Const. Co.,
148 N.J.
Super. 1 (App.Div.), certif. denied,
75 N.J. 4 (1977), the court
recognized "the principles concerning the construction of surety
bonds and the policy of the law to favor materialmen and laborers
in cases of doubtful or uncertain construction of the language
contained in the surety bonds." Id. at 4-5 (citations omitted).
See also
17 Am. Jur. 2d Contractor's Bonds § 6 (1990) (citing
cases) and 13 George J. Couch, Couch on Insurance § 47:183 (2d
ed. rev. vol. 1982) ("Initially, the liability of the surety on
the contractor's bond is determined by the provisions of the
bond, and cannot be extended beyond such provisions. Although
the surety bond is to be interpreted according to its provisions,
as against a paid surety company, any ambiguity in a contractor's
bond should be liberally construed in favor of laborers and
materialmen, for whose benefit it was ostensibly executed.").
The bond between Olsen and First Indemnity incorporates the
contract by reference ("whereas, Olsen and Hassold, Inc.
Principal has by written agreement dated May 8, 1989, entered
into a contract with Owner for re-insulated structure & install
sprinkler systems. . . ."). Therefore, in ascertaining the
meaning of the bond's provisions, the bond and the contract must
be considered as one integrated document. E.g., Schlanger,
supra, 44 N.J. at 20, Amelco Window Corp., supra, 127 N.J. Super.
at 347. See also
17 Am.Jur. 2d Contractors' Bonds § 7 (observing
that "A contractor's bond should be construed in connection with,
and in the light of, [the] contract with which it was executed or
the performance of which it secures, especially where the bond
refers to the contract and makes it part of the bond. Thus, the
bond, the contract, and the specifications constitute an
integrated obligation, and are to be read together.")
To determine whether Eagle Fire filed suit within one year
to the date that Olsen "ceased work" on the project, we first
must define what "work" means in the context of the contract
between Olsen and Parkway Associates. The bond does not define
the term "work." However, the contract does provide come
guidance on this issue. The first section of the contract reads
as follows:
1. Scope of Agreement
The terms and conditions stated in this Agreement
are applicable to the procurement by the Company of
asbestos removal services and certain construction
work, which shall include Contractor's obligation to
furnish the supervision, engineering, tradesmen,
equipment, vehicles, tools, materials, identification,
packaging, labeling, transportation and disposal as
required to perform the asbestos removal services and
construction work as further defined in the applicable
drawings and specifications (the "Work") attached
hereto or referenced in the orders placed pursuant to
this Agreement. (Emphasis added).
That language supports Eagle Fire's contention that Olsen ceased its "work" on the contract after May 23, 1990. First, the Scope of Agreement section notes that "Work" is defined in the "drawings and specifications" attached to the contract and in the "Orders placed pursuant to" the contract. That is significant because a purchase order calling for Olsen to "store partitions on site in trailers" was attached to the contract as Exhibit A-1. Moreover, Parkway's bid specifications, attached to the contract as Exhibit-C, also noted the general contractor's obligation to store the partitions in the trailers well past May 23, 1990. A second basis for concluding that Olsen ceased working after May 23, 1990, is the undisputed testimony that Olsen subcontractors were working under the contract as late as July or August of 1990. That the work of the subcontractors constituted work of the general contractor gains support from the language of
the contract. As stated in the Scope of Agreement section of the
contract, Olsen's "Work" included "furnish[ing] the supervision"
of the construction work. Edward Lahaye, an Olsen vice-president, confirmed that part of Olsen's contractual duties was
to supervise the subcontractors. That conclusion is supported by
Section 34 of the contract, which discusses the "work" performed
by subcontractors and Section 36 of the contract, which discusses
Olsen's duty to supervise its subcontractors.
In today's business world, a general contractor may
determine not to undertake any physical labor on the work site
and instead contract out all of the work to subcontractors. In
that context, if "work" of the general contractor does not
include the work of its subcontractors, the general contractor
would be deemed to cease work the same day that it signed its
contract with the owner of the project (or the day that the
general contractor hired its last subcontractor). If the
subcontractors' work took longer that one year, the Bond's
limitation period would expire before the subcontractors finished
their work. That result could not be what the parties to the
bond intended.
The problems with defining "work" to exclude the work of
the subcontractor of a general contractor are demonstrated in
this case. The bond contains a provision that bars claimants
from bringing suit "before the expiration of 90 days after the
date on which the last of such claimant's work or labor was done
or performed." Thus, if one accepts First Indemnity's argument
that Olsen ceased working under the contract on September 8,
1989, then Eagle Fire, which completed the installation of the
sprinkler system in June or July of 1990, would have had at the
most ten days to bring suit. Specifically, if Eagle Fire
completed its work on June 1, 1990, then the first day that it
could have filed its complaint would have been ninety-one days
later, August 30. Eagle Fire's deadline for filing suit was
September 8, 1990, one year after Olsen allegedly ceased work.
Hence, Eagle Fire would have had only l0 days to file suit.
If Eagle Fire completed its work any time after June 10,
1990, then the ninety day period would have ended after September
8, 1990, and Eagle Fire would not have had any opportunity to
file a complaint against First Indemnity. Such a severe
restriction on Eagle Fire's ability to bring suit would be both
unreasonable and unenforceable. See Camelot Excavating Co., Inc.
v. St. Paul Fire and Marine Insurance Co.,
301 N.W.2d 275, 277,
282 (Mich. 1981). In Camelot, supra, the Michigan Supreme Court,
addressing what is a reasonable contractual provision for a time
limitation in which all claimants must bring suit, observed:
The boundaries of what is reasonable under the general
rule require that the claimant have sufficient
opportunity to investigate and file an action, that the
time not be so short as to work a practical abrogation
of the right of action, and that the action not be
barred before the loss or damage can be ascertained.
The Court added that a contractual limitation period would be
unreasonable and, therefore, unenforceable if the "provision
[had] been constructed in such way that plaintiff could not have
reasonably discovered its loss prior to the point at which the
limitation period ran." Id. at 282.
The limited case law in this area supports the conclusion
that Olsen's work included the work performed by its
subcontractors. In V. Petrillo & Son, Inc., supra, a
construction subcontractor brought an action against its general
contractor for amounts due for construction work performed on a
moderate-income housing project partially financed by the New
Jersey Housing Finance Agency. l48 N.J. Super. at 2-3. Prior to
trial, the general contractor, American Construction Co., was
declared bankrupt. Id. at 3. The defendant, St. Paul Fire and
Marine Insurance Company (St. Paul), had issued a Labor and
Materials Payment Bond, and defended on the basis that the
plaintiff had not complied with the notice requirements of the
bond and had failed to file suit in a timely manner. Ibid.
The bond contained a time limitation provision requiring the
plaintiff to institute suit against St. Paul within one year
after American "ceased work" under the contract. The bond
incorporated the construction contract by reference and the
contract defined work as "the totality of obligations imposed
upon the contractor by all contract documents." Ibid. The
evidence at trial demonstrated the following: (1) the plaintiff
last performed work on the property on August 17, 1972; (2) the
defendant, American, last performed work on the project on Oct.
4, 1972; and (3) the last work done by any subcontractor was
December 1972. Ibid. In May 1974, eighteen months after the
last subcontractor performed work, the plaintiff instituted suit.
Ibid. The contract also directed the owner of the property to
issue a certificate of final acceptance after the correction of
all construction defects. Ibid. A certificate was never issued.
Ibid.
Construing the term "ceases work" to mean "completes work,"
the trial judge found that because a certificate of final
acceptance had never been issued, the general contractor had
never ceased work within the meaning of the contract. Id. at 4.
Although rejecting the trial court's interpretation, the
Appellate Division found "the record clearly demonstrates that
American discontinued or left off performing its obligations
under the contract in December 1972, when the last subcontractor
performed construction work on the project." Id. at 5. Because
the plaintiff failed to file its complaint within one year of the
date that the last subcontractor performed, the court found that
the plaintiff's action was time barred. Id. at 7. Accord
Honeywell, Inc. v. Babcock,
412 P.2d 511, 514 (Wash.
1966)(construing limitation period in standard labor and material
bond and concluding that general contractor "ceased work" when
"his subcontractors had finished their work.").
The Petrillo decision, thus, stands for the proposition that
a general contractor does not "cease work" if the subcontractors
are still working under the contract. The plaintiff in Petrillo
failed to comply with the time limitation provision in the bond,
filing suit more than a year after the last subcontractor
performed work under the contract. We recognize that there may
be instances where, due to the general contractor's poor
financial record, the owner may hire the subcontractor to work
directly for it and pay the subcontractor directly for its work.
In that situation the subcontractor is no longer working for the
general contractor, and his work would not be deemed the work of
the general contractor. Although Parkway did pay Eagle Fire for
some additional work, Mr. Puth testified that that payment was
for additional work, not the work contemplated or done under the
Olsen and Parkway contract.
First Indemnity asserts that Ribiera & Lourenco Concrete
Construction Co., supra,
231 N.J. Super. 16 supports its argument
that the actions of subcontractors are irrelevant to the
determination of when the contractor ceased work. In that case,
a general contractor subcontracted its entire job to Green Cast
Enterprises, Inc., which, in turn, subcontracted the work to
various other companies, including the plaintiff. Ribiera, supra,
231 N.J. Super. at 19-20. The bond at issue stated that
subcontractors could bring suit against the surety only within
one year of the date that Green Cast ceased work on the project.
Id. at 2l. Finding the suit untimely, the court stated: "We are
[ ] satisfied that the one-year [limitation] period . . . ran
from the date that Green Cast ceased work on the project, not
from the date that the last subcontractor...completed its work
under the contract." Id. at 24. However, the day that Green
Cast ceased working on the project was the day that the general
contractor terminated its contract with Green Cast, relieving it
of its duties. Id. at 20.
Ribiera can be distinguished from this case. In Ribiera,
the court's refusal to look to the subcontractors' work was a
recognition that regardless of the actions of its subcontractors,
a contractor could not be said to be working on a project after
its contract had been terminated and it has been dismissed from
the work site. However, in this case, Olsen's contract was not
terminated until September 11, 1990, and Eagle Fire filed this
action on May 23, 1991, within the one year window. Furthermore,
Olsen subcontractors were working on the project after May 23,
1990, giving Eagle Fire until a date subsequent to May 23, 1991,
to file suit.
The uncontroverted evidence presented at trial indicated
that Olsen was storing metal partitions and that Olsen's
subcontractors were working under the contract as late as July or
August of l990, well past May 23, 1990. Therefore, a reasonable
jury could not conclude that Eagle Fire's suit was untimely. The
trial court erred both in its instruction to the jury and in
answer to the jury's question when it responded that "the work
done by subcontractors of Olsen and Hassold does not constitute
work done by Olsen and Hassold themselves." It also erred in
denying after the close of evidence Eagle Fire's motion for
judgment as a matter of law. See, e.g., Brill v. Guardian Life
Ins. Co. of America, l
42 N.J. 520, 54l (l995) (holding that "[t]o
send a case to trial, knowing that a rational jury can reach but
one conclusion is indeed `worthless' and will `serve no useful
purpose'"); Ferdinand v. Agricultural Ins. Co.,
22 N.J. 482, 493
(1956)(noting that issue should not be presented to jury when
reasonable minds could not come to different conclusions
regarding resolution). Furthermore, in Brill, supra, we
"encourage[d] trial courts not to refrain from granting summary
judgment when the proper circumstances present themselves." l42
N.J. at 54l. This case presents the "proper circumstances."
Eagle Fire complied with the terms of the Labor and Material
Bond and commenced suit against First Indemnity in a timely
manner. Because there is uncontroverted evidence that Olsen
continued to work on the project after May 23, 1990, Eagle Fire
is entitled to recover under the bond the amount still owed it by
Olsen for installation of the sprinkler system.
Because Eagle Fire filed suit within one year of the date
that Olsen ceased work under the contract, we do not address
whether the conduct of First Indemnity operated to equitably
estop it from asserting the time bar defense. Similarly, we do
not reach the issue whether the doctrine of Peloso v. Hartford
Fire Insurance Co.,
56 N.J. 514, 521 (1970) should be extended to
surety agreements. Peloso, supra, held that the limitation
period in a fire insurance policy, which stated that any legal
action brought under the policy must be commenced within twelve
months after the inception of the loss, was tolled from the time
the insured gave the insurer notice of its claim until liability
was formally declined.
Finally, Eagle Fire is not entitled to attorney's fees. Pursuant to R. 4:42-9(a), "no fee for legal services shall be allowed in the taxed costs or otherwise except...(6) In an action upon a liability or indemnity policy of insurance, in favor of a successful claimant." R. 4:42-9(a)(6). The question is then whether the obligation of a surety company under a labor and material payment bond constitutes "a liability or indemnity policy of insurance." The commentary following R. 4:42-9 provides that "since the stated intention of this rule was to permit an award of counsel fees only where an insurer refused to indemnify or defend in respect of its insured's third party liability to another, it should not be extended, beyond its express terms, to permit a counsel fee award to be made to an insured who brings direct suit against his insurer to enforce casualty or other direct coverage." Pressler, Current N.J. Rules Court Rules, Comment R. 4:42-9 (emphasis added).
The general rule is that parties to litigation should bear
their own legal costs. Coleman v. Fiore Bros.,
113 N.J. 594, 596
(1989). In fact, "our court rules...embrace[] the view that
sound judicial administration will best be advanced by having
each litigant bear his own counsel fee except in those few
situations specifically designated." Gerhardt v. Continental
Ins. Co.,
48 N.J. 291, 301 (1966).
The express terms of Rule 4:42-9(a)(6) state that it "only
applies when `an insurer refuses to indemnify or defend its
insured's third party liability to another' and does not
authorize an award of counsel fees to an insured `on a direct
suit against the insurer to enforce a casualty or other first-party direct coverage.'" Giri v. Medical Inter-Insurance,
251 N.J. Super. 148, 151 (App.Div. 1991)(citations omitted). The
Giri court observed that "the Supreme Court has twice rejected
recommendations by the Civil Practice Committee to amend R. 4:42-9(a)(6) to allow awards of counsel fees in a broader range of
suits brought by insureds against insurers." Ibid. The court
concluded that the committee's rejection of any attempts to
expand or broaden the rule "suggests that the rule should not be
construed expansively to apply to disputes between insurers and
insured which fall beyond its literal terms." Id. at 152.
Furthermore, in Fengya v. Fengya,
156 N.J. Super. 340 (App. Div.
1978), where a mother brought suit pursuant to a guardian's bond
in which a surety guaranteed a father's faithful protection of
his daughter's money, the Appellate Division found that R. 4:42-9(a)(6) applies to the "ordinary situation where one buys
insurance, to obtain protection against liability to third
parties and to be indemnified when called upon to pay," and "the
guardian's bond issued herein . . . neither insures against
liability nor agrees to indemnify an insured -- rather, it agrees
to pay any defalcations of the guardian. . . ." Id. at 344-46.
The court, hence, concluded that the guardian's bond was not a
liability or indemnity policy within the purview of R. 4:42-9(a)(6) and the trial court was without the power to award legal
fees. Id. at 347.
Similarly, in Middletown Township v. Cohen,
164 N.J. Super. 193 (Law Div. 1978), the court concluded that R. 4:42-9(a)(6) did
not apply in an action brought against a surety company under a
bond that guaranteed the successful completion of the
construction of a private residence. The court observed that the
rule "has been strictly construed so as to limit its application
only to true liability and indemnity insurance policies." Id. at
196. The court held that surety contracts do not fall under the
Rule's purview and denied the plaintiff's application for
attorney's fees. Ibid.
The insurance contract in this case did not constitute a
commitment by First Indemnity to pay Eagle Fire's liability to a
third party or to indemnify Eagle Fire for such liability.
Rather, the bond simply required First Indemnity to pay Eagle
Fire for its work if Olsen did not do so. Because this is not a
case where the insurer agreed to protect the insured from third-party claims, R. 4:42-9(a)(6) is inapposite. Accordingly, we
hold that given the narrow scope of R. 4:42-9(a)(6), Eagle Fire
is not entitled to legal fees.
Eagle Fire commenced suit within one year of the date that Olsen ceased work under the contract. Complying with the terms of the surety bond, Eagle Fire is entitled to judgment against First Indemnity as a matter of law. Eagle Fire is not, however, entitled to an award of attorney fees and must bear its own litigation costs. We reverse the judgment of the Appellate Division and remand the matter to the Law Division for entry of judgment consistent with this opinion.
JUSTICES HANDLER, O'HERN, STEIN and COLEMAN join in JUSTICE
GARIBALDI's opinion. JUSTICE POLLOCK filed a separate dissenting
opinion. CHIEF JUSTICE WILENTZ did not participate.
SUPREME COURT OF NEW JERSEY
A-
80 September Term 1995
EAGLE FIRE PROTECTION
CORP., a corporation of the
State of New Jersey,
Plaintiff-Appellant,
v.
FIRST INDEMNITY OF AMERICA
INSURANCE COMPANY,
Defendant-Respondent.
POLLOCK, J., dissenting.
The dispositive issue is whether plaintiff, Eagle Fire
Insurance Company (Eagle Fire), instituted this action against
defendant, First Indemnity of America Insurance Company (First
Indemnity), within the one-year period required by First
Indemnity's performance bond. First Indemnity furnished the bond
to a general contractor, Olsen & Hassold, Inc. (Olsen), to
guaranty Olsen's payment to subcontractors such as Eagle Fire.
The bond bars an action commenced one year after Olsen
ceased work. I accept the premise that Olsen's responsibilities
"included not only the furnishing of workers but also the
supervision of the tradesmen and the storing of debris." Eagle
Fire v. First Indemnity Ins., 280 N.J. Super. 430, 438 (App. Div.
1995). The jury found that Olsen ceased work before May 23,
1990. Over a year later, Eagle Fire commenced this action on May
23, 1991. A straightforward interpretation of the bond leads to
the conclusion that the action is time-barred.
To circumvent the one-year period of limitations, Eagle Fire
urges that work done by Olsen's contractors constitutes Olsen's
work for the purpose of determining the time within which Eagle
Fire may sue First Indemnity. Eagle Fire also asserts that the
presence of trailers leased by Olsen after it otherwise ceased
work likewise constitutes Olsen's work. The majority adopts both
arguments. I respectfully dissent.
In its instructions to the jury the Law Division stated that
"`I further instruct you that the work done by subcontractors of
Olsen & Hassold, does not constitute work by Olsen & Hassold
themselves and therefore the presence or absence of such
subcontractors at the site after May 23rd, 1990 is not
relevant.'" Id. at 440 (quoting trial court's instructions to
jury). The Appellate Division affirmed that instruction and
directed entry of a judgment of no cause for action in favor of
defendant. Id. at 444. I would affirm substantially for the
reasons stated by the Appellate Division.
After a general contractor has itself stopped work, I would
not impute to it the work of unsupervised subcontractors that
remain on the job. "Any work a subcontractor performs after the
original contractor's obligations have ended should not extend
contractor to which the bond relates." W. F. Haywood v. Transamerica Ins., 20 Cal Rptr.2d 468, 471-72 (Cal. Ct. App. 1993).
I likewise agree with the lower courts that after Olsen ceased work, the presence on the work site of trailers that Olsen had rented is equally irrelevant. The date on which a lessor repossesses a general contractor's trailers from a work site should not determine the time to sue under that contractor's surety bond.
I dissent.
NO. A-80 SEPTEMBER TERM 1995
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
EAGLE FIRE PROTECTION
CORP., a corporation of
the State of New Jersey,
Plaintiff-Appellant,
v.
FIRST INDEMNITY OF AMERICA
INSURANCE COMPANY,
Defendant-Respondent.
DECIDED July 22, 1996
Justice Handler PRESIDING
OPINION BY Justice Garibaldi
CONCURRING OPINION BY
DISSENTING OPINION BY Justice Pollock