(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).
HARVEY WICKNER, ET AL. V. AMERICAN RELIANCE INSURANCE COMPANY, ET AL. (A-112-94)
Argued February 27, 1995 -- Decided July 31, 1995
PER CURIAM
Harvey and Bonita Wickner resided at a home on Bergen Street in Harrison, New Jersey. From
May 19, 1984 to July 11, 1985, the Wickners also owned a three-family residence on Warren Street in
Harrison, which they rented. Within one month of the Wickners' conveyance of the Warren Street property,
Marina Avila allegedly tripped and fell on the sidewalk abutting the Warren Street residence, sustaining
serious injuries. Avila sued the new owners of the premise for negligent construction, maintenance, and
repair of the sidewalk. Avila also sued the Wickners, as previous owners of the property, and the builders of
the property.
The Wickners had cancelled their insurance policy on the Warren Street property after the
conveyance of title. They requested coverage from their homeowner's insurance provider, American
Reliance Insurance Co. (American Reliance), under a general liability-coverage provision included in the
policy on the Bergen Street residence. American Reliance refused to cover the claim on the basis of two
exclusionary provisions in the policy. One provision excluded coverage for bodily injury or property damage
arising out of property owned by the insured but unlisted in the policies. The other provision excluded
coverage for bodily injury or property damage arising out of business activities of the insured. Because of
American Reliance's denial of coverage, the Wickners were required to pay for their own defense in the
Avila action.
The Wickners were eventually dismissed from the Avila suit, but not until after they had incurred
$140,000 in legal expenses. The Wickners thereafter instituted suit against American Reliance, asserting that
it had wrongfully denied coverage for the occurrence alleged by Avila and had wrongfully failed to provide
them with a defense in that lawsuit. The Wickners contend that neither exclusionary provision relied on by
American Reliance applies to bar coverage because Avila's accident, which triggered the Wickners' liability,
occurred after they had sold the property.
The trial court granted the Wickners' summary judgment motion against American Reliance, finding
that American Reliance's policy covered the Wickners under the personal liability section of the policy, and
that neither exclusion was applicable.
On appeal, the Appellate Division reversed the trial court's decision and remanded the matter for
entry of judgment in favor of American Reliance. The Appellate Division concluded that the two exclusions
precluded coverage for the occurrence alleged by Avila.
The Supreme Court granted certification.
HELD: Two exclusion provisions in the American Reliance Insurance Company homeowner's policy insuring
Harvey and Bonita Wickner clearly and unambiguously bar liability coverage for the personal-injury
lawsuit against the insureds. Therefore, American Reliance did not have a duty to defend the
Wickners in that lawsuit.
1. In Cogliati v. Ecco High Frequency Corp., this Court held that a predecessor in title who had created or maintained a dangerous sidewalk condition should remain liable to the injured pedestrian regardless of the
fact that the property has been conveyed. In the context of a Cogliati claim, the exclusion provision
applicable to owned but unlisted property was clear and unambiguous. Contrary to the dissent's assertion,
the Cogliati court did not impose a duty on the predecessor in title to maintain the property free from
dangerous conditions that are created after the sale of the property. Thus, because the post-transfer duty
recognized in Cogliati arises from the predecessor in title's prior ownership, it does not introduce an
ambiguity in the exclusions in their application to the facts of this case. (pp. 4-6)
2. It is illogical and anomalous to assume that an insurance policy precluding coverage for personal injuries
or property damage arising out of property owned by an insured but unlisted in the policy could be
interpreted to cover such claims simply because the insured had sold the property and, hence, did not "own"
the property at the time of the occurrence giving rise to liability. Ownership of the premises, and the
insured's conduct as an incident of that ownership, gives rise to the potential loss. Thus, if that owned
property is not listed in the policy, it is excluded from coverage under the policy. (p. 7)
3. The Wickners contend that the unlisted premises exclusion is inapplicable to property no longer owned by
the insured unless there is an express alienation clause. An alienation clause usually provides that property
that was owned when the insurance policy went into effect but was sold or alienated during the term of the
policy will not be covered with respect to liability arising from an occurrence after the property was
alienated. This record does not support the conclusion that the reasonable expectation of the parties to an
insurance contract will have been in any way influenced by the omission of an alienated property clause from
the insurance policy. (pp. 7-8)
4. If the policy exclusions were found not to apply in this context, then insureds would be given more
insurance protection for having sold their property than would be attributable to them during the time they
owned the property. That interpretation can be neither derived from the language of the policy, reasonably
inferred from the intentions of the parties, nor imputed as their reasonable expectations. Similar reasoning
applies to the business activities exclusion. It is the insured's conduct creating the dangerous condition, not
the insured's status at the time of the occurrence, that is significant. Because the insurer should be liable
only for risks bargained for in the insurance contract, coverage for injuries arising out of business or
commercial activity should be precluded. The Wickners' ownership of the Warren Street property was
clearly a business pursuit. Thus, Avila's injury arose out of the Wickners' business activities and, thus,
constitutes conduct excluded from coverage. (pp. 8-10)
Judgment of the Appellate Division is AFFIRMED.
JUSTICE STEIN, dissenting, in which the CHIEF JUSTICE and JUSTICE O'HERN join, is of the
view that, in the context of this Court's decision in Cogliati, the two exclusions -- one for bodily injury or
property damage arising out of property owned by the insured but unlisted in the policy and the other for
bodily injury or property damage arising out business activities of the insured -- are sufficiently ambiguous to
impose on the insurer the duty to provide a defense to the suit against the Wickners arising from an injury
that occurred on the sidewalk abutting the property they formerly had owned.
JUSTICES HANDLER, POLLOCK, GARIBALDI and COLEMAN join in the per curiam opinion.
JUSTICE STEIN has filed a separate dissenting opinion in which the CHIEF JUSTICE and JUSTICE
O'HERN join.
SUPREME COURT OF NEW JERSEY
A-
112 September Term 1994
HARVEY WICKNER AND BONITA
WICKNER,
Plaintiffs-Appellants,
v.
AMERICAN RELIANCE INSURANCE
COMPANY,
Defendant-Respondent,
and
FITCHBURG MUTUAL INSURANCE
COMPANIES, JEFFREY C. SYMEONIDES
AND CRUM & FORSTER INSURANCE
COMPANIES,
Defendants.
Argued February 27, 1995 -- Decided July 31, 1995
On certification to the Superior Court,
Appellate Division, whose opinion is reported
at
273 N.J. Super. 560 (1994).
Thomas J. Giblin argued the cause for
appellants (Giblin & Lynch, attorneys; Mr.
Giblin and James J. Marchwinski, on the
briefs).
Nicholas Kierniesky argued the cause for
respondent (Jay H. Greenblatt, attorney; Mr.
Kierniesky and Mr. Greenblatt, on the brief).
PER CURIAM
Plaintiffs, Harvey and Bonita Wickner, resided at a home at
620 Bergen Street in Harrison, New Jersey. They also owned a
three-family residence at 328 Warren Street in Harrison, from
May, 19, 1984 to July 11, 1985, which they rented. Less than one
month after selling the Warren Street property, Marina Avila
allegedly tripped and fell on the sidewalk abutting the three-family residence, sustaining serious injuries. Avila sued the
new owners of the premises for negligent construction,
maintenance, and repair of the sidewalk. Avila also included the
Wickners as previous owners of the property, as well as the
builders of the property, as defendants in the suit.
The Wickners canceled their insurance policy on the Warren
Street property after the conveyance of title. They requested
coverage from their homeowners' insurance provider, defendant,
American Reliance Insurance Company (American Reliance), under a
general liability-coverage provision included in the policy on
their Bergen Street residence. American Reliance refused to
cover the liability on the basis of two exclusionary provisions
in the policy, which, respectively, excluded liability coverage
for bodily injury or property damages arising out of property
owned but unlisted in the policy and out of business activities
of the insured. The Wickners were thus forced to finance the
defense of the Avila action on their own.
The Wickners were eventually dismissed from that suit, but
not until after they had incurred $143,000 in legal expenses.
Plaintiffs thereafter instituted this action against American
Reliance, asserting that it had wrongfully denied coverage for
the occurrence alleged by Avila, and had wrongfully failed to
provide plaintiffs with a defense in that lawsuit. Plaintiffs
contend that neither exclusionary provision relied on by American
Reliance applies to bar coverage because Ms. Avila's accident,
which triggered the Wickners' liability, occurred after they had
sold the property.
The trial court granted the plaintiffs' summary judgment
motion against American Reliance, determining that American
Reliance's policy covered plaintiffs under the personal liability
section of the policy, and that neither exclusion was applicable.
It entered judgment against American Reliance for $65,453.04 for
failure to provide coverage in the Avila lawsuit and $77,855.98
for costs, counsel fees, and interest in this suit to enforce
liability coverage and for legal assistance that had been
wrongfully denied.
On appeal the Appellate Division reversed the trial court's
summary judgment and remanded the case to the Law Division for
entry of judgment in favor of American Reliance.
273 N.J. Super. 560, 572 (1994).
We now affirm the judgment of the Appellate Division
substantially for the reasons expressed in the opinion of Judge
Dreier.
The exclusionary provisions relating to unlisted premises and business activities, contained in the policy, provide that American Reliance is not liable for any loss for bodily injury or
property damage "arising out of any business activities of an
insured,"See footnote 1 or "arising out of a premises owned, rented, or
controlled by an insured, other than an insured premises."See footnote 2 The
policy defines business as, among other things, "the rental or
holding for rental of the whole or any portion of the insured
premises by the insured."
American Reliance maintained that it did not have to afford
coverage or provide defense counsel because the alleged injuries
were losses "arising out of . . . business activities of the
insured" or losses "arising out of premises owned by the insured,
other than an insured premises." The trial court, however, found
the temporal meaning of the term "owned" in the unlisted premises
exclusion was ambiguous in light of the basis for liability
imposed under this Court's holding in Cogliati v. Ecco High
Frequency Corp.,
92 N.J. 402 (1983). It also determined that the
business activities exclusion was inapplicable, reasoning that
the accident did not arise out of business activities or business
pursuits because, having already sold the property, plaintiffs
were no longer pursuing a business on the premises.
The Appellate Division rejected the reasoning that the
unlisted premises exclusion was ambiguous in the context of a
Cogliati claim. Id. at 569. Rather the court found that the
exclusion applied to property owned at the time of the incident,
as well as property owned prior to the incident, notwithstanding
the absence of an express "alienated premises" clause. Ibid.;
see Reliance Ins. Co. v. Armstrong World Indus.,
265 N.J. Super. 148, 152 (Law Div. 1993) ("The inclusion within a policy of
liability insurance of an exclusion for 'premises alienated by
the named insured' is designed to extend the exclusion to claims
by subsequent owners of property previously owned by the
insured."). We agree with the appellate court's conclusion that
the exclusion provision applicable to owned but unlisted property
was clear and unambiguous.
In Cogliati, we held that a "predecessor in title who has
created or maintained the dangerous sidewalk condition should
remain liable to the injured pedestrian irrespective of the fact
that the property has been conveyed." 92 N.J. at 412. Thus, the
liability recognized in Cogliati is one that inheres in the
predecessor in title's prior ownership of the property. Although
the prior owner might ultimately be found not to have created or
maintained the dangerous condition resulting in injury, the fact
and incidents of ownership, the ability to have controlled the
property, give rise to the cause of action. To be sure, the
negligence charged here, the creation, maintenance, and failure
to repair a dangerous condition, involves conduct that would have
occurred during the period of ownership and would reflect the
incidents of such ownership.
The dissent's conclusion that the insurance policy is
ambiguous is derived from its interpretation of the duty created
by our Cogliati decision. The dissent would read Cogliati as
imposing on a predecessor in title a continuing liability for
negligent maintenance of a sidewalk that may have occurred either
during the period of ownership or after sale. Thus, it concludes
that "[b]ecause . . . the plaintiff's alleged negligence may . .
. have occurred after the sale, the unlisted premises exclusion
does not clearly and unambiguously exclude coverage." Post at __
(slip op. at 7). The thrust of Cogliati, however, is its
recognition of a continuing responsibility for either the
creation or maintenance of a dangerous condition that occurred
during ownership and persists after the owner has sold the
property. 92 N.J. at 412. Contrary to the dissent's assertion,
the Cogliati Court did not impose a duty on the predecessor in
title to maintain the property free from dangerous conditions
that are created after sale of the property. Thus, because the
post-transfer duty recognized in Cogliati arises from the
predecessor in title's prior ownership, it does not introduce an
ambiguity in the exclusions and their application to the facts of
this case.
The unlisted premises exclusion contained in the American
Reliance policy is intended to preclude from coverage injuries or
property damage arising out of property that is owned by the
insured, but unlisted in the policy. The reason for the
exclusion is that the unlisted property and the risks associated
with it have not been included in the underwriting consideration
or the determination of the cost of the policy. Such property
can be insured either through the purchase of separate insurance
for that property or by its listing and inclusion under the
coverage of the existing policy with a commensurate premium
charge. It would be illogical and anomalous to assume that an
insurance policy precluding coverage for personal injuries or
property damage arising out of property owned by an insured but
unlisted in the policy could be interpreted to cover such claims
simply because the insured had sold the property, and hence did
not "own" the property at the time of the occurrence or accident
giving rise to liability and a claim of insurance coverage.
Although the ownership might have terminated prior to such
occurrence or accident, the ownership of the premises and the
insured's conduct as an incident of that ownership, nonetheless
gave rise to the potential loss. Thus, if that owned property is
not listed in the policy, it is excluded from coverage under the
policy.
We note further that plaintiffs rely on Hatco Corp. v. W.R.
Grace & Co.,
801 F. Supp. 1334 (D.N.J. 1992), for the proposition
that the unlisted premises exclusion does not apply to property
no longer owned by the insured in the absence of an express
alienation clause. An alienation clause deals expressly with
property that was owned when the insurance policy went into
effect but was sold or alienated during the term of the policy.
The clause usually provides that such alienated property will not
be covered with respect to liability arising from an occurrence
after the property was alienated. In Hatco, the court held that
because "insurance companies can and routinely do include
alienated premises clauses in insurance contracts, the reasonable
expectations of the parties to a[n insurance] contract that does
not contain such a provision is that the owned-property
exclusions do not bar coverage for damage that occurs on
alienated premises." Id. at 1359. The record simply does not
support the conclusion that the reasonable expectations of
parties to an insurance contract will have been in any way
influenced by the omission of an alienated property clause from
the insurance policy.
If the policy exclusions were found not to apply in this
context, than we would be providing insureds with more insurance
protection for having sold their property than would be
attributable to them during the time they owned that property.
That interpretation can be neither derived from the language of
the policy, reasonably inferred from the intentions of the
parties, nor imputed as their reasonable expectations.
Similar reasoning applies to the business activities
exclusion. The Appellate Division held that the "business
activities" exclusion of the American Reliance policy was
applicable, even though the Wickners had not been pursuing a
business at the Warren Street property at the time of the
occurrence, because the injury had occurred as a result of
plaintiffs' "fail[ure] to repair the sidewalk or disclose the
latent defects when they owned the property as a business asset."
Id. at 570. The Appellate Division reasoned that
[r]ental of this property constituted
"business" under the policy definition.
Therefore, plaintiff's alleged failure to act
occurred when the property in question was
used as a business. Under the business
activities exclusion, Avila's alleged injury
was a bodily injury "arising out of any
business activities of an insured." It is
reasonable to assume that an insured would
believe that his or her business insurance,
and not homeowners insurance, would cover
injuries arising out of such business
activities or pursuits.
We hold that the insured's conduct creating the dangerous condition, rather than the insured's status at the time of the occurrence, is of primary significance. See, e.g., Indus. Indem. Co. v. Goettl, 674 P.2d 869, 872 (Ariz. Ct. App. 1983) (holding that business pursuits exclusion pertained to former warehouse owner's liability for injuries sustained when warehouse roof fell in, injuring an employee, even though owner had sold the warehouse prior to occurrence, and stating "that the 'business pursuits' exclusion contained in Great American's homeowners policy precludes coverage for injuries arising out of a business
pursuit regardless of when the insured engaged in such
activity").
American Reliance and the Wickners contracted specifically
for homeowner insurance and coverage of specific personal risks
associated with a homeowner's activities. The inclusion in the
policy of a business activities exclusion indicates that the
policy was not intended to provide the more expansive coverage
for risks associated with business or commercial activity.
Because the insurer should be liable only for risks bargained for
in the insurance contract, coverage for injuries arising out of
business or commercial activities should be precluded.
Moreover, the Wickners' ownership of the Warren Street
property was clearly a business pursuit. Ms. Avila's complaint
alleged negligent construction, maintenance and repair of the
sidewalk, allegations that involve specific acts by the Wickners
while they had been engaged in the renting of the apartments for
profit. Significantly, Ms. Avila's claim against the Wickners
for maintaining a dangerous condition on the sidewalk abutting
their property is cognizable only because of the commercial
nature of the Wickners' ownership. See Stewart v. 104 Wallace
St., Inc.
87 N.J. 146, 157 (1981) (holding that commercial
landowners are responsible for maintaining public sidewalks
abutting their property in reasonably good condition and are
liable to pedestrians injured as a result of their failure to do
so). Thus, Ms. Avila's injury, allegedly resulting from those
acts, arose out of the Wickners' business activities, and hence,
constitutes conduct excluded from coverage.
The Appellate Division appropriately noted the quandary and apparent unfairness to the insureds in this case:
[The Wickners] were covered by insurance, procured by a broker, for their investment property and their home (along with extended liability coverage), and an umbrella policy to protect against excess recoveries. They were represented by counsel when they sold the rental property. [Yet, w]ith all of this protection, they are now saddled with over $140,000 in legal costs for a claim on which they prevailed.
Yet, as the Appellate Division stated, "[W]e cannot pound
the square peg of liability into the round hole of the American
Reliance policy." Ibid. With this affirmance, we can only
adjure the insurance industry together with insureds and their
advisors to devise an insurance-policy provision that would
provide coverage for alienated property to protect insureds
against the loss suffered here by plaintiffs.
JUSTICES HANDLER, POLLOCK, GARIBALDI and COLEMAN join in
this opinion. JUSTICE STEIN filed a separate dissenting opinion
in which the CHIEF JUSTICE and JUSTICE O'HERN join.
SUPREME COURT OF NEW JERSEY
A-
112 September Term 1994
HARVEY WICKNER and BONITA
WICKNER,
Plaintiffs-Respondents,
v.
AMERICAN RELIANCE INSURANCE
COMPANY,
Defendant-Appellant.
STEIN, J., dissenting.
In Cogliati v. Ecco High Frequency Corp.,
92 N.J. 402, 412
(1983), the Court held that a "predecessor in title who has
created or maintained [a] dangerous sidewalk condition should
remain liable to [an] injured pedestrian irrespective of the fact
that the property has been conveyed." This appeal raises
insurance issues that result from that decision. The majority
finds that two exclusionary provisions in plaintiffs' homeowner's
policy clearly and unambiguously bar coverage of a Cogliati-type
claim. In the context of our decision in Cogliati, I conclude
that those exclusions are sufficiently ambiguous to impose on the
insurer the duty to provide a defense to the suit against
plaintiffs arising from an injury that occurred on the sidewalk
abutting the property they formerly had owned.
Plaintiffs, Harvey and Bonita Wickner, owned the Warren Street property, a three-family residence, from May 10, 1984, to July 11, 1985. During their period of ownership plaintiffs rented the apartments to tenants. That property was insured under a policy written by Fitchburg Mutual Insurance Company (Fitchburg), which was in effect during the period of ownership, but was cancelled after the property was sold. Maria Avila allegedly tripped and fell on the sidewalk abutting the Warren Street property on August 5, 1985, and thereafter sued plaintiffs based on the liability imposed by Cogliati. After extensive litigation, plaintiffs eventually were voluntarily dismissed from the Avila suit. At the time of Avila's alleged fall, plaintiffs were insured under a homeowner's policy issued by defendant, American Reliance Insurance Company (American Reliance).
Plaintiffs requested that American Reliance and Fitchburg provide coverage and a defense for the Avila suit, but both companies refused. Fitchburg denied coverage because Avila's alleged fall had occurred after the policy had been cancelled. Fitchburg and its agent ultimately prevailed in a coverage action brought by plaintiffs. American Reliance denied coverage based on two exclusionary provisions in its policy. One provision excluded coverage for bodily injury or property damage arising out of property owned by the insured but unlisted in the policy; the other excluded coverage for bodily injury or property damage arising out of business activities of the insured. The trial
court awarded plaintiffs summary judgment, reasoning that
American Reliance should have provided liability coverage and a
defense for the Avila litigation because the exclusionary
provisions were ambiguous in light of Cogliati. However, because
plaintiffs had been dismissed from the Avila litigation, their
damages amounted to approximately $143,000, consisting solely of
attorney's fees and costs accumulated in defending the Avila
action and in bringing suit against American Reliance. The
Appellate Division reversed, concluding that "two clear
exclusions precluded coverage for this claim."
273 N.J. Super. 560, 572 (1994). The Court now affirms substantially for the
reasons expressed by the Appellate Division.
Because plaintiffs were dismissed from the Avila litigation,
the only issue before the Court is whether American Reliance had
a duty to defend plaintiffs.
Whether an insurer has a duty to defend an action against an insured is evaluated by comparing the allegations in the complaint with the language of the policy. Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 173 (1992); Hofing v. CNA Ins. Cos., 247 N.J. Super. 82, 88 (App. Div. 1991). The duty to defend arises if the complaint states a claim that constitutes a risk falling within the purview of the policy language. Voorhees, supra, 128 N.J. at 173; Hofing, supra, 247 N.J. Super. at 88; Danek v. Hommer, 28 N.J. Super. 68, 77 (App. Div. 1953), aff'd
o.b.,
15 N.J. 573 (1954). The duty to defend is assessed without
considering the merits of the complaint, and therefore is not
abrogated because the cause of action cannot be maintained
against the insured in law or in fact, or is groundless, false,
or fraudulent. John's Cocktail Lounge, Inc. v. North River Ins.
Co.,
235 N.J. Super. 536, 541 (App. Div. 1989); Danek, supra, 28
N.J. Super. at 77. Accordingly, the duty of an insurer to defend
is broader than its obligation to indemnify. Hofing, supra, 247
N.J. Super. at 88; Lumbermen's Mut. Casualty Co. v. United Servs.
Auto. Ass'n,
218 N.J. Super 492, 497 (App. Div. 1987); Hartford
Ins. Group v. Marson Constr. Corp.,
186 N.J. Super. 253, 257
(App. Div. 1982), certif. denied,
93 N.J. 247 (1983). Moreover,
if the allegations of a complaint are ambiguous, doubts about
coverage are resolved in favor of the insured. Voorhees, supra,
128 N.J. at 173; Central Nat'l Ins. Co. v. Utica Nat'l Ins.
Group,
232 N.J. Super. 467, 470 (App. Div. 1989).
The complaint in the Avila action alleged that prior to the
date of Avila's alleged fall plaintiffs "were the owners" of the
Warren Street property, and further alleged that plaintiffs had
"constructed, maintained and repaired the public sidewalk
[adjacent to the Warren Street property] in a negligent manner so
as to cause, permit or allow the creation of a tripping hazard."
That Avila's fall on the sidewalk abutting the Warren Street
property constitutes a covered "occurrence" under the homeowner's
policy, unless barred by an exclusion, is undisputed. As the
Appellate Division observed, "there is coverage here under the
American Reliance policy unless an exclusion applies." 273 N.J.
Super. at 566. Although the majority does not distinguish the
duty to defend from the duty to indemnify, it nevertheless finds
that the unlisted-premises exclusion and the business-activities
exclusion in the American Reliance homeowner's policy clearly and
unambiguously remove the Avila lawsuit from coverage. While an
applicable, unambiguous exclusion relieves an insurer of its
obligation to defend its insured, Salem Group v. Oliver,
128 N.J. 1, 4 (1992), the clarity of the exclusions in the American
Reliance policy must be assessed in light of the predecessor-in-title liability imposed by Cogliati, the basis of Avila's action
against plaintiffs. If the complaint asserts a "potentially-coverable occurrence," Voorhees, supra, 128 N.J. at 180, the duty
to defend is triggered.
The Court in Cogliati held:
A pedestrian who establishes that any prior
owner of the property negligently maintained
the sidewalk and that that negligence was a
proximate cause of the accident and ensuing
injuries will be entitled to recovery from
that wrongdoer. Thus the plaintiff will have
the burden of establishing that the
predecessor's negligent failure to maintain
the walk at a certain point in time was a
substantial factor in causing the subsequent
accident.
The Court overturned an earlier rule that a seller of realty had no liability for injuries resulting from a defective pubic sidewalk abutting the premises after the purchaser had taken possession, even though the seller might have been responsible
for the creation of the dangerous condition. The principle
underlying that rule was that the seller "had no right to enter
and repair the walk, for the property was no longer his." Id. at
408. The Court in Cogliati rejected that rationale, noting that
"it is unrealistic to say that after the sale the predecessor
could not have remedied the wrong, for it is extremely unlikely
that the subsequent owner would not grant permission to rebuild
or repair the sidewalk." Id. at 412. That observation can be
interpreted to impose a continuing obligation on a predecessor in
title to remedy, after the sale of the property, a defective
condition that existed during his or her ownership. Therefore,
Cogliati may be understood to impose liability for negligent
maintenance of a sidewalk both during the period of ownership and
after sale.
The unlisted-premises exclusion relied on by American Reliance states that the insurer is not liable for any loss for bodily injury or property damage "arising out of a premises owned, rented, or controlled by an insured, other than an insured premises." Pursuant to Cogliati, the Avila complaint can be read to allege negligence on the part of plaintiffs both during their ownership of the property and after its sale. The applicability of the exclusionary provision is highly questionable if the Wickners' liability arises out of negligent maintenance of the
sidewalk after the property was no longer owned or controlled by
them. That post-transfer duty arises not from ownership--the
property is no longer "owned"--but from the legal principle
adopted by this Court in Cogliati, which is based on prior
ownership. Because the occurrence took place after the premises
had been sold, and the plaintiffs' alleged negligence may also
have occurred after the sale, the unlisted-premises exclusion
does not clearly and unambiguously exclude coverage.
However, whether the complaint is viewed as alleging
negligence during ownership or after sale, the Avila lawsuit,
which relies on Cogliati liability, can generally be understood
to derive from plaintiffs' prior ownership of the Warren Street
property. The insurance industry is fully aware of the
distinction between liability arising out of current ownership
and liability arising out of prior ownership. The Appellate
Division noted that fact when it stated that resolution of this
dispute "would be simple if this policy included an 'alienated
premises' clause, i.e., an express exclusion concerning losses
arising from property previously owned by an insured." 273 N.J.
Super. at 567.
In Hatco Corp. v. W.R. Grace & Co.,
801 F. Supp. 1334
(D.N.J. 1992), the court held that "[g]iven that insurance
companies can and routinely do include alienated premises clauses
in insurance contracts . . . the reasonable expectations of the
parties to a contract that does not contain such a provision is
that the owned-property exclusions do not bar coverage for damage
that occurs on alienated property." Id. at 1359 (footnote
omitted). The Appellate Division rejected that reasoning because
it refused to "assume that insureds are familiar with specific
exclusionary language employed by the carriers, or that insureds
who have demonstrated no special expertise or sophistication in
the area of insurance law or coverage have relied upon the
absence of as esoteric a provision as an alienated property
clause." 273 N.J. Super. at 568. Similarly, the majority
reasons that the record fails to "support the conclusion that the
reasonable expectations of parties to an insurance contract will
have been in any way influenced by the omission of an alienated
property clause from the insurance policy." Ante at __ (slip op.
at 8).
In my view, the absence of that widely used clause, which
would have clearly resolved the disputed issue in this case,
provides persuasive evidence that the risks associated with the
alienated property were anticipated and assumed by American
Reliance in writing its policy. (I note that the current
Insurance Services Office (ISO) standard homeowner's policy (HO
00 03 04 91) does not contain an alienated-premises clause,
unlike other types of policies, such as, for example, the current
standard ISO commercial general liability policy (CG 00 01 10
93), which expressly excludes coverage for property damage to
alienated premises but apparently includes liability coverage for
such premises.) That significant difference in standard policy
forms persuasively suggests that although other, less
comprehensive, forms of liability policies exclude certain
coverage for alienated premises, the broader coverage afforded by
a homeowner's policy is written specifically to include that
coverage. That analysis is consistent with the principle that in
construing an insurance policy, courts consider "whether the use
by the insurer of alternative or more precise language would have
'put the matter beyond reasonable question.'" Aetna Ins. Co. v.
Weiss,
174 N.J. Super. 292, 296 (App. Div.) (quoting Mazzilli v.
Accident & Casualty Ins. Co.,
35 N.J. 1, 7 (1961)), certif.
denied,
85 N.J. 127 (1980). At the very least, the absence of an
alienated-premises clause, combined with the temporal ambiguity
implicit in the reference to "owned" premises, raises a
substantial question about whether the policy expressly affords
coverage for liability that arises out of formerly owned
property. Therefore, despite the unlisted-premises exclusion,
the complaint stated a potentially coverable occurrence
sufficient to trigger the duty to defend.
The business-activities exclusion states in part that the insurer is not liable for any loss for bodily injury or property damage "arising out of any business activities of an insured, except * * * [for] activities [that] are not undertaken in relation to business and [that] are activities otherwise covered here." In the context of Cogliati, that exclusion is subject to the same temporal ambiguity as the unlisted-premises exclusion:
Potential liability from the Avila action arose out of a prior
business activity. Because plaintiffs were not conducting a
business at the time of the occurrence, the business-activities
exclusion does not clearly and unambiguously eliminate coverage.
However, even assuming that Avila's alleged fall "arose" out
of plaintiffs' business activities, cf. Hambright v. Yglesias,
200 N.J. Super. 392, 395 (App. Div. 1985) (holding that non-owner-occupied two-family house rented to tenants was commercial
property and therefore owner was required to maintain public
sidewalk in reasonably good condition), the business-activities
exclusion might not apply because of the exception to that
exclusion for "activities [that] are not undertaken in relation
to business and [that] are activities otherwise covered here."
Although the phrasing of that exception is unorthodox, that
language apparently functions in a manner similar to the standard
and more familiar exception to the business-activities exclusion
for activities that are "ordinarily incident to nonbusiness
pursuits." "Under the homeowners policy exclusion of business
pursuits of an insured other than activities ordinarily incident
to nonbusiness pursuits, certain acts or omissions occurring
while one is generally engaged in a business pursuit are not
intended to be excluded from coverage." 7A John A. Appleman,
Insurance Law & Practice § 4501.11 (Berdal rev. ed. Supp. 1994).
In New Jersey Property Liability Guaranty Assoc. v. Brown,
174 N.J. Super. 629, certif. denied,
85 N.J. 462 (1980), the
Appellate Division adopted the following standard in interpreting
the "ordinarily incident to non-business pursuits" exception to
the business-activities exclusion:
"[The exclusionary clause] may fairly be read
as saying that, as a general proposition,
there will be no liability coverage with
respect to an insured's 'business pursuits,'
but that, as an exception to this broad rule,
coverage will be extended to liability [that]
arises, even though connected in some causal
manner with the insured's 'business
pursuits,' out of an act or omission that is
ordinarily not associated with or related to
the insured's business pursuits. In other
words, to give any meaning at all to the
excepting clause, the policy must be read to
extend coverage to certain acts [or]
omissions [that] are not, by their very
nature, tainted by being associated with an
insured's business pursuits, but [that],
nevertheless, with respect to the insured's
potential liability arising therefrom, may
have been causally related to such business
pursuits."
[Id. at 633 (quoting Gulf Ins. Co. v. Tilley,
280 F. Supp. 60, 64-65 (N.D. Ind. 1967),
aff'd,
393 F.2d 119 (7th Cir. 1968)).]
In Brown, a bail bondsman, while in his office, accidentally shot
a friend, who had paid him a social visit, with a gun possessed
for business reasons. The court found that the exception to the
exclusion provided coverage because "[s]howing a gun to a friend
in such circumstances would not be an activity ordinarily
incident" to the duties of a bail bondsman. Id. at 634. But cf.
Carroll v. Boyce,
272 N.J. Super. 384, 390-91 (App. Div. 1994)
(holding that exception to business-pursuits exclusion for
activities ordinarily incident to non-business pursuits did not
apply to insured who allegedly had negligently injured infant for
whom insured had been providing child care in her home).
Arguably, plaintiffs' alleged failure to maintain the
sidewalk, although causally related to prior business pursuits,
was not, by its "'very nature, tainted by being associated with
an insured's business pursuits,'" Brown, supra, 174 N.J. Super.
at 633 (quoting Tilley, supra, 280 F. Supp. at 64), because
Cogliati liability endures after business activities have ceased.
Although Cogliati liability is causally related to a business
activity because it applies only to commercial premises, it
places liability on a predecessor in title after he or she has
sold the property and hence has stopped conducting business at
the premises. Because that liability arises out of former
ownership of a commercial premises, it can be viewed as causally
related to business activities, while at the same time remaining
an independent obligation imposed by this Court in Cogliati that
adheres after business activities have ceased.
Many courts have struggled in attempting to interpret the
exception to the business-activities exclusion and have found its
language ambiguous. See Myrtil v. Hartford Fire Ins. Co.,
510 F.
Supp. 1198, 1202 (E.D. Pa. 1981); see also Stanley v. American
Fire & Casualty Co.,
361 So.2d 1030, 1032 (Ala. 1978) ("The
provision does not lend itself to clarity, resulting in a split
of opinion over whether it is ambiguous, with the consensus being
that it is poorly worded."); Lawrence A. Frazier, The Business-Pursuits Exclusion Revisited, 1
977 Ins. L.J. 88, 89 ("[T]he line
between what is covered and what is excluded is often difficult
to draw with precision in all situations, and frequently the
court decisions are in irreconcilable conflict."). Although the
reason for American Reliance's adoption of the "activities [that]
are not undertaken in relation to business and [that] are
activities otherwise covered here" language in place of the
traditional "ordinarily incident to nonbusiness pursuits"
language is not clear, that alternative language fails to clarify
any of the ambiguity commonly associated with the standard
clause. Moreover, I note that the insurance industry apparently
has ended its attempt to rely on the exception to the business-pursuits exclusion, and instead generally omits that provision
from a homeowner's policy. The current ISO standard homeowner's
policies have deleted the exception to the business-activities
exclusion for "'activities [that] are usual to non-business
pursuits'" in reaction to the fact that "[o]ver the years, the
language of the exception has been described variously as
'unclear' and 'ambiguous' and has been the subject of
considerable litigation." National Underwriter Co., Homeowners
Section II Exclusions, Fire Casualty & Sur. Bulletin (Jan. 1995).
Accordingly, by removing that provision, the industry apparently
believes that that "area of conflict is considerably narrowed to
the benefit of insurers and with some possible loss of protection
for insureds." National Underwriter Co., The Business Pursuits
Exclusion, Fire Casualty & Sur. Bulletin (July 1992).
In sum, even if Avila's alleged fall arose out of
plaintiffs' business activities, the business-activities
exclusion might not apply both because of its temporal ambiguity
and because of the homeowner's policy's exception to that
exclusion for "activities [that] are not undertaken in relation
to business and [that] are activities otherwise covered here."
In any event, sufficient uncertainty surrounds the meaning of
that exception to support the conclusion that the insurer's duty
to defend surely would be triggered.
Both the Appellate Division and the majority recognize the "apparent unfairness to the insureds in this case." Ante at __ (slip op. at 11). Although "[p]laintiffs had put themselves in the hands of those whom they thought were competent professionals and secured what appeared to be adequate insurance," 273 N.J. Super. at 571, they remain responsible for over $140,000 in legal costs for a claim that they successfully defended. In grappling with that "anomalous result[]," ibid., the Appellate Division noted that
[o]ne might imagine that the Fitchburg policy would have a clause to cover occurrences after the transfer [that] implicated plaintiffs' alleged acts while they were owners. It did not. Alternatively, the broker or attorney who did not advise plaintiffs to retain the Fitchburg coverage for a reasonable period following the closing might be liable.
However, at oral argument, counsel for plaintiffs noted that the insurance industry does not offer policies to cover the liability imposed by Cogliati on predecessors in title, an observation that
counsel for American Reliance did not attempt to refute. In
fact, a Fitchburg executive testified at a deposition that he did
not "think there is an insurer in the world that makes that type
of policy available, including Fitchburg."
In my view, the two exclusionary provisions, when read in
the context of Cogliati, do not clearly and unambiguously exclude
coverage. Because the Avila complaint stated a potentially
coverable claim, the duty to defend is triggered. We need not
resolve the issue whether American Reliance must indemnify for
Cogliati-type liability under the policy because plaintiffs
successfully have defended the litigation. See Salem Group,
supra, 128 N.J. at 6 ("We hold not that the insurer may
ultimately be liable under the policy, but only that it must
honor the duty to defend.").
I would reverse the judgment of the Appellate Division.
Chief Justice Wilentz and Justice O'Hern join in this opinion.
NO. A-112 SEPTEMBER TERM 1994
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
HARVEY WICKNER AND BONITA
WICKNER,
Plaintiffs-Appellants,
v.
AMERICAN RELIANCE INSURANCE
COMPANY,
Defendant-Respondent,
and
FITCHBURG MUTUAL INSURANCE
COMPANIES, et al.,
Defendants.
DECIDED July 31, 1995
Chief Justice Wilentz PRESIDING
OPINION BY Per Curiam
CONCURRING OPINION BY
DISSENTING OPINION BY Justice Stein
Footnote: 1 Exceptions to this "business activities" exclusion are:
a. activities which are not undertaken in
relation to business and which are activities
otherwise covered here;
b. those within the term business pursuits;
or
c. the part time activities of an insured who is a student under the age of 18; Footnote: 2 This exclusion "does not apply to bodily injury to a residence employee arising out of and in the course of employment by an insured."