A unanimous New Jersey Supreme Court opinion has affirmed the rights of an aggrieved plaintiff to recover counsel fees incurred in prosecuting relief through a declaratory judgment; enforcing a duty to defend owed by a general liability carrier to a contractor defendant in a construction defect action.

In Occihifinto v. Olivo Constructionn, Inc., et als, the plaintiff hired a masonry contractor to perform work on an addition to plaintiff’s warehouse. Plaintiff sued the mason and the mason’s general liability carrier (Mercer) refused to defend or indemnify, instead filing a declaratory judgment action. Plaintiff aggressively prosecuted relief against the carrier in the declaratory judgment action, acting as a surrogate for the insured masonry contractor.

Although the trail court and Appellate Division ruled otherwise, the Supreme Court unanimously affirmed the aggrieved plaintiff’s entitlement to recover his counsel fees under R.4:42-9 (a) (6), which provides for an award of counsel fees in “an action upon a liability or indemnity policy of insurance in favor of a successful claimant.”

The Supreme Court determined the plaintiff was a successful claimant by vindicating his position in the declaratory judgment action; establishing the carrier’s duty to defend the mason. The award of counsel fees was allowed to stand, even though the plaintiff was unsuccessful in establishing liability in the underlying litigation.

This is not only the correct outcome, but should embolden and inspire aggrieved plaintiffs to take aggressive action in declaratory judgment actions spawned by underlying defect claim litigation. Insured defendant contractors are often disinclined to aggressively defend their position or lack the incentive and resolve of the underlying plaintiff; whose ability to recover is contingent upon gaining access to available insurance proceeds, often as the singular means to obtain relief.

This ruling is soundly based upon the express language of the rule, which provides for this remedy, consistent with the practical realities presented by these types of actions. Where the obligation to carry the burden of prosecuting what would otherwise be the insured’s rightful position to otherwise vindicate is foisted upon the underlying plaintiff, logic dictates that the court avail the plaintiff of the basic relief otherwise available to the insured.

This should give insurance carriers otherwise inclined to shirk their rightful responsibility to provide a defense or indemnity under a general liability policy in the construction defect context, to think twice before arbitrarily seeking to avoid responsibility. Given the additional consequence of exposure to counsel fees, one can only hope that insurance carriers will be more circumspect in determining when and whether to reserve their rights, or seek to deny coverage. At a minimum, this ruling should serve to level the playing field in this arena, balancing the scales decidedly in favor of an aggrieved plaintiff.

In a recent decision in Kane Builders, Inc. v. Continental Casualty Company, the United States District Court in New Jersey remanded back to state court the determination of whether Continental owed the builder defense and indemnity in connection with an underlying construction defect case which had been playing out in state court.

As is typical in these matters, the insurance carrier filed a declaratory judgment action in federal court notwithstanding the pendency of a then existing state court construction defect action instituted against Kane Builders, its insured. The underlying plaintiff asserted claims for damages for alleged defective building construction and other claims. The insured instituted claims in the state court action, also, putting in play whether Continental, its insurance carrier providing covered coverage under a general liability policy, was obligated to provide the builder with a defense and indemnity in the pending state court action.

The District Court ruled that logic dictated having the state court judge, who was overseeing the construction action, also address the coverage issues between the builder defendant and its carrier. Judicial economy was thus served by avoiding duplicative, piecemeal litigation. The District Court was unimpressed and held that the federal forum held “no special call,” under the circumstances.

We have seen it is typical in these circumstances for insurance carriers to want to litigate coverage issues in federal court, presumably because carriers see it as a more hospitable forum. As was the case here, logic dictates that coverage issues be adjudicated alongside construction defect and other underlying claims typically filed, as in this case, in the state court. This case demonstrates that federal judges are willing to remand matters back to state court under these circumstances.

It is not uncommon in construction defect “transition” litigation to have declaratory judgment actions filed by one or more defendants during the pendency of the litigation, as insurance coverage issues are of significance in these matters and carriers don’t always readily acknowledge their obligations to provide defense and indemnity, depending upon the language of the policy or policies at issue.

Defendants in these cases should not be bashful about putting coverage issues in play and we have seen that many courts are willing to also acknowledge the rights of the underlying plaintiff in these matters (often a Condominium Association) to advance coverage claims when, for example, the insured defendant builder or subcontractor is either no longer in business or lacking sufficient motivation to pursue its own carrier more aggressively.

We have argued successfully that while a judgment against a carrier during the pendency of an underlying construction defect claim can be premature, a determination as to whether coverage is afforded can and sometimes should be made while the underlying case is ongoing, assuming sufficient facts are available, or the court is in a position to make a coverage determination. The rules do not prevent this, procedurally, although insurance carriers often oppose claims by the underlying plaintiff directly against the carrier based upon case law which we have seen is sometimes not directly supportive of the positions advanced. This is an interesting issue, which tends to rear its head reasonably often in these cases.

A New Jersey appellate court recently issued a reported opinion in Hill International v. Atlantic City Board of Education, addressing whether an affidavit of merit issued by an engineer, addressing the conduct of a defendant, architect, was sufficient in order to satisfy the requirements of the affidavit of merit statute.

At issue was whether the conduct of a licensed New Jersey architect, and his licensed architectural firm, was deficient in terms of his failure to properly perform contract administration and design services, provided in connection with construction of a school. The affidavit of merit was issued by a licensed engineer, who was not a licensed architect, although the two professions do have some overlap. The court addressed whether the affidavit of merit statute, which requires an affidavit from an “appropriate licensed person” should allow this type of deviation or be construed to require a supporting affidavit of merit from a “like-licensed” professional in all malpractice or negligence cases falling within the purview of the statute.

The court held that, to support a claim of malpractice or professional negligence, the affidavit must be issued by an affiant who is licensed within the same profession as the defendant. The court did however carve out exceptions where an affidavit from such a like-licensed expert was not required – in circumstances where the plaintiff’s claims do not involve the exercise of functions within the scope of the licensed professional’s role, or where the claims are confined to theories of vicarious liability or agency that do not assert or implicate deviations from the defendant’s professional standards of care.

Continue Reading New Jersey Court Addresses Affidavit of Merit Statute in Recent Opinion

Cvetkovic vs. N.J. Water Supply Authority

It is common for contractors working on large-scale construction projects to require their subcontractors to provide a “Certificate of Insurance.” These certificates are commonly issued by insurance brokers and are intended to confirm to the prime contractor that the subcontractor maintains insurance.

In Cvetkovic vs. N.J. Water Supply Authority,  a New Jersey Appellate Court has decided, as a matter of first impression in New Jersey, that a certificate of insurance which contains a disclaimer that the certificate was issued “as a matter of information only and confers no rights upon the certificate holder” nor does it “amend, extend or alter the coverage afforded by the policies” does not establish insurance coverage for the contractor receiving the certificate.

The Court confirmed the limited weight these commonly issued certificates should be afforded, due to the expansive disclaimers included on most form certificates.

In practice, a party seeking proof of insurance, in the construction context, or otherwise, should not rely merely upon the certificate of insurance as evidence of insurance coverage. Further, if the contractor seeks coverage under the subcontractor’s policy, the contractor must require an endorsement issued by the insurance carrier showing that the certificate holder has been added to the insurance policy as an additional insured. Without this endorsement, the certificate holder is left largely unprotected, and should not draw comfort from the certificate, which alone can be of little or no value.

Thus, if a party seeks confirmation that its subcontractor has insurance coverage, the party should require an actual copy of the policy with confirmation from the insurance carrier that it is in full force and effect. If the party is seeking liability protection as an additional insured, an endorsement which so provides is required.

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