SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO . A

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DIACO CONSTRUCTION, INC., d / b / a GRADE CONSTRUCTION,

Plaintiff

- Appellant,

v.

OHIO SECURITY INSURANCE COMPANY,

Defendant

- Respondent.

Argued December 5, 2018

- Decided August 2, 2019
Before Judges Fuentes, Accurso and Moynihan.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L

- 3485

- 16.
Francis X. Garrity argued the cause for appellant (Garrity Graham Murphy Garofalo & Flinn, attorneys; Francis X. Ga rrity, of couns el; Jane G. Glass, on the brief s ).

John T homas Coyne argued the cause for respondent (Mc Elroy Deutsch Mulvaney & Ca rpenter, LLP, attorneys; John Thomas Coyne, on the brief).

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court

. " A lthough it is posted on the internet
, this opinion is binding only on the parties in the case and its use in other cases is limited

. R

. 1:36

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PER CURIAM

Plaintiff Diaco Construction, Inc. lost an excavator in the Elizabe th River

in the course of constructing concrete head w alls and outlets for stormwater
runoff pursuant to its contract with the City of Elizabeth. A Diaco employee
was operating the excavator on the river bank when he sensed it slipping into the

river. Tryi ng to avert disaster, the operator turned the machine and tried to drive

it across the river . The effort was not a success as the excava tor got stuck three

quarters of the way across. Although nothing leaked into the river from the

wreck, the excavator w as a total loss and it cost Diaco over $300,000 to remove

it a week later following oral demand by the City and the Department of

Environmental Protection.

Defendant Ohio Security Insurance Company
, Diaco 's insurance carrier
, paid Diaco $134, 904.87 on its first

- party direct claim, consisting of $95,000 for

loss of the excavator
, and $28,750 for debris removal and to test for and contain

any fluids that might leak into the river. Diaco subsequently made a third

- party
liability claim for the co st of removal, which Ohio declined. Diaco filed this
declaratory judgment action to resolve the coverage question.

T he parties made cross

- motions for summary judgment , agreeing on the

essential facts. As relevant here, t he Ohio commercial general liabili ty (CGL)3 A

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coverage form 1 provides in the "coverages" section for bodily injury and
property damage liability :

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies.

. . .
b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"

. . . . The policy defines "property damage
, " in rele vant part, as follows:

17. "Property damage" means:

a. P hysical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the ti me of the physical injury that caused it; or

b

. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.
The policy also contains the following exclusions:

1 Ohio's polic y is written on the 2012 Insurance Services Office, Inc. (ISO) form. See Hartford Fire Ins. Co. v. California , 509 U.S. 764, 772 (1993) (describing how CGL forms are produced by the insurance industry).4 A

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This insurance does not apply to:

. . . . j. Damage to Property
"Property damage" to:

. . . . (5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage " arises out of those operations;

or
(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

. . . .

m. Damage to Impaired Property or Property Not Physically Injured
"Property damage" to "impaired property" or property that has not been physically injured, arising out of:

(1) A defect, deficiency, inadequacy or dangerous condition in "your product" or "y our work"; or5 A

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" I mpaired property" i s defined as follows:

8. "Impaired property" means tangible property, other than "your product" or "your work", that cannot be used or is less useful because:

a. It incorporates "your product" or "your work" that is known or thought to be defective, deficient, inadequate or dangerous; or

b. You have failed to fulfill the terms of a contra ct or agreement;
if such property can be restored to use by the repair, replacement, adjustment or removal of "your product" or "your work" or your fulfilling the terms of the contract or agreement.

" Y our product" and "your work " are defined
, in relevant part , as follows:

21. "Your product":

a. Means:

(1) any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:

(a) You;
(b) Others trading under your name;

or6 A

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(2) Containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products.

. . . .
22. "Your work":

a. Means:

(1) Work or operations performed by you or on your behalf; and

(2) Materials, parts or equipment furnished in connection with such work or operations.

Plaintiff asserted the Elizabeth River qualified as tangible property under
the Ohio policy
, and the presence of the excavator thus constituted "ph ysical
injury to tangible property

. " Plaintiff further contended the excavator in the

river amount ed to a trespass and interference with navigation , causing loss of

use regardless of whether anyone tried to navigate the river while the excavator

remained stuck

. Because , plaintiff asserted, " the presence of the excavator in

the river
, even temporarily, constituted ' physical injury to tangible property [,] '

. . . the costs attendant to its [ legally necessary] removal qualif ied as 'property
damage

. ' " Plain tiff claimed that because the river is "owned by the citizens of7 A

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New Jersey " the excavator " constituted damages and a trespass to this third
party, not to the City
, " plaintiff 's contracting partner , and thus the "impaired
property" exclusion did not apply. Plaintiff further asserted the "damage to
property" exclusion was also inapplicable because it "was not performing work
on the river and no one has asserted that its work was 'incorrectly performed.'"
Plaintiff argued "[t]he exclusion simply does not apply to the facts of this case,"
and Ohio did not rely on it in declining coverage.

Defendant Ohio countered that the only coverage available to plaintiff was

a first

- party claim under the inland marine section of the policy, which provided
for, among ot her things, loss of the excavator and the expense of debris removal.

Ohio contended the fact that the coverage plaintiff purchased was not sufficient
to cover the full expense of removing the excavator from the river, did not make

its removal a third

- part y liability claim under the CGL portion of the policy.
Ohio argued plaintiff could not establish "property damage" under either
the "physical injury" or "loss of use" policy definitions . First, Ohio contended
the submerged portion of the excavator did not "injure" the river any more than

the portion protruding above the waterline "injured" the surrounding air.
Second, neither the City, the State, nor anyone else alleged it suffered any
monetary damage due to " loss of use" of the river.8 A

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Ohio further argued that even if plaintiff could establish that the excavator

in the river constituted an "injury to" or "loss of use of" the river
, and thus
"property damage" under the policy, the " impaired property " exclusion bars
coverage because : a) plaintiff had a contractual obligation to remove its
construction equipment, including the excavator, from the site upon completion
of the project ; and b) upon removal, the river was restored to its original

condition.

Ohio also contended the "damage to property" exclusion (j) (5) also barred
coverage because plaintiff was "performing operations on 'that particular part'
of the river entered by the excavator" when the accident occurred

. Ohio noted
plaintiff did not dis pute that its contract with the City provided "that the Work
will occur on the site of an earthen levee, ponding/containment area and the

Elizabeth River
, " nor that it was required to construct the "ponding/containment
area" by the construction of a coffer dam in the river. Plaintiff specifically

admitted th e concrete headwalls it was constructing extended below the
waterline, requiring it "to perform work in and on the river its elf, not merely on

the banks."

Ohio contended the "da mage to property" exclusi on (j) ( 6 ) would also
apply because any "property damage" to the river caused by the presence of the9 A

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excavator requir ing "restoration" or "repair" would be as a result of plaintiff

" incorrectly perform [ing]" its work on that area. Ohio contended " [t]he
'incorrectly performed' work was the negligent operation of the excavator
, leading to its partial submersion." According to Ohio, the only reason it did not

disclaim on the basis of exclusion (j) when it initially denied coverage was that

it was not aware at that time that plaintiff's contract obligated it to perform work

in the river in addition to on the banks.
Finally, Ohio also argued that coverage was barred by the "voluntary
payments" clause of the policy which pr ohibits the insured from voluntarily
making any payment, except at its own cost, or assuming any obligation or
incurring any expense without Ohio's consent.
After hearing argument on the cross

- motions, the trial court judge issued
a comprehensive written opinion dismissing plaintiff's complai nt. After
detailing the undisputed facts, the court concluded plaintiff could not establish
"property damage" under the CGL portion of the policy.

T he judge began his analysis by reject ing plaintiff's characterization of
the City's demand for removal of the excavator as a "claim" under the policy
because the City never filed suit or even issued a written demand

. The judge
also rejected plaintiff's assertion that the excavator's presence in the river10 A

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constituted a trespas s or created an obstruction to navigation, noting "at no time
has any party suggested that due to the presence of the excavator, the use of the
river was curtailed in any way. Thus, the ' loss of use ' prong, of the 'property
damage ' definition is not satis fied."
The judge concluded plaintiff failed to satisfy the " physical injury " prong
because it could not establish any detrimental alteration of the river. See Phibro
Animal Health Corp. v. Nat'l Union Fire Ins. Co. , 446 N.J. Super. 419, 436

- 40
(App. Div. 2016) ( interpreting the same ISO definition to hold stunted growth

of broiler chickens to constitute "physical injury" based on harm to the chickens'
physical condition ). The judge found , based on the undisputed facts, that "the
river was not detrimentally altered. It s appearance, shape, color, and dimension
remained exactly the same . Once the excavator was removed, nothing was
required to repair any damage or harm to the river because no damage or harm

was done."
Although finding no coverage under the policy , the judge went on to
conclude that even if plaintiff could have establish ed property damage, the

" impaired property " and " damage to property " exclusions provided an additional

ba sis for denial of coverage. Specifically, the judge found plaintiff was
contractually obligated to remove its equipment from the job site and, upon the11 A

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excavator's removal from the river , it was immediately restored to its prior

condition , thus precluding coverage under the " i m paired property " exclusion.

The judge found the " damage to property " exclusion applied as it was undisputed
that plaintiff was performing wor k on the river itself when the excavator got

stuck and plaintiff's work was ongoing when th e accident occurred.
Plaintiff appeals, reprising the arguments he made in the Law Division.
Although we review the trial court judge's interpretation of the Ohio policy de

novo, s ee id. at 428, we find no flaw in the judge's analysis of the policy
language. Plaintiff simply c ould not establish property damage under the terms
of the CGL policy . Assuming the river constituted tangible property , the
excavator's temporary stalled presence therein inflicted no more physic al injury

on the river than the excavator would have inflicted on the ground had it broken

down along the bank and had to be towed away. As plaintiff could not establish
any loss of use of the river by anyone, it failed to establish it was entitled to

cov erage under the CGL portion of the policy. Although that determination is
dispositive of the appeal, we note our agreement with the judge's construction

of the exclusion clauses as well.12 A

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Having considered plaintiff 's arguments and reviewed the record on the

motion s , we affirm, substantially for the reasons expressed by Judge Mongiardo
in his cogent and well

- reasoned written opinion of January 22, 2018.

Affirmed.