Case Name: BRYAN CONSTRUCTION CO., INC., PLAINTIFF-APPELLANT, v. EMPLOYERS' SURPLUS LINES INSURANCE COMPANY, THE AETNA CASUALTY AND SURETY COMPANY, EMPLOYERS MUTUAL OF WAUSAU, ARTHUR J. O'CONNOR, JAMES J. O'CONNOR AND THOMAS A. LAFFEY, INDIVIDUALLY AND t/a O'CONNOR-LAFFEY & CO., WOHLREICH AND ANDERSON, LTD., COUNTY OF UNION, A BODY POLITIC OF THE STATE OF NEW JERSEY, JOSEPH ALLAN, INGVALD MOE, AND RELIANCE INSURANCE COMPANY (FORMERLY STANDARD ACCIDENT INSURANCE COMPANY), DEFENDANTS-RESPONDENTS
Court: New Jersey Superior Court, Appellate Division
Jurisdiction: New Jersey
Decision Date: 1971-08-26
Citations: 116 N.J. Super. 88
Docket Number: 
Parties: BRYAN CONSTRUCTION CO., INC., PLAINTIFF-APPELLANT, v. EMPLOYERS’ SURPLUS LINES INSURANCE COMPANY, THE AETNA CASUALTY AND SURETY COMPANY, EMPLOYERS MUTUAL OF WAUSAU, ARTHUR J. O’CONNOR, JAMES J. O’CONNOR AND THOMAS A. LAFFEY, INDIVIDUALLY AND t/a O’CONNOR-LAFFEY & CO., WOHLREICH AND ANDERSON, LTD., COUNTY OF UNION, A BODY POLITIC OF THE STATE OF NEW JERSEY, JOSEPH ALLAN, INGVALD MOE, AND RELIANCE INSURANCE COMPANY (FORMERLY STANDARD ACCIDENT INSURANCE COMPANY), DEFENDANTS-RESPONDENTS.
Judges: 
Reporter: New Jersey Superior Court Reports
Volume: 116
Pages: 88–105

Head Matter:
BRYAN CONSTRUCTION CO., INC., PLAINTIFF-APPELLANT, v. EMPLOYERS’ SURPLUS LINES INSURANCE COMPANY, THE AETNA CASUALTY AND SURETY COMPANY, EMPLOYERS MUTUAL OF WAUSAU, ARTHUR J. O’CONNOR, JAMES J. O’CONNOR AND THOMAS A. LAFFEY, INDIVIDUALLY AND t/a O’CONNOR-LAFFEY & CO., WOHLREICH AND ANDERSON, LTD., COUNTY OF UNION, A BODY POLITIC OF THE STATE OF NEW JERSEY, JOSEPH ALLAN, INGVALD MOE, AND RELIANCE INSURANCE COMPANY (FORMERLY STANDARD ACCIDENT INSURANCE COMPANY), DEFENDANTS-RESPONDENTS.
Superior Court of New Jersey Appellate Division
Argued November 30, 1970
Decided August 26, 1971.
Before Judges Contobd, Kolovsky and Cartoh.
Mr. Joseph J. MacDonald argued the cause for appellant (Messrs. Harrison, Hartman <& MacDonald, attorneys).
Mr. William J. Cleary, Jr. argued the cause for respondent Aetna Casualty & Surety Company (Messrs. Lamb, Blake, Hutchinson & Dunne, attorneys).
Mr. Gerald W. Conway argued the cause for respondent Employers Mutuals of Wausau (Messrs. Schreiber and Lancaster, attorneys).
Mr. Brian C. Harris argued the cause for respondent Employers’ Surplus Lines Insurance Company (Messrs. Braff, Litvak, Ertag & Wortmann, attorneys).

Opinion:
The opinion of the court was delivered by
Kolovsky, J. A. D.
Plaintiff Bryan Construction Co., Inc. (Bryan) appeals from final judgments entered in favor of defendants Employers' Surplus Lines Insurance Company (Employers'), Aetna Casualty and Insurance Company (Aetna) and Employers Mutual Liability Insurance Company of Wisconsin (impleaded as "Employers Mutuals of Wausau") (Wausau), dismissing the first, third and fourth claims for relief pleaded in the complaint.
As the trial court's opinion notes, 110 N. J. Super. 181, the motions for summary judgment resulting in the judgments appealed from involved only "the issue as to the interpretation of the three policies" issued to plaintiff Bryan by the insurance companies. "Other issues projected in the complaint [were] not involved."
The trial court concluded that the respective policies did not require the insurance companies either to provide Bryan with a defense to the action instituted against it by the County of Union or to indemnify Bryan if the county should recover a judgment against it.
The county's action against Bryan was bottomed on a written agreement dated June 7, 1963 by which Bryan agreed to erect and construct a court house annex, parking garage and juvenile detention center for the sum of $2,612,500. To insure its performance Bryan furnished a bond in that amount with Standard Accident Insurance Company (now Reliance Insurance Company) as surety.
The buildings were erected and the contract price fully paid to Bryan by the end of October 1965, However, in June 1967 the county filed a 13-count complaint in which it charged that the automobile parking garage and juvenile detention center were defectively and improperly constructed. The complaint sought damages from those allegedly responsible for the defects, viz., the county's architect, Joseph Allan, the engineer he hired, Ingvald Moe, the county's general contractor Bryan (the plaintiff herein), as well as from Standard Accident Insurance Company, the surety on Bryan's performance bond.
The three counts seeking damages from Bryan charged that:
(1) Bryan had breached its contract by reason of its failure "to erect and construct said building in accordance with [the] plans and specifications" (10th count) ;
(2) Bryan "in the construction and erection of said structures, was careless and negligent in that it did not provide sufficient quantity and quality of materials for said structure; that it failed to follow the plans and specifications; that it did not follow accepted standard building practices," and that as a result the building was in an unsafe, uninhabitable and dangerous condition with the walls cracking and the roof falling, requiring the county to expend "great sums of money to correct said faulty workmanship" (11th count), and
(3) the couniy had relied on Bryan's representation that it was qualified and skilled in the erection of buildings of the nature here involved and "was severely damaged by reason of [Bryan's] willfully erecting a structure which was unsuitable for its intended purpose, and [Bryan] was grossly negligent in erecting and constructing said structure, knowing full well that said structure would not be functional and would create a dangerous and hazardous condition [and that as] a result of [Bryan's] willful and deliberate acts, the plaintiff was caused to expend large sums of money for engineering and architectural surveys to construct and reconstruct the building and to expend other funds in order to protect said building" (12th count).
Except for the punitive damages sought by the 13th count based on the charge that Bryan had committed an intentional and willful tort, each count seeks recovery by the county of the amount required to remedy deficiencies in the buildings allegedly resulting from Bryan's failure to carry out its obligations under the contract for the construction of those buildings.
Plaintiff does not claim that the policies furnish coverage for the pleaded intentional tort. It does not dispute that property damage caused intentionally by or at the direction of the insured is expressly excluded from coverage.
Plaintiff does claim, however, that the policies require the insurance companies to indemnify it for the cost, which the county seeks to recover, of curing the defects in the build ings which it had constructed, even though those defects allegedly are attributable to its own poor workmanship or other fault.
The trial court's ruling to the contrary was based on its determinations that "Exclusion" clauses of the respective policies excluded coverage for the claims asserted against plaintiff by the County of Union — recovery of the amount required to correct the deficiencies in the parking garage and juvenile detention center. We agree with those determinations. Insofar as the Aetna and Wausau policies are concerned, we do so for the reasons set forth in the trial court's opinion reported at 110 N. J. Super. 181.
However, the ruling with respect to the Employers' policy requires additional comment. Under that policy, sometimes referred to as an "umbrella" policy, Employers' Surplus Lines Insurance Company agreed, "subject to the limits of liability, exclusions, conditions and all other terms of [the] policy,"
to indemnify [Bryan] for all sums which [it] shall be obligated to pay by reason of the liability imposed upon [it] by law or liability assumed by [it] under contract or agreement for damages, and expenses, all as included in the definition of "ultimate net loss," because of:
(a) personal injuries, as hereinafter defined;
(b) property damage, as hereinafter defined;
(c) advertising liability, as hereinafter defined.
Terms used in the insuring agreement were defined in the policy:
3. Property Damage.
The term "property damage" shall mean (a) physical injury to, or physical destruction of, tangible property, including the loss of use thereof, but excluding all other consequential damages, or
(b) injury to or destruction of property, including the loss of use thereof, caused by accident.
5. Ultimate Net Loss.
The term "ultimate net loss" shall mean the total sum which the insured, or any company as his insurer, or both, becomes legally obligated to pay as damages because of personal injury, property dam age, or advertising liability claims, either through adjudication or compromise, and shall also include [certain specified expenses].
The company shall not be liable for any expenses as aforesaid when payment of such expenses is included in other valid and collectible insurance.
The "limits of liability, exclusions and conditions" to which Employers' insuring agreement was made subject includes a requirement (Condition 15) that the insured maintain in effect the four policies of "Underlying Insurance" set forth in Item 3 of the Declarations of Employers' policy.
The significance of the requirement for maintenance of the policies of "Underlying Insurance" stems from provisions (1) limiting Employers' liability under its policy and (2) excluding particular claims from the coverage which might otherwise be afforded by the insuring agreement.
Under policy Condition 4, Employers' is liable only for "ultimate net loss" in excess of either "the applicable limits of liability of the policies of underlying insurance set forth in Item 3 of the Declarations," or if the occurrence is one not covered by such underlying insurance or is one "covered by such underlying insurance but in recoverable amounts less than the Underlying Limits set forth in Item 4 of the Declarations [$25,000.00], the amount of ultimate net loss set forth in the Declarations as 'Underlying Limits.' " "Occurrence," as used in the policy, means
(a) an accident, or (b) an event, or continuous or repeated exposure to conditions, which unexpectedly results in personal injury, property damage, or advertising liability (either alone or in any combination) during the policy period .
Subsequent provisions of Condition 4 provide for additional coverage if the policies of underlying insurance have been reduced or exhausted by reason of losses paid thereunder, and limit Employers' liability in any event to $1,000,000.
We are satisfied, as was the trial court, that the exclusionary clauses of Employers' policy excludes coverage of the claims asserted by the county against Bryan. Hence we need not deal with the question whether, were it not for the exclusions, those claims would he embraced within the insuring agreement.
Insofar as pertinent, the Exclusions of Employers' policy reads as follows:
This policy does not apply:
(a)
(b) to property damage, caused intentionally by or at the direction of the insured.
This policy does not apply, except insofar as coverage is available to the insured under the underlying policies of insurance set forth in the declarations
(c) »
(d)
(e) to claims made against the insured:
(i) for repairing or replacing any defective product or products manufactured, sold, handled or distributed by the insured or any defective part or parts thereof nor for the cost of such repair or replacement;
(ii) for the loss of use of any such defective product or products or part or parts thereof;
(iii) for improper or inadequate performance, design or specification, but nothing herein contained shall be construed to exclude claims made against the insured for personal injuries or property damage (other than property damage to a product of the insured) resulting from improper or inadequate performance, design or specification.
We need not decide whether Exclusions (e) (i) and (e) (ii) relating to claims for repairing or replacing defective products "manufactured, sold, handled, or distributed by the insured" applies to a building defectively constructed by the insured. Divergent answers have been given in the reported cases to the question whether buildings are to be deemed "products manufactured, sold, handled or distributed," within the meaning of similar exclusionary clauses. Compare Johnson v. National U. F. Ins. Co. of Pittsburgh, Pa., 56 Misc. 2d 983, 289 N. Y. S. 2d 852 (Sup. Ct. 1968), with Volf v. Ocean Accident & Guarantee Corp., 50 Cal. 2d 373, 325 P. 2d 987 (1958); Nome Indemnity Co. v. Miller, 399 F. 2d 78 (8 Cir. 1968), and Vobill Homes, Inc. v. Hartford Accident & Indemn. Co., 179 So. 2d 496 (La. Ct. App. 1965).
We are satisfied that, in any event, the claim asserted by the county against Bryan is excluded from coverage by Exclusion (e)(iii). Cf. Vobill Homes, Inc. v. Hartford Accident & Indemn. Co., supra. It is clear from the language of that paragraph that the policy does not apply to claims made against the insured Bryan "for improper or inadequate performance, design or specification" resulting in damage to Bryan's work product, the building it constructed. The plain language of the Exclusion is not rendered ambiguous by the additional language inserted to make it clear that if such improper or inadequate performance, design or specification results in personal injuries or in damage to property other than the insured's own product, then coverage is afforded the insured against the claims for such personal injuries or property damage.
Still to be considered however, is the effect, if any, on Exclusion (e) (iii) of the paragraph preceding Exclusion (c). That paragraph, applicable to Exclusions (c) to (j), inclusive, reads:
This policy does not apply, except insofar as coverage is available to the insured under the underlying policies of insurance set forth in the declarations.
By virtue of the quoted paragraph, Exclusions (c) to (j) are not effective to bar coverage under the Employers' policy in situations where such coverage is afforded to the insured by the underlying policies of insurances set forth in Item 3 of the Declarations in Employers' policy.
We turn, then, to an examination of the policies of underlying insurance to see whether, as plaintiff contends, one or more of them in fact furnish coverage against the county's claim, thus nullifying Exclusion (e) of Employers' policy.
Ttem 3 of the Declarations of Employers' policy reads as follows:
Item S. Underlying Insurance
Coverage
[ 1 ] Comprehensive General Liability including Products L. ability, Contractual Liability, Broad Form P. D. and deletion of Explosion Collapse and Underground Damage Coverage
[ 2 ] Automobile Liability
[ 3 ] Employers Liability
[ 4- added by endorsement ]—All Risk Builders Risk
Limits of Liability Personal Injury
$100,000.00 Each Person 300.000. 00 Each Occurrence 300.000. 00 Aggregate
Property Damage
$100,000.00 Each Occurrence 300.000. 00 Aggregate
Bodily Injury
$100,000.00 Each Person 300.000. 00 Aggregate
Property Damage
$100,000.00 Each Accident $100,000.00 Each Accident Full Insurance to Value.
It is undisputed that the required policies of underlying insurance were maintained in effect during the period the buildings were being constructed. The "Automobile Liability" and "Employers Liability" policies are not relevant to the issue before us; plaintiff does not contend that they furnish coverage against the county's claim.
The "Comprehensive General Liabilty" coverage was furnished in successive years by the Aetna and Wausau policies. We have already ruled, contrary to plaintiff's contention, that they did not afford coverage against the county's claim.
This leaves for consideration only the "All Risk Builders Risk" policy. It was issued by The American Insurance Company (American) in the "Provisional Amount" of $5,000,000; the actual amount of insurance in effect on any date during the course of construction was "that proportion of the provisional amount that the actual value of the described property on that date bears to the value at the date of completion but shall not in any ease esceed the provisional amount."
Named as the insured in the American policy was the "Board of Chosen Ereeholders, County of Union, New Jersey, Trustee," the policy, however, providing that "Loss, if any, to be adjusted only with the Insured and payable to the Insured and Bryan Construction Co., Inc. [and five other named contractors] as their respective interests may appear, subject nevertheless, to all the provisions and stipulations of the policy."
The policy furnished coverage, subject to various exceptions and exclusions, against direct loss by fire, lightning, windstorm, hail, explosion, riot, riot attending a strike, cviil commotion, aircraft, vehicles and smoke, as well as against "all other risks of direct physical loss."
"Builder's risk" insurance is ordinarily issued to a contractor or a property owner in order to insure him against loss occurring during the construction, repair or alteration of a building.
A builder's risk policy may be issued to cover loss resulting from any cause if the parties so agree, and hence the question whether loss resulting from a certain kind of cause, for example, faulty construction work is covered under a particular policy, depends upon the contract of insurance. Annotation, "Insurance—Builder's Risk,"
94 A. L. R. 2d 221, 228 (1964) ;
See also, Annotation, "All Risks Insurance-Coverage," 88 A. L. R. 2d 1122 (1963); Associated Engineers, Inc v. American Nat. Fire Ins. Co., 175 F. Supp. 352 (D. Cal. 1959); Teeples v. Tolson, 207 F. Supp. 212 (D. Or. 1962). Plaintiff has chosen not to take a position on the question whether American's policy furnishes coverage for the damage encompassed in the county's claim against plaintiff Bryan. In its reply brief, which incorporates a copy of American's policy, it tells us that American "and the insurance advisor for the County, apparently with the County's concurrence, have taken the position that the damage in question is not covered by the Bisk policy [and that] plaintiff reserves judgment on the point."
We must therefore assume, for the purpose of the instant ease, that American's policy does not furnish such coverage.
If it does not, then the exception contained in the above mentioned paragraph preceding Exclusion (c) is of no im port. Realistically it would make little difference in the impact on Employers if American's policy did furnish such coverage. While Exclusion (e) would not then benefit Employers, its liability under its policy would be only for that amount, if any, by which the claimed damage exceeds the limits of American's policy, limits which appear to exceed by far the amount of damage claimed by the county.
The judgments in favor of Aetna, Wausau and Employers are affirmed.