Wickner v. American Reliance Insurance , 141 N.J. 392 ( 1995 )

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, 642 A.2d 1046 (1994).

We now affirm the judgment of the Appellate Division substantially for the reasons expressed in the opinion of Judge Dreier.

I

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,” ¹ or “arising out of a premises owned, rented, or controlled by an insured, other than an insured premises.”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, 456 A.2d 524 (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, 642 A.2d 1046. 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, 625 A.2d 601 (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, 456 A.2d 524. 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 “[because ... the plaintiffs alleged negligence may .,. have occurred after the sale, the unlisted premises exclusion does not clearly and unambiguously exclude coverage.” Post at 406, 661 A.2d at 1263. 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, 456 A.2d 524. 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 condiict 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 Hateo, 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, 642 A.2d 1046. The Appellate Division reasoned that

[riental of this property constituted “business” under the policy definition. There- ' fore, plaintiffs 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.

[Ibid.]

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, 138 Ariz. 315, 318, 674 P.2d 869, 872 (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, 432 A.2d 881 (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.

II

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.

[273 N.J.Super. at 571, 642 A.2d 1046.]

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.

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;

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."