Parko Props., LLC v. Mercer Ins. Co. of N.J., DOCKET NO. A-4137-17T2

• Court: New Jersey Superior Court — Appellate Division
• Writing for the Court: OSTRER, J.A.D.
• Decision Date: 19 November 2020
• Docket Number: DOCKET NO. A-4137-17T2
• Citation: Parko Props., LLC v. Mercer Ins. Co. of N.J., DOCKET NO. A-4137-17T2 (N.J. Super. App. Div. Nov 19, 2020)
• Parties: PARKO PROPERTIES, LLC, Plaintiff-Respondent/Cross-Appellant, v. MERCER INSURANCE COMPANY OF NEW JERSEY, Defendant-Appellant/Cross-Respondent.

PARKO PROPERTIES, LLC, Plaintiff-Respondent/Cross-Appellant, v. MERCER INSURANCE COMPANY OF NEW JERSEY, Defendant-Appellant/Cross-Respondent.

DOCKET NO. A-4137-17T2

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION

Argued November 12, 2019

November 19, 2020

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although 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. 1:36-3.

Before Judges Ostrer and Vernoia.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-1746-14.

Gregory W. Boyle argued the cause for appellant/cross-respondent (Ronan, Tuzzio & Giannone, PA, attorneys; J. Elliott Stolz and Alexander S. Carmichael, on the briefs).

Mara P. Codey argued the cause for respondent/cross-appellant (Mandelbaum Salsburg, PC, attorneys; Mara P. Codey, of counsel and on the briefs; Charles S. Lorber, on the briefs).

The opinion of the court was delivered by

OSTRER, J.A.D.

This case is an insurance coverage dispute that arose in the aftermath of Superstorm Sandy. Plaintiff Parko Properties LLC (Parko) purchased insurance for its commercial retail building from defendant Mercer Insurance Company. After Sandy, the building sustained damage to the roof and its supporting wooden trusses. Parko submitted a claim to Mercer under the policy's "collapse" coverage. Mercer denied the claim, and affirmed its decision in an internal appeal. The trial court eventually granted Parko's motion to establish coverage, and Mercer then moved to have the damages submitted to appraisal as authorized by the policy. After the appraisers for each party agreed on damages, the trial court memorialized the appraisers' agreement in a consent judgment. Parko then moved to amend the judgment to award it costs, interest, and fees pursuant to Rule 4:58-2, as the consent judgment amount was more than 120 percent of the judgment Parko offered, and Mercer rejected, three years earlier. The trial court denied the motion.

Mercer appeals from the order finding coverage, and Parko cross-appeals from the denial of its motion to amend the judgment, and the dismissal of its bad faith claim.

We agree the damage to the building was a covered loss, although Mercer did not act in bad faith; but Parko should have been granted costs, interest, and fees under the offer-of-judgment rule. Therefore, we affirm in part, reverse in part, and remand for further proceedings.

I.

Parko's building — a shopping center with about 23,000 square feet of leasable area — was inspected multiple times, both before it was insured, and after Sandy.

In 2010, Parko hired an engineer to conduct a pre-purchase inspection. The report noted the inspection "should be representative of all structural items in the building." The inspector noted cracking in the building basement, but opined it did "not indicate a major structural defect." Lastly, it noted, "[s]tructurally speaking, this was a well-built building when it was first constructed and it still can be so described." The report recommended replacing the portion of the roof over the "smaller stores." The record indicates the location of the damage post-Sandy was over the larger store, Family Dollar.

In 2011, before providing insurance, Mercer also inspected the building. The "property report" noted the roof condition as "good," and the building structure as being in "good condition." The report recommended minor repairs, such as installing a handrail, filling in potholes, and installing a smoke detector in one store, but the report recommended no structural work.

Sandy came ashore in New Jersey the evening of October 29, 2012.¹ One or two days afterward, Dr. John Park, the managing member of Parko, visited the building and observed debris on the ground, power outages, broken windows, and tree branches down. Of the seven tenants inside the building, one notified Park of roof damage. Park hired Titan Engineering to inspect the property in mid-November, and the firm found "major truss damage" that required immediate attention. Titan informed Park that four of the seven trusses in the roof were broken; the roof was sagging; and cracks formed on the exterior of the building. Titan opined "that the damage to the building's roof trussesw[as] a direct result of the high winds associated with Hurricane Sandy." Titan stated that the damage to the trusses "cannot be attributed to a singular defect or observable apparent wear-tear of the trusses." Titan noted that the 2010 inspection noted no damage to the roof or trusses.

Temporary shoring was initially put in place to prevent further damage. Parko then hired Dajon Associates, a contractor, to repair the trusses, which was completed in October 2013. The barrel roof was also replaced. However, as a result of the roof damage, the tenant had to evacuate the space during repairs.

After the storm, an adjuster and an engineer for Mercer also inspected the damage, and both opined it was similar to other damage they had seen as a result of high winds from Sandy. Mercer's adjuster took photos of the damaged roof, noting that it had "caved in."

However, a few months later, the engineer issued a report stating the damage resulted from other causes. Mercer then denied Parko's claim for coverage, stating that its engineer found "the bowstring roof trusses were damaged as a consequence of their original design and decades of cyclical roof loading," and that "[t]here was evidence of initial cracks and splits in the wood members of the truss that occurred prior to Hurricane Sandy." Mercer's denialalso cited a "lack of proper building maintenance," and wear and tear over the life of the building.

Mercer's engineer maintained that the wind from Sandy did not cause the roof or trusses to fail, and the wind would have lifted the roof, not pushed it down. The engineer also noted that "metal joist hangers" had been installed to address problems with the trusses before Sandy hit.

Parko's engineer responded that there was no evidence the truss Mercer's engineer evaluated cracked before the storm. He highlighted there were no reported problems with the roof before the storm, but significant problems afterwards.

Parko asked Mercer to reconsider its denial. Mercer declined, citing the policy's collapse and wear and tear provisions. Mercer also denied Parko's internal appeal for the same reasons.

Parko then filed suit against Mercer, alleging bad faith denial of its claim, and breach of contract. Parko requested a declaratory judgment in favor of coverage. The parties engaged in extensive discovery and pre-trial motion practice.

Eventually, the court granted Mercer's motion for partial summary judgment, and dismissed Parko's bad faith claim. The trial court applied the"fairly debatable" standard our Supreme Court adopted in Pickett v. Lloyd's, 131 N.J. 457, 461 (1993), and found that as there were dueling expert reports issued before Mercer denied the claim, it was fairly debatable whether there was indeed coverage.

Shortly before trial, the court granted Parko's motion to establish that its loss fell within the policy's coverage for losses caused by collapse of the building or a structural part of the building. The court had barred Mercer from presenting evidence of the condition of the roof before it issued its policy in 2011, and concluded there was insufficient evidence to establish that wear and tear thereafter caused the loss.² The trial court then granted Mercer's motion that, as coverage had been found, damages would be decided by way of appraisal. The appraisers ultimately agreed that Parko suffered $497,000 in damages. The trial court memorialized the appraiser's determination in a judgment, with counsels' consent. Parko then moved to amend the judgment to award it litigation costs, interest and attorney's fees pursuant to the offer-of-judgment rule, based on its offer to accept a judgment of $400,000, which Mercer rejected three years earlier. The court denied the motion, citing Serico v. Rothberg, 234 N.J. 168 (2018).

Mercer appeals from the court's determination of coverage. Parko cross-appeals from the dismissal of its bad faith claim, and the denial of costs, interest and fees under the offer-of-judgment rule.

II.

A.

This appeal principally concerns interpretation of an insurance contract, which is a question of law that we review de novo. See Pickett ex rel. Estate of Pickett v. Moore's Lounge, 464 N.J. Super. 549, 554-55 (App. Div. 2020) (citing Abboud v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 450 N.J. Super. 400, 406 (App. Div. 2017)); see also Kieffer v. Best Buy, 205 N.J. 213, 222 (2011).

In interpreting an insurance policy, "[w]e are guided by general principles: 'coverage provisions are to be read broadly, exclusions are to be read narrowly, potential ambiguities must be resolved in favor of the insured, and the policy is to be read in a manner that fulfills the insured's reasonable expectations.'" Sosa v. Mass. Bay Ins. Co., 458 N.J. Super. 639, 646 (App. Div. 2019) (quoting Selective Ins. Co. of Am. v. Hudson E. Pain Mgmt. Osteopathic Med., 210 N.J.597, 605 (2012)). We turn first to the policy language, and apply its "plain, ordinary meaning." Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2001). We liberally construe the policy in the insured's favor "'to the end that coverage is afforded to the full extent that any fair interpretation will allow.'" Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 273 (2001) (internal quotation marks omitted) (quoting Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482 (1961)). "In determining whether there is ambiguity, we consider whether an average policyholder could reasonably understand the scope of coverage, and whether better drafting could put the issue beyond debate." Sosa, 458 N.J. Super. at 646.

The policy "cover[s] the collapse of a building...