A town’s insurance company can seek indemnification from acontractor over damage to its municipal building, even after thecontractor’s insurer obtained a court order rescinding its policy,the New Jersey Superior Court Appellate Division has ruled.

Travelers Property Casualty Co. of America, theinsurance company for the town of Cliffside Park, had anindependent right to seek relief against the construction company’sinsurer, no matter what occurred in litigation between theconstruction company and its insurer, the appeals court said Dec.29 in Everest Indemnity Insurance v. Tim TigerEnterprises. Everest claimed the judgment against itsinsured, Tim Tiger Enterprises, represented an adjudication of allissues in the case, but Judges Clarkson Fisher Jr., George Leoneand Francis Vernoia said “Nothing could be more absurd.”

The case stems from the October 2012 collapse of a water towerperched atop the Cliffside Park Municipal Building, which caused $2million in property damage. Travelers, which insured CliffsidePark, paid for much of the damage. A few months earlier, Tim TigerEnterprises (TTE) was contracted to replace an old tower on top ofthe building. After the tower collapsed, TTE gave notice of claimto its insurer, Everest Indemnity Insurance Co.

In October 2013, Everest sued TTE in New Jersey Superior Courtin Somerset County, seeking to rescind its policy on the basis thatthe contractor misrepresented the scope of work it performed on theproject. Everest’s suit named Travelers as a nominal defendant.

Travelers filed an answer and counterclaim, alleging thatEverest was obligated to indemnify TTE for Travelers’ reimbursementto Cliffside Park for damages attributed to the contractor. Everestthen sought entry of a default judgment against TTE.

Everest’s policy rescinded, but Travelers’ claimignored

On March 28, 2014, Judge Edward Coleman entered a judgmentrescinding Everest’s policy on Tim Tiger Enterprises withoutaddressing Travelers’ claim. Then, on April 8 of that year, Colemandenied Everest’s motion to dismiss Travelers’ counterclaim, sayingTravelers had an independent, and not a derivative, right to beheard. Later, though, Coleman “suddenly agreed with Everest’sposition that Travelers did not have an independent claim againstEverest,” the appeals court said.

On appeal, the panel said the motion judge was “right the firsttime when he recognized Travelers had an independent right to seekrelief against Everest despite whatever occurred in litigation”between Everest and TTE. The New Jersey Supreme Court has ruledthat an injured party possesses an interest in the liabilityinsurance of the person causing the harm “at the moment of injury”that cannot be foreclosed by litigation between the insured andinsurer alone, the panel said.

“This principle exists, if for no other purpose, than to protectan injured party from collusion between insurer and insured or toprevent an insurer from a windfall that might be generated by adestitute insured’s lack of further interest in the litigation,”the appeals court said.

The court reversed an order finding that the entry of defaultagainst Tim Tiger Enterprises extinguished Travelers’ claimsagainst Everest, and granted Travelers’ request to assign the caseto a different judge for proceedings that follow.

Michael Smith of Stewart Bernstiel Rebar & Smith inPrinceton, who represented Everest, had no comment. Frank Borowskyof Borowsky & Borowsky in Shrewsbury, who representedTravelers, did not respond to a call seeking comment.

Charles Toutant is a reporter for the New Jersey LawJournal, a sister publication of PropertyCasualty360.com, and canbe reached at [email protected]. On Twitter:@ctoutantnjlj.