Filed Under:Agent Broker, Coverage Issues

Does rescinding insurance policy bar an injured party’s claim?

A third party has a right to be heard in a case between the insured and its insurance company over whether the policy is in effect a New Jersey court has ruled. (Photo: Shutterstock)
A third party has a right to be heard in a case between the insured and its insurance company over whether the policy is in effect a New Jersey court has ruled. (Photo: Shutterstock)

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

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

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

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

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

Everest’s policy rescinded, but Travelers’ claim ignored

On March 28, 2014, Judge Edward Coleman entered a judgment rescinding Everest’s policy on Tim Tiger Enterprises without addressing Travelers’ claim. Then, on April 8 of that year, Coleman denied Everest’s motion to dismiss Travelers’ counterclaim, saying Travelers had an independent, and not a derivative, right to be heard. Later, though, Coleman “suddenly agreed with Everest’s position that Travelers did not have an independent claim against Everest,” the appeals court said.

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

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

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

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

Charles Toutant is a reporter for the New Jersey Law Journal, a sister publication of PropertyCasualty360.com, and can be reached at ctoutant@alm.com. On Twitter: @ctoutantnjlj.

Originally published on New Jersey Law Journal. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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