Weedo v. Stone-E-Brick, Inc.

PASHMAN, J.,

dissenting.

I respectfully dissent. While the majority’s analysis of the pertinent provisions of the insurance policy is not without appeal and likely constitutes the interpretation that would be given this contract by a legal scholar well-versed in insurance law, in my opinion these provisions are clearly ambiguous from the viewpoint of the average consumer of CGL coverage. Consequently, I would hold that in the present case the carrier is liable for any sums which its insured is ultimately deemed to owe to the plaintiffs.

In Mazzilli v. Accident & Cas. Ins. Co., 35 N.J. 1 (1961), we set out certain principles applicable to the construction of all insurance policies. We there stated that:

Solution of a problem of construction of an insurance policy must be approached with a well settled doctrine in mind. If the controlling language will support two meanings, one favorable to the insurer, and the other favorable to the insured, the interpretation sustaining coverage must be applied. Courts are bound to protect the insured to the full extent that any fair interpretation will allow. * * * [D]oubts as to the existence of coverage must be resolved in favor of the insured. * * * [i]f the clause in question is one of exclusion or exception, designed to limit the protection, a strict interpretation is applied. [ 35 N.J. at 7-8 ]

*251 Moreover, because insurance contracts are contracts of adhesion, based on standard forms, couched in technical language and prepared by the insurer’s experts, they are to be construed in accordance with the reasonable expectations of the average insured. See, e. g., Perrine v. Prudential Ins. Co., 56 N.J. 120, 126 (1970); Allen v. Metropolitan Life Ins. Co., 44 N.J. 294, 305 (1965); Bauman v. Royal Indem. Co., 36 N.J. 12, 25 (1961); Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482 (1961).

The CGL policy here at issue provides that its coverage does not apply

(a) to liability assumed by the insured under any contract or agreement except an incidental contract; but this exclusion does not apply to a warranty of fitness or quality of the named insured’s products or a warranty that work performed by or on behalf of the named insured will be done in a workmanlike manner; * * * [emphasis supplied]

Thus, standing alone, this section of the policy provides that an insured’s liability for replacement of defective materials or repair of substandard work is not excluded from coverage. An insured might therefore reasonably construe this language to mean that such coverage was in fact included within the policy’s ambit. At the least, uncertainty—i. e., ambiguity—would exist as to whether he was protected against this type of loss.

The majority, in order to demonstrate the non-existence of ambiguity, points to two other sections of the insurance policy:

This insurance does not apply

(n) to property damage to the named insured’s products arising out of such products or any part of such products;

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(o) to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.

*252 Standing alone, a fair reading of these provisions would seem to negate coverage for an insured’s liability to replace defective materials or repair faulty work.

Thus, at first glance, this insurance policy appears to be internally inconsistent. Two sections negate coverage for the type of claim here being asserted against the insured. One section provides that such claims are not included in an exclusion.

As the majority notes, however, closer analysis reveals that these provisions can be harmonized. Merely because a particular item is not included in a specific exclusion, it does not necessarily follow that the item is covered under the policy. Consequently, an attorney familiar with the intricacies of insurance law and the rules of contract interpretation would likely have concluded that the CGL policy does not provide coverage in the circumstances here present.

CGL insurance, however, is not issued to lawyers. Rather, it provides coverage for those engaged in the construction or repair of improvements to real property. As such, our central inquiry must be whether this policy is ambiguous insofar as the average builder is concerned—not, as the majority emphasizes, whether a jurist who had scrutinized the contract would experience any doubts as to the policy’s ambit.

In my view, and that of the courts of at least three jurisdictions, the average builder could reasonably have construed this contract as providing coverage for expenses incurred in order to replace defective materials and repair faulty work. See, e. g., Federal Ins. Co. v. P. A. T. Homes, Inc., 113 Ariz. 136 , 547 P.2d 1050 (Sup.Ct.1976); Custom Roofing Co., Inc. v. Transamerica Ins. Co., 120 Ariz. 196 , 584 P.2d 1187 (Ct.App.1978); Fontainebleau Hotel Corp. v. United Filigree Corp., 298 So.2d 455, 459-460 (Fla.App.1974); Commercial Union Assurance Co. v. Gollan, 394 A.2d 839 (N.H.Sup.Ct.1978). Moreover, the insurer could easily have avoided this ambiguity by utilizing “more *253 precise language [which] * * * would have put the matter beyond reasonable question * * Mazzilli, supra, 35 N.J. at 7 .

Consequently, despite the logical appeal of the majority’s interpretation of this policy, I would uphold the reasonable expectations of the insured and rule that coverage exists.

For reversal—Chief Justice HUGHES and Justices MOUNTAIN, SULLIVAN, CLIFFORD, SCHREIBER and HANDLER —6.

For affirmance—Justice PASHM AN—1.