PJR CONSTRUCTION OF NEW JERSEY INC. v. VALLEY FORGE INSURANCE COMPANY et al

Filing 22

MEMORANDUM OPINION. Signed by Judge Michael A. Shipp on 07/31/2019. (FH)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

PJR CONSTRUCTION OF NEW JERSEY, INC.,
Plaintiff,
v.
VALLEY FORGE INSURANCE COMPANY &
NATIONAL FIRE INSURANCE COMPANY OF
HARTFORD,

Civil Action No. 17-4219 (MAS) (LHG)
MEMORANDUM OPINION

Defendants.
SHIPP, District Judge
This matter comes before the Court upon Defendants Valley Forge Insurance Company
(“Valley Forge”) and National Fire Insurance Company of Hartford’s (“National Fire”)
(collectively, “Defendants”) Motion for Summary Judgment. (ECF No. 17.) Plaintiff PJR
Construction of New Jersey, Inc. (“Plaintiff” or “PJR”) opposed (ECF No. 20), and Defendants
replied (ECF No. 21). The Court has carefully considered the parties’ submissions and decides
the motion without oral argument pursuant to Local Civil Rule 78.1. For the reasons set forth
herein, Defendants’ Motion for Summary Judgment is granted.
I.

BACKGROUND 1
The instant dispute arises from Defendants’ denial of coverage under a commercial general

liability coverage policy Defendants issued to Plaintiff (the “Policy”). (See Compl. ¶¶ 3-11, ECF

1

The Court’s recitation of facts draws from Defendants’ Rule 56.1 statement (Defs.’ Statement of
Material Facts Not in Dispute (“DSUMF”), ECF No. 17-2) and Plaintiff’s Rule 56.1 statement
(Pl.’s Counterstatement of Material Facts (“PJRSUMF”), ECF No. 20-3). In accordance with
Local Civil Rule 56.1, the parties responded to their opponents’ Rule 56.1 statements. (See Pl.’s

No. 1.) Pursuant to the Policy, 2 Plaintiff sought coverage for a dispute between Plaintiff and
Cambridge Real Property, LLC (the “PJR-Cambridge Dispute”). (DSUMF ¶ 37.)
On December 7, 2011, Plaintiff and Cambridge Real Property, LLC (“Cambridge”)
executed an agreement for Plaintiff to construct a “26,250 square foot swim club[] and 3,150
square foot pavilion building” in Aberdeen Township, New Jersey (the “Project”). (DSUMF ¶ 1;
Ex. 1 at 9, ECF No. 17-4 (the “Agreement”).) 3 Plaintiff was to complete “Phase 1” of three phases
of the Project. (PJRSUMF ¶ 5.) The contract price for Plaintiff’s work was $5,194,700.
(Agreement 12.) The scope of Plaintiff’s work on the Project is identified in two Riders to the
Agreement. (Id. at 7, 9-16.)
Pursuant to the Agreement, Lisa Landers of Fabiano Designs was designated as the Initial
Decision Maker. (PJRSUMF ¶¶ 8-10; Agreement at 2, 6, 27.) The Agreement defines a “claim”
as a “demand or assertion by one of the parties seeking, as a matter of right, payment of money,
or other relief with respect to the terms of the [Agreement].” (Agreement at 54.) All claims were
referred to the Initial Decision Maker for an initial decision and the Initial Decision Maker was

Response (“PJRResp”), ECF No. 20-2; Defs.’ Response, ECF No. 21-1 (“DResp”).) While the
parties generally agree on the facts, the Court notes, as necessary, where the parties disagree.
2

The Policy consists of five individual year-long policies issued by Defendants and effective from
August 18, 2011 through August 18, 2016. (DSUMF ¶ 42; Exs. 17-21, ECF Nos. 17-20 to 17-24.)
National Fire issued three policies covering August 18, 2011 through August 18, 2014. (DSUMF
¶ 42.) Valley Forge issued two policies covering August 18, 2014 through August 12, 2016. (Id.)
Because the relevant portions of the Policy are the same in each individual policy, the Court cites
only to the policy in effect from August 18, 2011 to August 18, 2012. (Policy, Ex. 17, ECF
No. 17-20.)
3

Many of the exhibits submitted by Defendants do not contain internal pagination or the exhibit
is a combination of multiple documents with nonconsecutive pagination. Thus, when citing to the
defendants’ exhibits, the Court uses the page numbers imprinted on the documents by the CM/ECF
system. When citing to a deposition transcript, the Court uses the page numbers provided in the
transcript.
2

required to take action within ten days of the claim. (Id. at 55.) The Initial Decision Maker could
approve or deny a claim. (Id.)
Landers reviewed Plaintiff’s applications for payment for work completed on the Project.
(PJRSUMF ¶ 14.) Landers would go to the Project site and “assess where [PJR was] in terms of
construction and approve or deny the [a]pplication for [p]ayment[,]” and she also would report to
Rudy Fabiano, Principal of Fabiano Designs, whether the application for payment should be
approved or denied. (Ex. D, Lisa Landers Dep. Tr. 17:15-18:5 (“Landers Dep.”); ECF No. 20-4.)
Landers did not provide the final sign-off on Plaintiff’s applications for payments; this sign-off, or
certification, was provided by Rudy Fabiano. (Id.; PJRSUMF ¶ 15.) When an application for
payment was certified, it indicated that a representative of Fabiano Designs had observed the work
on the project; 4 the work had been completed to the extent indicated in the application; “the quality
of the workmanship and material performed to [the Agreement];” and that the “architect [knew
of] . . . . no reason why payment[] should not be made.” (Landers Dep. 20:7-25.)
Fabiano Designs provided construction administration services for the project from
December 2012 to January 14, 2014, and on February 29, 2014, Fabiano Designs informed
Plaintiff that it was no longer providing those services and could not approve applications for
payment. (PJRSUMF ¶¶ 39-40.) Landers was involved in approving payment applications
numbers 1 to 14, and Sinibaldo Fabiano was involved with and signed off on payment applications
numbers 15 through 20. (Id. ¶¶ 20-23.) After Fabiano Designs informed PJR that it could no
longer approve payment applications, Frank Ward, Principal of Cambridge, paid and approved
payment application numbers 21 to 25. (Id. ¶¶ 27, 41.)

4

Plaintiff avers that the certification indicates that the architect had “inspected” the work done on
the Project. (PJRSUMF ¶ 16(a).) Landers, however, testified that “inspection” was a technical
term and that the architect’s “construction administration responsibilities [were] observations.”
(Landers Dep. 21:12-22:3.) The Court, accordingly, uses the term “observation.”
3

Plaintiff began working on the Project on or about May 29, 2012. (DSUMF ¶ 3.) The
Agreement contained a project completion date of March 1, 2013, but due to numerous Change
Orders, the “substantial completion date” was extended 407 working days. (Id. ¶¶ 4-5.) Plaintiff
was denied access to the Project’s site on November 13, 2014. (Id. ¶ 7.) Defendants state that
Cambridge estimated that the Project was between 55% and 74.3% complete when PJR stopped
working on it. (Id. ¶ 8.) Plaintiff denies that Cambridge’s estimates are correct and states that the
Project was at least 77.9% complete. (PJRResp. ¶ 8.) Plaintiff’s 77.9% completion is based on
payment application number 26R2, which reflects a 77.9% completion rate. (PJRSUMF ¶ 32;
Ex. G, Payment Application at 4 (“26R2”) ECF No. 20-4.)
On November 25, 2014, counsel for Cambridge sent Plaintiff correspondence. (DSUMF
¶ 10; Ex. 4 (“Cambridge Termination”), ECF No. 17-7.) The correspondence indicated that the
Agreement would be terminated by Cambridge on December 2, 2014 and the termination was
pursuant to Sections 14.2.1.1; 14.2.1.2; and 14.2.1.4 of the Agreement. (Cambridge Termination.)
On the same day, Plaintiff sent Cambridge correspondence indicating that the Agreement would
be terminated pursuant to Sections 14.1.3 and 14.1.4 of the Agreement. (DSUMF ¶ 15; Ex. 5,
ECF No. 17-8.)
Cambridge hired Sweetwater Construction Company (“Sweetwater”) to complete the
Project. (DSUMF ¶ 18.) The parties disagree about the work Sweetwater had to perform to
complete the Project.

Defendants rely upon the testimony of Kenneth Eipel, a consultant

Cambridge retained; Brian Furka, a Sweetwater representative; and Cambridge’s allegations in the
PJR-Cambridge dispute to establish that certain work had to be completely redone and significant
portions of the Project were left unfinished. (Id. ¶¶ 19, 21-24.) Plaintiff denies these statements
and relies on payment application numbers 25 and 26R2 to argue that portions of the Project were

4

100% complete and other portions of the Project were over 90% complete when Plaintiff stopped
working on the Project. (PJRResp. ¶¶ 19, 21-24 (referencing PJRSUMF ¶¶ 31-33).)
On February 18, 2015, Plaintiff filed suit against Cambridge and Ward in the Superior
Court of New Jersey, Law Division, Monmouth County. (DSUMF ¶ 26; Ex. 11, Complaint, ECF
No. 17-14.) On June 12, 2015, the Honorable Joseph P. Quinn, J.S.C., dismissed without prejudice
Plaintiff’s suit against Cambridge based upon a finding that Plaintiff’s claims were subject to
arbitration pursuant to the Agreement. (Ex. 12, Order & Statement of Reasons, ECF No. 17-15.)
Via correspondence dated February 4, 2016, pursuant to the Agreement, Cambridge sent
Plaintiff’s counsel a demand for arbitration.

(See Ex. 10 at 2 (“Arbitration Demand”),

Correspondence, ECF No. 17-13.) Cambridge’s claim was for $4,078,664.87 plus attorneys’ fees
and costs. (Id. at 2.) Cambridge’s demand identified nine examples of deficient performance:
1. PJR repeatedly failed to supply enough properly skilled workers
and proper materials which led to slow progress on the job;
2. PJR failed to properly supervise subcontractors;
3. PJR tolerated shoddy workmanship on the job;
4. PJR failed to provide construction schedules;
5. PJR failed to supply sufficient substantiating data for Change
Orders or to follow agreed upon percentage fee for Change
Orders;
6. PJR failed to supply information substantiating that
subcontractors were paid properly;
7. PJR repeatedly disregarded applicable law, particularly the
requirements of OSHA to provide a safe job site;
8. PJR breached the terms of contract documents and project plans
and specifications. The most egregious example of this is the
lack of flashing throughout the entire Cambridge Club building;
and
9. There were also instances of unqualified subcontractors on the
jobsite and the project superintendent hired by PJR was
incompetent.
(Arbitration Demand 5.) Cambridge also identified ten construction defects which required
correction:
1. Lack of proper sealant;
2. Lack of proper flashing and/or improperly installed flashing;
5

3. Failure to follow manufacturers’ installation instructions;
4. Gaps in gaskets;
5. Water resistant barrier installation issues, including but not
limited to, failure to take proper steps to stop water infiltration;
6. Lack of weather protection at jams;
7. Inappropriate construction coordination and sequencing which
includes, but is not limited to, the failure to achieve a proper
building seal compromising weather tightness;
8. Incorrect application of masonry;
9. Incorrect application of storefront and curtain wall glass
systems; and
10. Incorrect installation of all handicap ramps.
(Id. at 6.) Cambridge stated that a number of contractors and consultants had observed and
inspected the Project and corroborated Cambridge’s claims while identifying specific issues with
the work PJR performed. (Id. at 6-8.) Also included in the Arbitration Demand was a compilation
of Cambridge’s asserted damages. (Id. at 9-11.)
On February 10, 2016, Plaintiff sent Cambridge’s counsel an Answer to the Arbitration
Demand, Counterclaim, and a Claim against Ward. (DSUMF ¶ 35; Ex 14 (“PJR Answer”), ECF
No. 17-17.) Via Counterclaim, Plaintiff sought $818,020.92, lost profits, costs, attorneys’ fees,
and expert fees. (PJR Answer 9.)
On April 1, 2016, Plaintiff sent correspondence seeking insurance defense and indemnity
under the Policy for the PJR-Cambridge Dispute from Defendants. (DSUMF ¶ 37; Ex. 15, ECF
No. 17-18.) In correspondence dated May 9, 2016, Defendants denied Plaintiff coverage for the
PJR-Cambridge Dispute because (1) “exclusion[s j(5) 5 and j(6) 6] will apply to bar coverage for

5

Exclusion j(5) provides that the Policy does not apply to ‘“Property Damage’ to: . . . [t]hat
particular part of real property on which your or any contractors or subcontractors working directly
or indirectly on your behalf are performing operation, if the ‘property damage’ arises out of those
operations . . . .” (Policy 16.) The Court refers to this exclusion as the “Ongoing Operations
Exclusion.”
6

Exclusion j(6) provides that the Policy does not apply to ‘“Property Damage’ to: . . . . [t]hat
particular part of any property that must be restored, repaired or replaced because ‘your work’ was
incorrectly performed on it.” (Id.) The Court refers to this exclusion as the “Business Risks
Exclusion.”
6

this claim . . . and [(2)] the subcontractor exception to the ‘your work’ exclusion does not apply as
that only applies to a completed operations claim.” (DSUMF ¶ 38; Correspondence 2, Ex. 16
(“Denial Letter 2”), ECF No. 17-19.)) Defendants further explained:
Based on the definition of the “products completed-operations
hazard” . . . , this claim does not qualify as being “completed” as all
the work called for in the contract had not been completed nor ha[s]
the project been put to its intended use. As this would be considered
an ongoing operations claim, exclusion J5 & 6 will apply to bar
coverage.
(Denial Letter 3.)
On May 18, 2017, Plaintiff initiated the instant matter by filing a complaint in New Jersey
Superior Court, Law Division, Monmouth County. (See Compl.) On June 11, 2018, Cambridge
sent PJR a list of fifteen different categories of consequential damages it was asserting in the
arbitration between PJR and Cambridge. (Compare DSUMF ¶33, with Ex. 13 (“Consequential
Damages Correspondence”), ECF No. 17-16.) On December 21, 2018, Defendants filed the
instant Motion for Summary Judgment. (Mot. for Summ. J., ECF No. 17.) On January 17, 2019,
Plaintiff opposed (Pl.’s Opp’n Br., ECF No. 20), and on January 25, 2019, Defendants replied
(Defs.’ Reply Br., ECF No. 21).
II.

LEGAL STANDARD
Summary judgment is appropriate if the record demonstrates “that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A material fact—a
fact “that might affect the outcome of the suit under the governing law[,]” Anderson, 477 U.S. at
248—raises a “genuine” dispute if “a reasonable jury could return a verdict for the nonmoving
party.” Williams v. Borough of W. Chester, 891 F.2d 458, 459 (3d Cir. 1989) (quoting Anderson,
477 U.S. at 248). To determine whether a genuine dispute of material fact exists, the Court must
consider all facts and reasonable inferences in the light most favorable to the non-movant. Curley
7

v. Klem, 298 F.3d 271, 276-77 (3d Cir. 2002). The Court will not “weigh the evidence and
determine the truth of the matter” but will determine whether a genuine dispute necessitates a
trial. Anderson, 477 U.S. at 249.
Although the moving party bears the initial burden of showing the absence of a genuine
dispute of material fact, meeting this obligation shifts the burden to the non-moving party to “set
forth specific facts showing that there is a genuine [dispute] for trial.” Anderson, 477 U.S. at 250
(internal quotation marks omitted). The Court must grant summary judgment if the non-moving
party fails to demonstrate proof beyond a “mere scintilla” of evidence that a genuine dispute of
material fact exists. Big Apple BMW, Inc. v. BMW of N. Am. Inc., 974 F.2d 1358, 1363 (3d Cir.
1992). Furthermore, “a party does not raise a genuine [dispute] of material fact by speculation and
conclusory allegations.” Dunkin’ Donuts Inc. v. Patel, 174 F. Supp. 2d 202, 209 (D.N.J. 2001).
III.

DISCUSSION
As a threshold matter, the Court notes the Erie Doctrine requires that in a matter where a

federal court sits in diversity, like the instant matter, state substantive law applies. Gasperini v.
Ctr. of Humans., Inc., 518 U.S. 415, 427 (1996); (Not. of Removal ¶ 12, ECF No. 1 (asserting that
the Court has jurisdiction pursuant to 28 U.S.C. 1332(a)(1)).) Here, New Jersey law applies and
the Court must apply New Jersey law as articulated by the New Jersey Supreme Court and the
holdings of New Jersey’s “intermediate appellate state court . . . [are datums] for ascertaining state
law which is not to be disregarded by a federal court unless it is convinced by other persuasive
data that the highest court of the state would decide otherwise.” Edwards v. HOVENSA, LLC, 497
F.3d 355, 361 (3d Cir. 2007) (quoting West v. A.T. & T. Co., 311 U.S. 223, 237 (1940)).
New Jersey courts have “long recognized [that insurance policies] must be analyzed under
the rules of simple contract law, and require [the Court] to read the document as a whole in a fair
and common sense manner . . . .” Cypress Point Condo. Ass’n, Inc. v. Adria Towers, L.L.C.
8

(“Cypress Point II”), 143 A.3d 273, 280 (N.J. 2016) (internal citations and quotation marks
omitted). When analyzing contract language, the “plain, ordinary meaning” of the terms control.
Zacarias v. Allstate Ins. Co., 775 A.2d 1262, 1264 (N.J. 2001). “In attempting to discern the
meaning of a provision in an insurance contract, the plain language is ordinarily the most direct
route.” Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 948 A.2d 1285, 1289 (N.J. 2008)
(citation omitted). “Courts enforce contracts ‘based on the intent of the parties, the express terms
of the contract, surrounding circumstances and the underlying purpose of the contract.’”
Manahawkin Convalescent v. O’Neill, 85 A.3d 947, 958 (N.J. 2014) (citations omitted). “[W]hen
‘the language of a contract is plain and capable of legal construction,’” however, “the language
alone must determine the agreement’s force and effect.” Cypress Point II, 143 A.3d at 280
(quoting Manahawkin, 85 A.3d at 958-59) (internal quote marks omitted). Accordingly, “[w]hen
the terms of an insurance contract are clear, it is the function of a court to enforce it as written and
not to make a better contract for either of the parties.” Id. (quoting Kampf v. Franklin Life Ins.
Co., 161 A.2d 717, 720 (1960); Flomerfelt v. Cardiello, 997 A.2d 991, 996 (N.J. 2010).
An insurance policy may be ambiguous when the “phrasing of the policy is so confusing
that the average policyholder cannot make out the boundaries of coverage.” Lee v. Gen. Accident
Ins. Co., 767 A.2d 985, 987 (N.J. Super. Ct. App. Div. 2001) (citation omitted). “When the
provision at issue is subject to more than one reasonable interpretation, it is ambiguous, and the
‘court may look to extrinsic evidence as an aid to interpretation.’” Templo Fuente de Vida Corp.
v. Nat’l Union Fire Ins. Co. of Pittsburgh, 129 A.3d 1069, 1075 (N.J. 2016) (quoting Chubb
Custom, 948 A.2d at 1289).
“As to insurance contracts specifically, ‘the general rule of construction [is] that if the
controlling language of a policy will support two meanings, one favorable to the insurer and the
other to the insured, the interpretation favoring coverage should be applied.’” Cypress Point II,
9

143 A.3d at 280 (alteration in original) (quoting Butler v. Bonner & Barnewell, Inc., 267 A.2d 527,
532 (N.J. 1970)). “Moreover, ‘[w]hile specific words may not be ambiguous, the context in which
they are used may create an ambiguity. The court’s responsibility is to give effect to the whole
policy, not just one part of it.’” Id. at 280. (citation omitted). Courts, where tasked with
interpreting what an insurance policy encompasses, turn to the definitions within that policy. See
Evora v. Reciprocal Mgmt. Corp., No. 4287-03, 2005 WL 3310013, at *2 (N.J. Super. Ct. App.
Div. Dec. 8, 2005) (examining the definitions within an insurance policy to determine liability).
“When an insurance carrier puts in issue its coverage of a loss under a contract of insurance
by relying on an exclusionary clause, it bears a substantial burden of demonstrating that the loss
falls outside the scope of coverage.” United Rental Equip. Co. v. Aetna Life & Cas. Inc., 376 A.2d
1183, 1187 (N.J. 1977). In addition to the general insurance contract principles set forth above,
courts must be mindful when considering policy exclusions that:
[E]ach exclusion is meant to be read with the insuring agreement,
independently of every other exclusion. The exclusions should be
read seriatim, not cumulatively. If any one exclusion applies there
should be no coverage, regardless of inferences that might be argued
on the basis of exceptions or qualifications contained in other
exclusions. There is no instance in which an exclusion can properly
be regarded as inconsistent with another exclusion, since they bear
no relationship with one another.
Weedo v. Stone-E-Brick, Inc., 405 A.2d 788, 795 (N.J. 1979). Thus, courts construe exclusionary
clauses strictly against the insurer, understanding “that the insured is entitled to protection to the
full extent that any reasonable interpretation of them will permit.” Sealed Air Corp. v. Royal
Indem. Co., 961 A.2d 1195, 1204 (N.J. Super. Ct. App. Div.) (citation omitted), certif. denied, 960
A.2d 396 (N.J. 2008).
Courts usually employee a three-step analysis to resolve disputes like the instant one. See
Cypress Point II, 143 A.3d 285-86. First, the Court must examine the facts of the insured’s claims

10

“to ascertain whether the polic[y] provide[s] an initial grant of coverage.” Id. If the policy grants
coverage, the Court must “consider[] whether any of the polic[y’s] exclusions preclude coverage.”
Id. at 286. If an exclusion applies, the Court must “determine whether an exception to a pertinent
exclusion applies to restore coverage.” Id.
As explained below, the Court concludes that if the Policy does provide coverage for the
PJR-Cambridge Dispute, the Ongoing Operations Exclusion precludes coverage. The Court,
therefore, bypasses the first step and addresses Defendants’ primary argument. Thus, in the
analysis below, the Court assumes that the Policy provides an initial grant of coverage.
A.

The Ongoing Operations Exclusion

Defendants argue that two exclusions bar coverage for Plaintiff for the PJR-Cambridge
Dispute. (See Defs.’ Moving Br. 14-16, ECF No. 17-1.) Specifically, Defendants assert that the
Ongoing Operations Exclusion bars coverage because “when PJR was terminated from the Project
in November 2014, it was still in the process of performing work at the Project and that
Cambridge’s alleged damages occurred while PJR’s work operations were ongoing.” (Id. at 15.)
Defendants insist that the Business Risk Exclusion bars coverage because “the sole basis
for . . . Cambridge’s claim against PJR is that PJR’s work needed to be ‘restored, repaired, or
replaced’, since it ‘was incorrectly performed.”’ (Id. at 15.) Citing to Weedo, and Atlantic Mutual
Insurance Co. v. Hillside Bottling Co., 903 A.2d 513 (N.J. Super. Ct. App. Div. 2006), Defendants
aver that general liability policies, like the one at issue here, are not performance bonds and do not
provide coverage for customers who are unsatisfied with the policy holders’ work. (See id. at
15-16.)
Plaintiff opposes, arguing that coverage for the PJR-Cambridge Dispute is required under
the Policy and there are disputed issues of fact and law precluding the Court from granting
Defendants’ motion. (Pl.’s Opp’n Br. 1, ECF No. 20-1.) Plaintiff insist that Defendants have
11

taken the position that the New Jersey Superior Court, Appellate Division (the “Appellate
Division”), and New Jersey Supreme Court, respectively, rejected in Cypress Point Condominium
Association, Inc. v. Adria Towers, LLC (“Cypress Point I”), 118 A.3d 1080, 1082 (N.J. Super. Ct.
App. Div. 2015), and Cypress Point II. Plaintiff states that in Cypress Point II, the New Jersey
Supreme Court held that (1) the claims against the insured constituted both an “occurrence” and
“property damage” under the terms of the policy and (2) the claims were covered under the policy
because they “arose out of faulty workmanship performed by sub-contractors . . . .” (Id. at 9-14.)
Plaintiff criticizes Defendants’ reliance on Weedo as inapposite because Weedo interprets the terms
of a 1973 policy as opposed to the 1986 policy interpreted in Cypress Point I and II, and present
in the instant matter. (Id. at 14.) Plaintiff asserts that while Defendants repeatedly highlight that
the Project was not complete, “the amount of completion does not matter because” the Ongoing
Operations Exclusion and Business Risk Exclusion do not apply because of the Subcontractor
Exception. 7 (Id. at 15.)
In Ohio Casualty Insurance Co. v. Island Pool & Spa, Inc., the Appellate Division
considered an exclusion verbatim to the Ongoing Operations Exclusion in the Policy. 12 A.3d
719, 725 (N.J. Super. Ct. App. Div. 2011). The defendant in Ohio Casualty was hired to repaint a
residential swimming pool. Id. at 721. To paint the pool, the defendant drained the pool and
installed a pump to prevent water under the pool from applying pressure to the underside of the
pool. Id. The pump failed during a rainstorm, and the pool was forced out of the ground and
cracked. Id. The defendant replaced the pool and provided new decking and landscaping. Id.

7

The Policy includes an exclusion providing that the Policy does not apply to “‘Property Damage’
to ‘your work’ arising out of it and included in the ‘products-completed operations hazard.’”
(Policy 16.) The Subcontractor Exception is an exception to this exclusion and provides “[t]his
exclusion does not apply if the damaged work or the work out of which the damage arises was
performed on your behalf by a subcontractor.” (Id.)
12

The defendant submitted the expenses for (1) the replacement of the pool, (2) the new decking,
and (3) the landscaping to its insurer as a claim under its policy. Id. Citing to the j(5) and j(6)
exclusions in the applicable policy, the insurer denied coverage for the claim as related to the
replacement of the pool and granted coverage for the portion of the claim related to the new
decking and landscaping. Id. The insurer brought suit seeking to collect unpaid insurance
premiums, and the defendant asserted a counterclaim for coverage under the policy for the portion
of the claim related to the pool. Id. at 720.
The insurer moved for summary judgment relying on the j(5) exclusion, which is the same
language as the Ongoing Operations Exclusion, and the defendant cross-moved seeking a
declaration that the insurer was required to provide coverage pursuant to the policy. Id. at 721-23.
The New Jersey Superior Court, Law Division, granted the defendant’s motion finding the
insurer’s position of granting coverage for the decking and landscaping was inconsistent with the
denial of coverage for the pool replacement costs. Id. at 722. The Appellate Division disagreed
and reversed the grant of defendant’s motion. Id. at 728.
The Appellate Division found the damage to the pool occurred while the defendant was
performing operations and the damage was a result of those operations. Id. at 725. The plaintiff,
accordingly, was entitled to deny coverage pursuant to the j(5) exclusion. Id. at 728. The
Appellate Division observed that “no New Jersey court has had occasion to interpret” the j(5)
exclusion. Id. at 725. After considering the views of other jurisdictions, the Appellate Division
held that the j(5) exclusion applies when: (1) the “claim [is] for damage to ‘real property’”, (2)
“the insured, or someone working on behalf of the insured, [was] performing operations on ‘that
particular part’ of the property that was damaged,” and (3) “the damage occur[red] while the
operations were being performed.” Id. at 728.

13

Here, the Policy does not define “real property.”

(See Policy 23-27.)

The Court,

accordingly, must look to the ordinary meaning of the term. See President v. Jenkins, 853 A.2d
247, 256 (N.J. 2004) (relying on the ordinary meaning of the term “retroactive date” because the
insurance policy did not define the term). Black’s Law Dictionary defines “real property” as
“[l]and and anything growing on, attached to, or erected on it, excluding anything that may be
severed without injury to the land.” Property, Black’s Law Dictionary (11th ed. 2019). Black’s
Law Dictionary further explains that “[r]eal property can be either corporeal (soil and buildings)
or incorporeal (easements).” Id. In this matter, the damages Cambridge complains of are damages
to the structure PJR was contracted to build. (See generally Arbitration Demand; Consequential
Damages Correspondence.) Because the definition of real property includes anything erected upon
the land, the Court concludes that the claims PJR seeks coverage for are damages to real property.
In Ohio Casualty, the Appellate Division distinguished between the “particular part” of the
real property the defendant was working on, the pool, and other parts of the real property where
the defendant was not performing operations, the decking and the landscaping. Ohio Cas., 12 A.3d
at 728. The Appellate Division’s analysis was aided by the fact that the defendant was hired to
repaint the pool and the defendant’s work did not involve the decking or the landscaping. Id. at
721.
Here, the Court’s analysis is more nuanced because Phase 1 of the Project appears to be
divisible into subparts, some of which were completed and others which were not. Indeed, Plaintiff
contends, and Defendants admit, that applications for payment 25 and 26R2 show that “most of
the major items in the building were 100% completed including the concrete masonry, the steel
structure and windows with the aluminum and glass . . . and almost all of the [C]hange [O]rders
[were] 100% complete.” (PJRSUMF ¶ 33.) As one commentator has explained, “[t]he phrase
‘that part of real property’ is not defined in [policies like the Policy in the instant matter] and has
14

been subject to differing interpretations by courts faced with the issue.” Martha A. Kersey, New
Appleman on Insurance Law Library Edition, § 18.03(2)(h)(iv); see also Ohio Cas., 12 A.3d at
727-28 (discussing New Appleman on Insurance Law.). “In making that determination, courts
consider: (1) the scope of the insured’s work; (2) where the insured was actually working when
the damage occurred; and (3) what the insured was doing in relation to the property.” Id.
Here, the Court concludes that the operative definition of “that particular part of the real
property” is the Project as a whole. PJR was hired to construct a “26,250 square foot clubhouse
building and 3,150 square foot pavilion building,” and the scope of Plaintiff’s work was outlined
in the Agreement and the attachments thereto. Although Plaintiff may have completed some
portions of the Project, the fact remains that other portions of the Project were incomplete at time
the subject damage to Cambridge occurred. Simply put, PJR was hired to construct a building and
at the time the damage occurred, Plaintiff was still attempting to complete that building.
Cambridge does not complain of damage to other parts of the worksite that PJR was not responsible
for. Rather, Cambridge complains of the work PJR did on the Project and damage resulting from
PJR’s work. The Court, accordingly, finds PJR was still performing work on that particular part
of the property that was damaged.
The Court’s finding accords with the Appellate Division’s conclusions in New
Jersey-American Water Co. v. Watchung Square Associates, LLC, No. 3436-13T1, 2016 WL
3766248 (N.J. Super. Ct. App. Div. July 15, 2016). In Watchung Square, a contractor was hired
to excavate an entire worksite for a shopping center and, in a separate contract, hired to relocate a
water main on the same worksite. Watchung Square, 2016 WL 3766248, at *9. Throughout the
project there were multiple slope failures, one of which impacted the contractor’s work related to
the water main relocation. Id. at *1. Before the Appellate Division, the contractor argued the
Superior Court judge erred by finding that an exclusion like the Ongoing Operations Exclusion
15

applied because the worksite should not “be viewed as one undifferentiated worksite at which [the
contractor] was working, rather than as discrete contracts and discrete properties and areas.” Id.
at *9. The contractor also argued that it “was not sued for damage to the same property it was
working on . . . .” Id.
The Appellate Division rejected the contractor’s arguments. Id. at *10. The Appellate
Division noted that the contractor did not deny the Superior Court’s statement that the contractor
“was doing all of the excavation work on this particular property . . . .” Id. The Appellate Division
reasoned that the applicable insurance policy was not limited to work related to the water main,
instead the policy insured the contractor “for all of its work.” Id.
In the instant matter, PJR was the only contractor hired by Cambridge to complete Phase
1 of the Project, except for Sweetwater when PJR was no longer working on the Project. Moreover,
as in Watchung Square, the insurance policy at issue covers all of PJR’s work, not a specific
subpart of Phase 1 of the Project.
The Court finds the damages occurred while operations were being performed. Plaintiff
admits it was still working on the Project as of November 2014 when it was denied access to the
site. (DSUMF ¶ 6-7; PJRResp. ¶¶6-7.) Plaintiff also admits the damages Cambridge complains
of are damages that occurred while Plaintiff was working on the Project. (DSUMF. ¶¶ 28, 32-34;
PJRResp. ¶¶ 28, 32-34.) The Court, accordingly, concludes the damages Plaintiff seeks coverage
for occurred while operations were being performed.
In Ohio Casualty, the Appellate Division held that Ongoing Operations Exclusion applied
so long as three elements were fulfilled. Ohio Cas., 12 A.3d at 728. For the reasons set forth
above, the Court finds that each element is fulfilled. The Court, therefore, finds that the Ongoing
Operations Exclusion precludes coverage.

16

B.

The Your Work Exclusion Does Not Provide a Grant of Coverage

In Cypress Point II, the New Jersey Supreme Court stated that Weedo is often cited as the
leading case on whether commercial general liability (“CGL”) policies cover construction defects.
Cypress Point II, 143 A.3d at 282. The Cypress Point II court then acknowledged that “[t]he
policy at issue in Weedo was the 1973 version of the standard form CGL,” while the policy before
the Cypress Point II court was “the 1986 ISO standard form CGL policy,” and that the New Jersey
Supreme Court had “never addressed questions of coverage for consequential damages caused by
faulty workmanship under” the later version of the policy. Id. at 282-83. Turning to the policy at
issue, the Cypress Point II court held that “because the result of the subcontractors’ faulty
workmanship . . .—consequential water damage to the completed and nondefective portions of
[the building]—was an ‘accident,’ it [was] an ‘occurrence’ under the policies . . . .”. Id. Thus,
barring the application of an exclusion, the insurer was obligated to provide coverage. Id. After
analyzing the exclusions in the policy, the Cypress Point II court held that the subcontractor
exception to the exclusion “unquestionably applie[d]” and because the damage to the completed
portions of the building were “alleged to have arisen out of faulty workmanship performed by
subcontractors,” the insurer was obligated to provide coverage. Id. at 289-90.
Here, Plaintiff argues the Ongoing Operations Exclusion does not apply because of the
exception for work performed by subcontractors as discussed in Cypress Point II. 8 (Pl.’s Opp’n
Br. 15.) Plaintiff’s position relies on an overbroad reading of Cypress Point II. At issue in Cypress

8

Exclusion l provides that the Policy does not apply to ‘“Property Damage’ to ‘your work’ arising
out of it or any part of it and included in the ‘products-completed operations hazard.’” (Policy 16.)
The Court refers to this as the “Your Work Exclusion.” The Your Work Exclusion also provides,
“This exclusion does not apply if the damaged work or the work out of which the damage arises
was performed on your behalf by a subcontractor.” This Court refers to this provision as the
“Subcontractor Exception.” The policy at issue in Cypress Point II contained a similar exclusion
and exception as the instant Your Work Exclusion and Subcontractor Exception. See Cypress
Point II, 143 A.3d at 289.
17

Point II was language similar to the Your Work Exclusion and the Subcontractor Exception. The
Cypress Point II court, however, did not consider the Ongoing Operations Exclusion Defendant
relies on here. Moreover, the Ongoing Operations Exclusion does not include a subcontractor
exception like the Your Work Exclusion. (See Policy 16.) Applying the Subcontractor Exception
in the Your Work Exclusion to the Ongoing Operations Exclusion would defy the Weedo court’s
guidance that “exclusions should be read seriatim, not cumulatively[,]” and “[i]f any one exclusion
applies there should be no coverage, regardless of inferences that might be argued on the basis of
exceptions or qualifications contained in other exclusions.” Weedo, 405 A.2d at 795; accord
Wenzel v. Nautilus Ins. Co., 474 F. App’x 862, 864 (3d Cir. 2012) (“[I]n New Jersey, a limitation
to one exclusion of an insurance policy cannot restrict the scope of an entirely different
exclusion.”). The Court, accordingly, concludes that the Subcontractor Exception does not apply
to the Ongoing Operations Exclusion.
IV.

CONCLUSION
In sum, the Court finds that the Ongoing Operations Exclusion precludes coverage for the

PJR-Cambridge Dispute, assuming that the PJR-Cambridge dispute would be covered under the
Policy. The Court also finds the Subcontractor Exception to the Your Work Exclusion does not
apply to the Ongoing Operations Exclusion. The Court, accordingly, grants Defendants’ Motion
for Summary Judgment. An order consistent with this Memorandum Opinion will be entered.
s/ Michael A. Shipp
MICHAEL A. SHIPP
UNITED STATES DISTRICT JUDGE

18