FEDERAL INSURANCE COMPANY AFD CONTRACT FURNITURE INC AFD CONTRACT FURNITURE INC v. HARTZ MOUNTAIN ASSOCIATES HARTZ MOUNTAIN INDUSTRIES INC VEECO HOLDINGS LLC CREST HAULAGE INC

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Superior Court of New Jersey, Appellate Division.

FEDERAL INSURANCE COMPANY a/s/o AFD CONTRACT FURNITURE, INC. and AFD CONTRACT FURNITURE, INC., Plaintiffs–Appellants, v. HARTZ MOUNTAIN ASSOCIATES and/or HARTZ MOUNTAIN INDUSTRIES, INC. and VEECO HOLDINGS, LLC, f/k/a CREST HAULAGE, INC., Defendants–Respondents.

DOCKET NO. A–6125–11T2

-- December 12, 2013

Before Judges Ostrer and Carroll. Kenneth B. Grear argued the cause for appellants. Lisa Z. Slotkin argued the cause for respondents (Zarwin Baum DeVito Kaplan Schaer Toddy P.C., attorneys;  Ms. Slotkin and Suzanne K. Baidon–Ciobanu, on the brief).

This appeal involves the enforcement of mutual waivers of subrogation in a commercial lease.   Plaintiffs, Federal Insurance Company (Federal), as subrogee of sublessee AFD Contract Furniture, Inc. (AFD), and AFD, appeal from the trial court's order granting summary judgment and dismissing their amended complaint against defendants Hartz Mountain Associates (Hartz), the landlord, and Crest Haulage, Inc. (Crest), the tenant and sublessor.   We affirm.

I.

With Hartz's consent, AFD subleased from Crest the entire premises that Crest had leased from Hartz.   The property consisted of over 72,000 square feet of warehouse space.

The lease included mutual obligations to obtain insurance and mutual waivers of subrogation.   Hartz agreed to insure the building and improvements for its benefit, except for property that Crest was required to cover itself.   Crest in turn was required to maintain various forms of insurance, including all risk insurance to cover loss or damage to stock in trade, fixtures, furniture, furnishings, and equipment.

Crest released Hartz from any claim by Crest or a subrogee for any damage to a person or property.   Crest also agreed to require its insurer to include a subrogation waiver in its policy.   The lease states:

Neither Landlord nor any Superior Lessor shall be liable or responsible for, and Tenant hereby releases Landlord and each Superior Lessor from, all liability and responsibility to Tenant and any person claiming by, through or under Tenant, by way of subrogation or otherwise, for any injury, loss or damage to any person or property in or around the Demised Premises or to Tenant's business irrespective of the cause of such injury, loss or damage, and Tenant shall require its insurers to include in all of Tenant's insurance policies which could give rise to a right of subrogation against Landlord or any Superior Lessor a clause or endorsement whereby the insurer waives any rights of subrogation against Landlord and such Superior Lessors or permits the insured, prior to any loss, to agree with a third party to waive any claim it may have against said third party without invalidating the coverage under the insurance policy.

A comparable provision shielded Crest from any claim by Hartz and a subrogee claiming through Hartz:

Tenant shall not be liable or responsible, and Landlord hereby releases Tenant from, all liability and responsibility to any insurer of Landlord claiming by, through or under Landlord, by way of subrogation, for any injury, loss or damage to any person or property in or around the Building or to Landlord's business irrespective of the cause of such injury, loss or damage, and Landlord shall require its insurers to include in all of Landlord's insurance policies which could give rise to a right of subrogation against Tenant a clause or endorsement whereby the insurer waives any rights of subrogation against Tenant or permits the insured, prior to any loss, to agree with a third party to waive any claim it may have against said third party without invalidating the coverage under the insurance policy.

The lease imposed on Crest the unilateral obligation to indemnify Hartz and hold it harmless if Crest engaged in any acts that voided Hartz's insurance or increased its premium.   The lease also unilaterally required Crest to indemnify and hold Hartz harmless “from and against any and all claims arising from or in connection with ․ damage ․ occurring” in the premises “unless caused solely by [Hartz's] negligence.”   The indemnification-and-hold-harmless provision also shielded Hartz from claims arising out of Crest's conduct or management of its business, work, or “any condition created other than by Landlord in the Demised Premises”;  Crest's acts, omissions, or negligence;  and any failure by Crest to perform under the lease.   The lease imposed no comparable obligations on Hartz for Crest's benefit.

The sublease between Crest and AFD was made “expressly subject and subordinate to the Lease” between Hartz and Crest.   All terms of the lease were incorporated by reference.   Also, any inconsistency between the lease's and sublease's terms was to be resolved “in a manner which imposes the greatest obligations or restrictions on ․ [AFD], [and] imposes the least obligations or restrictions on [Crest][.]”  The sublease did not include separate insurance clauses or subrogation waivers.   However, it did include a unilateral indemnification-and-hold-harmless provision in favor of Crest.   Like Crest's obligation to Hartz, AFD was required to indemnify and hold Crest harmless for liability arising out of AFD's business, breach of the sublease, or “damages ․ incurred by [Crest] by reason of ․ any injuries to persons or damages to property occurring in, on or about the Demised Premises, other than injuries or damage caused by the negligent acts or omissions of [Crest], or its agents or employees[.]”

On June 16, 2008, over two years into the sub-lease, a fire occurred at AFD's premises.   AFD suffered $411,500.72 in damages.   Federal, as AFD's fire insurer, covered the loss, but for a $10,000 deductible.

Plaintiffs sought recovery of those losses from Hartz and Crest.   Plaintiffs alleged that the fire was caused by the hot embers of a high intensity light bulb that burst.   Plaintiffs asserted claims of negligence, gross negligence and breach of contract, grounded in its allegation that Hartz and AFD failed to maintain adequate lenses to contain the debris from a burst bulb.

In their motion for summary judgment, Hartz and Crest argued that the terms of their lease barred plaintiffs' claims.   In opposition, plaintiffs relied on the lease's exception to the indemnification-and-hold-harmless provision based on Hartz's own negligent acts, and the comparable exception based on Crest's negligence in the sublease.   Plaintiffs argued that as a result of the exception, the lease and sublease were ambiguous, creating a fact issue that should defeat summary judgment.

Judge Lourdes Santiago was unpersuaded.   In a cogent oral opinion, Judge Santiago held that the subrogation waiver was enforceable, citing Mayfair Fabrics v. Henley, 97 N.J.Super.   116 (Law Div.1967), aff'd on other grounds sub nom.  Natell v. Henley, 103 N.J.Super.   161 (App.Div.1968).   She held that the indemnification-and-hold-harmless provisions did not create ambiguity in the clear and unambiguous subrogation waiver.  “Article 13.04 [the indemnification-and-hold-harmless provision] does not create any ambiguity as to the subrogation waiver.   In fact Article 13.04 deals with a complete[ly] separate issue of indemnification and addresses the obligations of one party to the lease to indemnify another party to the lease for claims of third parties.”

On appeal, plaintiffs renew the arguments they presented to the trial court.

II.

In reviewing the trial court's grant of summary judgment, we apply the same standard under Rule 4:46–2(c) that governs the trial court.   Mem'l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512, 524 (2012).   We must determine whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party.  Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

We also review de novo the trial court's interpretation of a contract.   Kieffer v. Best Buy, 205 N.J. 213, 222–23, 223 n.5 (2011) (The interpretation of a contract is subject to de novo review by an appellate court.).   We also owe no deference to the trial court's interpretation of the law[,] and the legal consequences that flow from established facts [.]  Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995).

In interpreting a contract, we generally turn first to a contract's plain language.  Kieffer, supra, 205 N.J. at 223.   We seek to ascertain “the reasonably certain meaning of the language used, taken as an entirety, considering the situation of the parties, the attendant circumstances, the operative usages and practices, and the objects the parties were striving to achieve.”  George M. Brewster & Son, Inc. v. Catalytic Constr.   Co., 17 N.J. 20, 32 (1954).   In interpreting a contract, we consider it as a whole, and avoid interpreting one provision in isolation from others pertaining to the same subject.  Newark Publishers Ass'n v. Newark Typographical Union, 22 N.J. 419, 425 (1956).

Whether a contract is clear or ambiguous is a pure question of law requiring plenary review.  In re Teamsters Indus.   Emps. Welfare Fund, 989 F.2d 132, 135 (3d Cir.1993).   A contract term is ambiguous if it is susceptible to two reasonable alternative interpretations.  M.J. Paquet v. N.J. Dep't of Transp., 171 N.J. 378, 396 (2002).   Resolution of ambiguity, if it exists, is a fact issue.  Michaels v. Brookchester, Inc., 26 N.J. 379, 387 (1958);  Deerhurst Estates v. Meadow Homes, Inc., 64 N.J.Super. 134, 152 (App.Div.1960), certif. denied, 34 N.J. 66 (1961).   However, a plenary hearing is required to resolve an ambiguous contract only if, after considering all relevant materials, a genuine issue of fact still remains.  In re Teamsters Indus.   Emps. Welfare Fund, supra, 989 F.2d at 135.

Turning to the issue of a subrogation waiver, it is well-settled that a subrogee can assert no broader rights than those of its subrogor.   An insurer, as a subrogee, ‘in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered[.]’  George M. Brewster Son, supra, 17 N.J. at 28 (citation omitted).   The subrogee is subject to all the defenses available against the subrogor.  Holloway v. State, 125 N.J. at 386, 396 (1991).

Our Court has recognized that parties may by agreement waive or limit the right of subrogation.  George M. Brewster Son, supra, 17 N.J. at 28 (internal quotation marks and citation omitted).   A mutual waiver of subrogation rights was enforced in Mayfair Fabrics, supra, as Judge Santiago observed, as well as in School Alliance Insurance Fund v. Fama Construction Co., 353 N.J.Super.   131 (Law Div.2001) (SAIF ), aff'd o.b., 353 N.J.Super.   1 (App.Div.2002).   The purpose behind a mutual waiver of subrogation is to assure that, to the extent any loss is covered by a policy, the insurer should bear the risk of loss, regardless of any fault on the part of one or both of the parties.  SAIF, supra, 353 N.J.Super. at 140.

SAIF involved a wall collapse that occurred in the course of a construction project for a school district.   The district's insurer, SAIF, paid the claim and, as subrogee, sought recovery from the contractor, whose insurer denied coverage.   The insurer argued that a subrogation waiver did not override the contractor's contractual obligation to indemnify the district for any losses arising out of its construction work or that of its subcontractors.   The court disagreed, holding that the subrogation waiver governed.

We reach the same result here.   Hartz and Crest clearly and unambiguously agreed to mutually release claims against each other and to waive claims by subrogees claiming through them.   Crest's release and waiver was binding on AFD, through the sublease's provision incorporating the terms of the principal lease.   Consequently, AFD released any direct claim against Hartz and Crest for reimbursement of its deductible, and released any claim by Federal, as subrogee.   As Federal's rights could be no greater than those of its subrogor, Federal's claim was barred.

Plaintiffs argue that the indemnification-and-hold-harmless provision injected ambiguity into the release and subrogation waiver.   We disagree.   As in SAIF, the hold harmless provisions in the Hartz–Crest lease and the Crest–AFD sublease do not limit the mutual subrogation waiver.   Neither the plain language, nor the apparent purpose of the indemnification-and-hold-harmless provision creates a reasonable basis for plaintiffs' claim.   First, plaintiffs misplace reliance on the exception to the indemnification-and-hold-harmless provision based on Hartz's negligence.   Under the plain language of the exception, Hartz's negligence would negate the tenant's obligation to indemnify Hartz.   However, nothing in the language of the exception would oblige Hartz to indemnify Crest.

Second, the apparent purpose of the indemnification-and-hold-harmless provision is to shield Hartz from potential liability by third-party claimants.   As we noted, the provision is unilateral.   No similar protection is provided to Crest, or, through the sublease's incorporation provision, to AFD. It would defy any reasoned reading of the lease to conclude that Hartz would have intended to limit the scope of the release and subrogation waiver, solely as it pertained to itself.

In sum, we conclude, as did Judge Santiago, that plaintiffs' claims are barred by the clear and unambiguous terms of the lease and sublease.

Affirmed.

PER CURIAM

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