Harleysville Ins. Co. of New Jersey v. Dray-Con Transport, Inc.

Superior Court of New Jersey,

Appellate Division.

HARLEYSVILLE INSURANCE COMPANY OF NEW JERSEY, Plaintiff-Respondent,

DRAY-CON TRANSPORT, INC., Defendant-Respondent,

and

CSX Transportation, Inc., Melba Zambrano, as Administratrix of the Estate of Edwin Zambrano, Melba Zambrano, Individually, Defendant,

and

The Travelers Indemnity Company, Defendant-Appellant.

Argued Telephonically Jan. 28, 2011.

Decided March 9, 2011.

Before Judges LISA, REISNER and SABATINO.

PER CURIAM.

Defendant, The Travelers Indemnity Company (Travelers), appeals from an order dated February 20, 2009 and two April 6, 2009 orders, in favor of plaintiff Harleysville Insurance Company of New Jersey (Harleysville) and defendant Dray-Con Transport, Inc. (Dray-Con). We affirm.

This case arises from a 2004 accident in which Jairo Delcid and Edwin Zambrano, tractor-trailer truck drivers hired by Dray-Con, were dispatched to pick up freight containers located at a rail yard operated by CSX Transportation, Inc. (CSX). Dray-Con vehicles were permitted access to the CSX rail yard under the terms of an agreement in which Dray-Con was to indemnify CSX for claims arising out of Dray-Con’s negligence. Nothing in the agreement specifically required Dray-Con to indemnify CSX for CSX’s own negligence. See Azurak v. Corporate Prop. Investors, 175 N.J. 110, 112-13 (2003).

Each of the two drivers was operating a truck cab that could be attached to a freight container loaded on a chassis. Once attached to the cab, the freight container/chassis would become the “trailer” portion of the driver’s tractor-trailer truck. When the two drivers arrived at the rail yard, they found that the containers had been left very close to the train tracks. Nonetheless, they proceeded with their assignment and attempted to attach their truck cabs to the containers. Zambrano successfully attached his cab to a container, but Delcid was unable to do so. Therefore, he asked Zambrano to assist him. Zambrano stood behind Delcid’s cab, on the side closest to the train tracks, and attempted to guide Delcid as he backed his truck cab toward the container. As Zambrano was guiding Delcid’s moving truck cab, a train on the tracks started moving and hit Zambrano, causing fatal injuries.

On December 7, 2004, Zambrano’s widow sued several parties, including Dray-Con, alleging negligence (the Zambrano lawsuit). CSX and a related company, CSX Intermodel (CSXI), were accused of negligently operating the train, failing to provide safe premises, and failing to supervise another defendant, Pacific Rail Services, which allegedly placed the containers too close to the train tracks. In cross-claims for contribution, common law indemnification and contractual indemnification, CSX accused Dray-Con of having negligently failed to train its drivers to safely maneuver their trucks in a rail yard. CSX also filed a third-party complaint against Delcid for alleged negligence in using his truck.

When they acted jointly, we will refer to CSX and CSXI collectively as “CSX.”

We granted Harleysville’s motion to supplement the record with copies of expert reports from the Zambrano lawsuit. They confirm that the claims against Dray-Con were based on negligent failure to properly train the two truck drivers. One of the experts also opined that both Zambrano and Delcid were negligent in attempting to attach their trucks to containers that were too close to the tracks.

The Zambrano lawsuit triggered an insurance coverage dispute between Harleysville, which had provided Dray-Con with a Commercial General Liability (CGL) policy, and Travelers, which had provided an auto insurance policy to Dray-Con. The Travelers policy provided comprehensive coverage for vehicle-related liability. The policy provided that Travelers would “pay all sums an ‘insured’ legally must pay as damages because of “bodily injury” … to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto’.” There is no dispute that the policy covered Zambrano’s and Delcid’s trucks.

The Harleysville policy had a comprehensive exclusion for claims in any way arising out of the use of a motor vehicle. The exclusion applied to the following:

“Bodily injury” … arising out of the ownership, maintenance, use or entrustment to others of any … “auto” … owned or operated or rented or loaned to any insured. Use includes operation and “loading or unloading.”

This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, … training or monitoring of others by that insured, if the “occurrence” which caused the “bodily injury” or “property damage” involved the ownership, maintenance, use or entrustment to others of any … “auto” … that is owned or operated by or rented or loaned to any insured.

Each of the two insurers claimed that the other one owed coverage . In April 2006, while the Zambrano lawsuit was pending, Harleysville brought this declaratory judgment action against Travelers, Dray-Con, CSX, and Mrs. Zambrano, seeking a declaration that it was not obligated to defend or indemnify Dray-Con and CSX under its CGL policy. Harleysville subsequently filed an amended complaint adding CSXI as a defendant.

Nearly two years into the Zambrano litigation, Travelers agreed to provide a defense as to certain claims but not as to the claims CSX asserted against Dray-Con for contribution and indemnification.

Travelers filed an answer, counterclaim, and cross-claims, including a cross-claim against Dray-Con. Dray-Con filed an answer, counterclaim against Harleysville, and cross-claim against Travelers. CSX and CSXI filed answers, counterclaims against Harleysville, and cross-claims against Dray-Con and Travelers.

In May 2008, the Zambrano lawsuit was settled. CSX and another defendant paid $5 million. Harleysville and Travelers each paid $500,000, with an agreement that they would litigate claims for reimbursement against each other in the coverage lawsuit. In the latter litigation, which gave rise to this appeal, the two insurers tried the coverage issue on stipulated facts in a bench trial before Judge Marc M. Baldwin.

By the time the coverage case was tried, the only remaining parties to that lawsuit were the two insurers and Dray-Con. However, as addressed infra, Dray-Con did not present evidence in the bench trial, after receiving assurances that whichever insurer lost would pay Dray-Con’s counsel fees for the declaratory judgment action.

In an oral opinion placed on the record on October 24, 2008, Judge Baldwin found that the accident arose out of the use of Delcid’s truck, and therefore Travelers was liable to provide coverage under its policy. He reasoned that, because the CSX/Dray-Con agreement did not provide indemnification for CSX’s negligence, the sole focus must be on Dray-Con’s alleged negligence. He further reasoned that “Mr. Zambrano is not there in that location to get hit by that train unless he’s helping … another Dray-Con employee … [to] hook-up a vehicle. And … I just don’t know how it’s not arising out of the use of a vehicle.” He found that “this accident happened because a train hit a human being who was in that position because he was helping another tractor trailer driver hook-up … a motor vehicle.” Further he found that the only claim against Dray-Con was that “they were negligent for not … giving their people warnings about working around trains … and that all arises out of the use of the vehicles.”

The judge ordered Travelers to pay Harleysville’s counsel fees for defending Dray-Con in the Zambrano lawsuit and for its litigation of the coverage case. He also ordered Travelers to pay Dray-con’s counsel fees for the coverage litigation.

Harleysville retained one law firm to litigate the coverage issue and a different law firm to defend Dray-Con in the Zambrano lawsuit. The judge awarded Harleysville $232,594.32 in defense fees for the Zambrano litigation. Travelers is not appealing from that fee award.

As the Supreme Court held in Penn National v. Costa, 198 N.J. 229 (2009), to trigger coverage under an auto liability policy there must be more than a fortuitous circumstance in which a vehicle happens to be present.

[W]hen an accident … is occasioned by negligent maintenance of the premises and the only connection to that event is the fact that the motor vehicle [is] present …, no realistic social or public policy is served by straining to shift coverage.

[Id. at 241 (quoting Wakefern Food Corp. v. General Acci. Group, 188 N.J.Super. 77, 87 (App.Div.1983)).]

Rather, there must be a substantial nexus between the use, maintenance or operation of the vehicle and the accident:

[I]n order to determine whether an injury arises out of the maintenance, operation or use of a motor vehicle thereby triggering automobile insurance coverage, there must be a substantial nexus between the injury suffered and the asserted negligent maintenance, operation or use of the motor vehicle.

[Id. at 240.]

In Penn National, the plaintiff “slipped and fell on an icy driveway” next to Frank Costa’s home. Id. at 231. He hit his head “on an automobile jack” which Costa was using to change a flat tire on Costa’s truck. Ibid. Plaintiff was not helping Costa to fix the tire. The Court held that the maintenance of the truck was not substantially connected to the accident, which was caused by the presence of ice on Costa’s driveway. Therefore, coverage was due under Costa’s homeowner’s policy and not under his auto insurance policy. Id. at 241-42.

In an earlier case, quoted in Penn National, id. at 241, the substantial nexus test was described as follows:

The inquiry should be whether the negligent act which caused the injury, although not foreseen or expected, was in the contemplation of the parties to the insurance contract a natural and reasonable incident or consequence of the use of the automobile, and thus a risk against which they might reasonably expect those insured under the policy would be protected.

[ Westchester Fire Ins. Co. v. Continental Ins. Cos., 126 N .J.Super. 29, 38 (App.Div.1973), aff’d o.b., 65 N.J. 152 (1974).]

Applying Penn National and Westchester here, we agree with Judge Baldwin that there was a substantial nexus between the accident which befell Zambrano and the operation of a vehicle. Unlike the unfortunate visitor in Penn National, Zambrano was actively involved in the operation of the truck when the accident occurred. If he had not been directing Delcid’s efforts to back up the truck, Zambrano would not have been walking next to the train tracks and would not have been injured. Further, the negligence of which Dray-Con was accused-failure to train both drivers in the safe operation of their vehicles in a rail yard-was directly connected to the operation of the vehicles.

We find this case very similar to Bogey’s Trucking & Paving, Inc. v. Indian Harbor Ins. Co., 395 N.J.Super. 59 (App.Div.2007). In that case, the accident victim, who worked at a construction site, was assigned to ride with the driver of a delivery truck and direct him where to dump his cargo of stone. It was dark out and the unloading area was near a roadway. The victim got out of the truck to direct the driver, who failed to offer him an available reflective vest for his protection. While attempting to direct the unloading, the victim was hit by a car. We held that the accident had a substantial nexus to the operation of the delivery truck. Id. at 66.

Like the victim in Bogey’s, Zambrano was injured while directing the operation of a truck. This was a foreseeable job activity for a truck driver, and the negligence of which Dray-Con was accused had a substantial nexus to the use of the truck. In an analogous case, Scarfi v. Aetna Casualty & Surety Company, 233 N.J.Super. 509, 514-15 (App.Div.1989), we held that the negligent hiring and training of a truck driver was covered under the employer’s auto policy, not its CGL policy. We therefore reject Travelers’ contention that Harleysville was entirely responsible for providing coverage.

Travelers’ alternative argument, that Harleysville should provide partial, if not exclusive, coverage for the accident, is also unpersuasive. Since Dray-Con did not own or operate the CSX rail yard, and did not agree to indemnify CSX for CSX’s negligence, Dray-Con’s negligence could only have arisen in connection with the operation of the truck. Travelers’ reliance on Salem Group v.. Oliver, 128 N.J. 1 (1992), is therefore misplaced.

In the Zambrano lawsuit, the trial court granted summary judgment on the indemnification issue, holding that Dray-Con was not obligated to indemnify CSX for CSX’s negligence.

Addressing coverage for accidents that may have concurrent causes, in Salem the Court held that a homeowner’s policy required the insurer to defend a claim for negligently providing alcohol to a minor, although he was injured while riding an all-terrain vehicle. The Court found the claim based on providing alcohol was separable from the use of the vehicle. Significantly, the Court distinguished Scarfi, supra, in which the alleged negligent training of a driver “[could not] be isolated from the ownership and operation of the insured automobile.” Id. at 5. See also Daus v. Marble, 270 N.J.Super. 241, 248-49 (App.Div.1994).

Accordingly, we affirm Judge Baldwin’s February 20, 2009 order declaring coverage under the Travelers policy and not under the Harleysville policy.

III

We likewise find no error in the judge’s decision awarding counsel fees against Travelers. Rule 4:42-9(a)(6) permits an award of counsel fees in “an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.” The well recognized purpose of the rule is to discourage insurance companies from unjustifiably refusing to defend or indemnify their insureds. Myron Corp. v. Atl. Mut. Ins. Corp. 407 N.J.Super. 302, 310 (App.Div.2009), aff’d o.b., 203 N.J. 537 (2010).

“The theory is that one covered by a policy is entitled to the full protection provided by the coverage, and that benefit should not be diluted by the insured’s need to pay counsel fees in order to secure its rights under the policy.” Hence, even if an insurer files a declaratory judgment action in good faith to contest its obligation to cover a claim, it must pay the insured’s legal fees if it loses. Otherwise, the insured will be deprived of “the benefits of the insurance contract.”

[Id. at 310-11 (citations omitted).]

To fulfill the policy of deterring groundless denials of coverage, fees may also be permitted where one insurer sues another in a declaratory judgment action to establish coverage. Tooker v. Hartford Accident & Indem. Co., 136 N.J.Super. 572, 576 (App.Div.1975), certif. denied, 70 N.J. 137 (1976).

[T]he rule applies to all successful claimants, including an excess or secondary carrier which successfully prosecutes a coverage action against the primary carrier when the latter has wrongfully refused to defend its assured. The award of counsel fees and costs in such a case is equitable and just, and accords with the purpose of R. 4:42-9(a)(6) to discourage groundless disclaimers by carriers by assessing against them the expenses incurred in enforcing coverage for their assureds.

[Ibid.]

See also Moper Transp. Inc. v. Norbet Trucking Corp., 399 N .J.Super. 146, 157-58 (App.Div.), certif. denied, 196 N.J. 463 (2008). It is within the judge’s discretion whether or not to award such fees. Tooker, supra, 136 N.J.Super. at 577. We find no abuse of discretion here. Travelers refused to defend Dray-Con against covered claims and would not provide indemnification (i.e., its contribution to the settlement) without litigating the coverage issue.

Travelers’ reliance on Messec v. USF & G Ins. Co., 369 N.J.Super. 61 (App.Div.), certif. denied, 181 N.J. 287 (2004), is misplaced. That case did not involve the denial of defense or indemnification to an insured. Rather, it was a dispute between two insurance companies over the relative amounts of coverage their policies provided. In that case we specifically noted that the case was “not one where the insurer has refused to provide coverage or to indemnify or defend its insured.” Id. at 64. See also Selective Ins. Co. of America v. Hojnoski, 317 N.J.Super. 331, 338 (App.Div.1998) (dispute over amount of available UIM coverage). We find no abuse of the judge’s discretion in awarding fees to Harleysville.

We further conclude that, as memorialized in a September 22, 2008 letter from Dray-con’s counsel to Judge Baldwin, both insurers agreed in advance of the bench trial that Dray-Con would be entitled to fees from the losing insurer under Rule 4:42-9. Based on that understanding, Dray-Con refrained from further participation in the litigation. All counsel were sent copies of the letter and none disputed its content. On October 24, 2008, after the judge ruled that Travelers owed coverage under its policy, Travelers’ counsel specified on the record that he would be challenging Harleysville’s, but not Dray-Con’s, right to fees. Based on that statement, the trial judge asked Travelers’ attorney whether, with respect to the fees claimed by Dray-Con’s attorney, all Travelers’ counsel needed “to do is get his bill, check his rate, check his entries and let me know about that?” Travelers’ attorney responded, “yes.”

We agree with Dray-Con that, having agreed to pay its fees, Travelers was precluded from later opposing Dray-Con’s right to fees. Whether characterized as a binding contract or an equitable estoppel, the result is the same. However, even if we consider the merits of Travelers’ argument, we find no abuse of discretion in Judge Baldwin’s awarding fees to Dray-Con under Rule 4:42-9(a)(6). See Myron, supra, 407 N.J.Super. at 309.

We further find no abuse of the court’s “broad discretion” in determining the amount of the fee awards. Iafelice ex rel. Wright v. Arpino, 319 N.J.Super. 581, 590 (App.Div.1999). In calculating the amount of reasonable attorney’s fees, courts determine the lodestar, defined as the number of hours reasonably expended by the attorney, multiplied by a reasonable hourly rate. Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 386 (2009); Rendine v. Pantzer, 141 N.J. 292, 334-35 (1995). “The court must not include excessive and unnecessary hours spent on the case in calculating the lodestar.” Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 22 (2004). The lodestar may be enhanced or reduced based upon a number of factors, including a reduction for hours spent on unsuccessful or meritless claims that are independent, factually or legally, of the meritorious claims. R.M. v. Supreme Court of N.J., 190 N.J. 1, 11 (2007). The court is required to make findings on each element of the lodestar fee. Ibid. We will, however, disturb the trial court’s fee determination “only on the rarest occasions, and then only because of a clear abuse of discretion.” Rendine, supra, 141 N.J. at 317.

In its application for fees, Harleysville’s counsel attested that the firm had expended a total of 1090.1 hours in the declaratory judgment action. The firm charged Harleysville discounted hourly rates ranging from $150 to $200 per hour, although its regular rates ranged from $125 to $405 per hour. Harleysville sought fees, applying the regular rates, of $297,364, plus $4387.71 in costs, for a total of $301,751.71.

Counsel for Dray-Con attested that he had expended 326.1 hours in defending the declaratory judgment action, at a requested hourly rate of $250, for a total of $81,525. At oral argument, he confirmed that he had charged his client a reduced rate of $200 per hour, with the understanding that in a fee application he would seek reimbursement at his normal hourly rate of $250.

In a detailed submission, Travelers objected to approximately 560 hours of Harleysville’s billing entries. Notably, Travelers only objected to approximately eighteen hours as being duplicative, and the judge disallowed nine of those hours. Most of the objections were to general categories of work that Travelers claimed were not necessary to the coverage litigation. Travelers’ also filed a less extensive objection to Dray-Con’s fee application.

After two detailed colloquies with counsel on January 9 and February 20, 2009, the court made the required lodestar analysis. He addressed the several categories of objections that Travelers had raised to Harleysville’s attorney billings and determined which would be allowed and which would be excluded. The court excluded all hours expended by Harleysville’s counsel before Harleysville tendered the defense to Travelers. The court considered and rejected Travelers argument that some of the billings were for duplicative or unnecessary work. He evaluated the reasonableness of Harleysville’s counsel’s rates and applied the discounted, not regular rate, in calculating the lodestar. Further, the court reduced both the hourly fee and the total hours for which Dray-Con’s attorney requested compensation.

The court ultimately entered an order directing Travelers to pay Harleysville $175,438.55 in counsel fees incurred in pursuing the declaratory judgment action, and directing Travelers to pay Dray-Con $64,816.03 in fees and costs. Contrary to Travelers’ appellate contentions, the judge’s analysis was sufficiently detailed and he properly applied the lodestar analysis. Travelers’ arguments on this issue do not warrant further discussion. R. 2:11-3(e)(1)(E).

Affirmed.