In Evanston Ins. Co. v. A&R Homes Development, LLC, 2019 WL 661587 (N.J. Super. App. Div. Feb. 19, 2019), the Appellate Division of the Superior Court of New Jersey affirmed a trial court ruling that an exclusion for an insured’s liability to employees of its contractors or subcontractors was unambiguous and barred coverage. The case is significant on several fronts. First, it reaffirms New Jersey law that where an injured party has been made a party to a coverage action against an insured/defendant and elects not to intervene in a carrier’s efforts to disclaim coverage, the injured party will be bound by the resulting decision on coverage, even if by default judgment. Further, the decision again confirms New Jersey law that an unambiguous policy exclusion will be enforced as written and that a better insurance policy will not be written for an insured where the policyholder was fairly notified and alerted to the boundaries of coverage under the policy.

A&R, a general contractor, was hired to build a four story, three-unit apartment building with a rear parking lot on a property in Jersey City. Sharkey, an employee of A&R’s subcontractor, YVPV Construction, LLC, was working at the construction site when he fell approximately twenty feet and sustained bodily injuries. At the time of Sharkey’s accident, A&R was insured by Evanston under a CGL policy. The policy included an Exclusion For Employer Liability And Bodily Injury To Contractors Or Subcontractors, which clearly and unambiguously outlined Evanston had no obligation to provide coverage for any bodily injury to any contractor, subcontractor or their respective employees, volunteer workers, leased employees or temporary workers. Evanston initially defended A&R under a reservation of rights and subsequently disclaimed coverage and filed a declaratory judgment action upon learning that Sharkey was employed by YVPV.

In the Declaratory Judgment Action, Evanston added Sharkey as an interested party pursuant to the requirements of the N.J.S.A. 2A:16-50, The New Jersey Declaratory Judgment Act.  When the various defendants failed to answer the Complaint, Evanston moved for default and default judgment. Despite receiving notice of Evanston’s motion, Sharkey did not object to the court entering the default judgment. Notwithstanding the entry of default judgment, Sharkey continued to pursue rights to coverage under the policy issued to A&R and the case proceeded to dispositive motion practice.

In granting Evanston’s motion, the trial court rejected Sharkey’s argument that the default judgment was not binding on Sharkey as well as Sharkey’s argument that he had a reasonable expectation of coverage because the declarations page, while confirming the existence of commercial general liability coverage under the policy, did not specifically address the Employers’ Liability exclusion. The court concluded that the default judgment was binding on Sharkey, as he could have “objected or otherwise intervened on the motion for default judgment as a party to this declaratory action.” The court also rejected Sharkey’s arguments about alleged inconsistencies between the declarations page and the policy as a whole when read in light of the exclusion. The court found the language of the policy to be clear, unambiguous, and thus, enforceable. The Appellate Division affirmed on all accounts.

In reviewing Sharkey’s arguments with respect to the reasonable expectations of coverage upon review of the Declarations page, the Appellate division distinguished its decision in Lehrhoff v. Aetna Cas. & Sur. Co., 271 N.J. Super. 340 (App. Div. 1994). Relying on Lehrhoff, Sharkey contended that his reasonable expectation of coverage, as taken from the declarations page, cannot be undermined by a broad policy exclusion unless Evanston warned A&R on the declarations page that the exclusion precluded coverage for A&R’s subcontractor’s negligence.  In Lerhoff, the Appellate Division concluded that because the auto policy at issue expressly identified the policyholder and his son in the list of drivers on the declarations page, there was a reasonable expectation that the policyholder’s son would be covered notwithstanding a difficult to locate policy provision that limited family members to residents of the household.

The Appellate Division noted that, unlike in Lerhoff, A&R’s insurance broker obtained the Evanston policy and was familiar with commercial liability insurance, unlike the average, unversed automobile insurance policyholder, who is likely to rely on the declarations page. Further, the Appellate Division, relying on Zacarias v. Allstate Ins. Co, 168 N.J. 590 (2001), noted that where the policy states and fairly warns with clarity that it is comprised of declarations, policy conditions, coverage forms and endorsements, the fact that those portions of the policy are separated will not render the policy susceptible to challenge as ambiguous.