NJ Appellate Court Agrees Permasteelisa Cant
Recoup Costs of Curtainwall Repair
April 29, 2010
Yesterday a New Jersey appellate court affirmed an earlier decision
that an insured party does not become legally obligated to
pay until the entry of a judgment against it, leaving Permasteelisa
Corp. unable to recoup from insurer Columbia Casualty Company (CNA)
the costs of repair work performed for a curtainwall project installed
According to court documents, the case began when in January 2000
Goldman Sachs hired Turner Construction Co. as the general contractor
for the construction of its 42-story office tower in Jersey City.
Permasteelisa was subcontracted to design, fabricate and install
a decorative glass and metal curtainwall for the building. Installation
began in January 2002 and, according to CNA, defects in the curtainwall
came to light as early as March 2002. According to court documents,
consultant Israel Berger Associates observed that certain
grillwork components known as sag rods had become loose
or detached from their collars.
The problems continued, according to CNA, until May 2004, when
Turner instructed Permasteelisa to cease work and representatives
of the two companies met with the owner and consultants to discuss
the condition of the curtainwall. According to Permasteelisa, Turner
and Goldman Sachs demanded that the glazing contractor repair the
grillwork problems at its own cost on numerous occasionswhich
Permasteelisa did eventually do at a cost of approximately $5.5
The appellate court documents also state that upon receiving the
curtainwall contract, Permasteelisa had enrolled in the Owner Controlled
Insurance Program (OCIP) that Goldman Sachs procured for the project.
The policy covered Permasteelisa only for third-party claims and
claims by and against Goldman Sachs. Permasteelisa also had obtained
a Contractors Professional Liability Policy issued by CNA,
with a policy period from November 1, 2003, through November 1,
2004. The CNA policys coverage agreement stated in part:
We will pay all amounts in excess of the self-insured retention
up to our limit of liability, which you become legally obligated
to pay as a result of
a wrongful act
in a claim anywhere in the world
Under the Policy, a wrongful
act is defined as a negligent act, error or omission
in the performance of professional services for others by you
Another provision, the court documents report, makes the CNA Policy
excess insurance over any other collectible insurance.
According to those court documents, Permasteelisa says it informed
CNA in April 2004 of a potential claim arising from
problems with the curtainwall. The subcontractor requested preclaim
assistance, but stated that no formal claim has yet been filed.
CNA responded with a letter reserving its right to deny coverage.
Later, at a jobsite meeting in July 2004, CNA directed Permasteelisa
not to admit liability . . . [or] say youre going to
do anything, the court documents report.
Meanwhile, however, Permasteelisa finalized a remediation proposal,
all parties involved incorporated the agreed-upon repairs and design
modifications and Permasteelisa began to repair the curtainwall.
In January 2005, CNA provided Permasteelisa with its preliminary
determination that no claim yet has been asserted. The
letter suggested that coverage was foreclosed by the CNA Policys
other collectible insurance clause, which made the CNA
Policy excess insurance over Permasteelisas project-specific
insurance covered by the OCIP policy. In October 2005, CNA sent
Permasteelisa a supplemental coverage determination,
essentially repeating its earlier position that the repair work
was not covered by the policy.
Once the repair was complete in December 2005, Permasteelisa sought
to recover the costs of the repair from Lexington Insurance Co.,
which issued the OCIP policy. According to court documents, Lexington
denied coverage on the ground that no claim had been
made, as required under the policy. After Permasteelisa requested
arbitration, the arbitrators found in favor of Lexington, ruling
that Goldman Sachs had not made a claim against Permasteelisa.
In April 2006, Permasteelisa filed suit against CNA alleging
breach of contract
and seeking a declaratory judgment that
CNA is obligated to defend, indemnify and cover Permasteelisa for
the remedial work done to the curtainwall.
In October 2008, after the close of discovery, both parties filed
motions for summary judgment. Permasteelisa sought summary dismissal
of various affirmative defenses raised by CNA, while CNA sought
a ruling that it was not ultimately liable to indemnify Permasteelisa
for its repair work. In its opinion in June 2009, the District Court
declared that the dispositive issue was the interpretation
under New Jersey law of the CNA Policy phrase [w]e will pay
all amounts . . . which you become legally obligated to pay.
The District Court ruled that the policy term legally obligated
to pay requires the presentation of proofs in
a court of competent jurisdiction and a finding by the court or
jury of liability. Because Permasteelisa was not subject
to a final judgment, the court ruled that it was not legally
obligated to repair or pay for repairs to the curtainwall.
According to the court, Permasteelisa had voluntarily assumed responsibility
for the repairsand so could not recoup the costs of the repair
Documents from the most recent ruling state, Permasteelisas
principal contention is that the District Court erred in applying
Bacon [a precedent ruling on the phrase legally obligated
to pay], to hold that under New Jersey law an insured becomes
legally obligated to pay only after entry of a final
judgment establishing its liability. Permasteelisa first argues
that Bacon is distinguishable, and next argues that Bacon was wrongly
decided. We cannot agree with either contention.
The Bacon ruling noted in its conclusion:
Absent the presentation of proofs in a court of competent jurisdiction
and a finding by the court or jury of liability, it cannot be
said that the seller is legally obligated to pay damages.
Permasteelisa argued that the meaning of legally obligated
includes contractual obligations, and necessarily includes its contractual
obligation to provide a functioning curtainwall, the documents
show. To this argument the court replied: Not so. Although
a contract is indisputably a legal obligation, under New Jersey
law, a professional liability policy does not transfer the risk
of breach of contract from the insured to the insurer.
The court concluded that the District Court did not err in
applying Bacon to hold that, in the absence of a final judgment,
Permasteelisa was not legally obligated to pay for the
remediation of the curtainwall.
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