N.J. SUPERIOR COURT, APPELLATE DIVISION

Sayles v. G&G Hotels Inc.

CONTRACTS

New Jersey Law Journal

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Sayles v. G&G Hotels Inc., A-2926-11T1; Appellate Division; opinion by Fisher, P.J.A.D.; decided and approved for publication January 16, 2013. Before Judges Fisher, Alvarez and Waugh. On appeal from the Law Division, Camden County, L-2909-07 and L-4496-07. DDS No. 11-2-8731 [15 pp.]

Defendants G&G Hotels Inc. and Howard Johnson International Inc. entered into a license agreement that permitted G&G's use of the Howard Johnson brand name at its Atlantic City hotel. The agreement contained an indemnity provision that required G&G to provide insurance coverage for HJI. These consolidated suits were filed after Daniel O'Neill and Nicholas Sayles fell through a third-floor window of G&G's hotel.

Prior to trial, HJI sought summary judgment against G&G on the basis of the indemnification provision. The trial judge granted the motion, finding enforcement of the provision consistent with Azurak v. Corporate Property Investors, 175 N.J. 110 (2003), and earlier cases.

A jury was selected but the parties thereafter settled plaintiffs' claims. However, G&G argued it was entitled to pursue its indemnification and contribution claims against HJI. The judge dismissed those claims, leaving for disposition HJI's cross-claim for breach of the licensing agreement and attorney fees. The judge later dismissed HJI's breach-of-contract claim and ordered G&G to pay attorney fees to HJI.

G&G appeals, arguing that the trial judge erred in granting HJI's summary judgment motion because the indemnification provision does not, as a matter of law, unequivocally express the parties' intent that G&G indemnify HJI for claims based on HJI's negligence.

Held: Although a clearer provision could have been drafted, the indemnification provision sufficiently expresses the parties' intent that HJI would be entitled to indemnification from G&G for claims arising from HJI's negligence. HJI also is entitled to its fees and expenses in the appellate proceedings and adjudication of its claims for other unreimbursed fees and expenses incurred in the trial court before and after plaintiffs' claims were settled.

The panel says that at the heart of G&G's appeal is its contention that the indemnification provision was not unequivocal with regard to its application to claims arising from HJI's negligence.

The panel starts with the premise that indemnity contracts are interpreted in accordance with the rules governing the construction of contracts generally and that when the meaning of the clause is ambiguous, the clause should be strictly constructed against the indemnitee.

The provision at issue required G&G to: "indemnify, defend and hold [HJI] harmless, ... from and against all Losses and Expenses, incurred by [HJI] in connection with any ... claim ... relating to or arising out of any transaction, occurrence or service at or in conjunction with the operation of the Facility, any breach or violation of any contract or any law, regulation or ruling by, or any act, error or omission (active or passive) of, [G&G], any party associated or affiliated with [G&G], or any of their respective owners, officers, directors, employees, agents or contractors, including when the active or passive negligence of [HJI] is alleged or proven."

G&G claims this provision allows for at least two plausible interpretations.

The first, which was how HJI and the trial court read the document, reads "including when the active or passive negligence of [HJI] is alleged or proven" (the ending phrase) as relating to all the instances in which expenses and losses might be incurred as described throughout the provision.

The second, which is what G&G urges, reads the ending phrase as relating only to "any act, error or omission (active or passive) of [G&G], or any of their respective owners, officers, directors, employees, agents or contractors."

The panel says G&G's interpretation is contrived and inconsistent with the inner sense of the document. It rejects G&G's argument that Ramos v. Browning Ferris Indus. of S. Jersey Inc., 103 N.J. 177 (1986), and its progeny create a bright-line rule that prohibits enforcement of an indemnification provision when, as here, the indemnitee was allegedly negligent. However, in none of those cases did the indemnification provision mention whether indemnification would be required when the indemnitee was alleged or shown to be negligent.

Unlike those cases, the provision here expressly includes within the losses and expenses giving rise to G&G's obligation to indemnify HJI those allegedly, or were proved to have been, caused by HJI's active or passive negligence. G&G's argument that the provision is ambiguous is not based on the absence of a reference to the indemnitee's negligence, but on the contention that the phrase's placement in the clause suggested a limited application.

The panel says G&G's crabbed reading of the provision is faulty because the ending phrase, which relates to the allegations or facts proved of HJI, is forced to illogically modify only the preceding subsection, which is a description of the conduct of G&G and its affiliates. The pieces of the provision do not fit in the manner urged by G&G.

This indemnification provision could have been better written. But simply because there is a better mode of expression does not render equivocal or ambiguous less artful expressions. A court must look for the parties' intent and there is no doubt the provision was intended to provide coverage for HJI for its negligent acts or omissions relating to the types of accidents and claims described in the entire provision.

The panel remands for consideration of HJI's proofs as to its losses and expenses and for an award of those damages in HJI's favor, including attorney fees, costs and expenses incurred during the appellate proceedings.

For appellant/cross-respondent — Robert G. Devine (White & Williams; Devine and Victor J. Zarrilli on the brief). For respondent/cross-appellant — C. Brian Korn-brek (Greenbaum, Rowe, Smith & Davis; Kornbrek and Thomas K. Murphy III on the brief).

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