                 NOT FOR PUBLICATION WITHOUT THE
                APPROVAL OF THE APPELLATE DIVISION

                               SUPERIOR COURT OF NEW JERSEY
                               APPELLATE DIVISION
                               DOCKET NO. A-3724-14T4

DOMINIC ANDALORA and ELLA
ANDALORA,
                                    APPROVED FOR PUBLICATION
      Plaintiffs,
                                          January 10, 2017
v.
                                       APPELLATE DIVISION
R.D. MECHANICAL CORP., COMMERCE
BANK, COMMERCE BANCORP, INC.,

      Defendants,

and

ICS BUILDERS, INC.,

      Defendant/Third-Party
      Plaintiff-Appellant,

v.

SWIFT CONSTRUCTION, LLC,

      Third-Party Defendant-
      Respondent.

———————————————————————————————————————

          Argued October 11, 2016 - Decided January 10, 2017

          Before Judges Reisner, Koblitz1 and Rothstadt.




1
  With the parties' consent, Judge Koblitz participated in the
court's decision, without the need for further oral argument. R.
2:13-2(b).
           On appeal from Superior Court of New Jersey,
           Law Division, Essex County, Docket No. L-1432-
           08.

           Joseph D'Ambrosio argued the cause for
           appellant (Ford Marrin Esposito Witmeyer &
           Gleser, L.L.P., attorneys; Mr. D'Ambrosio and
           Alfred L. D'Isernia, on the brief).

           Susan A. Lawless argued the cause for
           respondent  (Purcell, Mulcahy,  Hawkins,
           Flanagan & Lawless, LLC, attorneys; Ms.
           Lawless and Alyssa K. Weinstein, on the
           brief).

      The opinion of the court was delivered by

REISNER, P.J.A.D.

      ICS Builders, Inc. (ICS) appeals from a March 20, 2015 order

dismissing its third-party complaint against Swift Construction,

LLC (Swift).    In brief summary, after the underlying personal

injury lawsuit, which sparked this insurance coverage litigation,

was settled, ICS's insurer retained subrogation rights against

ICS's subcontractor. The insurer's right to assert the subrogation

claim did not turn on whether ICS suffered any actual damages by

virtue of the subcontractor's alleged breach of an indemnification

clause in the construction contract.         ICS had no damages because

its   insurer   paid   ICS's     alleged    share   of   the   settlement.

Procedurally,   the    insurer     should    then   have   asserted     its

subrogation claim in its own name as the real party in interest,

but it was error for the trial court to dismiss ICS's lawsuit


                                     2                             A-3724-14T4
against the subcontractor with prejudice.                    Since the insurer has

now filed a separate subrogation lawsuit in its own name, we modify

the March 20, 2015 order to provide for a dismissal of ICS's

lawsuit without prejudice.

                                          I

       This appeal arises from a 2006 construction accident.                      ICS

was   the     general   contractor   on       the   construction     project.     Its

subcontractors, R.D. Mechanical Corporation (R.D. Mechanical) and

Swift, each signed a contract containing an agreement to indemnify

ICS for losses arising from the subcontractor's work.                             The

relevant clause provided:

              The Sub-Contractor shall indemnify and hold
              ICS harmless from all liability, loss, cost
              or damage, including attorneys' fees from
              claims for injuries to persons or property
              damage or death from any cause, while on or
              near the project, of its employees or the
              employees of its Sub-contractor . . . from any
              cause occasioned in whole or in part by any
              act or omission of the Sub-Contractor, its
              representatives, employees, subcontractors or
              suppliers, and whether or not it is contended
              ICS contributed thereto in whole or in part,
              or was responsible therefor by reason of non-
              delegable duty . . . .

       The clause provided that it was to be construed as broadly

as permitted under the "applicable law."                 In New Jersey, the outer

limit of such an indemnification clause is set by N.J.S.A. 2A:40A-

1,    which    prohibits   indemnification          of   a   party   for   its   sole


                                          3                                  A-3724-14T4
negligence.    Thus ICS could not be entitled to indemnification if

an accident was due to ICS's sole negligence.

     Mt. Hawley Insurance Company (Mt. Hawley) was ICS's primary

insurer.      However, in accordance with the contracts with Swift

and R.D. Mechanical, ICS was also named as an additional insured

on each subcontractor's insurance policy.            Swift was insured by

The Hartford Insurance Company of the Midwest (Hartford), and R.D.

Mechanical    was    insured   by   Liberty     Mutual   Insurance   Company

(Liberty Mutual).

        One of Swift's employees, Dominic Andalora, fell off a

scaffold and was severely injured.         Due to the statutory workers'

compensation bar, N.J.S.A. 34:15-8, Andalora could not sue his

employer, Swift.      However, he sued ICS and R.D Mechanical.               ICS

filed   a   third-party    action   against     Swift,   to   enforce     ICS's

contractual right to have Swift (and, by extension, its insurer,

Hartford) defend and indemnify ICS.

     Additionally, in two separate actions, Hartford sued Mt.

Hawley (L-9317-10), and ICS sued R.D.'s insurer, Liberty Mutual

(L-9585-10), asking the court to determine the responsibility of

the various insurers for providing ICS with coverage in the

Andalora     litigation.        Those     two    coverage     actions       were

consolidated.       The issue in those cases were whether all three

insurers were obligated to provide primary coverage to ICS, or

                                      4                                 A-3724-14T4
whether some of the coverage was only excess.         In a September 30,

2011 opinion, memorialized in an October 4, 2011 order, the court

held that all three insurers provided primary coverage and all

three were "each one third liable to defend and indemnify ICS."

However, as discussed later, a subsequent opinion issued by the

same judge clarified that ruling.2

     Andalora's   personal    injury    lawsuit    was   settled     for    $5

million, with Swift's insurer (Hartford) contributing $3 million

and R.D.'s insurer (Liberty) paying $2 million.              The settlement

of the underlying personal injury suit was placed on the record

on October 1, 2012.       At that hearing, all of the insurers were

represented by counsel.      Although ICS's attorney expressed some

concern over the implications for his client's third-party action

against Swift, none of the insurers, including ICS, argued that

the Andalora case should not be settled.

     At the settlement hearing, R.D. Mechanical's insurer, Liberty

Mutual, made it clear that it was not "fronting" its $2 million

settlement contribution, i.e., it was not paying the money subject

to   later   litigation    with   the   other     insurers    over    R.D.'s

responsibility for the accident.        It was paying the $2 million



2
  The October 4, 2011 order was interlocutory because the judge
reserved for further decision an issue, unrelated to this appeal,
concerning Liberty Mutual's obligations.

                                    5                                A-3724-14T4
without recourse.       However, Hartford's attorney represented that

Hartford was "fronting" $3 million toward the settlement.                   It

plainly appears from the transcript that ICS, Swift, and their

insurers    understood    that   there    was   going   to   be   continuing

litigation over which insurer (Hartford or Mt. Hawley) would

ultimately be responsible to pay the money.

     In the separate coverage litigation, Hartford then filed a

motion to require Mt. Hawley to put up $1 million as its share of

the "fronting" money, and the court granted that motion on October

26, 2012.    However, there was no expectation that Mt. Hawley was

going to wind up on the hook to pay $1 million toward the settlement

without first having its day in court on whether its insured was

liable for the accident.         If ICS was not solely liable for the

accident,   then   it    was   entitled   to    indemnification    from   its

subcontractor, Swift, and Hartford would be required to pay the

entire settlement.3

     The judge's October 26, 2012 opinion makes it quite clear

that the judge did not enter a final, appealable order requiring

Mt. Hawley to pay Hartford the money, without recourse in future



3
  In their original filings on this appeal, neither party provided
us with the Law Division judge's statements of reasons for either
of his orders requiring Mt. Hawley to pay the $1 million.       We
directed the parties to provide us with those opinions, which were
issued on September 30, 2011 and October 26, 2012.

                                     6                               A-3724-14T4
litigation.    Rather, because ICS was entitled to coverage from

both insurers, the judge required Mt. Hawley to put up a share of

the   settlement   money,    pending       the    outcome    of    the   ICS-Swift

litigation.    Acknowledging that Hartford had paid $3 million to

settle Andalora's claims against ICS, the judge found equitable

reasons   to   require    Mt.     Hawley     to    join     in    the    "fronting"

arrangement, but also acknowledged that this arrangement was not

the final determination as to which insurer ultimately would have

to bear the settlement costs:

           The court does not agree with Mt. Hawley that
           the Hartford's demand is an attempt to
           'abrogate' its settlement. . . . It does agree
           with Mt. Hawley that the Hartford's demand is
           arguably 'premature', but there are equitable
           considerations both ways on that issue.
           Obviously, either the Hartford or Mt. Hawley
           could be paying too much, too soon at this
           time (depending on the final result of the
           case). In that situation, the court concludes
           that forcing the Hartford to pay 100% of the
           amount at issue up front when the Hartford
           helped all defendants by settling, would be
           unfair.

      Mt. Hawley paid Hartford the $1 million but its insured, ICS,

delayed   in   pursuing     the    third-party       action       against    Swift.

Eventually, ICS asked the Law Division judge to schedule a trial

of its third-party indemnification action against Swift, and the

judge scheduled the trial.         A couple of months before the trial

date, Swift moved for summary judgment on the theory that ICS had


                                       7                                    A-3724-14T4
no damages because Swift's insured, Hartford, had provided ICS

with a defense in the personal injury suit, and both Hartford and

ICS's insurer, Mt. Hawley, had paid to settle that lawsuit. ICS

had paid nothing.   The Law Division judge agreed and granted the

motion in a March 20, 2015 order.

     A week later, on March 27, 2015, Mt. Hawley, acting as

subrogee to ICS's indemnification claims, filed a federal lawsuit

against Swift, seeking to recoup the $1 million which Mt. Hawley

was ordered to contribute to the personal injury settlement, plus

additional legal costs incurred.

                                II

     We review the Law Division's legal conclusions, and its

interpretations of the pertinent insurance contracts, de novo.

Simonetti v. Selective Ins. Co., 372 N.J. Super. 421, 428 (App.

Div. 2004).   As appears from the discussion in part I of this

opinion, the real dispute in this case is between Mt. Hawley and

Hartford, over their respective obligations to contribute to the

settlement of the Andalora lawsuit.      As previously discussed,

Hartford agreed to "front" the sum of $3 million toward the

settlement.   However, it then sought a contribution from Mt.

Hawley.   For reasons he characterized as "equitable," the Law

Division judge ordered Mt. Hawley to pay Hartford $1 million toward

the "fronting" of the settlement amount, pending the outcome of

                                 8                          A-3724-14T4
ICS's   third-party   action   against   Swift   for   indemnification.

However, the same Law Division judge then dismissed ICS's lawsuit

against Swift with prejudice, on the theory that ICS had incurred

no damages.    We conclude that the Law Division judge's with-

prejudice dismissal elevated form over substance and constituted

a miscarriage of justice.

     It is correct that ICS incurred no damages, but Mt. Hawley

incurred a $1 million expense on ICS's behalf.4        We conclude that,

once Mt. Hawley paid the $1 million toward the Andalora settlement,

ICS's indemnification claim should have been pursued by Mt. Hawley

as subrogee.   Mt. Hawley's rights in pursuing that claim would be

controlled by the terms of the indemnification clause in the

contract between ICS and Swift.

     As ICS's insurer, Mt. Hawley is subrogated to ICS's right to

claim indemnification from Swift for damages Mt. Hawley paid to

settle the Andalora case.

           Subrogation is a device of equity to compel
           the ultimate discharge of an obligation by the
           one who in good conscience ought to pay it.
           It is a right of ancient origin, having been
           imported from the civil law to serve the
           interests of essential justice between the
           parties. It is most often brought into play
           when an insurer who has indemnified an insured

4
  ICS's arguments concerning its alleged unliquidated damages are
not supported by the record. In the trial court, ICS produced no
legally competent evidence concerning the impact of Andalora's
claim on its future insurance rating and premiums.

                                   9                             A-3724-14T4
            for damage or loss is subrogated to any rights
            that the insured may have against a third
            party, who is also liable for the damage or
            loss. In such a case it is only equitable and
            just that the insurer should be reimbursed for
            his payment to the insured, because otherwise
            either the insured would be unjustly enriched
            by virtue of a recovery from both the insurer
            and the third party, or in the absence of such
            double recovery by the insured the third party
            would go free despite the fact that he has the
            legal obligation in connection with the loss
            or damage.

            [Standard Acc. Ins. Co. v. Pellecchia, 15 N.J.
            162, 171 (1954) (citations omitted).]

       Mt. Hawley has the right to assert its subrogation claim with

or without ICS's consent.

            The right does not arise out of contract but
            rather exists without the consent of the
            insured, although of course the parties may
            by agreement waive or limit the right. The
            subrogee in effect steps into the shoes of the
            insured and can recover only if the insured
            likewise could have recovered.

            [Id. at 172 (citations omitted).]

       In a subrogation claim based on contract, "[t]he insurer

steps into the shoes of the insured and can through subrogation

enforce the contractual obligation of the third party."      Id. at

182.    In this case, Mt. Hawley has the right to step into the

"shoes" of ICS, in order to enforce ICS's contractual right to

indemnification from Swift.    The indemnification clause required

Swift to indemnify ICS against any damage claim filed against ICS


                                 10                          A-3724-14T4
by a Swift employee working on the project, and by its terms the

clause was to be construed as broadly as allowed by law.                 The

scope of the clause is not at issue on this appeal, however, under

New Jersey law, indemnification cannot be required if ICS was

solely negligent for Andalora's injuries.       See N.J.S.A. 2A:40A-1.

     Therefore,   at     a   minimum,    determining   ICS's     right    to

indemnification, and Mt. Hawley's corresponding subrogation rights

against Swift, would require a determination of liability for

Andalora's   accident.       That   determination   would   be    required

regardless of the settlement of the Andalora lawsuit.             The only

issue is a procedural one - whether ICS should pursue the lawsuit

in its own name, or whether Mt. Hawley should pursue it.

     In pursuing the lawsuit, ICS clearly acted as a surrogate for

its insurer, which at this point is the real party in interest and

is seeking reimbursement from Swift for Mt. Hawley's $1 million

contribution to the Andalora settlement.       Peeling the legal onion

further, the real parties in interest in this case are Mt. Hawley,

which solely insured ICS, and Hartford, which insured Swift as its

primary insured and ICS as an additional insured.           If Swift is

required to indemnify ICS/Mt. Hawley for the $1 million, Hartford

will pay the judgment.

     Ironically, these same two insurers have had this dispute

before. Toward the end of its brief, Mt. Hawley cites a case very

                                    11                             A-3724-14T4
similar to this one, in which Mt. Hawley and Hartford litigated

the issue of which of them was ultimately responsible for paying

the settlement of a personal injury lawsuit.   Mt. Hawley won that

case, and Hartford's attempt to distinguish the case here is

unpersuasive.

    We quote the court's description of the case in full:

         Pursuant to a construction contract, a
         subcontractor agreed to indemnify the general
         contractor for claims and liabilities arising
         out of the subcontractor's performance and to
         obtain a commercial general liability (CGL)
         policy listing the subcontractor as the named
         insured and the general contractor as an
         additional insured. The general contractor
         also had its own separate CGL policy,
         designating it as the named insured.

         While the construction was in progress, an
         employee of the subcontractor was injured and
         filed suit against the general contractor.
         The subcontractor's insurer provided a defense
         and settled the case, using its own funds.

         The subcontractor's insurer then filed this
         action against the general contractor's own
         insurer, seeking payment of one-half of the
         defense and settlement expenses. The general
         contractor's own insurer asserted it was not
         liable for contribution because, under the
         indemnity provision in the construction
         contract, the general contractor was not
         liable to the subcontractor in any amount. On
         cross-motions for summary judgment, the trial
         court agreed with the subcontractor's insurer
         and entered judgment against the general
         contractor's own insurer.

         We conclude that, just as the general
         contractor is not liable to the subcontractor

                              12                            A-3724-14T4
           under the indemnity provision, so the general
           contractor's own insurer is not liable to the
           subcontractor's insurer. To hold otherwise
           would negate the indemnity provision in the
           construction contract. We therefore reverse.

           [Hartford Cas. Ins. Co. v. Mt. Hawley Ins.
           Co., 123 Cal. App. 4th 278, 281-82 (Cal. Ct.
           App 2004).

       In reaching that conclusion the court noted that "[w]here,

as here, the parties have expressly contracted with respect to the

duty to indemnify, the extent of that duty must be determined from

the contract and not by reliance on the independent doctrine of

equitable indemnity."5      We find that reasoning persuasive.

       In the contract with Swift, ICS contracted for protection

against the litigation expense and possible damages associated

with lawsuits that might be filed against ICS by Swift's employees.

Because New Jersey law precludes indemnification for a party's

sole    negligence,   the   agreement   meant   that   Swift's   insurer

(Hartford), rather than ICS's insurer (Mt. Hawley), would bear the

full cost of such litigation and any damages awarded, unless ICS

turned out to be solely liable for the Swift employee's injuries.

Precluding both ICS and Mt. Hawley (as subrogee) from enforcing




5
  The doctrine of equitable indemnity governs the obligations of
multiple insurers that all insure the same entity against the same
risk during the same coverage period. Id. at 290.


                                   13                            A-3724-14T4
the agreement would strip ICS of the benefit of its bargain with

Swift.

       Likewise,   requiring   Mt.   Hawley    to    reimburse   Hartford    $1

million, without further recourse, after Hartford unilaterally

paid the Andalora settlement, would unfairly deny Mt. Hawley the

right to litigate the underlying issue of its insured's (and hence,

Mt.    Hawley's)   legal   liability      to   pay    anything   toward     the

settlement.6    As a matter of judicial efficiency, once the Andalora

case   was   settled,   Hartford's   reimbursement      claim    against    Mt.

Hawley should have been consolidated with ICS's lawsuit against

Swift, so that the issue as to which insurer should ultimately pay

the settlement could have been decided in one lawsuit.              However,

it was not; instead the Law Division judge issued what amounted

to a provisional ruling requiring Mt. Hawley to advance Hartford

$1 million, subject to the outcome of the ICS-Swift lawsuit.

       Further, as a procedural matter, once Mt. Hawley actually

paid Hartford the $1 million portion of the settlement, Mt. Hawley

became the real party in interest in the ICS-Swift litigation, and

should have substituted in as plaintiff and promptly pursued its



6
  Hartford's reliance on Estate of Spencer v. Gavin, 400 N.J.
Super. 220, 256 (App. Div.), certif. denied, 196 N.J. 346 (2008),
and similar cases concerning settling defendants, is misplaced;
those cases do not concern parties having an underlying contract
requiring one party to defend and indemnify the other.

                                     14                               A-3724-14T4
claim.    R. 4:26-1.    That did not happen, either.       However, after

the ICS lawsuit was dismissed, Mt. Hawley filed its own lawsuit

against Swift in federal court.           We conclude that the interests

of judicial efficiency are best served by allowing Mt. Hawley to

pursue that lawsuit to conclusion, rather than by allowing ICS to

re-open this case in its capacity as a stand-in for Mt. Hawley.7

That conclusion requires that the order in this case be entered

without prejudice, and we remand for the limited purpose of

entering an amended order.

     Nothing in our opinion would preclude Mt. Hawley and Hartford,

the two insurers whose financial interests are at issue here, from

agreeing to both litigate the issue directly as parties.                  See

e.g., Fed. Ins. Co. v. Gulf Ins. Co., 162 S.W.3d 160, 162 (Mo. Ct.

App. 2005) (suit between insurers over contribution to a personal

injury settlement); Hartford v. Mt. Hawley, supra.          Nor would our

opinion   preclude     the   two   insurers   from   agreeing   to   binding

arbitration of their dispute over whether Mt. Hawley is entitled




7
  In fact, ICS's brief represents to us that if ICS recovers any
damages from Swift in this case, it will hold those funds "in
trust" for Mt. Hawley.


                                     15                              A-3724-14T4
to repayment from Hartford of the $1 million Mt. Hawley was ordered

to front toward the personal injury settlement.8

     Affirmed   in   part,   remanded   in   part.   We   do   not    retain

jurisdiction.




8
  To the extent not addressed, the parties' arguments are without
sufficient merit to warrant discussion in a written opinion. R.
2:11-3(e)(1)(E).

                                  16                                 A-3724-14T4
