Burd v. Sussex Mut. Ins. Co.

• Citation: 56 N.J. 383,267 A.2d 7
• Parties: William S. BURD, Plaintiff-Respondent, v. SUSSEX MUTUAL INSURANCE COMPANY, Defendant-Appellant.
• Decision Date: 06 July 1970
• Court: United States State Supreme Court (New Jersey)

Page 383

56 N.J. 383

267 A.2d 7

William S. BURD, Plaintiff-Respondent, v. SUSSEX MUTUAL INSURANCE COMPANY, Defendant-Appellant.

Supreme Court of New Jersey.

Argued March 16, 1970.

Decided July 6, 1970.

Samuel A. Gennet, East Orange, for defendant-appellant (William D. Bierman, Fort Lee, on the brief).

Louis Winer, Morristown, for plaintiff-respondent.

The opinion of the court was delivered by

WEINTRAUB, C.J.

The defendant carrier issued a Home Owner's policy to plaintiff, Burd, providing him with 'Comprehensive Personal Liability Coverage.' The ultimate issue is whether the policy covers the liability incurred by Burd when he inflicted shotgun wounds upon August D'Agostino.

The shooting incident led to the conviction of Burd for atrocious assault and battery. Thereafter D'Agostino sued Burd for damages. His complaint contained two counts. The first count charged that Burd 'did maliciously and intentionally fire a loaded gun at the plaintiff' and as a proximate result 'of said negligence,' D'Agostino was injured. The second count charged that Burd 'did negligently fire a loaded gun at the plaintiff.' Burd called upon the carrier to defend the suit but the carrier refused on the ground that the policy expressly excluded coverage of 'bodily injury or property damage caused intentionally by or at the direction of the Insured.' Burd defended through his own counsel. There was a general verdict for D'Agostino in the sum of $8,500.

Burd then brought the present action against the carrier to recover the amount of D'Agostino's judgment and also the costs incurred in defending that action. D'Agostino was named a party defendant but no relief was sought against him, and he is not a party to the present appeal. Burd and the carrier both moved for summary judgment. Burd prevailed. We certified the carrier's appeal before argument in the Appellate Division.

Burd and the carrier each contended the other was bound by the judgment in a prior proceeding. The carrier urged that Burd was bound by the finding in the criminal case that he intentionally wounded D'Agostino, while Burd contended the carrier had to defend the civil action, and having refused to do so, may not challenge the allegation therein that the injuries were 'negligently' inflicted. The trial court held the carrier was thus precluded, and hence did not reach the question whether, if the carrier were free to dispute coverage, Burd would be foreclosed by the criminal conviction from questioning the carrier's position that D'Agostino was intentionally injured within the meaning of the policy exclusion from coverage.

I.

The judgment against the carrier rests upon the premise that the carrier was obligated to defend the suit D'Agostino brought against the insured because the second count of the complaint alleged only 'negligence' and thus on its face was beyond the clause excluding coverage for intentional injury. Hence, the insured argues, the carrier, having foregone the opportunity to defend, is estopped to assert the injuries were intentionally caused.

The policy reads:

LIABILITY: To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of bodily injury or property damage, and the company shall defend any suit against the Insured alleging such bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; but the company may make such investigation and settlement of any claim or suit as it deems expedient.

As already stated, the policy provided, under 'Special Exclusions,' that this coverage did not apply 'to bodily injury or property damage caused intentionally by or at the direction of the insured.'

The insured says the carrier is obligated to defend an action whenever the complaint alleges a basis of liability within the covenant to pay. That is the general approach. Ohio Casualty Ins. Co. v. Flanagin, 44 N.J. 504, 514, 210 A.2d 221 (1965); Danek v. Hommer, 28 N.J.Super. 68, 77, 100 A.2d 198 (App.Div.1953), aff'd o.b., 15 N.J. 573, 105 A.2d 677 (1954). But when coverage, I.e., the duty to pay, depends upon a factual issue which will not be resolved by the trial of the third party's suit against the insured, the duty to defend may depend upon the actual facts and not upon the allegations in the complaint. So, for example, if a policy covered a Ford but not a Chevrolet also owned by the insured, the carrier would not be obligated to defend a third party's complaint against the insured which alleged the automobile involved was the Ford when in fact the car involved was the Chevrolet. The identity of the car, upon which coverage depends, would be irrelevant to the trial of the negligence action.

The sense of the covenant is to defend suits involving claims which the carrier would have to pay if the claimant prevailed in the action. The covenant to defend is thus identified with the covenant to pay. That is the basis of the rule that ordinarily a carrier who defends unsuccessfully may not later deny coverage, absent an express agreement with the insured reserving a right to deny coverage. Merchants Indemnity Corp. v. Eggleston, 37 N.J. 114, 127, 179 A.2d 505 (1962). The obligation to defend 'groundless, false or fraudulent' claims does not mean that the carrier will defend claims which would be beyond the covenant to pay if the claimant prevailed. It means only that a carrier may not refuse to defend a suit on the ground that the claim asserted against the insured cannot possibly succeed because either in law or in fact there is no basis for a plaintiff's judgment. So in Danek v. Hommer, Supra, 28 N.J.Super. 68, 100 A.2d 198, it was held that where a Per quod action brought by the husband of an injured employee against the employer would be covered by the policy if the husband prevailed, the carrier could not refuse to defend merely because it believed, and correctly, that the husband's claim had no foundation in law. In short, the carrier's promise is to defeat or to pay a claim within the policy coverage. As the court said in Danek, 28 N.J.Super. at 80, 100 A.2d 198 at 205, 'The stipulation for defense of actions, even if groundless, would be of little value if that obligation did not arise when a claim is stated in the pleadings, which, if sustained, would be within the protection afforded by the policy.'

Here the obligation to pay a judgment obtained by the injured party depended upon whether the injuries were intentionally inflicted within the meaning of the exclusionary clause. There may be cases in which the interests of the carrier and the insured coincide so that the carrier can defend such an action with complete devotion to the insured's interest. But if the trial will leave the question of coverage unresolved so that the insured may later be called upon to pay, or if the case may be so defended by a carrier as to prejudice the insured thereafter upon the issue of coverage, the carrier should not be permitted to control the defense. That was the situation in the case at hand. Although both the insurer and the insured would want D'Agostino to fail, yet if D'Agostino should succeed, as it was likely, he would, the insured would want the basis to be negligence whereas the carrier would profit if the basis was an intentional injury within the policy exclusion. If plaintiff pressed his claim of negligence, the coverage issue would remain open, for the carrier could hardly insist the injuries were intentionally inflicted. Willfulness is not a defense to a charge of negligence. And if plaintiff sought a judgment for intentional hurt, the carrier could not be expected to resist that basis of liability with the fervor or fidelity of an advocate selected by the insured.

In such circumstances the carrier should not be estopped from disputing coverage because it refused to defend. On the contrary the carrier should not be permitted to assume the defense if it intends to dispute its obligation to pay a plaintiff's judgment, unless of course the insured expressly agrees to that reservation. This is not to free the carrier from its covenant to defend, but rather to translate its obligation into one to reimburse the insured if it is later adjudged that the claim was one within the policy covenant to pay. See Satterwhite v. Stolz, 79 N.M. 320, 442 P.2d 810 (Ct.App.1968).

We think the case comes within Williams v. Bituminous Casualty Corp., 51 N.J. 146, 238 A.2d 177 (1968). There a workmen's compensation petition alleged the accident occurred on a date which was within the period of the policy coverage. The carrier refused to defend because it contended the accident occurred on another day, outside the period of coverage. After the employee obtained an award, the insured sued the carrier. The carrier did not dispute its insured's liability to the third-party claimant as established in the compensation proceeding, but insisted that the liability so established was beyond its coverage notwithstanding that the award in favor of the employee found the accident occurred on a date within the period of policy coverage. In holding the carrier was not precluded by the award, we said, 51 N.J. at 149, 238 A.2d 177, at 179 Thus the coverage question does not depend upon an issue material to the litigation between the employee and the employer. The resolution of the employee's claim against the employer would not have settled the coverage problem. More than that, if the Division of Workmen's Compensation somehow accepted the issue in the trial of the employee's claim against the employer, the carrier could not have asserted its position in the employer's name, for a carrier may not so defend an insured as to leave him liable and uncovered. An attorney, engaged by the carrier to defend in the insured's name, could not ethically seek such a result. See Szabo v. Standard...