Condenser Service & Engineering Co. v. American Mut. Liability Ins. Co.

• Decision Date: 26 April 1957
• Docket Number: No. A--115,A--115
• Citation: 131 A.2d 409,45 N.J.Super. 31
• Parties: CONDENSER SERVICE & ENGINEERING CO., Inc., a corporation of New Jersey, Plaintiff-Appellant, v. AMERICAN MUTUAL LIABILITY INSURANCE COMPANY, a corporation of Massachusetts, Defendant-Respondent. . Appellate Division
• Court: New Jersey Superior Court — Appellate Division

Page 31

45 N.J.Super. 31

131 A.2d 409

CONDENSER SERVICE & ENGINEERING CO., Inc., a corporation of

New Jersey, Plaintiff-Appellant, v. AMERICAN MUTUAL LIABILITY INSURANCE COMPANY, a corporation

of Massachusetts, Defendant-Respondent.

No. A--115.

Superior Court of New Jersey.

Appellate Division.

Argued March 25, 1957.

Decided April 26, 1957.

Maurice Schapira, Newark, argued the cause for appellant (Schapira & Farkas, Newark, attorneys).

Frank Fink, Newark, argued the cause for respondent (James J. Carroll, Newark, attorney).

Before Judges CLAPP, JAYNE and FRANCIS.

The opinion of the court was delivered by

FRANCIS, J.A.D.

The issue on this appeal is whether, under circumstances to be detailed, plaintiff Condenser Service & Engineering Co., Inc. is entitled to invoke the Declaratory Judgments Act, N.J.S. 2A:16--50 et seq., N.J.S.A. Where the act is applicable, the mode of presenting the problem to the court is regulated by the ordinary rules of civil practice. R.R. 4:92A. Pursuant thereto, a complaint was filed by plaintiff seeking a declaration of its rights under a comprehensive general liability insurance policy issued by the defendant American Mutual Liability Insurance Company. A motion to dismiss for failure to state a claim on which relief could be granted followed; included also was a motion for summary judgment. Affidavits were presented and considered by the court, after which an order was entered dismissing the complaint. See R.R. 4:12--2. No ground was stated except 'due cause.'

The complaint, affidavit of plaintiff's president and rather unusual verification by defense counsel of the factual statements contained in his memorandum to the trial court, reveal the questions submitted for determination. The plaintiff, whose principal office is in Hoboken, New Jersey, is in the heat engineering business. On June 1, 1951 the defendant insurance company issued its comprehensive general liability policy under which, for a period of a year, it agreed to 'pay on behalf of (plaintiff) all sums which (it) shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident' arising out of plaintiff's business operations. The policy excluded from coverage 'injury to or destruction of property * * * in the care, custody or control of the insured or property as to which the insured for any purpose is exercising physical control.' It provided also that the company would defend any suit brought against the plaintiff within the coverage 'even if such suit is groundless, false or fraudulent.'

On April 28, 1950 plaintiff entered into a contract with the United States under which it undertook to erect certain boilers at the Veterans' Administration Hospital, Livermore, California. The complaint alleges that plaintiff 'did erect' the boilers and on October 6, 1951 an explosion occurred without fault on its part, which substantially destroyed them. The supporting affidavit recites that the explosion damaged the boilers which 'plaintiff had built.'

Due notice of the accident and of the claim of the United States against the plaintiff for the damage to the boilers was given to the insurance company. However, the company disclaimed liability on the ground that the boilers were in the care, custody and control of plaintiff at the time of the explosion and therefore the policy provided no coverage for damage to them. After a long period of conferences and negotiations, on August 25, 1955 the United States advised plaintiff that suit was about to be instituted against it to recover the cost of repair. Plaintiff in turn forwarded the notification to defendant carrier which remained adamant in its denial of coverage.

(Subsequent to the disposition of the action at the trial level and pending the argument of this appeal, the suit was in fact instituted by the United States against plaintiff in the United States District Court for the District of New Jersey. A motion was then made to supplement the appendix to include this complaint. Therein the government charges that plaintiff contracted to install in one of the hospital buildings two new boilers, boiler foundations and equipment, extension of existing smoke breeching and removal and replacement of portions of the boiler room floor, in accordance with certain specifications. The work was to be completed by December 17, 1950, and 'the completion date was thereafter extended to June 29, 1951.' The further allegation is made that 'on or about October 6, 1951, prior to the completion of the * * * contract work,' an explosion occurred through the contractor's negligence as the result of which the boilers being installed under the contract were damaged. There is no specific allegation that at the time the boilers were in the care, custody or control of the contractor. The carrier's duty to defend the action depends upon the existence or non-existence of that fact when the explosion occurred, a problem which cannot and should not be decided on the record now before us. The test of such obligation to defend may be found in Danek v. Hommer, 28 N.J.Super. 68, 100 A.2d 198 (App.Div.1953), affirmed 15 N.J. 573, 105 A.2d 677 (1954); Annotation 50 A.L.R.2d 458, 463, 469 (1956). We have concluded to grant the motion, but as will appear presently our decision would be the same if the government suit were still an active threat rather than an actuality.)

The relief sought in the plaintiff's complaint herein is a declaration: (a) 'construing the provisions of the policy of insurance and determining the respective rights and liabilities of the plaintiff and defendant thereunder' with regard to the accident, (b) that defendant is obligated to assume the defense of any suits brought against the plaintiff on account of the explosion, (c) that defendant is liable to pay any judgments against plaintiff arising out of the explosion, and (d) that the carrier be directed to pay plaintiff's costs and counsel fees in this action.

On the motion, defendant admitted the denial of coverage, the disclaimer of liability and a refusal to assume the defense of the (then) prospective damage action by the United States against its assured. Likewise, its position with respect to the basic facts and the dispute with the assured as to coverage was described in this way:

'* * * The boilers were designated as No. 3 and No. 4 and on October 6, 1951, and explosion occurred in boiler No. 4 in building No. 6, when a Mr. A. W. Egan, an employee of the plaintiff, in applying a three-foot lighted torch, set off the explosion in question. Insofar as this phase of the situation is concerned, The plaintiff has claimed that at the time of the explosion, the boilers in question had been turned over to the United States Government, and the defendant has taken the position that that was not so at all; that the boilers were still going through a testing process, and it was an act of A. W. Egan, an employee of the plaintiff, which caused the ultimate destruction. The plaintiff reported the explosion to the defendant on October 16, 1951, and no November 7, 1951, the defendant denied coverage.' (Emphasis added.)

Against the background of this admitted controversy, the plaintiff by its complaint sought to have the court exercise its power under N.J.S. 2A:16--52, N.J.S.A. to 'declare rights, status and other legal relations' by means of a declaration that the boiler in question at the time of the explosion was not in the care, custody or control of the insured; that therefore the mishap was not excluded from the protection of the policy, and that the insurer was obliged to undertake the defense of the threatened action of the United States for damages charged to have resulted from the negligence of the insured in causing the explosion. Sections 53 and 54 (N.J.S. 2A:16--53, 54, N.J.S.A.) have particular pertinency in support of the complaint. They authorize a person interested in a written contract, either before or after breach, to apply for the determination of any question of construction or validity thereof.

When a bona fide dispute exists between the parties, the broad remedial sweep of this statute as a modern adjunct of the judicial function has been recognized freely by our recent cases. National-Ben Franklin Fire Ins. Co. v. Camden Trust Co., 21 N.J. 16, 120 A.2d 754 (1956); Utility Blade & Razor Co. v. Donovan, 33 N.J.Super. 566, 111 A.2d 300 (App.Div.1955). And since the Utility Blade & Razor Co. decision, the Supreme Court, in the exercise of its rule-making authority, has eliminated one of the factors which formerly induced some judicial reluctance to permit full use of the mechanism. By R.R. 4:92A it ordained that the 'existence of another adequate remedy does not preclude a judgment for declaratory relief in cases where it is appropriate.'

No more fertile ground exists for the use of the declaratory judgment procedure than in the field of insurance, and the cases in which it has been employed throughout the country are legion. Maryland Casualty Co. v. Hubbard, 22 F.Supp. 697 (D.C.S.D.Cal.1938) (collecting many cases); Annotation, 142 A.L.R. 8--76 (1943); 20 Appleman, Insurance Law and Practice, §§ 11351--11398 (1947); Borchard, Declaratory Judgments (2d ed. 1941), chapter VI, pp. 634-- 655; 'Developments in the Law, Declaratory Judgments,' 62 Harv.L.Rev. 787, 850 (1949). Many examples may be found of the successful prosecution of such actions seeking a declaration of the existence or non-existence of coverage or with respect to the obligation of the carrier to defend a pending or a relatively certain or imminent damage action against the assured. The criterion for appraising the availability of the relief is simple: Do the facts alleged, under all the circumstances, show that there is a substantial controversy between parties who have adverse legal interests of sufficient immediacy and reality to warrant the issuance...