Jones v. Continental Cas. Co.

• Decision Date: 26 March 1973
• Citation: 303 A.2d 91,123 N.J.Super. 353
• Parties: Albert C. JONES, t/a Albert C. Jones Associates, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Defendant.
• Court: New Jersey Superior Court

Page 353

123 N.J.Super. 353

303 A.2d 91

Albert C. JONES, t/a Albert C. Jones Associates, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Defendant.

Superior Court of New Jersey,

Chancery Division.

March 26, 1973.

Robert A. Porter, Mount Holly, for plaintiff Albert C. Jones, t/a Albert C. Jones Associates (Hartman, Schlesinger, Schlosser & Faxon, Mount Holly, attorneys).

Arthur Montano, Camden, for defendant Continental Casualty Company (Kisselman, Deighan, Montano & Summers, Camden, attorneys).

BISCHOFF, J.S.C.

Plaintiff, a professional engineer, seeks a judgment declaring that he has coverage under a policy of insurance issued by defendant and called 'Architects and Engineers Policy.' The initial policy issued by this defendant was for a period commencing February 23, 1965 to February 23, 1966, and thereafter the policy was renewed yearly until February 23, 1970. By an amendment to the last policy, the policy was amended to include the period from February 23, 1969 to April 5, 1970.

The first policy, as noted, was issued in 1965. Plaintiff testified he read it at that time but did not understand all of its provisions and did not seek any explanation of the terms.

Plaintiff discontinued coverage by defendant-company in 1970 when he was in financial difficulties. He went into receivership and was unable to pay the premiums charged. The premium for the last year of coverage was $10,000.

The facts which call for this declaratory judgment are as follows.

On August 8, 1966 the City of Millville engaged plaintiff as a consulting engineer for the construction of a multi-million dollar sewer plant. Bids were received and the city entered into a contract for the construction of the sewer plant with Pagano Construction Company on December 17, 1968. Several of the large tanks that composed the sewer treatment plant began to settle, and on March 12, 1970 plaintiff notified the contractor that the final settling tanks were not level and directed him to correct the deficiency. Thereafter the contractor instituted a lawsuit on a book account asking for payment of the balance of the money due him. Defendant in that action was the City of Millville, who counterclaimed for the costs of correcting the alleged improper work. Plaintiff Jones was not a party to the proceeding until Pagano Construction Company joined him as a third-party defendant on August 18, 1971. Receipt of the suit papers that day was Jones' first knowledge of the claim or suit against him. This was more than 16 months after the expiration of the last policy of insurance issued by defendant. The suit papers were forwarded by plaintiff to defendant the next day. They were received by defendant on August 23, 1971. Defendant then forwarded the papers to the law firm of Kisselman, Deighan, Montano, King and Summers, who appeared in defense of a motion on August 27, 1971 in Bridgeton.

An investigator for defendant company went to the office of plaintiff in Mount Holly and received pertinent information pertaining to the claim, and attorneys from the firm of Kisselman, Deighan, Montano, King and Summers attended a meeting with the City Commissioners of Millville on August 31, 1971. Other than the writing of one additional speed letter on September, 8, 1971, no action was taken by defendant in connection with the defense of the matter. No answer was filed. The suit papers were returned to plaintiff. Coverage was denied. Plaintiff was informed he should obtain his own counsel to defend the matter.

This lawsuit revolves around the interpretation to be given to the following provisions of the policy, it being the contention of defendant that the claim and lawsuit in question fall outside of the policy period as that is defined in the policy itself.

IV. Policy Period, Territory.

(a) During the Policy Period. The insurance afforded by this policy applies to errors, omissions or negligent acts which occur * * * during this policy period if claim therefor is first made against the insured during this policy period.

(b) Prior to the Policy Period. The insurance afforded by this policy also applies to errors, omissions or negligent acts which occur within the United States of America, * * * prior to The effective date of this policy if claim therefor is first made against the insured during this policy period and if all of the following requirements are present:

(1) the error, omission, or negligent act was also insured by this Company under the prior policy (as defined below) * * *

(2) no insured, at the effective date of the prior policy (as defined below), had any knowledge of a pending claim which might be made against any insured or had any knowledge or any circumstance which may reasonably be expected to create a claim against any insured.

Prior policy (for the purpose of this insuring agreement) means the combined total of all architects' and/or engineers' professional liability policies issued By this Company beginning with the first architects' and/or engineers' professional liability policy followed continuously by successive architects' and/or engineers' professional liability policies, the last of which expired on the effective date of this policy. (Emphasis supplied)

As noted, the last policy of insurance expired on April 5, 1970; plaintiff's first knowledge of a claim occurred on August 18, 1971.

Plaintiff seeks a declaration that the policy provides coverage on two grounds. First, that defendant, by its actions over the two-week period between the notice of loss received by the company in Philadelphia with receipt of suit papers on August 23 and the return of the suit papers to plaintiff, assumed control and management of the lawsuit to such an extent that it is now estopped to deny its obligation to plaintiff to indemnify and defend.

Second, that the terms of the policy of insurance which exclude coverage for events which occurred during the policy period if notice is not given during said period are invalid as being against public policy.

With respect to the first ground, this court denies plaintiff's contention. Defendant company is entitled to a reasonable time period within which to investigate and determine whether there is coverage under the terms of the policy, so long as its actions do not in any way prejudice the assured. Ebert v. Balter, 83 N.J.Super. 545, 553, 200 A.2d 532 (Law Div.1964); Merchants Ind. Corp. v. Eggleston, 37 N.J. 114, 179 A.2d 505 (1962); Liberty Mutual Ins. Co. v. O'Rourke, 122 N.J.Super. 68, 298 A.2d 725 (Ch.Div.1973).

I find that under the circumstances of this case defendant company acted promptly and by its actions did not in any way prejudice its assured. Defendant is not estopped to deny coverage.

With respect to the second ground advanced by plaintiff, it is argued that the period of coverage, as defined in the policy of insurance, violates public policy and is contrary to the reasonable expectations and interests of lay people and the public, and is therefore unreasonable.

Plaintiff argues that unless an assured maintains his insurance continuously with the same company, his insurance is worthless in many respects. In that regard plaintiff points to the situation involving the death or retirement of an assured. In that situation, if defendant's construction is accepted, neither a retiree who has dropped his coverage nor the estate of a deceased assured would be covered for events occurring during a policy period where claim is not made until after the expiration of the policy. Plaintiff further argues that freedom of contract is destroyed under the terms of this policy, because the assured, in order to maintain continuous protection, must continue coverage in the same insurance company.

The type of policy in question has been termed a discovery policy. The distinction between a discovery policy and an occurrence policy was pointed out in the case of Zarpas v. Morrow, 215 F.Supp. 887 (D.Ct.N.J.1963):

* * * In a 'discovery' policy the coverage is effective if the negligent or omitted act is discovered and brought to omitted act is discovered and brought to the attention of the insurance company during the period of the policy, No matter when the act occurred. In an occurrence policy, the coverage is effective if the negligent or omitted act occurred during the period of the policy, whatever the date of discovery. (Emphasis supplied)

The coverage agreements in this type of policy are quite different from those generally encountered in insurance policies. They are generally employed in professional liability policies.

Defendant, in support of its position, relies heavily on the case of Rotwein v. General Accident Group, 103 N.J.Super. 406, 247 A.2d 370 (Law Div.1968), as well as many cases from other states. However, the terms of the policies of insurance involved in each of the cases relied upon bear close examination.

In Rotwein the policy provision was of the discovery type and read as follows insofar as the period of coverage is concerned:

This policy also applies to any negligent acts, errors or omissions from services rendered during the policy period Of any prior policy issued to the Insured, if the Insured has maintained Architect's Professional Liability Insurance continuously in force, provided * * * that such claim would have been covered under the said prior policy had it been in effect at the time of the negligent acts, errors or omissions. (Emphasis supplied)

It should be noted that the provisions of the policy there before the court covered losses occurring during the coverage of Any prior policy of insurance maintained by the insured.

The court in Rotwein discussed in detail the public policy argument which was made and rejected it. The court held:

* * * plaintiffs, at the time they became the insureds of General Accident, in fact obtained retroactive protection with respect to any negligent acts, errors or omissions attributable to professional services which may have preceded...