Ohio Cas. Ins. Co. v. Flanagin

• Decision Date: 18 May 1965
• Docket Number: Nos. A--48,A--49,s. A--48
• Citation: 210 A.2d 221,44 N.J. 504
• Parties: The OHIO CASUALTY INSURANCE COMPANY, Plaintiff-Appellant and Cross-Respondent, v. Paul W. FLANAGIN et al., Defendants-Respondents, and Modern Clothing Co., Inc., Defendant-Respondlent and Cross-Appellant.
• Court: New Jersey Supreme Court

Page 504

44 N.J. 504

210 A.2d 221

The OHIO CASUALTY INSURANCE COMPANY, Plaintiff-Appellant and Cross-Respondent, v. Paul W. FLANAGIN et al., Defendants-Respondents and Modern Clothing Co., Inc., Defendant-Respondlent and Cross-Appellant.

Nos. A--48, A--49.

Supreme Court of New Jersey.

Argued Jan. 4, 1965.

Decided May 18, 1965.

H. Hurlburt Tomlin, Camden, for plaintiff-appellant and cross-respondent, Ohio Cas. Ins. Co.

James L. Cooper, Margate, for defendants-respondents, R. W. Wescoat, Inc. and others (Arkus & Cooper, Atlantic City, attorneys, Vincent A. De Marco, Hammonton, Phillip A. Gruccio, Vineland, Lloyd, Horn, Megargee & Steedle, Atlantic City, Mark A. De Marco, Hammonton, Adamo & Pagluighi, Vineland, of counsel).

Samuel A. Curcio, Hammonton, for defendant-respondent and cross-appellant, Modern Clothing Co., Inc. (Curcio & Donio, Hammonton, attorneys).

The opinion of the court was delivered by

HANEMAN, J.

The Ohio Casualty Insurance Company (Ohio) issued a 'Manufacturers and Contractors Schedule Liability Policy' to Paul W. Flanagin (Flanagin), a building contractor. Multiple personal injury and property damage suits were instituted against the insured and others after the collapse of a building to which he was constructing an addition. Ohio thereupon filed a complaint seeking a declaratory adjudication that it had 'no liability for defense or indemnification of the defendant, Paul W. Flanagin.' In this action it joined not only the plaintiffs in the suits thereto filed against Flanagin but also numerous other parties who, although not having filed suits against the insured, allegedly sustained bodily injury as a result of the accident. The Chancery Division held that both the personal injury and property damage claims were, on their face, covered by the policy and that Ohio was therefore obligated to defend Flanagin. The trial judge, however, refused to adjudge the ultimate liability of Ohio and the question of Flanagin's negligence. On appeal, the Appellate Division affirmed as to the personal injury claims but reversed as to the property damage claims, holding that such latter claims were outside the scope of the policy and thus that Ohio was not required to defend. This Court granted certification upon petition of Ohio and cross-petition of Modern Clothing Co., Inc. (Modern), a property damage claimant and one of the defendants. 43 N.J. 134, 202 A.2d 705 (1964).

The following facts were developed at the trial: Flanagin entered into a written contract with Frank J. Domenico (Domenico) to construct an addition to a building owned by Domenico's corporation, Modern. This contract was entered into for the benefit of Flanagin's son, Evan Patrick Flanagin, who was to be in complete charge of the job. Flanagin thereafter subcontracted the excavation work to R. W. Wescoat, Inc. (Wescoat) by a written contract, and the masonry and concrete work to Russell DeFrank (DeFrank) by an oral contract. Having completed the excavation with a caterpillar tractor and loader to the required depth and to within eight to ten feet of the existing wall, Wescoat refused to proceed any nearer thereto. There was considerable discussion between Evan Patrick Flanagin, Domenico, DeFrank and Wescoat as to the danger of the existing wall's collapsing if excavation were done in closer proximity. Domenico, in order to have the buildings connected and to utilize certain machines, insisted that the excavation be continued to within four feet of the wall, but finally approved excavation to within five or six feet. Since Wescoat would not dig within said eight to ten feet, DeFrank, at the request of Evan Patrick Flanagin or John S. Johnson (a Flanagin agent) hand-dug to within five or six feet of the wall. Although DeFrank was not obligated under his contract to undertake this phase of the work, and received no additional compensation therefor, he used two of his own laborers and two or three unidentified migratory laborers not employed by him. DeFrank did not pay the wages of these additional laborers but stated that they were paid by Flanagin. This is the sole testimony on this phase of the case, as it was impossible to locate any of these latter itinerant laborers and Evan Patrick Flanagin's whereabouts was then unknown.

During the course of this digging, the wall of Modern's existing building collapsed, causing the alleged damages for which some of the injured parties instituted the above mentioned suits. The actual complaints in those actions are not before us. However, the summary of the allegations of the complaints, as contained in Ohio's declaratory judgment complaint, discloses that all of the suits named Flanagin as a party defendant and that the basis for recovery, although not identically stated in each complaint, encompassed general allegations of 'negligence, carelessness, and recklessness' in connection with the excavation work and sought judgment against Flanagin and others, either individually, severally or jointly. Flanagin called upon Ohio to defend these suits; Ohio disclaimed liability under its policy and advised Flanagin of its intention not to defend on his behalf. As above noted, Ohio thereafter filed this declaratory judgment action, joining as defendants Flanagin, the plaintiffs in the suits filed against him, and numerous other parties with possible claims arising out of the accident. We assume that the contention of these latter parties as to the causation of the accident would be identical with that of the using plaintiffs.

The issue is whether the policy covers the insured for either or both the personal injury and property damage claims resulting from the collapse of the wall caused by the excavation.

Ohio advances a dual basis for its nonliability by claiming that (1) the undertaking of the insurance carrier in the policy of insurance, limited and circumscribed by the exclusionary language, did not cover defendant Flanagin with respect to the accident here involved since the work which caused the accident was being performed by an independent contractor, and further that Flanagin's sole function in connection therewith was, at best, only general supervision; and (2) the accident was caused by excavation and was therefore excluded under the express terms of the policy.

I

Before treating of the issues here involved disposition should be made of defendants' argument that 'one must look only to the complaint filed (in the damage actions) and, if it charges the defendant insured with liability on grounds within the scope of the coverage afforded, then it is the duty of the carrier to defend its insured.' In that connection it should be noted that the policy in the instant case provides that the company shall 'defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; * * *.'

An action by an insurer for a declaratory judgment seeking a judicial construction of a liability insurance policy is most often undertaken after a claim thereunder has been made by the insured as the result of a suit against him and the insurer claims it need not defend because the loss is not within the policy coverage. The declaratory judgment suit thus brings into play a comparison of the factual allegations of the damage complaint with the terms of the policy. Generally, where the policy, as here, requires the insurer to defend even if such suit is groundless, false or fraudulent, the damage complaint is laid alongside the policy and the test is whether the allegations of that complaint, upon its face, fall within the risk insured against. Danek v. Hommer, 28 N.J.Super. 68, 77, 100 A.2d 198 (App.Div.1953), affirmed 15 N.J. 573, 105 A.2d 677 (1954). The nature of the damage claim, rather than the actual details of the accident or the ultimate liability of the insurer, determines whether the insurer is obliged to defend. Danek v. Hommer, supra; Van Der Veen v. Bankers Indemnity Ins. Co., 30 N.J.Super. 211, 217, 103 A.2d 900 (App.Div.1954). See also Hackensack Water Co. v. General Accident, etc., Ltd., 84 N.J.Super., 479, 483, 202 A.2d 706 (App.Div.1964); Ebert v. Balter, 83 N.J.Super. 545, 553, 200 A.2d 532 (Cty.Ct.1964); Annotation, 50 A.L.R.2d 458, 465--466 (1956).

Thus, where an insurer bases its entitlement not to defend a damage action upon the contention that the true facts are at odds with the allegations of that action, and those facts must of necessity be ultimately proved in the ensuing damage action, the court should exercise its discretion and refuse to entertain the declaratory judgment suit. Except in unusual cases, the court should normally also refuse to consider a declaratory judgment action prior to the filing of a damage suit against the insured, where the issue under the former necessitates a determination of the causation of the accident. The reason for such a conclusion is found in the fact that the basis of the insurer's liability will be determined by the proofs adduced in the damage action, and it cannot be ascertrained in advance of that trial which grounds of liability, if any, will be adjudicated against the insured. Prashker v United States Guarantee Company, 1 N.Y.2d 584, 154 N.Y.S.2d 910, 136 N.E.2d 871, 874 (N.Y.Ct.App.1956). See Lee v. Aetna Casualty & Surety Co., 178 F.2d 750, 752 (2 Cir.1949); Van Der Veen v. Bankers Indemnity Ins. Co., supra, 30 N.J.Super., at pp. 216--217, 103 A.2d 900; Public Service Mutual Insurance Co. v. Jacobs, 161 N.Y.S.2d 791, 793 (Sup.Ct.1952). However, special circumstances may warrant the trial of such factual issues before the trial of the damage action. Cf. Manhattan Fire & Marine Ins. Co. v. Nassau Estates II, 217 F.Supp. 196 (D.C.N.J.1963); Ohio Farmers Indemnity Co. v. Chames, 170 Ohio St. 209, 163 N.E.2d 367, 371 (Ohio Sup.Ct.1959); Condenser Service, etc., Co. v. American, etc., Ins. Co., 45 N.J.Super. 31, 40, 131...