Paterson Tallow Co., Inc. v. Royal Globe Ins. Companies

• Decision Date: 19 April 1982
• Citation: 89 N.J. 24,444 A.2d 579
• Parties: PATERSON TALLOW CO., INC., a corporation of the State of New Jersey, Alan Lakind, and Elsie Lakind, Arnold Lakind and Howard Lakind, executors of the Estate of Morris Lakind, Plaintiffs-Appellants, v. ROYAL GLOBE INSURANCE COMPANIES and Newark Insurance Company, Defendants-Respondents, and James Brown, Defendant.
• Court: New Jersey Supreme Court

Page 24

89 N.J. 24

444 A.2d 579

PATERSON TALLOW CO., INC., a corporation of the State of New Jersey, Alan Lakind, and Elsie Lakind, Arnold Lakind and Howard Lakind, executors of the Estate of Morris Lakind Plaintiffs-Appellants, v. ROYAL GLOBE INSURANCE COMPANIES and Newark Insurance Company, Defendants-Respondents and James Brown, Defendant.

Supreme Court of New Jersey.

Argued Oct. 5, 1981.

Decided April 19, 1982.

Arnold C. Lakind, Lawrenceville, for plaintiffs-appellants (Zauber, Szaferman, Lakind & Blumstein, Lawrenceville, attorneys).

Philip L. Geibel, Paramus, for defendants-respondents.

The opinion of the Court was delivered by

CLIFFORD, J.

This appeal questions the rights and obligations of the parties under an insurance contract. The insured, Paterson Tallow Co., Inc. (Paterson Tallow), contends that defendants Royal Globe Insurance Companies (Royal Globe) and its subsidiary Newark Insurance Company (Newark) were obligated to defend a malicious prosecution suit brought against them by a former employee. Defendant Newark issued the insurance policy after commencement but before completion of certain criminal proceedings instituted by Paterson Tallow against the former employee. Those criminal proceedings form the basis for the malicious prosecution claim. The trial court denied coverage on the strength of Muller Fuel Oil Co. v. Insurance Co. of North America, 95 N.J.Super. 564, 232 A.2d 168 (App.Div.1967). The Appellate Division affirmed in an unpublished opinion. We granted certification, 87 N.J. 317, 434 A.2d 70 (1981), and now affirm.

I

On June 7, 1969, Paterson Tallow and its executive officers, Morris Lakind and Alan Lakind, commenced criminal proceedings against one James Brown, a former Paterson Tallow employee, by filing a complaint with the Jersey City Municipal Court charging Brown with the theft of several thousand pounds of meat from Paterson Tallow. Brown was indicted by a Hudson County Grand Jury on some of the charges.

On October 6, 1970, while those charges were pending, Paterson Tallow purchased from Newark a three year personal liability insurance policy. The policy contained comprehensive general liability insurance for bodily injury and property damage in addition to coverage for personal injury liability. ¹ The personal injury coverage insured Paterson Tallow against damages sustained by any person or organization as a result of certain "offenses" listed therein. Included among these offenses was "malicious prosecution."

On March 26, 1971, Brown was acquitted of all outstanding charges against him. On January 31, 1977, he initiated suit against Paterson Tallow and the Lakinds alleging that in 1969 Paterson Tallow "maliciously and without probable cause" had commenced criminal proceedings against him, which were eventually resolved in his favor. ² Because plaintiffs had difficulty in finding their insurance policy and identifying the carrier, they undertook the defense of Brown's action through their own attorney. When the policy was finally located, plaintiffs demanded that Royal Globe and Newark take over the defense of Brown's malicious prosecution suit. Upon the carriers' denial of coverage, plaintiffs commenced this declaratory action. Shortly thereafter they settled Brown's claim.

Plaintiffs sought, inter alia, an order that Newark defend the action instituted by Brown. Defendants denied liability on the grounds that (1) all the acts that were alleged to constitute malicious prosecution took place before the policy was issued in 1970, and (2) even assuming coverage existed, Paterson Tallow had failed to provide the carriers with timely notice of Brown's claims--a contention the courts below did not address, nor do we, because of the conclusion that there was no coverage. The parties filed cross-motions for summary judgment.

In opposition to defendants' summary judgment motion, Paterson Tallow asserted that coverage was afforded under the policy because a crucial component of the malicious prosecution offense, namely, termination of the alleged maliciously-prosecuted proceedings in the victim's (James Brown's) favor, occurred during the policy period. It pointed out that with regard to coverages A and B (insurance against bodily injury and property damage liability), Newark used the word "occurrence" to describe the liability-creating event. In describing coverage P (personal injury liability), however, the policy referred to damages resulting from specified "offenses." The use of the word "offense" instead of "occurrence" in describing liability for torts such as malicious prosecution supported its claim of coverage, Paterson Tallow argued, because the "offense" of malicious prosecution could not have been complete until termination of the criminal proceedings in Brown's favor.

The trial court found the ruling of Muller Fuel Oil Co. v. Insurance Co. of North America, supra, dispositive and granted summary judgment for defendants. It noted that in this case, as in Muller, the essence of the malicious prosecution action occurred before the effective date of the policy. It observed that the Muller approach has been adopted both in New Jersey and elsewhere. In addition, the court concluded that the use of the word "offense" instead of "occurrence" in describing the personal injury coverage was insignificant. It specifically declined to follow a contrary view taken in Roess v. St. Paul Fire & Marine Ins. Co., 383 F.Supp. 1231, 1233-35 (M.D.Fla.1974). Finally, it found no ambiguity in the policy language. The fact that exclusion (d) specifically excluded from coverage any personal injury resulting from one's libel or slander committed prior to the effective date of the policy was deemed unpersuasive.

The Appellate Division, in a per curiam opinion, affirmed substantially for the reasons expressed by the trial court, citing Muller, supra.

II

Initially, we must decide whether an insurance policy extends coverage for damages caused by a malicious criminal prosecution when the underlying criminal complaint is filed before the policy's effective date and the criminal proceedings are favorably terminated thereafter but during the policy period. Courts in other jurisdictions have reached conflicting conclusions. Although the Appellate Division has squarely decided this issue in Muller Fuel Oil Co. v. Insurance Co. of North America, supra, the question remains one of first impression for this Court.

The events in Muller are similar to those here. The Muller plaintiffs filed a criminal complaint against one Thomas Policastro on November 13, 1961. Policastro was arrested the following day and subsequently indicted in May 1962 for issuing a worthless check. In December 1962, while the criminal charges against Policastro were still undecided, plaintiffs purchased a comprehensive liability insurance policy from defendant, Insurance Company of North America (INA). Policastro was acquitted of the charges against him on March 7, 1963. He promptly filed a malicious prosecution and false arrest suit against the plaintiffs on March 19, 1963.

Muller filed a claim for coverage under the policy, contending that Policastro's suit against it did not fully ripen until his acquittal in March 1963. Consequently, the acquittal constituted an "occurrence during the policy period" that entitled plaintiffs to coverage. INA denied coverage on the grounds that the criminal complaint that served as the basis for the malicious prosecution action was filed by the insured before the policy was issued. Plaintiffs then sought a declaratory judgment that coverage existed under the policy.

On appeal from a trial court decision dismissing plaintiffs' complaint the Appellate Division affirmed, ruling that the "essence" of the malicious prosecution action, the institution of criminal proceedings without probable cause, occurred before plaintiffs had obtained insurance coverage, 95 N.J.Super. at 576, 232 A.2d 168, citing Earl v. Winne, 14 N.J. 119, 134, 101 A.2d 535 (1953). The court observed that "[t]he tortious act is committed ordinarily by the filing of the criminal complaint with malice and without probable cause" and that "damage flows immediately from the tortious act" because often the accused is arrested and required to post bail and his reputation is adversely affected. 95 N.J.Super. at 576, 232 A.2d 168. It went on to contrast the "favorable termination" requirement with the remaining elements of proof:

In addition to the proof of the termination in his favor, "the plaintiff must adduce affirmative proof * * * tending to show the falsity of or want of probable cause for the charge laid against him, or that the defendant did not honestly believe in his guilt." * * * Thus, although a favorable termination of the criminal proceeding is a condition precedent to institution of the action, the "essence" of the tort is the wrongful conduct in making the criminal charge.

* * *

* * *

Here we have the allegedly tortious conduct and injury to the accused as a result thereof antedating by more than a year the issuance of a policy in favor of the alleged tortfeasors, although the favorable termination of the criminal proceeding eventuates some three months after delivery of the policy. Thus, the "occurrence" which creates the legal obligation to pay damages precedes the commencement of the policy period, albeit the institution of suit may be delayed, as here, until favorable termination of the criminal proceeding. It would be unreasonable to hold under those circumstances, and without more, that the insurance company intended to insure against a malicious prosecution suit, instituted subsequent to issuance of the policy, when four of the five essential ingredients of such an action preceded purchase of the policy--and those four constituted the "essence" of the tort. [Id. at 577, 232 A.2d 168.]

The Appellate Division acknowledged the general rule that the "occurrence" for the purposes of...