Pep Boys v. Cigna Indem. Ins. Co. of North America

Decision Date28 April 1997
Citation300 N.J.Super. 245,692 A.2d 546
PartiesThe PEP BOYS, Plaintiff-Appellant, v. CIGNA INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, Cigna Property & Casualty Companies, Defendants-Respondents.
CourtNew Jersey Superior Court — Appellate Division

Lawrence B. Berg, Cherry Hill, for plaintiff-appellant (Marshall, Dennehy, Warner, Coleman & Goggin, attorneys; Mr. Berg and Walter J. Klekotka, on the brief).

Alfred Abbotts, Trenton, for defendants-respondents (K. Ruth Larsen, attorney; Edward C. McHugh, of counsel; Mr. Abbotts, on the brief).


The opinion of the court was delivered by


This is a dispute about liability insurance coverage. It arises out of the death of Richard Parks, Jr.

On May 25, 1990, the decedent, Richard Parks, Jr., his younger brother and another boy decided to purchase freon because the brother had heard that it could "get you high." At that time, decedent was seventeen years old, the brother was fifteen, and the third boy was fourteen.

The three boys proceeded to the Pep Boys store in Howell Township, New Jersey because the decedent's brother knew that it carried freon, which was used in automobile air conditioning systems. They pooled their money to buy as many cans of No. 12 freon as they could afford. The third boy purchased two cans of freon from the cashier, who did not question him about his age or the purpose of his purchase. The boy claimed that he did not see any signs restricting the sale of freon. Realizing that he had purchased the wrong kind of freon, he went back into the store to exchange the two cans. Patricia Stallworth, an assistant manager, directed him to where the freon was located and then completed the exchange for three other cans of freon. He explained to Stallworth that he needed freon without an oil additive. He again was not asked for any identification, although Stallworth had inferred that he was of age because he had been waited on before and looked older.

Despite a warning on the back of the can stating that inhalation could cause death, the Parks brothers, the boy who purchased the freon, and two other boys took turns inhaling or "huffing" the freon. Decedent then fell over and could not be resuscitated. The cause of death was "acute freon toxicity."

On October 9, 1991, Richard A. Parks, General Administrator and Administrator Ad Prosequendum of the Estate of Richard Parks, Jr., filed a wrongful death and survival complaint against The Pep Boys and its employees stemming from the death of Richard Parks, Jr. The complaint alleged causes of action for negligence for the sale of freon to a minor in violation of N.J.S.A. 2A:170-25.9 to 25.13, negligence in training the store's personnel, and reckless indifference by the store and its employees to the harm the freon could cause. Plaintiff did not assert any claims under the Product Liability Act for a manufacturing defect, a design defect or a warning defect, N.J.S.A. 2A:58C-2, and did not sue the manufacturer. See Parks v. Pep Boys, 282 N.J.Super. 1, 659 A.2d 471 (App.Div.1995) (affirming in part and reversing in part, a summary judgment in favor of Pep Boys).

At the time of the sale, the manufacturer of the freon, Interdynamics, Inc., had a policy of liability insurance with Cigna Indemnity Insurance Company of North America and Cigna Property & Casualty Companies (Cigna). The policy included a vendor's endorsement covering "All Vendors of the Insured," which included Pep Boys, and "All Products of the Insured," which included the freon sold by Pep Boys to decedent's companion. David A. Wiley, Jr., Pep Boy's claims manager, submitted an affidavit to the trial court. The affidavit stated, in part:

2. In my capacity as claims manager, it has been my responsibility to insure that all vendors selling products to Pep Boys have insurance affording coverage to Pep Boys for injuries to third-parties arising out of the sale of the vendor's products.

3. In order for a vendor to sell products to Pep Boys, they are required to either include Pep Boys as an additional insured on the vendor's insurance policy or have a broad form vendor's endorsement included with the policy.

4. The above requirement was enacted due to a prevailing concern about the expense of defending cases which stem from selling the products of others.

5. As such, Pep Boys insists on a vendor's endorsement to protect against claims resulting from the sale of a vendor's product. Pep Boys has a reasonable expectation that all risks associated with selling the products of others will be shifted to the particular vendor.

Cigna denied Pep Boys' request for coverage of the Parks tort claim on the ground that decedent's death was caused by Pep Boys' negligence and, therefore, did not come within the endorsement.

Pep Boys filed this action seeking a declaratory judgment of coverage. While the declaratory judgment action was pending, Pep Boys settled the tort claim for $100,000. Pep Boys then sought reimbursement from Cigna of the settlement amount and the expense of defending the tort claim. The court granted summary judgment to Cigna and Pep Boys appeals.

The endorsement provides:

WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization (referred to below as vendor) shown in the Schedule, but only with respect to "bodily injury" or "property damage" arising out of "your products" shown in the Schedule which are distributed or sold in the regular course of the vendor's business, subject to the following additional exclusions:

1. The insurance afforded the vendor does not apply to:

a. "Bodily injury" or "property damage" for which the vendor is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages that the vendor would have in the absence of the contract or agreement;

b. Any express warranty unauthorized by you;

c. Any physical or chemical change in the product made intentionally by the vendor;

d. Repackaging, unless unpacked solely for the purpose of inspection, demonstration, testing, or the substitution of parts under instructions from the manufacturer, and then repackaged in the original container;

e. Any failure to make such inspections, adjustments, tests or servicing as the vendor has agreed to make or normally undertakes to make in the usual course of business, in connection with the distribution or sale of the products;

f. Demonstration, installation, servicing or repair operations, except such operations performed at the vendor's premises in connection with the sale of the product;

g. Products which, after distribution or sale by you, have been labeled or relabeled or used as a container, part or ingredient of any other thing or substance by or for the vendor.

2. This insurance does not apply to any insured person or organization, from whom you have acquired such products, or any ingredient, part or container, entering into, accompanying or containing such products.

[Emphasis added.] 1

As previously indicated, Cigna denied coverage on the ground that the injury was due to "Pep Boys' independent acts of negligence," implying, therefore, that the injury was not one "arising out of" the freon. The trial court, in a letter opinion, adopted this reasoning when it determined that "[t]he alleged problem was not the product but rather its sale to a minor." The court also relied on American White Cross Labs., Inc. v. Continental Ins. Co., 202 N.J.Super. 372, 495 A.2d 152 (App.Div.1985), as well as "the narrow meaning that courts have assigned the phrase 'arising out of'."

The principles of law guiding our construction of insurance policies are well settled. Judge Michels recently restated them in Franklin Mut. Ins. Co. v. Security Indemn. Ins. Co., 275 N.J.Super. 335, 646 A.2d 443 (App.Div.), certif. denied, 139 N.J. 185, 652 A.2d 173 (1994):

Our function in construing a policy of insurance, as with any other contract, is to search broadly for the probable common intent of the parties in an effort to find a reasonable meaning in keeping with the express general purpose thereof. See Fidelity Union Trust Co. v. Robert, 36 N.J. 561, 567, 178 A.2d 185 (1962); Scarfi v. Aetna Cas. & Sur. Co., 233 N.J.Super. 509, 514, 559 A.2d 459 (App.Div.1989); Tooker v. Hartford Acc. & Indem. Co., 128 N.J.Super. 217, 222-23, 319 A.2d 743 (App.Div.1974); Ins. Co. of State of Penna. v. Palmieri, 81 N.J.Super. 170, 179, 195 A.2d 205 (App.Div.1963), certif. den, 41 N.J. 389, 197 A.2d 15 (1964). In this pursuit, a broad and liberal view should be taken so that the policy is construed in favor of the insured. Bello v. Hurley Limousines, Inc., 249 N.J.Super. 31, 40, 591 A.2d 1356 (App.Div.1991). Where the language of a policy will support two meanings, one favorable to the insured and the other favorable to the insurer, the interpretation sustaining coverage must be applied. Mazzilli v. Acc. & Cas. Ins Co. of Winterthur, 35 N.J. 1, 7, 170 A.2d 800 (1961). Additionally, it is a well-settled principle that purchasers of insurance are entitled to "the broad measure of protection necessary to fulfill their reasonable expectations." Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482, 170 A.2d 22 (1961). In the language of our Supreme Court, "their policies should be construed liberally in their favor to the end that coverage is afforded 'to the full extent that any fair interpretation will allow.' " Ibid.; see also Westchester Fire Ins. Co. v. Continental Ins. Cos., 126 N.J.Super. 29, 36, 312 A.2d 664 (App.Div.1973), aff'd o.b., 65 N.J. 152, 319 A.2d 732 (1974).

[Id. at 339-40, 646 A.2d 443.]

Franklin involved a liability policy issued to a tenant who operated a luncheonette located in an office building. The policy included an endorsement providing coverage to the landlord "with respect to liability arising out of...

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