For the prosecutor, Lum, Tamblyn & Fairlie (Ernest C. Lum and Chester W. Fairlie, of counsel).
For the respondent city of Newark, John A. Matthews.
Before Justices Bodine, Heher and Perskie.
The opinion of the court was delivered by
HEHER, J. Prosecutor complains of an assessment for taxes levied against it by the city of Newark under section 307 of the General Tax act of 1918 (Pamph. L., pp. 847, 858), and the definitive question is whether, in the calculation of the taxable "capital stock paid in and accumulated surplus" on the assessment date, October 1st, 1934, its "estimate of the ultimate
cost of claims" for losses within the coverage of issued policies (aggregating $4,812,301.04), asserted to have been sustained prior thereto, is to be considered a deductible liability within the intendment of the act. The proofs disclose that $365,447 of this sum is to be apportioned to fidelity and surety policies, and the balance to accident, health, automobile, plate glass and burglary policies.
The estimate of the "ultimate cost" of the particular claim, made by prosecutor's claim department, was based upon the "facts learned" by an "investigator" sent out "to corral the facts of the case immediately after" receipt of notice of the claim. No attempt was made to establish a factual basis for the estimate in the individual case; and the proofs are vague as to the standard of measurement, although it is reasonably inferable that, with the exception of those deemed to have a "nuisance value" only, probability rather than possibility in the light of the facts then disclosed was the determinative in respect of both liability and the quantum of loss. Where liability was deemed not to be within the realm of likelihood, the "nuisance value" of the claim was regarded as a deductible obligation. But the proofs do not disclose the total amount of claims so classified.
In the ascertainment of the "accumulated surplus," within the intendment of the cited provision of the Tax act, "fixed liabilities" only, as distinguished from "contingent" obligations, are deductible. Trenton v. Standard Fire Insurance Co., 77 N.J.L. 757, 765.
Granting this, prosecutor maintains that its liability under a policy of this general class is contingent "only so long as the contingency insured against has not occurred, and that, upon the happening of the contingency against which it has insured, its liability to make the indemnity payment provided for in its policy is, in the law, a fixed liability; the contingency insured against having happened, liability under the policy ceases to be contingent and becomes fixed and absolute." More specifically, it is said that, while liability on a particular claim may not "ultimately appear," or it may eventually be established that the "company was liable for an
amount less than the estimate set up against it, * * * that fact does not render 'contingent' those claims and losses for which the company was actually liable;" and that "if the claim is valid, it is in no way contingent, the contingency insured against having already occurred -- it is a fixed contractual liability under its policy, existing as of the date of the happening of the contingency insured against, notwithstanding the fact that some time may be required for the company to determine whether it is in fact liable and what the amount of its liability is." And it having been proved that, subsequent to the mentioned assessment date, "when [to borrow the language of prosecutor's brief], upon completion of the company's investigation, both the fact of liability and the amount of the loss" had been ascertained (either by settlement or judgment), upwards of $3,272,000 were paid in satisfaction of claims so made (the estimated cost of the remainder being ...