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Condenser Service & Engineering Co. v. American Mutual Liability Insurance Co.

Decided: April 26, 1957.


Clapp, Jayne and Francis. The opinion of the court was delivered by Francis, J.A.D.


[45 NJSuper Page 34] The issue on this appeal is whether, under circumstances to be detailed, plaintiff Condenser Service & Engineering Co., Inc. is entitled to invoke

the Declaratory Judgments Act, N.J.S. 2 A:16-50 et seq. Where the act is applicable, the mode of presenting the problem to the court is regulated by the ordinary rules of civil practice. R.R. 4:92 A. Pursuant thereto, a complaint was filed by plaintiff seeking a declaration of its rights under a comprehensive general liability insurance policy issued by the defendant American Mutual Liability Insurance Company. A motion to dismiss for failure to state a claim on which relief could be granted followed; included also was a motion for summary judgment. Affidavits were presented and considered by the court, after which an order was entered dismissing the complaint. See R.R. 4:12-2. No ground was stated except "due cause."

The complaint, affidavit of plaintiff's president and rather unusual verification by defense counsel of the factual statements contained in his memorandum to the trial court, reveal the questions submitted for determination. The plaintiff, whose principal office is in Hoboken, New Jersey, is in the heat engineering business. On June 1, 1951 the defendant insurance company issued its comprehensive general liability policy under which, for a period of a year, it agreed to "pay on behalf of [plaintiff] all sums which [it] shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident" arising out of plaintiff's business operations. The policy excluded from coverage "injury to or destruction of property * * * in the care, custody or control of the insured or property as to which the insured for any purpose is exercising physical control." It provided also that the company would defend any suit brought against the plaintiff within the coverage "even if such suit is groundless, false or fraudulent."

On April 28, 1950 plaintiff entered into a contract with the United States under which it undertook to erect certain boilers at the Veterans' Administration Hospital, Livermore, California. The complaint alleges that plaintiff "did erect" the boilers and on October 6, 1951 an explosion occurred without fault on its part, which substantially destroyed

them. The supporting affidavit recites that the explosion damaged the boilers which "plaintiff had built."

Due notice of the accident and of the claim of the United States against the plaintiff for the damage to the boilers was given to the insurance company. However, the company disclaimed liability on the ground that the boilers were in the care, custody and control of plaintiff at the time of the explosion and therefore the policy provided no coverage for damage to them. After a long period of conferences and negotiations, on August 25, 1955 the United States advised plaintiff that suit was about to be instituted against it to recover the cost of repair. Plaintiff in turn forwarded the notification to defendant carrier which remained adamant in its denial of coverage.

(Subsequent to the disposition of the action at the trial level and pending the argument of this appeal, the suit was in fact instituted by the United States against plaintiff in the United States District Court for the District of New Jersey. A motion was then made to supplement the appendix to include this complaint. Therein the government charges that plaintiff contracted to install in one of the hospital buildings two new boilers, boiler foundations and equipment, extension of existing smoke breeching and removal and replacement of portions of the boiler room floor, in accordance with certain specifications. The work was to be completed by December 17, 1950, and "the completion date was thereafter extended to June 29, 1951." The further allegation is made that "on or about October 6, 1951, prior to the completion of the * * * contract work," an explosion occurred through the contractor's negligence as the result of which the boilers being installed under the contract were damaged. There is no specific allegation that at the time the boilers were in the care, custody or control of the contractor. The carrier's duty to defend the action depends upon the existence or nonexistence of that fact when the explosion occurred, a problem which cannot and should not be decided on the record now before us. The test of such obligation to defend may

be found in Danek v. Hommer , 28 N.J. Super. 68 (App. Div. 1953), affirmed 15 N.J. 573 (1954); Annotation, 50 A.L.R. 2 d 458, 463, 469 (1956). We have concluded to grant the motion, but as will appear presently our decision would be the same if the government suit were still an active threat rather than an actuality.)

The relief sought in the plaintiff's complaint herein is a declaration: (a) "construing the provisions of the policy of insurance and determining the respective rights and liabilities of the plaintiff and defendant thereunder" with regard to the accident, (b) that defendant is obligated to assume the defense of any suits brought against the plaintiff on account of the explosion, (c) that defendant is liable to pay any judgments against plaintiff arising out of the explosion, and (d) that the carrier be directed to pay plaintiff's costs and counsel fees in this action.

On the motion, defendant admitted the denial of coverage, the disclaimer of liability and a refusal to assume the defense of the (then) prospective damage action by the United States against its assured. Likewise, its position with respect to the basic facts and ...

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