For affirmance in part and reversal in part -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. Opposed -- None. 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 (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 suing 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.
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 (App. Div. 1953), affirmed 15 N.J. 573 (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 (App. Div. 1954). See also Hackensack Water Co. v. General Accident, etc., Ltd., 84 N.J. Super. 479, 483 (App. Div. 1964); Ebert v. Balter, 83 N.J. Super. 545, 553 (Cty. Ct. 1964); Annotation, 50 A.L.R. 2 d 458, 465-66 (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 ascertained 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. 2 d 584, 154 N.Y.S. 2 d 910, 136 N.E. 2 d 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; Public Service Mutual Insurance Co. v. Jacobs, 161 N.Y.S. 2 d 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. 2 d 367, 371 (Ohio Sup. Ct. 1959); Condenser Service, etc., Co. v. American, etc., Ins. Co., 45 N.J. Super. 31, 40 (App. Div. 1957). In the matter sub judice the trial court might well have refused to permit the introduction of testimony concerning the causation of the wall collapse and confined itself to such a comparison of the complaints already filed with the terms of the policy. However, since both the trial court and the Appellate Division have considered the facts as adduced, we will proceed with a determination of the appeal and, where necessary, a consideration of such facts.
We come to a construction of the policy, keeping in mind the following guides as stated in Mazzilli v. Acc. & Cas. Ins. Co. of Winterthur, 35 N.J. 1, 7-8 (1961):
"Solution of a problem of construction of an insurance policy must be approached with a well settled doctrine in mind. If the controlling language will support two meanings, one favorable to the insurer, and the other favorable to the insured, the interpretation sustaining coverage must be applied. Courts are bound to protect the insured to the full extent that any fair interpretation will allow. Kievit v. Loyal Protective Life Ins. Co., etc., 34 N.J. 475 (1961). Moreover, in evaluating the insurer's claim as to the meaning of the language under study, courts necessarily consider whether alternative or more precise language, if used, would have put the matter beyond reasonable question; also whether judicial decisions appear in the reports attributing
a more comprehensive significance to it than that contended for by the insurer. Mahon v. American Cas. Co. of Reading, Pennsylvania, 65 N.J. Super. 148 (App. Div. 1961). Insurance contracts are unipartite in character. They are prepared by the company's experts, men learned in the law of insurance who serve its interest in exercising their draftsmanship art. The result of their effort is given to the insured in printed form upon the payment of his premium. The circumstances long ago fathered the principle that doubts as to the existence of coverage must be resolved in favor of the insured. Barker v. Iowa Mut. Ins. Co., 241 N.C. 397, 85 S.E. 2 d 305 (Sup. Ct. 1955).
These general rules of construction have spawned a number of subsidiary ones of equally universal recognition. For example, where the policy provision under examination relates to the inclusion of persons other than the named insured within the protection afforded, a broad and liberal view is taken of the coverage extended. But, if the clause in question is one of exclusion or exception, designed to limit the protection, a strict interpretation is applied. Cal-Farm Ins. Co. v. Boisseranc, 151 Cal. App. 2 d 775, 312 P. 2 d 401, 405 (D.C. App. 1957)."
The resolution of the problem is to be found in a determination of whether the terms of the policy encompass the causation of the accident, i.e., whether the allegations in the actions against Flanagin and the facts adduced at the trial of this action, give rise to a claim which may constitute a risk covered by the policy. Danek v. Hommer, supra. To reach such a factual determination the allegations of the damage complaint and the facts giving rise to the accident must "be laid alongside the policy and a determination made as to whether, if the allegations are sustained, the insurer will be required to pay the resulting judgment, and in reaching a conclusion, doubts should be resolved in favor of the insured." Danek v. Hommer, supra, 28 N.J. Super., at p. 77. See 7A Appleman, Insurance Law and Practice § 4683 (1962).
The policy here in question is a standard form "Manufacturers and Contractors" policy. On the facing page, entitled "Declarations," appear a number of subheadings entitled "Item[s]." Item 1 contains the name of the insured and states that "The business of the named insured is Building Contractor." Item 3 reads:
"The insurance afforded is only with respect to such and so many of the following coverages and divisions thereunder as are indicated by specific premium charge or charges. The limit of the company's liability against each such coverage and division shall be as stated herein, subject to all the terms of this policy having reference thereto.
Coverages Limits of Liability Divisions Premiums
A. Bodily $100,000 each person 1. Premises-
Injury $300,000 each accident Operations $44.20
Liability aggregate 2. Elevators
(Aggregate applies to 3. Independent
Division 4 only) Contractors