For reversal -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor and Goldmann. For affirmance -- None. The opinion of the court was delivered by Weintraub, C.J.
Plaintiff (herein employee) obtained a workmen's compensation award, and the award not being paid, he brought this action against defendant (herein carrier) alleging it covered the employer's liability.
The employee named only the employer in the compensation proceeding, and the carrier, contending the accident
occurred the 6th day of September, 1962, one day before the effective date of its policy, declined to defend the employer notwithstanding that the compensation petition alleged the accident occurred on the 7th. The employer defaulted. The employee's testimony that the 7th was the date of the accident was accordingly undisputed, and the compensation award recited that date. In the present proceedings against the carrier, the trial court held the carrier was not bound by that finding, and upon a trial of the issue determined the accident occurred on the 6th. For that reason the trial court gave judgment for the carrier.
The employee then appealed to the Appellate Division, but chose not to challenge the trial court's conclusion that the accident happened on the 6th, contending solely that the finding in the compensation proceeding that the accident occurred on the 7th was res judicata against the carrier.*fn1 The Appellate Division did not accept the position of either the employee or the carrier but rather held the carrier would be bound by the finding of the Division of Workmen's Compensation if the carrier knew or should have known of the pendency of the compensation proceeding or if it inexcusably failed to intervene to reopen those proceedings when it learned of the award. The Appellate Division retained the appeal pending an application by the carrier to reopen the compensation matter, saying that if it should be reopened, the Division of Workmen's Compensation should try the issue as to the date of the accident. We granted the carrier's petition for certification. 48 N.J. 577 (1967).
The carrier does not dispute the employer's liability to the employee. It accepts the findings in the award that the employee was an employee of the employer, that he was injured by an accident which arose out of and in the course of the employment, and that he suffered the disability found therein. The carrier concedes the employer's liability but
says it does not cover the claim because the accident antedated its contractual undertaking. Thus it disputes the compensation award only insofar as it recites or fixes the date of the event. The date was immaterial in the compensation proceeding, since the employer was liable whether the accident occurred on the 6th or the 7th. Indeed, if the employer had sought to defend on the ground of a discrepancy as to date, the defense would have been rejected summarily.
Thus the coverage question does not depend upon an issue material to the litigation between the employee and the employer. The resolution of the employee's claim against the employer would not have settled the coverage problem. More than that, if the Division of Workmen's Compensation somehow accepted the issue in the trial of the employee's claim against the employer, the carrier could not have asserted its position in the employer's name, for a carrier may not so defend an insured as to leave him liable and uncovered. An attorney, engaged by the carrier to defend in the insured's name, could not ethically seek such a result. See Szabo v. Standard Commercial Body Corp., 221 App. Div. 722, 225 N.Y.S. 332 (3 d Dept. 1927). That would have been the case here since, if the carrier succeeded in its position that the critical date was the 6th, the employer would have been left with an uninsured compensation liability.
A carrier's contractual right to defend presupposes that if the defense fails, the carrier will pay. Merchants Indemnity Corp. v. Eggleston, 37 N.J. 114, 127 (1962). Hence it is settled that a carrier is estopped to deny coverage of an action it undertakes to defend. This being so, it would be arbitrary to say also that a carrier which declines to incur an estoppel by defending is equally barred from a hearing as to coverage because of a finding made in the suit it could not safely defend. Elementary fairness demands a proceeding in which the differences between the insurer and the insured may be tried. Ideally the injured claimant should be there as well, so that he may also be heard and concluded upon the issue of the carrier's liability. The compensation statute
offers a ready vehicle to that end, for it expressly authorizes the employee to join the carrier as a party respondent to the petition for compensation. R.S. 34:15-84; Belanowitz v. Travelers Insurance Co., 125 N.J.L. 301, 307 (E. & A. 1940). Here the employee, although aware of the ...