This action, tried by the court without a jury, involves the construction and interpretation of an exclusionary clause in a liability insurance policy which, surprisingly enough, has been the subject of very little direct consideration in the reported authorities in cases involving similar facts.
The proofs may be summarized as follows: T.I. McCormick Trucking Co., Inc. (McCormick) is engaged in the trucking business, carrying cargoes which consist principally of vegetable oils, chemicals, liquid sugar, and molasses. At all times pertinent it was the named insured in a comprehensive liability policy issued by Allstate Insurance Company and in a motor truck cargo policy (denominated
"named perils form") issued by a subsidiary of National Surety Company. National Sugar Refining Co. (National Sugar) of Philadelphia consigned two loads of liquid sugar to Pepsi Cola Bottling Co. (Pepsi) at Baltimore and contracted with McCormick to transport and deliver the same. McCormick furnished two tractors and two tank trailers for that purpose, together with a hose and pump for use in loading and unloading the sugar. Part of this equipment, including the hose and pump, had been used on the previous day by McCormick to deliver lard to another consignee. After the sugar had been unloaded at its plant, Pepsi claimed that it had been contaminated by a fatty substance, and it made claim against National Sugar to recoup the sum of $9,649.35 it had paid for the sugar. National Sugar paid that sum to Pepsi and then instituted suit in the Superior Court against McCormick, claiming that the sugar had been contaminated by lard, either during the course of carriage or during loading or unloading, because of McCormick's negligence in failing to clean its equipment. McCormick thereupon called upon Allstate to defend the suit against it and to pay any loss, but Allstate declined to do so, claiming that coverage was excluded under the terms of its policy. National Surety then stepped in to defend the action and eventually effected a settlement before trial, paying the sum of $3,500 to National Sugar. It took an assignment from McCormick of its rights against Allstate and instituted this suit against Allstate to recover the cost of the investigation and legal defense it had provided to McCormick in the Superior Court action and to recover the amount of the settlement paid to National Sugar.
Allstate has pleaded and relied upon a number of defenses, but the principal one is that the policy which it issued excluded coverage. I find that this defense is a valid one and it is dispositive of the controversy.
The comprehensive liability policy issued by Allstate provided three basic coverages, denominated in the declarations in the policy as "A. Bodily Injury Liability." "B. Property
Damage Liability -- Automobile," and "C. Property Damage Liability -- Except Automobile." In the insuring agreements, Coverage B and Coverage C were described as follows:
Allstate Insurance Company * * *
Agrees with the insured, named in the declarations made a part hereof, in consideration of the premium and in reliance upon the statements in the declarations and subject to the limits of liability, exclusions, conditions and other terms of this policy:
Coverage B -- Property Damage Liability -- Automobile: To pay on behalf of the insured all sums which the insured 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 and arising out of the ownership, maintenance or use of any automobile.
Coverage C -- Property Damage Liability -- Except Automobile: To pay on behalf of the insured all sums which the insured 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.
The term "automobile," as defined in the policy, clearly included the tractors and trailers used by McCormick to carry the liquid sugar and, in addition, the policy expressly provided that "use of an automobile includes the loading and unloading thereof." The policy also provided that Allstate agreed, with respect to such insurance afforded by the policy, to defend any suit against the insured even if such suit were groundless, false or fraudulent. It is therefore conceded that if the suit by National Sugar against McCormick had stated a claim within the coverage afforded by the policy, Allstate would have been obliged to afford a defense. It is also agreed by the parties that coverage, if any, under the policy would come under Coverage B, since the contamination, if caused by McCormick, of necessity occurred during actual carriage or during the process of loading or unloading, and therefore arose out of the ownership, maintenance or use of an automobile as defined in the policy. See Cenno
v. W. Virginia Paper & Pulp Co. , 109 N.J. Super. 41 (App. Div. 1970), certif. den. 56 N.J. 99 (1970); Drew Chem. Corp. v. Amer. Fore Loyalty Group, etc. , 90 N.J. Super. 582 (App. Div. 1966); Annotation, "Risks within 'loading and unloading' clause of motor vehicle liability insurance policy," 95 A.L.R. 2d 1122 (1964).
National Surety, relying on the above authorities and the express provision of the policy that use of an automobile includes the loading-unloading process and arguing that the policy should be liberally construed in favor of coverage, claims that there is no doubt that the Allstate policy covered the operation out of which the loss allegedly occurred. The argument is sound enough so far as it goes, but it completely ignores the effect of the exclusions to the policy. There are 11 exclusionary clauses, grouped under the heading "Exclusions," which followed immediately after the coverage clauses contained under the heading "Insurance Agreements." The exclusion relied upon by Allstate, the proper construction of which goes to the heart of this lawsuit, provides among other things that the policy does not apply, under Coverage B, to damage to property "transported" by the insured. It reads as follows:
This policy shall not apply:
(h) Under Coverage B, to injury or destruction of property owned or transported by the insured, or property rented to or in charge of the insured other than a residence or private garage injured or destroyed by a private passenger automobile covered by this policy; * * *.
There was also an exclusion which specifically excluded from Coverage C any property in the "care, custody or control" of the insured, or over which it for any purpose was "exercising physical control." The text of that exclusion is that the policy does not apply:
(j) Under Coverage C, to injury to or destruction of (1) property owned or occupied by or rented to the ...