For affirmance and remandment in part -- Chief Justice Hughes and Justices Jacobs, Mountain, Sullivan, Pashman and Clifford. For reversal -- None. The opinion of the Court was delivered by Hughes, C.J. Clifford, J. (concurring). Justice Mountain authorizes me to express his concurrence with the views set forth herein. Mountain and Clifford, JJ., concur in result.
[65 NJ Page 478] We consider here cross appeals from the Appellate Division affirmance (Rova v. Investors, 124 N.J. Super. 248 (1973)) of a judgment entered by a trial court, sitting without a jury, generally in favor of a plaintiff against the defendant, its insurer. The claim rested on alleged bad faith by the insurer in exposing its insured to payment of substantial sums in excess of policy limits, for which sums recovery was sought and awarded below. Plaintiff, responding here in defense of its judgment, is Rova Farms Resort, Inc., a New Jersey corporation, which we shall call variously "Rova" or "the insured." Appealing from the judgment against it is Investors Insurance Company of
America, also a New Jersey corporation, hereafter referred to as "Investors," "the insurer," or "the insurance company."
The sequence of relevant events began with an accident entailing severe personal injuries, which occurred on the premises of Rova, on which it operated a recreational resort in Jackson Township, New Jersey, including a lake used by commercial guest patrons for diving and bathing. Investors had issued to Rova its policy of comprehensive general liability insurance which was in full force and effect on the date of accident. In the usual form, it bound Investors to pay on behalf of Rova "* * * all sums which the insured shall become legally obligated to pay as damages because of bodily injury, * * * sustained by any person and caused by accident," with a limitation of $50,000. The policy also obligated Investors to defend any suit against the insured alleging such injury and seeking damages on account thereof. The contract further entitled Investors to make such investigations, negotiations and settlement of any claim or suit as it might deem expedient and, while binding the insured to cooperation with Investors, forbade the insured, except at its own cost, to make or pay any settlement.
Such was the contractual relationship between Investors and Rova on July 25, 1965, when Rova's commercial invitee, Lawrence McLaughlin, dove from a "diving platform" into 3 or 4 feet of murky water under circumstances described in the carefully detailed opinion of Justice Francis, writing for this Court, in McLaughlin v. Rova Farms, Inc., 56 N.J. 288 (1970). And no gesture was made in the instant litigation or otherwise to question or palliate the significance of the terrible physical injury sustained when McLaughlin's head struck the unseen bottom of the lake.*fn1
Suit was instituted by McLaughlin, joined in by his wife for consequential loss, against Rova and its general manager. Investors, as its contract obligated it to do, assumed the defense of the action, assigning an experienced trial attorney, Mr. Milton D. Liebowitz, to conduct it. There was extensive pretrial discovery, including depositions of McLaughlin and others and, in the usual course Investors fully investigated the circumstances, interviewing and taking statements from relevant witnesses, preparing photographs and the like.
At one stage before trial, plaintiffs were successful over objection in adding to their original allegation of negligence against Rova an additional charge of willful and wanton misconduct on its part in the operation and maintenance of the facility. The investigations and pretrial discovery were chiefly oriented toward the main issue in the case, i.e., the conduct of Rova, whether negligent or willfully and wantonly tortious, and the alleged contributory negligence of McLaughlin. Naturally, this pretrial preparation did not bear importantly on the damage issue inasmuch as McLaughlin's injuries were so severe as to be quite beyond question.
The injection of the additional issue of willful and wanton negligence caused Investors to warn its insured of its denial of coverage of any such wrongful conduct, as distinguished from ordinary negligence, and to invite Rova's attention to the advisability of its retaining independent counsel for its own protection. Heeding such admonition, Rova did retain counsel, Mr. Nathaniel H. Roth, to act in its interest. Thereafter, although he was not permitted to participate in the actual trial because of Investors' preemption of the defense (as was its contractual right),*fn2 Mr. Roth did participate in
settlement discussions during trial, pointedly and repeatedly suggesting the vulnerability of Rova to excess liability loss in view of the grave injuries involved. He constantly inquired as to Investors' willingness to offer its policy limit and urged it to do so, and in fact at one point was permitted in an open court discussion (in the absence of the jury) to denounce what he considered the cavalier conduct of both counsel for plaintiffs and Investors in failing to reach the attitudinal detente essential to settlement.
The McLaughlin case came to trial on June 10, 1969, before Judge Rosenberg and a jury in Passaic County. McLaughlin was present the first trial day, strapped in a wheelchair, and was presumably seen by judge and jury, but that night became so ill that he was not released from the hospital to return on subsequent days and his testimony entered the case by way of reading his deposition (R. 4:16-1(c)). On that first trial day Investors offered $12,500 in settlement of the case, that figure approximating the "special" damages of Mr. McLaughlin at some earlier stage during discovery. At no time thereafter did Investors increase that offer, albeit its policy limit was $50,000 and any verdict beyond that would have to be paid by its insured.
Not surprisingly, in view of the grave injury involved and its lifetime consequences, the jury returned a verdict for the plaintiffs in a total amount of $225,000, $15,000 thereof being allocated to the wife for consequential losses. An appeal was directed by Investors to the Appellate Division. Even the magnitude of the verdict returned did not impel Investors to increase its offer nor to explore otherwise the possibility of settlement. The Appellate Division reversed in an unreported opinion, holding that the insured's negligence as
proved was not so gross as to justify a finding of willful, wanton conduct, and therefore the judge had erred in failing to withhold this issue from the jury. Because the jurors may have found willful and wanton negligence by Rova Farms and have consequently disregarded any ordinary contributory negligence by McLaughlin, the case was remanded for retrial. Mr. Liebowitz reminded Investors in an opinion letter (which it had solicited) that the issue of bad faith in dealing with settlement should be of concern to it since, in the event of an adverse verdict "[t]he potential exposure in this case involving severe personal injuries could be up to $500,000.00." Still Investors, through its Claims Committee, comprised in major part of experienced lawyers, did not flinch at this dismal prospect, perhaps because its eventuation could harm Investors only to the extent of 10% of such projected verdict. As it happened, there was no retrial, for this Court reversed the Appellate Division and reinstated the verdict. McLaughlin v. Rova, supra. Investors thereafter paid its $50,000 and Rova, with much difficulty, including a nationwide fund appeal to its members (Rova has a relationship to a church-social membership group not relevant here), a mass meeting at Rova Farms to raise money, and finally the obtaining of the bulk of the funds from a mortgage loan on its property, paid the excess judgment of $175,000 plus accrued interest thereon, completing such payment on August 7, 1970.
Having thus suffered from what it deemed the bad faith of Investors in not settling or attempting in good faith to settle the case against it, Rova sued Investors in the instant action for such losses plus counsel fees, and for interest on the total excess loss paid by it from the time such sums were paid until the time of entry of judgment in the present case. (Interest thereafter on the judgment here reviewed runs from the date of entry of judgment under R. 4:42-11(a) and that question is not issuable here.)
After full hearing on the merits, the trial judge on May 12, 1972, entered judgment for Rova against Investors for the amount of the excess judgment which Rova had paid, $175,000, plus the interest which it had had to pay thereon, making a total judgment of $197,150.68. Later the court amended such judgment to allow counsel fee to Rova's attorney under R. 4:42-9 (a) (6) (the counsel fee is not involved in this appeal), but denied plaintiff's application for assessment of additional interest for the interval above mentioned.
The Appellate Division having affirmed the trial court's judgment, this Court granted certification (63 N.J. 580 (1973)). Investors challenges the judgment against it on the principal ground that it had not, on the whole case, validly been adjudged to have exercised bad faith in the premises. Collaterally, it suggests (1) the relevance of a specific offer to settle within policy limits (which latter it denies) as bearing on the legitimacy of a "bad faith" issue, and (2) that Rova by equivocation as to its financial capacity to contribute thereto, "prevented" settlement and should by reason of such "unclean hands" be estopped from recovery. The frivolous nature of these latter points of appeal can best be demonstrated in the context of our discussion of the main issue, the trial court's basic finding of bad faith on the part of Investors.
Rova's cross-appeal challenges that part of the judgment below (undisturbed by the Appellate Division) which denied it interest on the excess amount it says it wrongfully was caused to pay on August 7, 1970, between that date and the date of the entry of judgment here under review, May 12, 1972.
Considering first the scope of our appellate review of judgment entered in a non-jury case, as here, we note that our courts have held that the findings on which it is based should not be disturbed unless "* * * they are so wholly insupportable
as to result in a denial of justice," and that the appellate court should exercise its original fact finding jurisdiction sparingly and in none but a clear case where there is no doubt about the matter. Greenfield v. Dusseault, 60 N.J. Super. 436, 444 (App. Div. 1960), aff'd o.b. 33 N.J. 78 (1960). That the finding reviewed is based on factual determinations in which matters of credibility are involved is not without significance. Brundage v. New Jersey Zinc Co., 48 N.J. 450 (1967). Findings by the trial judge are considered binding on appeal when supported by adequate, substantial and credible evidence. New Jersey Turnpike Authority v. Sisselman, 106 N.J. Super. 358 (App. Div. 1969), certif. den. 54 N.J. 565 (1969). It has otherwise been stated that "our appellate function is a limited one: we do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice," Fagliarone v. Twp. of No. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963), and the appellate court therefore ponders whether, on the contrary, there is substantial evidence in support of the trial judge's findings and conclusions. Weiss v. I Zapinsky, Inc., 65 N.J. Super. 351, 357 (App. Div. 1961).
We turn to the examination of the record below with such standards in mind, as bearing on the validity of the trial judge's determination that Investors failed to use good faith with regard to its contractual liability to Rova and that Rova for such cause was entitled to judgment. That such contractual obligation embodies an implied covenant of good faith and fair dealing is not in issue here, nor indeed do we think it is presently open to substantial question. See Radio Taxi Service, Inc v. Lincoln Mutual Ins. Co., 31 N.J. 299 (1960); Bowers v. Camden Fire Ins. Assoc., 51 N.J. 62 (1968).
We note that substantial evidence before the court revealed a multitude of circumstances which should have impelled Investors to energize a clearly attainable settlement of the McLaughlin claim. Settlement at trial could have been arranged for $75,000, an amount which plaintiffs' attorney was authorized by his clients to accept, as was made known to the McLaughlin trial judge, to Liebowitz, to Roth and, through Liebowitz, to Investors. During those somewhat hectic trial days there were raised many storm signals of potential financial disaster in the face of which Investors maintained a singular imperturbability, never increasing its first-day offer of $12,500. The mere appearance at the trial of a 27 year old man, visibly and unquestionably shattered for life, was a factor which might have been expected to inspire concern to a seasoned trial attorney (as no doubt it did) and to his client, an experienced insurance company.
During the customary "settlement" conferences the trial judge, aware of the grave physical aspect of the case and the unpredictability of jury results, suggested that Investors might be well advised to pay its policy limit and this was promptly reported by Liebowitz to Investors. Liebowitz added his own recommendation to Investors that it pay $50,000 "if that would settle the case." Investors remained unmoved. The McLaughlins' attorney stated he would recommend acceptance of $50,000 to his clients, if it were offered, and asserted that although he would not try to coerce them to accept it, he had "fairly good control" of them (a way of saying that they respected his advice). Rova had instructed Roth previously that, if Investors put up its $50,000, he was authorized to add $25,000, which Rova somehow would raise and pay. Roth never disclosed this to Liebowitz because he feared, in view of the adamant stance of Investors, unmoved by the exhortations not only of the court but of its own attorney, that he would be exposing his client to share in the payment of an amount contractually the obligation of
Investors to pay, i.e., the policy limit. For this reason he dissembled, asserting that his client had no money, which was literally true, but begged the question of its non-liquid property potential (not beyond the scrutiny of Investors had it cared to look) which was eventually used to raise money by mortgage to pay the bulk of the obligation cast upon it by this unhappy debacle of honest communication.
And Roth's fears were not unfounded, for in response to his pleas to Liebowitz to offer Investors' policy limit Liebowitz kept exhorting Roth to announce his client's willingness to contribute something, and this (in view of the apparent "stonewall" nature of Investors' $12,500 offer), was in itself suggestive of bad faith.*fn3 Liebowitz never told either plaintiffs' attorney, Mr. Rapuano, or Roth that he had recommended to his company that it pay $50,000, nor did he make any further effort to settle the case. Had he done so, and had some belated accident of logic persuaded Investors that it had a problem on its hands, settlement would clearly have been attainable. Investors' unresponsiveness persisted despite the fact that Liebowitz from beginning to end had been concerned about the bad faith danger to his client and had even
warned it by letter of the language of our case of Bowers v. Camden Fire Ins. Assoc., supra.*fn4 The Claims Committee, apparently the architect of Investors' decisions, also had given thought to its obligation to act in good faith and was concerned about the spectre of "bad faith" at the very meeting at which it set its apparently inflexible settlement figure of $12,500.
This sciential grasp of its legal duty, however, did not interrupt the even tenor of Investors' policy of containment at the level of $12,500 although it never had any illusion, nor had its attorney, that its insured could escape the risk of jury confrontation on the issue of fault vis-a-vis the grave injury involved. Mr. Liebowitz not only realized, but reported to the insurance company that a potential verdict could exceed $50,000, that the McLaughlins could produce a prima facie case of negligence, that he, Liebowitz, "* * * could not see getting out of this case on a motion," and that he "* * * could never have seen Judge Rosenberg or any other judge not permitting this case to go to the jury." Hence, from the time of first view of this unfortunate plaintiff in the courtroom, Investors had ample opportunity to understand that its fate (and that of its exposed insured) would rest in the hands of a jury and it would not be rescued by control of the issue by the court as a legal matter.
Even after the chastening effect of the $225,000 verdict (as ameliorated by appellate reversal and direction of a new trial) and Liebowitz' advice to Investors that it should
think about the brooding issue of "bad faith" in the context of a possible $500,000 verdict, Investors maintained its strange aplomb. Perhaps this was responsive to the recommendation of its Claims Manager who urged the Claims Committee, though indeed it was conscious of its "good faith" obligation, to have nevertheless "* * * the courage of their convictions." It may not be too cynical to observe that by this time it was apparent that a large proportion of the cost of exhibiting such courage might have to be paid by other than Investors, namely, one to whom it had promised coverage and good faith in providing the same.
The reluctance of Roth to volunteer a contribution by Rova supported by his protestations of its cash poverty, was an element of the "fencing" which was a part of the settlement discussions during trial. We think the relevant culpability of Roth's participation in this technique diminishes to the vanishing point under the twin factors of Investors' unconscionable appeal that Rova contribute to a settlement underpinned by its offer of 25% of its policy obligation and the astute observation expressed by Judge Wiley below:
I think the insurance company has almost a fiduciary duty to protect their insured and, if there is any fencing to be done, the last person that is going to do it is the insurance company. They have to act in good faith to protect the interest of their client.
Investors and its counsel seemed quite sanguine as to the prospect of convincing a jury of McLaughlin's contributory negligence. That hope survived the abandonment (by way of inability to offer proof thereof) of two bases on which it, among other things, originally rested, i.e., intoxication and foreknowledge of the depth of the lake water on the part of McLaughlin. The reasonableness of its prejudice against settlement, based on this hope, is not persuasive of good faith, considering the haunting possibility of financial disaster. In fact, Investors' belief in its eventual vindication seems to have been somewhat aberrational in nature, since even at trial of the instant case (long after our Supreme Court had confirmed a finding of liability to the extent of
$225,000) lawyer members of the Claims Committee continued to express the firm view that McLaughlin v. Rova ...