On certification to the Superior Court, Appellate Division, whose opinion is reported at 147 N.J. Super. 286 (1977).
For affirmance -- Chief Justice Hughes and Justices Sullivan, Pashman, Schreiber and Handler. For reversal and reinstatement of trial court's determination: Justice Clifford. The opinion of the court was delivered by Schreiber, J. Pashman, J., concurring. Justice Handler joins in this opinion. Clifford, J. dissenting. Pashman and Handler, JJ., concurring in the result.
The plaintiff Ambassador Insurance Company instituted this declaratory judgment proceeding seeking an adjudication that its named insured Joseph Satkin was not entitled to coverage under a comprehensive general liability insurance policy. The trial judge's determination of no coverage was reversed by the Appellate Division. We granted certification. 74 N.J. 269 (1977).
The assured Joseph Satkin owned, among other properties, two old wooden tenement buildings in Passaic, one at 78 Washington Place, and the other at 80-82 Washington Place. The building at 80-82 Washington Place was a two-and-a-half story duplex four-family house in which 11 to 14 persons resided. The building was in a dangerous condition and had been scheduled for demolition. In the early morning hours of May 11, 1973, a fire broke out in the stairwell of 82 Washington Place. The Passaic Fire Department was alerted at 3:27 a.m. and promptly responded. However, the fire spread rapidly due to an open air draft and took four lives.
Joseph Satkin was tried and convicted of arson, conspiracy to commit arson, and felony murder for having intentionally caused the fire. Rafael Montes, as administrator ad prosequendum and as general administrator, instituted an action against Satkin for the death and injuries of Marilyn Ortega Perez, an infant who perished in the fire. Plaintiff Ambassador Insurance Company refused to defend that action, which has been placed on the inactive trial calendar pending final disposition of this action. In this declaratory judgment proceeding, the plaintiff insurance company has joined Satkin and Rafael Montes, as administrator, as defendants.
At the conclusion of the trial the trial court found that Satkin intended to burn the building. Because of the early morning hour at which the fire was started, nature of the structure, and surrounding facts, the court held it was reasonable to expect that people in the building might be injured. The court concluded that in causing such a fire
the defendant Satkin had completely disregarded the safety of the inhabitants and found that the death and injury were the intended result of an intended act. Therefore coverage under the policy was denied.
The Appellate Division, noting that the plaintiff's liability policy did not contain an express exclusion for the consequences of an intentional wrongdoing, held that such omission was immaterial because public policy prohibits indemnity for the civil consequences of one's intentional wrongdoing. It opined that the guidelines for determining the nonexistence of coverage were either that the insured had a specific intent to inflict the injuries that occurred or that he knew the injuries were substantially certain to follow the performance of the intentional act. The Appellate Division reasoned that since Satkin did not intend to injure or kill anyone, though his act was in wanton and reckless disregard for the safety of those living in the building, the criteria were not met and there was coverage. We agree with the result reached, but not for the reasons stated.
The plaintiff's policy which was placed in evidence as a joint exhibit provided that:
The company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of
Coverage A, bodily injury or
Coverage B, property damage to which this Insurance applies, caused by an occurrence and the company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent * * *.
The insurance policy in evidence did not contain a definition of "occurrence," nor a provision which excluded coverage for intentional acts. Both parties have agreed that the factual record is so limited.*fn1 Accordingly, we adhere to the established
principle that we are bound by stipulations of fact. City of Jersey City v. Realty Transfer Co., 129 N.J. Super. 570 (App. Div. 1974); Stalford v. Barkalow, 31 N.J. Super. 193 (App. Div. 1954). In the policy schedule the limits of liability for bodily injury, coverage A, are $100,000 for each occurrence and $300,000 aggregate. The limits of liability for property damage, coverage B, are $25,000 per occurrence and $25,000 aggregate.
On the face of the policy, plaintiff's obligation to defend the action and pay on behalf of its insured any amount up to the announced limits due on account of the injuries suffered and the death of Marilyn Ortega Perez is obvious. The plaintiff concedes as much for it does not rely upon any exclusionary clause or other pertinent limitation in the policy.*fn2 Its only defense is that public policy prohibits insurance indemnity for the civil consequences of an insured's intentional wrongdoing.
It has been said that indemnification of a person for a loss or damage incurred as a result of his wilful wrongdoing in violation of a criminal statute is contrary to public policy. 7 Appleman, Insurance Law and Practice § 4252 at 5 (1962); 1A Appleman, supra § 492 (Supp. 1977); Morgan
v. Greater New York Taxpayers Mut. Ins. Ass'n, 305 N.Y. 243, 112 N.E. 2d 273, 275 (Ct. App. 1953); 10 Couch, Insurance § 41.663 (2d ed. 1962); 44 Am. Jur. 2d, Insurance § 1411; Ruvolo v. American Cas. Co., 39 N.J. 490, 496 (1963); Lyons v. Hartford Ins. Group, 125 N.J. Super. 239, 244 (App. Div. 1973). Were a person able to insure himself against the economic consequences of his intentional wrongdoing, the deterrence attributable to financial responsibility would be missing. Further, as a matter of moral principle no person should be permitted to allege his own turpitude as a ground for recovery. Accordingly, we have accepted the general principle that an insurer may not contract to indemnify an insured against the civil consequences of his own wilful criminal act. Ruvolo v. American Cas. Co., supra.
However, this principle is not to be applied under all circumstances. Certainly it should not come into play when the wrongdoer is not benefited and an innocent third person receives the protection afforded by the insurance. Recovery has been allowed to cover losses occasioned by an intentional act of the insured. In Fidelity-Phenix Fire Ins. Co. v. Queen City Bus & Transfer Co., 3 F.2d 784 (4th Cir. 1925), the president of a corporation, who owned 25% of the issued and outstanding capital stock, intentionally set fire to a motor bus owned by the corporation and on which he held a mortgage. The fire insurance company was compelled to pay the fire insurance to the corporation to be used for creditors and stockholders other than the wrongdoer. See Annotation, "Fire insurance on corporate property as affected by its intentional destruction by a corporate officer, employee or stockholder," 37 A.L.R. 3d 1385 (1971). In another situation a husband and wife owned property as tenants by the entirety and had fire insurance covering the property. The husband intentionally set fire to the property and then committed suicide. It was held that his act of arson did not bar the innocent wife's recovery under the fire insurance
When the insurance company has contracted to pay an innocent person monetary damages due to any liability of the insured, such payment when ascribable to a criminal event should be made so long as the benefit thereof does not enure to the assured. In furtherance of that justifiable end, under most circumstances it is equitable and just that the insurer be indemnified by the insured for the payment to the injured party. In subrogating the insurer to the injured person's rights so that the insurer may be reimbursed for its payment of the insured's debt to the injured person, the public policy principle to which we adhere, that the assured may not be relieved of financial responsibility arising out of his criminal act, is honored. The insurer's discharge of its contractual obligations by payment to an innocent injured third person will further the public interest in compensating the victim. See Burd v. Sussex Mutual Ins. Co., 56 N.J. 383, 398 (1970).
This application of subrogation is consonant with its traditional usage as an equitable mechanism to force the ultimate satisfaction of an obligation by the person who in good conscience should pay. See A. & B. Auto Stores of Jones St., Inc. v. Newark, 59 N.J. 5, 23 (1971); George M. Brewster & Son v. Catalytic Const. Co., 17 N.J. 20, 28 (1954). In Camden Trust Co. v. Cramer, 136 N.J. Eq. 261 (E. & A. 1945), Justice Heher described the principle in the following manner:
Subrogation is a doctrine of purely equitable origin and nature, although it is a right that is now considered as within the cognizance of courts of law in certain circumstances. Since it is an equity, it is subject to the rules governing equities; and it is axiomatic that it will not be enforced where it would be inequitable so to do. It will not be allowed to work injustice to others having equal or superior equities. The right of subrogation must be founded upon an equity just and reasonable according to general principles -- an equity that will accomplish complete justice between the parties to the controversy. * * * Subrogation is a device adopted by equity to compel the
ultimate discharge of an obligation by him who in good conscience ought to pay it. [citation omitted] The process is analogous to the creation of a constructive trust, the creditor being compelled to hold his rights against the principal ...