On appeal from the Superior Court of New Jersey, Law Division, Hudson County.
McElroy, Dreier and Shebell. The opinion of the court was delivered by McElroy, P.J.A.D.
The question posed by this appeal is whether plaintiffs-respondents, American White Cross Laboratories (American) and its products liability insurer and subrogee, The North River Insurance Company (North River), are entitled to defense costs, counsel fees and indemnification from defendant-appellant, The Continental Insurance Company (Continental), insurer of Absorbent Cotton Company (Absorbent), under a vendor's endorsement added to the general liability and products liability policy Continental issued to Absorbent.
The vendor's endorsement made American an additional insured of Continental but, in pertinent part, limited the additional vendor's coverage as follows:
It is agreed that the 'Persons Insured' provision is amended to include any person or organization (herein referred to as 'vendor'), as an insured, but only with respect to the distribution or sale in the regular course of the vendor's business of the named insured's products subject to the following additional provisions:
1. The insurance with respect to the vendor does not apply to:
(a) any express warranty, or any distribution or sale for a purpose, unauthorized by the named insured;
(b) bodily injury or property damage arising out of
(i) any act of the vendor which changes the condition of the products,
(ii) any failure to maintain the product in merchantable condition,
(iii) any failure to make such inspections, adjustments, tests or servicing as the vendor has agreed to make or normally undertakes to make in the usual course of business, in connection with the distribution or sale of the products, or
(iv) products which after distribution or sale by the named insured have been labeled or relabeled or used as a container, part or ingredient of any other thing or substance by or for the vendor;
(c) bodily injury or property damage occurring within the vendor's premises.*fn1
The operative facts of this case are not complex nor is there a material dispute as to any of them.
Absorbent sells a number of products to American including absorbent cotton which it first processes for absorbency and bleaches. The cotton is then carded and sold to American in the form of "header rolls," obviously a sale in bulk, contained in cases which are marked as to the number of rolls, size and weight of each roll and the weight of the entire case. American, under an agreement with its customer Shop Rite/Wakefern, a ...