On certification to the Superior Court, Appellate Division.
For reversal and remandment -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern and Stein. For affirmance -- Justice Garibaldi. The opinion of the Court was delivered by Stein, J. Handler, J., concurring in part and dissenting in part. Garibaldi, J., dissenting.
In this appeal we reconsider the longstanding New Jersey rule immunizing private water companies from liability for their negligence in failing to provide to fire hydrants water pressure of sufficient force to extinguish a fire. We now hold that private water companies are no longer immune from such liability, except with respect to subrogation claims asserted by fire-insurance companies.
The facts are not in dispute. On November 23, 1980, a fire broke out at the Twin Bridge Apartments in Penns Grove, New Jersey. Because of inadequate water pressure at the nearby fire hydrants, fire fighters were unable to extinguish the flames. Consequently, the fire spread throughout the building, gutting the twelve-unit structure.
Weinberg, the owner of the property, and the Coles, residents in the building, brought suit against the Penns Grove Water Company (Penns Grove), a private water company that installed and maintained the fire hydrants and water mains in the municipality. Penns Grove operated under a filed tariff and pursuant to the rules and regulations of the Board of Public Utility Commissioners (BPUC). Plaintiffs alleged that Penns Grove negligently failed to inspect, maintain, and repair its water system, resulting in water pressure inadequate for fire fighting.
Penns Grove's 1976 tariff provided:
1. Pennsgrove Water Supply Company, Inc., * * * hereby adopts Regulations promulgated by the Board of Public Utility Commissioners * * *, insofar as they may be applicable to Water Utilities * * *.
8. The Company will use due diligence at all times to provide continuous service of the character or quality proposed to be supplied but in case the service shall be interrupted or irregular or defective or fail, the Company shall be liable and obligated only to use reasonably diligent efforts in light of the circumstances then existing to restore or correct its characteristics.
10. The standard terms and conditions contained in this tariff are a part of every contract for service entered into by the Company and govern all classes of service where applicable * * *.
Weinberg had signed a service contract with Penns Grove.*fn1 Like the tariff, this contract incorporated the rules and regulations of the BPUC. One of these regulations, N.J.A.C. 14:9-2.2, entitled "Pressure and volume of water service," provides as follows:
(a) Each water utility shall supply water service at adequate pressure and volume to the curb, or the point of connection with the customer's service line.
(b) Each water utility shall maintain sufficient pressure and volume of water at all fire hydrants to assure adequate streams for the fighting of fires.
The trial court granted summary judgment in favor of defendant Penns Grove, and the Appellate Division affirmed, 216 N.J. Super. 409, both ruling on the basis of our decision in Reimann v. Monmouth Consol. Water Co., 9 N.J. 134 (1952). In Reimann we held that absent an express contractual or statutory provision, a private water company is not liable for negligently failing "to provide a sufficient supply of water at sufficient pressure to fire hydrants to extinguish a fire which is destroying an individual's property." Id. at 137-38 (citing Baum v. Somerville Water Co., 84 N.J.L. 611 (E. & A. 1913)).
As we explained in Reimann, the duty of a water company to provide water sufficient to extinguish fires may stem from three distinct sources. It may be imposed by contract, by statute, or by common law. 9 N.J. at 137.
The contractual source of duty springs from ordinary principles of contract construction. In Middlesex Water Co. v. Knappman Whiting Co., 64 N.J.L. 240 (1899), the Court of Errors and Appeals construed a contract between a business and a water company that explicitly provided for the supply of water to extinguish fires. The Court held that the water company's duty was unconditional:
[W]here the contract is express, as it is in this case -- to furnish water sufficient for fire purposes -- to do a thing not unlawful, the contractor must perform it, and if, by some unforeseen accident, the performance is prevented, he must pay damages for not doing it. [ Id. at 251.]
However, in Hall v. Passaic Water Co., 83 N.J.L. 771 (1912), the Court of Errors and Appeals denied recovery to a mill for its fire loss, finding no express agreement between the mill and water company as to the provision of water for fire-fighting purposes. The court found the contract to be between the city and the water company, and thus found no cause of action on behalf of the mill. Id. at 774, 776 (citing Middlesex Water Co. v. Knappman Whiting Co., supra, 64 N.J.L. 240).
In denying recovery absent an express contractual provision, the Court in Baum v. Somerville Water Co., supra, 84 N.J.L. 611, also made the first authoritative pronouncement of common-law tort immunity for New Jersey water companies. The plaintiff in Baum sued a water company with which he had no contractual relation. He argued that "a duty was owed to the public to supply sufficient water of sufficient pressure to extinguish fires." Id. at 613. The court held:
[I]n the absence of contract no liability exists on the part of the defendant for the benefit of the plaintiff. The common law does not impose such a liability and we have not been pointed to any statute which creates it. In the absence of contract it does not exist. [ Id. at 615.]
In Atlas Finishing Co. v. Hackensack Water Co., 10 N.J. Misc. 1197 (Sup.Ct.1932), a manufacturer sued a water company for breach of its contractual, common-law, and statutory duties to provide water to extinguish fires. The court there denied relief on any of the three asserted grounds. As to the contract claim, it found that there existed at most an implied contract for ordinary water service, but that this was insufficient to ground a claim for failure to provide water sufficient to put out fires. The Atlas court asserted that "[t]he primary business of a water company, so far as private customers are concerned, is to furnish water as a commodity * * *. [I]t was never contemplated that from the simple relation of distributor and customer, the former undertook to assume liability for failure to furnish water to extinguish fires." Id. at 1199-1200. "Such liability," the court continued, "can only arise out of an express contract. It does not arise by implication." Id. at 1201.
Expanding on its conclusion that the primary business of water companies is to supply water as a commodity, and not to extinguish fires, the Atlas court rejected plaintiff's claim based on common-law negligence:
It may very well be that the object of connecting the plaintiff's pipe lines with the defendant's water system was for the purpose of enabling the plaintiff to obtain a supply of water to combat fires on its premises, but as we have seen, the obligation of the defendant would merely be to supply water as a commodity, in the absence of an express contractual obligation to furnish it for fire extinguishing purposes. [ Id. at 1202.]
Finally, the court rejected the claimed existence of a statutory duty based on the Public Utility Act. The Act provided: "[N]or shall any public utility as herein defined provide or maintain any service that is unsafe, improper or inadequate." Id. at 1203. The court held that this statute gave no private right of action to aggrieved individuals. Id.
We reconsidered the issue of a water company's common-law duty to supply water pressure of adequate force to fight fires in Reimann, supra, 9 N.J. at 134. There, plaintiff owned a recreation area that was destroyed by a fire when defendant failed to provide sufficient water pressure to the nearby hydrants.
Summarizing prior New Jersey law on the subject, the Court said:
Before there can be either nonfeasance or misfeasance there must be a duty * * *. There was no contract, therefore no duty imposed by contract. There is no applicable statute and therefore no statutory duty. Plaintiff argues for a common law duty, but the Court of Errors and Appeals held in Baum v. Somerville Water Company, 84 N.J.L. 611 (1913) * * * that the common law does not impose a duty upon a company serving a municipality with water to provide a sufficient supply of water at sufficient pressure at fire hydrants to extinguish a fire which is destroying an individual's property. [ Id. at 137-38.]
To the suggestion that the Court reject the Baum rule denying a common-law duty, the Court expressed its reluctance to overturn such a well-settled rule of law, deferring that task to the Legislature.
The Court also evaluated the policy arguments most often cited by authorities and courts in other jurisdictions favoring the immunity. Two general concerns were cited. First, the Reimann Court observed that the imposition of an actionable duty of care on the part of water companies would create an inefficient form of compulsory fire insurance. The Court recognized that imposing liability on water companies for fire damage resulting from their negligent failure to provide adequate water pressure would increase the cost of providing water. This additional cost would ultimately have to be passed on to the water consumer, forcing the consumer, in effect, to insure against fire loss through increased water rates. This is inefficient, the Court suggested, because water rates are not variable according to risk of fire, whereas ordinary fire-insurance premiums are.
Second, echoing the concerns of the Court in Baum, the Reimann Court expressed its fear that abrogating tort immunity for water companies would open the door to potentially limitless liability. The Court noted that such liability could theoretically overwhelm smaller water companies, causing bankruptcies and adding uncertainty to the supply of water. Id. at 139-40.
The decision in Reimann to reaffirm Baum was 4-2. Chief Justice Vanderbilt dissented, pointing out that the controversy in Baum had arisen at a time when water companies were unregulated and
the rates charged and the service rendered by water companies were solely matters of contract between the water company and the property owners in the area it served. They were free to contract without regulation by the State. In those circumstances the property owner could expect to receive by way of water service only that for which he had contracted to pay.
Today a property owner stands in the same relation to a water company as a traveller does to a bus company; he accepts the service that is offered and pays the price that is fixed by the Board of Public Utility Commissioners. Such a situation is inherent in the very nature of a public utility which enjoys a public monopoly and is subject to public regulation.
In these circumstances differing radically from those in which the earlier cases were decided, can it reasonably be said that the rule of law which was applicable formerly is still binding on us today? Must not consideration be given to the change in the status of water companies under the Public Utility Acts of 1910 and 1911 and the changed relationship between water companies and property owners resulting therefrom? To fail to do so would not speak well for the nature of the common law which requires that each time a rule of law is applied it be scrutinized carefully to make sure that conditions have not so changed as to make its further application the instrument of injustice. The regulation of public utilities by the State has superseded the "freedom of contract" so-called that was the major premises of the Baum case and the earlier decisions. In the circumstances of the present case I am convinced that since the decision was rendered in Baum v. Somerville Water Co., supra, the statutory law of this State as to water companies has so changed as to make the rule there laid down no longer acceptable. [ Id. at 143-45.]
He also rejected the majority's conclusions about inefficient insurance coverage:
The defendant is as capable of insuring itself against liability for its own negligence in the supplying of water as the plaintiff and other property owners are of insuring themselves against loss by fire. Considering property alone, the question is merely on whom shall the burden of loss, or of insurance therefor, fall. Sound principles of justice would indicate that it be on the party at fault. [ Id. at 148-49.]
Finally, the Chief Justice disputed the necessity for deference to the Legislature:
The courts are under as great an obligation to revise an outmoded rule of the common law as the legislatures are to abolish or modernize an archaic statute. The common law is not merely a conglomeration of rules to be gleaned from
decisions of the ancient past; it is a living and growing body of legal principles. It derives its life and growth from judicial decisions which alter an existing rule, or abandon an old rule and substitute in its place a new one in order to meet new conditions.
True it is that when a rule has been established by legislation, however undesirable it may be, it is for the Legislature alone to remedy the situation. But when the rule is one of common law established by the courts the remedy lies with either the Legislature or the courts, and inaction by one does not preclude action by the other. [ Id. at 149-50 (citations omitted).]
The Reimann rule has been reconsidered by this Court three times. In Sydney Grossman Hotel Corp. v. Lakewood Water Co., 27 N.J. 91 (1958), a divided Court (Justices Heher, Jacobs and Francis dissenting), upheld Reimann, stating, "The question is a close one, but an existing rule of law should not be overturned unless its injustice is clear. We are not satisfied that Reimann is wrong in its overall application." Id. at 92. In Brooks v. City of Orange, 61 N.J. 576 (1972), and J.H.M. Realty Corp. v. Town of Belleville, 61 N.J. 577 (1972), we also declined to depart from the Reimann rule.
In re-evaluating the arguments for denying recovery to a plaintiff whose property was destroyed by fire due to a water company's negligence, it is helpful to consider the resolution of this issue by other jurisdictions. The rule in the majority of states is that of Reimann: absent an explicit contractual or statutory basis, a water company has no duty to provide water in sufficient quantity to extinguish fires.*fn2
Most cases denying recovery to water consumers consider both contractual- and tort-liability theories. The most frequent contractual claim, absent from the case before us, rests upon an agreement between the municipality and the water company for water to be supplied to fire hydrants. The majority of courts
faced with this claim deny that the individual consumer is granted any rights under a contract to which he is neither a party nor an explicitly "intended" beneficiary. E.g., German Alliance Ins. Co. v. Home Water Supply Co., 226 U.S. 220, 33 S. Ct. 32, 57 L. Ed. 195 (1912); Earl E. Roher Trans. & Storage Co. v. Hutchinson Water Co., 182 Kan. 546, 322 P. 2d 810 (1958); Gatewood v. City of Detroit, 121 Mich.App. 57, 329 N.W. 2d 34 (1982); Clark v. Meigs Equip. Co., 10 Ohio App. 2d 157, 226 N.E. 2d 791 (1967); accord Luis v. Orcutt Town Water Co., 204 Cal.App. 2d 433, 22 Cal.Rptr. 389 (1962). In the leading case of H.R. Moch Co., Inc. v. Rensselaer Water Co., 247 N.Y. 160, 159 N.E. 896 (1928), Chief Judge Cardozo said:
In a broad sense it is true that every city contract, not improvident or wasteful, is for the benefit of the public. More than this, however, must be shown to give a right of action to a member of the public not formally a party. The benefit * * * must be one that is not merely incidental and secondary. It must be primary and immediate in such a sense and to such a degree as to bespeak the assumption of a duty to make reparation directly to the individual members of the public if the benefit is lost. [ Id. at 164, 159 N.E. at 897 (citations omitted).]*fn3
When a direct contract for water service exists between consumer and water company, the majority-rule jurisdictions generally construe it strictly and deny liability unless the contract expressly provides that the water company furnish water to fire hydrants servicing the customer's property. Stuart v. Crestview Mut. Water Co., 34 Cal.App. 3d 802, 808-09, 110 Cal.Rptr. 543, 547 (1973); Libbey v. Hampton Water Works
Co., Inc., 118 N.H. 500, 389 A.2d 434 (1978); Rose v. Sapulpa Rural Water Co., 631 P. ...