On appeal from Superior Court of New Jersey, Law Division, Union County.
King, Deighan and Havey. The opinion of the court was delivered by Deighan, J.A.D.
Defendant Potdevin Machine Company (PMC) appeals from a judgment in favor of plaintiff Theodis Lampley requiring defendant to pay plaintiff the remainder of a settlement of two claims against PMC. Plaintiff, an employee of Trinity Bag & Paper Company, instituted two separate actions against PMC in negligence, strict liability and for breach of warranty for personal injuries sustained as a result of an alleged defect in a machine manufactured and designed by PMC.
Ambassador Insurance Company (Ambassador) insured PMC during the period of time that the plaintiff was injured and undertook the defense of the claims and assigned defense counsel to represent PMC. Subsequently, Ambassador became insolvent and the New Jersey Surplus Lines Insurance Guaranty Fund Act (Fund), N.J.S.A. 17:22-6.70 et seq., took over the
defense from Ambassador and retained the same attorney to continue as trial counsel for PMC. The Fund took over 18 claims for products liability actions instituted against PMC while PMC was insured by Ambassador.
During the pendency of the present actions, settlement negotiations took place between plaintiff's counsel and trial counsel for PMC, who was originally retained by Ambassador. Several settlement proposals were forwarded to PMC by the defense attorney with suggestions involving payments or a guarantee of payments by PMC. These proposals were at all times rejected by PMC who contends it was prepared to try the matter. By letter of April 10, 1985 defense counsel reported as follows to the Fund:
At some time prior to the last scheduled trial, extensive settlement negotiations were held, and as a result thereof, the plaintiff had agreed to accept $50,000.00 in full and complete settlement of both cases providing payment would be made within a reasonable time. Since Ambassador Insurance Company was not making any payments, the plaintiff looked to the insured, Potdevin Machine Co., Inc. to make the payment and to then make a claim against Ambassador Insurance Company. Since Potdevin Co., Inc., was not in a position to make these payments, the case was not settled.
At the time that the plaintiff had agreed to accept $50,000.00, this demand had been approved by the claims department of Ambassador Insurance Company. Plaintiff's attorney has now indicated to the undersigned that she would be willing to settle both cases for $50,000.00 if the settlement would be approved by your office, and she could anticipate payment in the near future.
After numerous postponements, trial of the present matter was scheduled for September 9, 1985. On September 9, 1985, at approximately 3:30 p.m. plaintiff's attorney, with the permission of defendant's trial counsel, contacted John F. Whitteaker, PMC's personal attorney, and advised that the case was scheduled for trial the next day and further advised that:
(a) plaintiff's counsel and defense counsel had agreed on $50,000 as a settlement value of the case but plaintiff was concerned about a delay in payment of such sum;
(b) with plaintiff's specials of $10,000 and economic loss of $7,000, PMC would face several risks if the case went to verdict such as 36% pre-judgment interest (which is not reimbursable under the Guaranty Fund Act), a verdict higher than $50,000 and immediate execution of any judgment;
(c) the Guaranty Fund would pay only forty (40) percent immediately upon settlement, and
(d) the case would settle if PMC would guarantee payment of the balance of the settlement in one year if not paid in full by the Guaranty Fund.
Plaintiff's counsel sought PMC's guarantee concerning the above proposed settlement. Whitteaker advised that he would call ...