On appeal from Superior Court of New Jersey, Law Division, Essex County.
Pressler, Muir, Jr. and Skillman. The opinion of the court was delivered by Skillman, J.A.D.
[222 NJSuper Page 284] This insurance litigation arises out of a fire which damaged several buildings in an industrial complex in Newark. Plaintiff Industrial Development Associates (Industrial) is a limited partnership formed in 1979 to acquire the industrial complex, which consisted of 22 buildings located on approximately 7 1/2 acres of land. Industrial's general partners are Anthony Pugliese, Jr. and his son, Anthony Pugliese, III. Anthony Pugliese, III (hereafter referred to as Pugliese) was responsible for supervising extensive renovations of the buildings in preparation for leasing them to commercial tenants. Pugliese, acting as agent for Industrial, hired Pugliese Swimming Pools Corp., also owned by the Puglieses, as the general contractor for the renovations, which included demolition, repairs of the plumbing, heating, and sprinkler systems, and a variety of other rehabilitative work.
In July of 1980, when there were already tenants occupying some of the buildings, Pugliese attempted to obtain insurance on six of the buildings through Anthony Suarez, an insurance broker with whom he had previously done business in connection with other renovation projects. Unable to secure coverage in the conventional marketplace, Suarez contacted Thomas Guthrie of F.T.P., Inc. (FTP), also an insurance broker, to obtain his assistance in securing coverage from a surplus lines insurer. Around August or September of 1980, Suarez visited the premises for approximately one-half hour, accompanied by Guthrie. Pugliese alleges that during this inspection he informed Guthrie, who is now deceased, that the sprinkler system in the buildings was disconnected. Guthrie, in the part of his deposition read to the jury, denied being told this. Guthrie subsequently contacted Michael Himowitz of defendant Executive Excess (Executive), another insurance broker, who in turn communicated with Thaxter H. Polk of defendant Commercial Union (Commercial), a surplus lines insurer. According to Himowitz, Guthrie informed him that the sprinkler system was operational and he passed on this information to Commercial. Polk then gave Himowitz the order to bind the coverage.
A binder dated August 28, 1980 was issued by FTP and signed by its President, Frank Powell. This binder identified Suarez's company as the broker for Industrial and Commercial as the insurer. Powell apparently received an oral authorization from Executive to issue this binder. Himowitz sent Guthrie a confirmation of insurance, dated October 9, 1980, which indicated that coverage had become effective on September 5, 1980. A policy of insurance was subsequently issued by Commercial.
On March 18, 1981, a serious fire erupted during renovations when an acetylene torch being used to remove piping came in contact with chemical residue in the pipes. Industrial filed a claim with Commercial for the losses it incurred in the fire. Commercial rejected the claim on the grounds that the inoperability
of the sprinkler system on the date of the fire constituted a violation by Industrial of the Automatic Sprinkler clause of the Protective Safeguards Endorsement of the policy. This endorsement warranted that the premises were protected by a sprinkler system and imposed an obligation upon Industrial to immediately notify Commercial of any impairment of the system.
On March 21, 1984, Industrial filed this lawsuit against Suarez,*fn1 FTP, Executive and Commercial based on the rejection of its insurance claim. Industrial also named the renovations contractor, Pugliese Swimming Pools, as a defendant, alleging that its negligence in performing the renovations had caused the fire. Additionally, a former owner of the property, PPG Industries, Inc. (PPG), was joined as a defendant on the theory that its negligence in leaving chemical paint residues in the pipes when it sold the property had been a contributing cause of the fire.
On January 10, 1986, Commercial and Executive successfully moved for summary judgment on the grounds that the undisputed facts showed that Industrial had breached the Protective Safeguards Endorsement of the policy by failing to have an operational sprinkler system as of the date of the fire. The trial court acknowledged the existence of a factual dispute as to whether Guthrie had been informed that the sprinkler system was inoperative. However, the court concluded that Commercial and Executive could not be held responsible for Guthrie's failure to notify them that the premises did not have sprinklers, because it had been established as a matter of law that Guthrie's employer, FTP, was not acting as an agent for Commercial and Executive.
The case subsequently proceeded to trial against FTP, PPG and Pugliese Swimming Pools. Industrial settled with Pugliese
Swimming Pools during trial. At the close of Industrial's case, the trial court granted motions by FTP and PPG for dismissal. Industrial appeals and FTP cross-appeals from the summary judgments in favor of Commercial and Executive. We reverse the dismissal at the close of Industrial's case entered in favor of FTP and the summary judgments in favor of Commercial and Executive. We affirm the dismissal of PPG.
Commercial and Executive were granted summary judgment based on the trial court's conclusion that Industrial had breached its obligations under the Automatic Sprinkler clause of Protective Safeguards Endorsement of the policy, thereby suspending coverage as of the date of the fire. The relevant portion of this endorsement provides as follows:
In consideration of the premium at which this policy is written, based on the protection of the premises by the sprinkler system and in connection therewith an approved central sprinkler supervisory service, it is a condition of this policy that the insured shall exercise due diligence in maintaining in complete working order all equipment and services pertaining to the operation of the approved central sprinkler supervisory service which are under the control of the insured. The insured shall give immediate notice to this Company of any impairment in or suspension of the sprinkler system or services (within the knowledge of the insured).
In arguing that Industrial breached this provision, Commercial and Executive rely on the undisputed fact that the sprinkler system had been disconnected for a substantial period of time prior to the fire. Industrial's position is that Commercial and Executive are estopped from relying upon the Protective Safeguards Endorsement because their agent, Guthrie, was aware when he bound the policy that the sprinkler system had been disconnected in connection with renovations on the buildings. See Harr v. Allstate Ins. Co., 54 N.J. 287 (1969). The response of Commercial and Executive is that Guthrie and his employer, FTP, were not their agents but rather Industrial's agents.
The issue on which the grant of summary judgment in favor of Commercial and Executive turns is whether FTP, an intermediary
in the placement of the policy insuring Industrial's premises, was acting as the agent of the insured, Industrial, or the insurer, Commercial. According to a leading commentator in the field of insurance, ". . . it is clear that this is a question of fact . . ." and "[h]ence it is to be determined from all the facts of each case, and not from the mere words used, whether the agent represented the insurer or insured, or whether he acted for both." W.R. Vance, Handbook on the Law of Insurance (3 ed. 1976), at 435; see also 3 Couch, Insurance (2 ed. 1984) § 26.29 at 562. The decisions in this state have also recognized that the status of an insurance agent as agent of the insured or of the insurer ". . . depends upon the intention of the parties and is a question of fact to be determined by the jury." Higgins v. Fidelity-Phoenix Fire Ins. Co. of N.Y., 107 N.J.L. 175, 177 (E. & A.1930); see also Lilly v. Allstate Ins. Co., 218 N.J. Super. 313, 322 (App.Div.1987).
The relationship among the Industrial, Commercial and the three intermediaries involved in the placement of the policy on Industrial's premises was governed by the New Jersey Surplus Lines Law, N.J.S.A. 17:22-6.40, et seq. The purpose of this law is to regulate the placement of insurance with companies which are not authorized to directly transact business with prospective insureds in New Jersey, commonly called surplus lines insurers. See Railroad Roofing, etc., Co. v. Financial Fire & Casualty Co., 85 N.J. 384, 389 (1981). The primary means adopted by the Legislature for regulating this business is to require surplus lines insurers to conduct their business through surplus lines agents who are licensed by the State. N.J.S.A. 17:22-6.42(c). "New Jersey's requirement that surplus lines insurers receive all business through surplus lines agents represents a compromise affording New Jersey residents the in-state availability of this coverage when needed, while at the same time ...