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American Home Assurance Co. v. Hermann''s Warehouse Corp.

Decided: September 18, 1989.


For Affirmance -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. For Reversal -- none. The opinion of the Court was delivered by Clifford, J.


Plaintiff, American Home Assurance Company, Inc. (American), furnished general comprehensive liability coverage to the defendant, Hermann's Warehouse Corporation, a warehouse company, under a "Warehouseman or Bailee Liability" Form (Merchandise) policy. The contract contained two deductible provisions. In addition, and significantly for this case, the policy reserved to the insurer the exclusive right to settle any claim or suit brought against the insured. The carrier settled a third party's suit against Hermann's for a figure substantially in excess of the limit of the applicable deductible but well within the policy limits. Thereafter it sought reimbursement from the insured for the amount of the deductible. When the insured refused to pay, this suit ensued. On cross-motions for summary judgment the trial court held for defendant, reasoning that because the insured did not approve the settlement, it should not be required to pay the deductible. The Appellate Division reversed and remanded to the trial court to determine which of the two deductible provisions was applicable. After completion of the trial court proceedings fixing the amount of the deductible, we granted certification, 110 N.J. 164 (1988). We now affirm.


The basic facts are that on August 4, 1980, All Freight Trucking Company notified Hermann's Warehouse Corporation

of its intention to make a delivery of several container trailers to Hermann's facility on Jersey Avenue, New Brunswick. The trailers belonged to Kurt Adler, Inc., and contained Christmas ornaments that were to be stored by Hermann's. All Freight was informed by Hermann's that if the trailers were delivered on August Fourth, they could not be unloaded promptly due to Hermann's heavy work schedule.

All Freight acknowledged the possible delay, but nonetheless chose to deliver three trailers to Hermann's on August Fourth for unloading by defendant the following morning. According to Hermann's the contents of the trailers were not formally acknowledged, no receipt was issued, and no storage fee was charged. Rather, the trailers were left with Hermann's solely for All Freight's convenience.

When a Hermann's employee discovered the next morning that two of the three trailers had disappeared, he promptly notified the F.B.I. and New Brunswick police. Thereafter, one of the missing trailers was found empty in a parking lot in Carteret. The second trailer was found within a quarter of a mile of the first, with most of its contents gone. Much of the missing merchandise was later found in a discount store in Brooklyn. The goods were subsequently returned to Hermann's for storage.

Adler sued Hermann's to recover for the lost merchandise, claiming $76,382.80 in damages plus interest of about $34,000. Defendant sent the suit papers to its insurance carrier, American, for defense. Over defendant's objections, American negotiated a settlement with Adler for $67,500. Thereafter American requested reimbursement of the deductible. When Hermann's refused payment, American instituted this suit. As we have indicated, the trial court entered summary judgment for defendant and the Appellate Division reversed, in an opinion reported at 215 N.J. Super. 260 (1987).

The policy, with liability limits of $2,000,000, contains the customary provisions requiring the insurer to defend any suits

brought against Hermann's to enforce claims within the policy coverage, "even if such suits are groundless, false or fraudulent." As with many commercial policies, there is a "deductible" of $20,000 (the figure determined on the remand and not disputed on this appeal). The policy provides that "[from] the total claims arising out of any one occurrence, the sum [of $20,000] shall be deducted and this Company shall * * * be liable for [only] the excess of this amount. * * * If the Company shall have paid such deductible amount, the Assured shall promptly reimburse the Company therefor." Finally, the insurance contract imposes on the insured the usual obligation to cooperate "in facilitating the investigation and disposition of claims and suits" and to "assist in effecting settlement * * *." Then follows the provision at issue in this case, again a standard one in policies of this type: "The Company reserves the right to settle any claim, suit or other proceedings as it may deem expedient.' (Emphasis added.)

The insured argued below, as it does here, that American is not entitled to recover the deductible without having first secured the insured's consent to the settlement. Hermann's further contends that the carrier breached its duty, as set forth in the policy, to provide an adequate defense. Finally, the insured asserts that plaintiff failed to act in good faith, as required by our case law. More specifically, Hermann's says that although American settled Adler's claim within the policy limits, the carrier nevertheless breached its duty of good faith and its contractual obligation to defend its insured by failing actively to resist a case that Hermann's fervently believed it could win on the merits. ...

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