Yee Fo Eng and Yoon Yam Eng (hereafter "Eng") were tenants in a commercial complex. Joseph Zoppi and Adeline Zoppi (hereafter "Zoppi") were tenants in another unit in the same complex. Irwin Traurig and Beatrice Muskat (hereafter "Traurig") were the owners of the complex. On March 19, 1987 there was a fire that started in the Eng premises. Eng filed suit against Traurig for damage to their equipment and contents, alleging that the fire was due to the negligence of Traurig. Traurig counterclaimed against Eng, alleging that the fire was the result of the negligence and/or carelessness of Eng. Traurig's counterclaim is by way of subrogation. Zoppi also commenced an action against both Eng and Traurig. Traurig and Eng cross-claimed against each other in the Zoppi action. The two actions were consolidated.
During the pendency of the above referenced actions, Traurig's insurance company settled the Eng claim by payment of $29,500. and obtained a form of General Release dated May 15, 1990 reciting, inter alia, the release of "any and all claims arising out of a fire . . . Settlement Amount: $29,500." That General Release was signed by both Engs. There does not appear to be a stipulation of dismissal of the action.
Based upon the settlement of the Engs' affirmative claim, Eng filed a motion for summary judgment on the grounds that defendant, having settled with plaintiffs, cannot "turn around" and sue plaintiffs with whom Traurig has settled. Likewise, Eng claims that the landlords' insurance company has no right of subrogation against them, as tenants. This opinion addresses the issues of estoppel by payment and the bar of the right of subrogation.
THE MOTION BASED ON ESTOPPEL BY PAYMENT
Movant relies heavily on Kelleher v. Lozzi, 7 N.J. 17, 80 A.2d 196 (1951). In that case the court held that plaintiff was estopped from pursuing a claim against defendant inasmuch as plaintiff's insurer had paid defendant and that:
"It is logically and factually impossible to reconcile a valid claim by Kelleher with a valid claim by Lozzi. As Kelleher by her act acknowledged a valid claim by Lozzi and effected a settlement on that basis, we are brought to the conclusion that she estopped herself from taking the opposite position; that consequently she, in her own suit, has failed to state a claim upon which relief can be granted. . . ." Kelleher, Id. at 24-25, 80 A.2d 196.
". . . in the instant case it was the defendant who, in paying damages, admitted that she was the one who was at fault. No judgment was actually entered, but the parties really made their own adjudication."
In the instant case, correspondence by Traurig's attorney in initiating the settlement recited, inter alia, "This offer of settlement is again not an admission or acceptance of liability by my client, but made in a spirit for the purpose of amicably
adjusting matters . . ." Kelleher differs in two respects. One is the unsubstantial difference that in the instant case the subrogation claim is being pursued by way of counterclaim whereas Kelleher was on a subsequent action after the first was dismissed. The other difference is very substantial in that the payment made here was expressly recited to have been without an admission of fault. The decision in Kelleher rests on the premise of an admission of fault through payment [which was made without reservation of the issue of fault.]
Because there was no admission of fault here, Kelleher is not controlling in this case. Were it otherwise, I find that settlement of a claim, as distinguished from dismissal of an entire action, would have a stifling effect on settlements, contrary to the high public policy of encouraging settlements. Jannarone v. W.T. Co., 65 N.J. Super. 472, 168 A.2d 72 (App.Div.1961). If there is any reason why Eng would want to avoid the contract of settlement of their claim, already executed by payment having been made, of course Eng would have to ...