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Continental Ins. Co. v. Boraie

October 23, 1995


Yanoff, Jsc (retired and temporarily assigned on recall)

The opinion of the court was delivered by: Yanoff

YANOFF, J.S.C. (retired and temporarily assigned on recall)

The issues in this case are raised by defendant landord's summary judgment motion.

A lease dated May 2, 1983 between Boraie as landlord and Fidelity Union Bank as tenant was extended until May 2, 1998 by letter agreement dated July 1, 1993. Paragraph 4(a) of the lease required tenant to maintain specified casualty and liability insurance. Paragraph 4(b) obligated landlord to obtain fire and other casualty insurance protecting tenant against the consequences of fire. Paragraph 4(a) further provided:

All such insurance policies maintained by the Tenant, and all policies of insurance maintained by the Landlord with respect to the Demised Premises or any property of which the Demised Premises are a part shall contain provisions for waiver of subrogation against the Landlord or the Tenant, as the case may be.

Plaintiff Continental insured tenant. When Continental paid Fidelity it obtained a "Loan Receipt" which "appoints" Continental its "agent," for any claim against any party "causing or liable for the loss or damage to the property described below", in effect, a comprehensive assignment of tenant's cause of action against the tortfeasor. No claim has been made that Continental's position has been improved by reason of the terms of the "loan receipt".

Continental's fire policy of insurance to First Fidelity Bank did not contain a waiver of subrogation.

As the result of fire, Fidelity sustained property damage in the amount of $177,152.28. Since there was a $50,000 deductible, Fidelity was paid only $127,152.28. Suit is brought by Continental as subrogee for the total amount of $177,152.28 against landlord, nevertheless.

I have no difficulty in holding that Continental is not entitled to recover the sum of money which it did not pay. Colonial Penn Ins. Co. v. Ford, 172 N.J. Super. 242, 243, 411 A.2d 736 (Law Div. 1979). Thus, the question is whether Continental may recover against landlord for negligence in the maintenance of a sprinkler system for the sum which Continental actually paid.

We are concerned here with an insurance policy obtained by tenant, in violation of or without conformity to the cited lease provision. It is uncontradicted that the carrier had no notice of the lease provision requiring waiver of subrogation rights.

Standard Accident Ins. Co. v. Pellecchia, 15 N.J. 162, 104 A.2d 288 (1954) established that normally, a carrier paying an insurance loss is entitled to subrogation against the tortfeasor. Involved is a case in which Pellecchia, employed by Columbus Trust Company, defalcated. Standard, as surety to Columbus for Pellecchia's conduct, paid Columbus $200,000. Columbus had claims against Federal Trust Co. by virtue of Federal's guarantee of endorsements on false or forged checks, which were settled. Thereafter, Standard brought suit against Federal on the rights which Columbus had had against Federal under the guarantee of endorsements. The trial court granted summary judgment to Federal. The Supreme Court reversed and remanded for trial. In a comprehensive opinion, Chief Justice Vanderbilt set out basic law as to subrogation:

Subrogation is a device of equity to compel the ultimate discharge of an obligation by the one who in good conscience ought to pay it. It is a right of ancient origin, having been imported from the civil law to serve the interests of essential Justice between the parties. It is most often brought into play when an insurer who has indemnified an insured for damage or loss is subrogated to any rights that the insured may have against a third party, who is also liable for the damage or loss. In such a case it is only equitable and just that the insurer should be reimbursed for his payment to the insured, because otherwise either the insured would be unjustly enriched by virtue of a recovery from both the insurer and the third party, or in the absence of such double recovery by the insured the third party would go free despite the fact that he has the legal obligation in connection with the loss or damage.

Id. at 171 (citations omitted) (emphasis added).]

Despite the quoted language which tends to indicate that subrogation should not be barred by the settlement between Columbus and Federal, the summary judgment in the trial court below was reversed and the case sent back for trial on ...

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