On appeal from the Superior Court of New Jersey, Law Division, Bergen County, L-8451-95.
Before Judges Baime, Wallace, Jr. and Lintner.
The opinion of the court was delivered by: Lintner, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Sears Roebuck and Company (Sears) was named as a defendant in the consolidated personal injury law suits brought by a passenger and driver who were both injured when the Chevrolet Caprice which they occupied went out of control. Each alleged that Sears negligently serviced the brakes on the vehicle. Ferodo Automotive Products, Inc. (Ferodo) and Ohio Caliper, Inc. (Ohio Caliper), the manufacturers of the brake components (brake pads and calipers, respectively) used by Sears, were named as additional defendants based upon products liability. Hartford Casualty Insurance Company (Hartford) and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National Union), issued General Liability Policies (GLC) respectively to Ohio Caliper and Ferodo. Both carriers appeal from summary judgment orders requiring each to indemnify and defend Sears, pursuant to the vendor's endorsement contained in the GLC policies. National Union also appeals from an order granting summary judgment in favor of Allstate Insurance Company (Allstate) dismissing National Union's third-party action.
The central issue raised by this appeal is whether the vendor's endorsements issued by Hartford and National Union provide a continuing obligation to indemnify and defend the vendor for its negligence that caused the named insured's product to undergo a change in character, which, in turn, contributed to the occurrence of the accident. We hold, under the circumstances of this case, that a substantial nexus was not shown to exist between the named insured or its product and the occurrence of the accident thereby triggering coverage under the provisions of the vendor's endorsement. We also hold that, absent facts showing a substantial nexus between the product and the occurrence of the accident, the insurers' obligation to defend, pursuant to its vendor's endorsement, ceases at the point in time when there is a legal determination that precludes the underlying products liability claim. We reverse the orders requiring Hartford and National Union to indemnify and defend Sears and remand to permit allocation of defense costs incurred during the pendency of the failed products liability claim. We also affirm the trial judge's dismissal of National Union's and Hartford's third party complaints asserting that Sears is entitled to coverage from Allstate, pursuant to the mandated omnibus clause in the policy of insurance covering the vehicle.
We combine the procedural history and the relevant facts.
On July 26, 1992, Cynthia Hartmann (Hartmann) was operating a 1986 Chevrolet Caprice, owned by her mother and insured by Allstate, when she was involved in a one-car accident that resulted in serious injuries to both Hartmann and her passenger, Ann Brislin (Brislin). The driver of the vehicle in front of Hartmann stopped suddenly causing Hartmann to apply her brakes and steer to the left, as a result of which the Caprice "went out of control" into a ravine and struck a tree.
Both Hartmann and Brislin sued Sears and subsequently amended their complaints to include Ferodo and Ohio Caliper (underlying action). Hartmann also sought damages against Allstate based upon spoliation of evidence, while Brislin named Hartmann and her mother as additional defendants. Both underlying actions were eventually consolidated in July 1993.
The Caprice had been serviced by Sears several times in the year before the accident: tires were purchased and aligned in October 1991; a tire adjustment performed in April 1992; and additional tires purchased and installed in May 1992. On May 30, 1992, Sears performed a complete four-wheel brake replacement on the vehicle. Thereafter, the brakes failed twice, requiring repairs on June 1 and June 26, 1992. On June 29, 1992, the rear brakes locked, necessitating additional "attempted repairs." Hartmann and Brislin alleged that another brake failure caused the accident which occurred on July 26, 1992.
The underlying action charged that the repair work done by Sears was performed negligently and was defective, as were the tires and other products Sears supplied. Additionally, the amended complaints alleged that the brake components installed by Sears and manufactured by Ferodo and Ohio Caliper were defective. Allstate paid the total loss collision claim filed by Hartmann's mother and took possession of the vehicle. Because Brislin had filed suit against Hartmann, Allstate agreed to preserve the vehicle. On September 24, 1992, Allstate wrote to Hartmann, informing her that her mother's car was in its "total loss area" located in Carteret, and would be held there "pending final disposition of the lawsuit." However, the car was later destroyed, giving rise to plaintiffs' allegation that Allstate breached its obligation, as well as written and verbal promises, to preserve the vehicle, resulting in the diminution in the value of their claims against Sears. The claims arising from Allstate's destruction of the vehicle are not the subject matter of this appeal.
On December 20, 1995, both Hartmann's and Brislin's underlying claims against Ohio Caliper were dismissed in response to Ohio Caliper's motion for summary judgment because their expert was unable to conclude that Ohio Caliper's brake calipers contributed to the happening of the accident. A similar motion by Ferodo was denied. Approximately one and one-half years later, Ferodo renewed its motion for summary judgment in the underlying action. On June 9, 1997, the products liability claim against Ferodo was dismissed based upon a concession from Hartmann's expert that he could not conclude that the pads were defectively manufactured to a reasonable engineering certainty. Also dismissed were the remaining products liability claims against Sears. Eleven months later, on March 23, 1998, Sears settled with Hartmann and Brislin for a total of $2,152,143.
Meanwhile, Sears maintained a declaratory judgment action against Hartford and National Union, which was commenced in August 1995. National Union's policy insuring Ferodo was similar to Hartford's policy providing coverage to Ohio Caliper. Each policy had limits of $1,000,000 per occurrence and $3,000,000 in the aggregate. Some time in February and August 1995, Sears had tendered its defense of the underlying action to both National Union and Hartford without success, based upon the provisions of the vendor's endorsement found in both policies. The vendor's endorsement in the National Union policy made "all the vendors of the named insured" additional insureds with respect to "all the products of the named insured." The pertinent part of the endorsement which amended the definition of who was an insured stated:
[T]o include as an insured any person or organization (referred to below as "vendor") shown in the Schedule, but only with respect to "bodily injury" or "property damage" arising out of "your products" shown in the Schedule which are distributed or sold in the regular course of the vendor's business, subject to the following additional provisions:
1. The insurance afforded the vendor does not apply to:
e. Any failure to make such inspections, adjustment, tests or servicing as the vendor has agreed to make or normally undertakes to make in the usual course of business, in connection with the distribution or sale of the products;
f. Demonstration, installation, servicing or repair operations, except such operations performed at the vendor's premises in connection with the sale of the product.
The policy issued by Hartford contained a nearly identically worded vendor's endorsement, except that Hartford numbered its exclusions, making the above-quoted exclusion (e) Hartford's "exclusion 5." Moreover, Hartford's endorsement did not contain the exclusion found in paragraph (f) of the National Union policy.
On February 21, 1997, Sears filed a motion for summary judgment in the declaratory action seeking an order requiring National Union to defend it pursuant to its policy of insurance. The motion judge denied Sears' motion. On March 7, 1997, Sears filed an interlocutory appeal, which was answered by National Union on March 19, 1997. The appeal was submitted to us on April 28, ...