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E&M Liquors, Inc. v. Public Service Electric & Gas Co.

November 16, 2006


On appeal from Superior Court of New Jersey, Law Division, Passaic County, L-2710-04.

The opinion of the court was delivered by: Collester, J.A.D.



Argued March 28, 2006

Before Judges Coburn, Collester and Lisa.

This is an appeal in a subrogation action from summary judgment granted to Public Service Electric & Gas Company (PSE&G) dismissing the complaint filed by insurance carriers for recovery of fire losses allegedly caused by defendant's negligence.

On appeal from summary judgment we adopt the facts alleged by the party in opposition. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). On July 20, 2003, a PSE&G primary high voltage electric wire fell from a PSE&G pole to the sidewalk near the south wall of a large commercial building in Clifton where the insureds were tenants. No storm, vehicular impact, act of vandalism or outside force caused the wire to fall. A passerby called the Clifton Fire Department, which in turn notified PSE&G of the downed line. Power to the line was cut by PSE&G approximately fifty minutes later. In the interim, the live wire was "flopping around" on the ground resulting in a deep hole in the sidewalk and contact with the building's metal framework, thereby transmitting large amounts of electricity to ignite the fire which destroyed the building. The insurance carriers paid for property damage and business interruption claims totaling $452,476.59. Pursuant to the assignment of right of subrogation in each policy, this suit was instituted. Following the filing of its answer PSE&G moved for summary judgment, which was granted by the motion judge based on Weinberg v. Dinger, 106 N.J. 469 (1987). Plaintiffs have appealed.

Before Weinberg, there was a long line of cases conferring immunity to private water companies for damages based on failure to supply a sufficient amount of water to extinguish a fire. See Baum v. Somerville Water Company, 84 N.J.L. 611, 613 (E & A 1913); Hall v. Passaic Water Co., 83 N.J.L. 771 (E & A 1912); Long Branch Comm. v. Tintern Manor Water Co., 70 N.J.Eq. 71 (Sup. Ct. 1905); Knappmann-Whiting Co. v. Middlesex Water Co., 64 N.J.L. 240 (E & A 1900). This doctrine, referred to as the Baum rule, was reaffirmed in Reimann v. Monmouth Consolidated Water Company, 9 N.J. 134 (1952), on public policy grounds; namely, that without this common law immunity, water companies would be exposed to unbounded liability and might jeopardize their viability. Id. at 138-40. Chief Justice Vanderbilt forcefully dissented, stating that the immunity was "repugnant not only to fundamental concepts of substantial justice, but to modern principles of tort liability. . ." Id. at 140. Nonetheless, the Baum rule reaffirmed in Reimann, was maintained in Sydney Grossman Hotel Corp. v. Lakewood Water Co., 27 N.J. 91 (1958); Brooks v. City of Orange, 61 N.J. 576 (1972); and J.H.M. Realty Corp. v. Town of Belleville, 61 N.J. 577 (1972).

Weinberg, overruled Baum and Reimann, eliminating the immunity in suits by individuals and imposing a duty on water companies to act with reasonable care in providing sufficient water to extinguish fires. Id. at 495. However, in a significant "carve-out" the Supreme Court upheld the immunity in subrogation actions.

We believe that the imposition on a water company of liability for subrogation claims of carriers who pay fire losses caused by the company's negligent failure to maintain water pressure would inevitably result in higher water rates paid by the class of consumers that paid for the fire insurance.

The result of imposing subrogation-claim liability on water companies in such cases would be to shift the risk from the fire insurance company to the water company, and, ultimately, to the consumer in the form of increased water rates. Thus, the consumer would pay twice -- first for property insurance premiums, and then in the form of higher water rates to fund the cost of the water company's liability insurance. We find this result contrary to public policy. [Id. at 492.]

Plaintiffs argue that the Weinberg subrogation carve-out is inapplicable because the immunity does not extend to utilities other than water companies and that suit is not based on interruption or insufficiency of service but rather negligence of the utility in causing the damage.

The first contention was negated by the Supreme Court decision in Franklin Mutual Ins. Co. v. Jersey Cent. Power & Light, 188 N.J. 43 (2006), decided during the pendency of this appeal. There a subrogation action was initiated after the carrier made payment to the insured, a food market, for spoiled food resulting from widespread interruptions of electrical service after Hurricane Floyd struck New Jersey in September 1999. The Supreme Court held that the Weinberg subrogation carve-out for losses due to service interruption was not restricted to claims against water companies but extended to all regulated utilities. The Court reasoned:

That brings us to the question of whether the subrogation carve-out of Weinberg should be maintained. We find the carve-out troubling insofar as it insulates utilities from paying for the damages they cause to property owners whose service is negligently interrupted. That is contrary to our tort law, which has always recognized that the burden of loss should fall, as a matter of justice, on the party at ...

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