Ambassador Insurance Company v. Montes , 76 N.J. 477 ( 1978 )

The opinion of the court was delivered by

Schreiber, J.

The plaintiff Ambassador Insurance Company instituted this declaratory judgment proceeding seeking an adjudication that its named insured Joseph Satkin was not entitled to coverage under a comprehensive general liability insurance policy. The trial judge’s determination of no coverage was reversed by the Appellate Division. We granted certification. 74 N. J. 269 (1977).

The assured Joseph Satkin owned, among other properties, two old wooden tenement buildings in Passaic, one at 78 Washington Place, and the other at 80-82 Washington Place. The building at 80-82 Washington Place was a two-and-a-half story duplex four-family house in which 11 to 14 persons resided. The building was in a dangerous condition and had been scheduled for demolition. In the early morning hours of May 11, 1973, a fire broke out in the stairwell of 82 Washington Place. The Passaic Eire Department was alerted at 3:27 a.m. and promptly responded. However, the fire spread rapidly due to an open air draft and took four lives.

Joseph Satkin was tried and convicted of arson, conspiracy to commit arson, and felony murder for having intentionally caused the fire. Rafael Montes, as administrator ad prosequendum and as general administrator, instituted an action against Satkin for the death and injuries of Marilyn Ortega Perez, an infant who perished in the fire. Plaintiff Ambassador Insurance Company refused to defend that action, which has been placed on the inactive trial calendar pending final disposition of this action. In this declaratory judgment proceeding, the plaintiff insurance company has joined Satkin and Rafael Montes, as administrator, as defendants.

At the conclusion of the trial the trial court found that Satkin intended to burn the building. Because of the early morning hour at which the fire was started, nature of the structure, and surrounding facts, the court .held it was reasonable to expect that people in the building might be injured. The court concluded that in causing such a fire the defendant Satkin had completely disregarded the safety of the inhabitants and found that the death and injury were the intended result of an intended act. Therefore coverage under the policy was denied.

The Appellate Division, noting that the plaintiff’s liability policy did not contain an express exclusion for the consequences of an intentional wrongdoing, held that such omission was immaterial because public policy prohibits indemnity for the civil consequences of one’s intentional wrongdoing. It opined that the guidelines for determining the nonexistence of coverage were either that the insured had a specific intent to inflict the injuries that occurred or that he knew the injuries were substantially certain to follow the performance of the intentional act. The Appellate Division reasoned that since Satkin did not intend to injure or kill anyone, though his act was in wanton and reckless disregard for the safety of those living in the building, the criteria were not met and there was coverage. We agree with the result reached, but not for the reasons stated.

The plaintiff’s policy which was placed in evidence as a joint exhibit provided that:

The company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of

Coverage A, bodily injury or

Coverage B, property damage

to which this Insurance applies, caused by an occurrence and the company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent * * *.

The insurance policy in evidence did not contain a definition of “occurrence,” nor a provision which excluded coverage for intentional acts. Both parties have agreed that the factual record is so limited.¹ Accordingly, we adhere to the established principle that we are bound by stipulations of fact. City of Jersey City v. Realty Transfer Co., 129 N. J. Super. 570 (App. Div. 1974); Stalford v. Barkalow, 31 N. J. Super. 193 (App. Div. 1954). In the policy schedule the limits of liability for bodily injury, coverage A, are $100,000 for each occurrence and $300,000 aggregate. The limits of liability for property damage, coverage B, are $25,000 per 'occurrence and $25,000 aggregate.

On the face of the policy, plaintiff’s obligation to defend the action and pay on behalf of its insured any amount up to the announced limits due on account of the injuries suffered and the death of Marilyn Ortega Perez is obvious. The plaintiff concedes as much for it does not rely upon any exclusionary clause or other pertinent limitation in the policy.² Its only defense is that public policy prohibits insurance indemnity for the civil consequences of an insured’s intentional wrongdoing.

It has been said that indemnification of a person for a loss or damage incurred as a result of his wilful wrongdoing in violation of a criminal statute is contrary to public policy. 7 Appleman, Insurance Law and Practice § 4252 at 5 (1962); 1A Appleman, supra § 492 (Supp. 1977); Morgan v. Greater New York Taxpayers Mut. Ins. Ass’n, 305 N. Y. 243, 112 N. E. 2d 273, 275 (Ct. App. 1953); 10 Couch, Insurance § 41.663 (2d ed. 1962); 44 Am. Jur. 2d, Insurance § 1411; Ruvolo v. American Cas. Co., 39 N. J. 490, 496 (1963); Lyons v. Hartford Ins. Group, 125 N. J. Super. 239, 244 (App. Div. 1973). Were a person able to insure himself against the economic consequences of his intentional wrongdoing, the deterrence attributable to financial responsibility would he missing. Purther, as a matter of moral principle no person should be permitted to allege his own turpitude as a ground for recovery. Accordingly, we have accepted the general principle that an insurer may not contract to indemnify an insured against the civil consequences of his own wilful criminal act. Ruvolo v. American Cas. Co., supra.

However, this principle is not to he applied under all circumstances. Certainly it should not come into play when the wrongdoer is not benefited and an innocent third person receives the protection afforded by the insurance. Recovery has been allowed to cover losses occasioned by an intentional act of the insured. In Fidelity-Phenix Fire Ins. Co. v. Queen City Bus & Transfer Co., 3 F. 2d 784 (4th Cir. 1925), the-president of a corporation, who owned 25% of the issued' and outstanding capital stock, intentionally set fire to a. motor bus owned by the corporation and on which he held a mortgage. The fire insurance company was compelled to-pay the fire insurance to the corporation to be used for creditors and stockholders other than the wrongdoer. See Annotation, “Pire insurance on corporate property as affected by its intentional destruction by a corporate officer, employee- or stockholder,” 37 A. L. R. 3d 1385 (1971). In another situation a husband and wife owned property as tenants by the entirety and had fire insurance covering the property. The husband intentionally set fire to the property and then committed suicide. It was held that his act of arson did not bar the innocent wife’s recovery under the fire insurance-policy. Howell v. Ohio Casualty Ins. Co., 130 N. J. Super. 350 (App. Div. 1974).

When the insurance company has contracted to pay an innocent person monetary damages due to any liability of the insured, such payment when ascribable to a criminal event should be made so long as the benefit thereof does not enure to the assured. In furtherance of that justifiable end, under most circumstances it is equitable and just that the insurer be indemnified by the insured for the payment to the injured party. In subrogating the insurer to the injured person’s rights so that the insurer may be reimbursed for its payment of the insured’s debt to the injured person, the public policy principle to which we adhere, that the assured may not be relieved of financial responsibility arising out of his criminal act, is honored. The insurer’s discharge of its contractual obligations by payment to an innocent injured third person will further the public interest in compensating the victim. See Burd v. Sussex Mutual Ins. Co., 56 N. J. 383, 398 (1970).

This application of subrogation is consonant with its traditional usage as an equitable mechanism to force the ultimate satisfaction of an obligation by the person who in good conscience should pay. See A. & B. Auto Stores of Jones St., Inc. v. Newark, 59 N. J. 5, 23 (1971); George M. Brewster & Son v. Catalytic Const. Co., 17 N. J. 20, 28 (1954). In Camden Trust Co. v. Cramer, 136 N. J. Eq. 261 (E. & A. 1945), Justice Ueher described the principle in the following manner:

' Subrogation is a doctrine o£ purely equitable origin and nature, although it is a right that is now considered as within the cognizance of courts of law in certain circumstances. Since it is an equity, it is subject to the rules governing equities; and it is axiomatic that it will not be enforced where it would be inequitable so to do. It will not be allowed to work injustice to others having equal or superior equities. The right of subrogation must be founded upon an equity just and reasonable according to general principles — an equity that will accomplish complete justice between the parties to the controversy. * * * Subrogation is a device adopted by equity to compel the ultimate discharge of an obligation by him who in good conscience ought to pay it. [citation omitted] The process is analogous to the creation of a constructive trust, the creditor being compelled to hold his rights against the principal debtor, and bis securities, in trust for the subrogee. [Id. at 264]

In Bater v. Cleaver, 114 N. J. L. 346 (E. & A. 1935), Justice Heher also stated:

It is a remedy which is highly favored. The courts are inclined rather to extend than to restrict the principle. Although formerly the right was limited to transactions between principals and sureties, it is now broad and expansive, and has a very liberal application. It is no longer confined to cases of suretyship; it has become more general in its application, the principle being modified to meet the circumstances of the individual case. [Id. at 353]

In the casualty insurance held subrogation is most often found when the insurer who has indemnified the insured for its damage or loss is subrogated to any rights that the insured may have against a third party. In the absence of subrogation either the insured would collect twice and be unjustly enriched, or, if the insured were not entitled to double recovery, the third party wrongdoer would go free. Standard Accident Ins. Co. v. Pellecchia, 15 N. J. 162, 171 (1954).

Insurers have also been permitted to recover from their insureds. Appleman has declared that “[t]he right of subrogation, or more properly called indemnification where sought from its own insured, is enforced where it would be inequitable to deny such remedy.” 8 Appleman, supra § 4935 at 461 (1973). The same thought was expressed in Malanga v. Manufacturers Cas. Ins. Co., 28 N. J. 220 (1958). The defendant insurance company had issued a comprehensive liability insurance policy to a partnership, the named insured. Under the terms of the policy the individual partners were also covered. The policy excluded coverage for damages resulting from an assault and battery committed by the insured. Alfred Malanga, a partner, committed an assault and battery in the course of the partnership business. The injured third party recovered a verdict against the partnership. The partnership, having paid the judgment, sought reimbursement from the insurance company. The court concluded that the partnership was covered and the insurance company was obligated to reimburse the partnership. However, it was held "[o]f course, Alfred Malanga should not individually benefit by our determination in this case. The issue of his liability to the defendant insurer under its right of subrogation is not in any way affected.” Id. at 230.³

Here the comprehensive general liability insurance policy expressly and clearly obligated the plaintiff insurance company to pay on Satkin’s behalf those sums which Satkin was legally indebted to pay as damages because of personal injury to and the death of Marilyn Ortega Perez. The plaintiff insurance company cannot and should not escape from that duty on the ground that the damages were due to its assured’s criminal act. However, Satkin should not receive ■or be entitled to the benefit of the insurer’s payment and the insurer’s right of subrogation should accomplish that end.

The judgment is affirmed.

1 At oral argument we had requested a copy of the policy which we understood had been introduced in evidence. The plaintiff submitted a policy containing three pages which were not a part of the exhibit in evidence. When the defendant adverted to this 'fact, the plaintiff insurance company replied that the matter should be decided “on the basis of the policy contained in the record.” Our discussion herein concerns the factual situation presented.

2 We note that our dissenting Brother refers to a definition of “occurrence” which is not before us. The plaintiff insurance carrier does not raise any issue as to the word “occurrence” including the specific incident involved. In this connection it may be observed that traditionally, interpretation of policy language is generally construed to effectuate coverage. Bowler v. Fid. & Cas. Co. of N. Y., 53 N. J. 313, 321 (1969); Allen v. Metropolitan Life Ins. Co., 44 N. J. 294, 305 (1965); Mazzilli v. Acc. & Cas. Ins. Co. of Winterthur, 35 N. J. 1, 7 (1961) ; Kievit v. Loyal Protect. Life Ins. Co., 34 N. J. 475, 482 (1961). The meaning of the word “occurrence” includes the happening or taking place of an incident and is not restricted to accidental events.

3 Miller & Dobrin Furniture Co., Inc. v. Camden Fire Ins. Co. Ass’n, 55 N. J. Super. 205 (Law Div. 1959), held that where an officer, director, and 50% stockholder set fire to the corporation’s furniture store, recovery on the policy would be denied. The court relied on the theory that an innocent partner cannot recover on an insurance policy on partnership property wilfully burned by a copartner. We believe this principle is unsound and recovery should not be precluded provided that as a result the wrongdoer does not benefit.