Preview:

Rutgers School of Law

N.J.S.A. 21:3-5, Hector Cruz-Mendez may maintain a direct cause of action against the Insurers under the policy issued by them to Girone, Inc. Cruz-Mendez must prove, however, that the fireworks display was the proximate cause of his injury. The Insurers may rely on Cruz Mendez's comparative fault as an affirmative defense."> Original WP

5.1 Version This case can also be found at 156 N.J. 556.
SYLLABUS (This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized) Hector Cruz-Mendez v. ISU/Insurance Services of San Francisco, et al. (A-145-97) Argued September 28, 1998 -- Decided January 13, 1999 POLLOCK, J., writing for a unanimous Court. Hector Cruz-Mendez was injured after he lit a firework that had been left over from a display exhibited by Girone, Inc. for the Montclair Golf Club. The primary issue raised in this appeal is whether Cruz-Mendez may maintain a strict-liability claim directly against Girone's insurers based on an insurance policy issued pursuant to N.J.S.A. 21:3-5. Other issues include whether Cruz-Mendez must prove that the fireworks display was a proximate cause of his injury and whether his comparative negligence constitutes an affirmative offense. The Golf Club sponsored the fireworks display on its property in the Township of West Orange on July 4, 1991. Five days later, Cruz-Mendez, a grounds keeper at the Golf Club, found a partially burned firework in a glove compartment of a golf cart. He removed it, dug a hole in it to reach unburned fuse, lit it and injured his hand when the firework exploded. In New Jersey, a fireworks exhibitor must obtain a municipal permit prior to conducting a fireworks display. A grant of the permit is subject to the conditions of N.J.S.A. 21:3-3 and -5. N.J.S.A. 21:3-5 provides that municipalities require a surety bond, which may be in the form of cash, government bonds, personal bond or other form of insurance. As required under the contract with the Golf Club and in compliance with contractual procedures for obtaining the permit from the Township, Girone obtained a standard policy issued to members of the American Pyrotechnical Association. This policy provided general liability and display or special effects liability coverage. Cruz-Mendez filed a negligence suit against the Golf Club, Girone and Vineland Fireworks Co., Inc., a related company. Cruz-Mendez filed a second complaint, asserting under the insurance policy a direct, strict-liability claim against the issuer of the policy, the brokers that procured the policy and Girone. In January 1995, Cruz-Mendez named the Underwriters that issued the policy as additional defendants to the second complaint (the Insurers). The Law Division dismissed the complaint against the Golf Club, from which Cruz-Mendez had received workers' compensation benefits. Cruz-Mendez subsequently amended the second complaint to allege that Girone and the Insurers negligently represented that they had procured the surety required by law, when they had not. The matters were consolidated for discovery. The Law Division granted Cruz-Mendez's motion for summary judgment, interpreting N.J.S.A. 21:3-5 to require the posting of surety to provide absolute protection to the public without imposing on the public the obligation to demonstrate fault on the part of the fireworks exhibitor. According to the court, the policy in question was one of surety. The court permitted Cruz-Mendez to maintain a direct action on the policy without regard to Girone's fault. The court also found that Cruz-Mendez's injury was caused by Girone's firework display and that the Insurers could not assert Cruz-Mendez's negligence as an affirmative defense.

file:///C|/Users/Peter/Desktop/Opinions/a-145-97.opn.html[4/20/2013 1:12:12 PM]

Rutgers School of Law

On appeal, the Appellate Division affirmed substantially for the reasons expressed by the Law Division. The Supreme Court granted the Insurers' petition for certification. HELD: Pursuant to N.J.S.A. 21:3-5, Hector Cruz-Mendez may maintain a direct cause of action against the Insurers under the policy issued by them to Girone, Inc. Cruz-Mendez must prove, however, that the fireworks display was the proximate cause of his injury. The Insurers may rely on Cruz-Mendez's comparative fault as an affirmative defense. 1. Generally, plaintiffs in tort actions may not directly sue insurers. Pursuant to McBride v. Maryland Casualty Co., however, N.J.S.A. 21:3-5 and its predecessor have been interpreted to authorize an injured party to directly sue the insurer of a fireworks exhibitor without proof of the exhibitor's fault. (pp. 10-11) 2. The Legislature failed to modify the McBride Court's construction of the statute. Moreover, when the Legislature amended the statute, it did not alter the provision that permitted a direct action against a surety. As defined by the statute, the word "surety" denotes a class of instruments that includes "other form of insurance." Thus, general liability insurance meets the requirements of a surety. Further, the nature of suretyship confirms the statutory interpretation permitting a direct cause of action against the surety. (pp. 11-15) 3. If the terms of an insurance contract differ from the contracting parties' purpose in entering that contract, the focus shifts to that purpose to determine coverage. Here, the purpose of the policy was to satisfy the statutory requirement that Girone supply a surety to protect the public. The Insurers' choice of language may not circumvent that requirement. The policy should be construed to provide the required protection of the public against injury or damage from a fireworks display that the Legislature considers a threat to the public's health, safety and welfare. (pp. 15-19) 4. The statute's broad language demonstrates a legislative intent to impose liability even when the fireworks display is conducted carefully. The Legislature imposed the surety requirement as part of an overall regulatory scheme to protect the public from a highly dangerous activity. The cost of the risk of that dangerous activity should be borne by the exhibitors and their insurers, not the public. (pp. 19-20) 5. In an action on a surety contract issued to satisfy N.J.S.A. 21:3-5, the injured party must prove that the fireworks display is not only a "but for" cause, but also a proximate cause of his or her injury. Generally, the determination of proximate cause is a question of fact for the jury. Under the facts presented here, the Court cannot conclude that the display either was or was not the proximate cause of Cruz-Mendez's injury. (pp. 20-25) 6. The Comparative Negligence Act applies in strict-liability actions. The Act is applicable here. Cruz-Mendez's fault is an affirmative defense if the Insurers' can prove that he voluntarily encountered the risk with actual knowledge of the danger. The mere fact that he was negligent is not sufficient to establish an affirmative defense. The effect of CruzMendez's negligence and the allocation of fault among the parties, like the issue of proximate cause, is one for the jury. Judgment of the Appellate Division is AFFIRMED IN PART and REVERSED IN PART, and the matter is REMANDED to the Law Division. CHIEF JUSTICE PORITZ and JUSTICES HANDLER, O'HERN, GARIBALDI, STEIN and COLEMAN join in JUSTICE POLLOCK'S opinion.

SUPREME COURT OF NEW JERSEY A- 145 September Term 1997

file:///C|/Users/Peter/Desktop/Opinions/a-145-97.opn.html[4/20/2013 1:12:12 PM]

Rutgers School of Law

HECTOR CRUZ-MENDEZ, Plaintiff-Respondent, v. ISU/INSURANCE SERVICES OF SAN FRANCISCO AND FIREWORKS BY GIRONE, INC., Defendants, and JOHN D. FENN AS REPRESENTATIVE OF CERTAIN UNDERWRITERS AT LLOYDS, LONDON, CNA REINSURANCE OF LONDON, LTD., ST. PAUL FIRE AND MARINE INSURANCE COMPANY (U.K.) LTD. and UNIONAMERICA INSURANCE COMPANY, LTD., Defendants-Appellants. Argued September 28, 1998 -- Decided January 13, 1999 On certification to the Superior Court, Appellate Division. Christopher R. Carroll argued the cause for appellants (Nicoletti Kissel & Pesce and Carroll, McNulty & Kull, attorneys; Mr. Carroll and Charles Hyman, of counsel). Kenneth A. Berkowitz argued the cause for respondent (Blume Goldfaden Berkowitz Donnelly Fried & Forte and Budd Larner Gross Rosenbaum Greenberg & Sade, attorneys; Mr. Berkowitz and Donald P. Jacobs, of counsel and on the brief). The opinion of the Court was delivered by POLLOCK, J. Plaintiff, Hector Cruz-Mendez ("Cruz-Mendez") or ("plaintiff"), was injured after lighting a firework left from a display exhibited by Girone, Inc. ("Girone") for the Montclair Golf Club ("Golf Club"). The primary issue is whether plaintiff may maintain a strict-liability claim directly against Girone's insurers based on an insurance policy that they issued pursuant to N.J.S.A. 21:3-5. Other issues include whether plaintiff must prove that the fireworks display was a proximate cause of his injury and whether plaintiff's comparative negligence, N.J.S.A. 21:3-3 and -5. N.J.S.A. 21:3-3 provides: The governing body of any municipality . . . may, upon application in writing, upon the posting of a suitable bond, grant a permit for the purchase, possession and public display of fireworks by municipalities . . . or other organizations or groups of individuals, approved by the governing body of such municipality to whom the application is made. The governing body is authorized by resolution, to grant such permission when such display is to be handled by a competent operator, to be approved by the chiefs of the police and fire departments of the municipality. . . . After such permit shall have been granted, sales, possession, and use of fireworks for such display shall be lawful for that purpose only. N.J.S.A. 21:3-5 provides: The governing body of the municipality shall require surety which may be cash, government bonds, personal bond, or other form of insurance in a sum of not less than twenty-five hundred dollars ($2,500.00), conditioned for the payment of all damages, which may be caused either to a person or persons or to property, by reason of the display so as aforesaid licensed, and arising from any acts of the licensee, his agents, employees or subcontractors. Such surety shall run to the municipality in which the license is granted, and shall be for the use and benefit of any person, persons, or the owner or owners of any property so damaged, who is or are authorized to maintain an action thereon,

file:///C|/Users/Peter/Desktop/Opinions/a-145-97.opn.html[4/20/2013 1:12:12 PM]

Rutgers School of Law

or his or their heirs, executors, administrators, successors or assigns. Girone and the Golf Club agreed in a written contract on the procedure for obtaining the permit from the Township. Girone promised to provide the Golf Club with a fireworks pyrotechnician, as well as other personnel, materials, and equipment. Additionally, Girone agreed to "furnish PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE in accordance with the limits set forth by the governing body having jurisdiction naming CUSTOMER [the Golf Club] as additional insured." In turn, the Golf Club agreed to provide Girone with "all necessary permits," a "Permit Authorization Form," and an "Insurance Requisition Form." On April 8, 1991, Joseph B. Dillenbeck, a vice president of the Golf Club, completed and delivered to Girone the Insurance Requisition Form, which indicated that the Golf Club and the Township were to be named as additional insureds in the Certificate of Insurance ("Certificate"). The Certificate ultimately named Girone, the Golf Club, and the Township as insureds. It stated that the insurance policy (the "policy") provided "General Liability Insurance," including "Premises/Operations," "Contractual Liability," "Products/Completed Operations," and "Public Display" coverage. The Golf Club submitted the Certificate, as part of its "Application for Permission to Conduct Fireworks Display," to the Township. When completing the application, in response to the question, "Is this application accompanied by the Surety Bond required by Chapter 51 of the Laws of 1937?," the Golf Club answered: "Yes." Despite this response, Mr. Dillenbeck testified on deposition that he understood the policy as "strictly a liability coverage for both personal injury and property damage, and I assume that's what the Township means when they refer to surety. It's really not the correct term." In a resolution that tracked the terms of N.J.S.A 21:3-5 to require the posting of surety, "designed to provide absolute protection to the members of the public without imposing upon them the obligation to demonstrate the fault on the part of the companies displaying such hazardous form of fireworks." The court reasoned that the statute does not create an option to post either "surety" or "other form of insurance." Instead, the statutory requirement "or other form of insurance" denotes one specific form of surety. Further, Girone submitted the policy to satisfy the requirements of N.J.S.A. 21:3-5. The court concluded that the policy was one of suretyship. Consequently, the court permitted plaintiff to maintain a direct action on the policy for indemnification without regard to Girone's fault. Plaintiff's injury, according to the court, was caused by Girone's fireworks display. Lastly, the court concluded that Girone and the Insurers could not assert plaintiff's negligence as an affirmative defense. For the purpose of making the Law Division's ruling final, R. 2:2-3(a)(1), the parties stipulated that the amount of damages was $750,000, that the summary judgment resolved all issues, and that Girone would be dismissed as a defendant. The Insurers also agreed to indemnify Girone. The Appellate Division affirmed essentially for the reasons expressed by the Law Division. We granted the Insurers' petition for certification. 152 N.J. 193 (1997). We now affirm in part, reverse in part, and remand the matter to the Law Division. We hold that plaintiff may maintain a direct cause of action under the policy against the Insurers. Plaintiff, however, must prove that the display was the proximate cause of his injury. The Insurers may rely on plaintiff's comparative fault as an affirmative defense. II. The first issue is whether plaintiff may maintain a direct action against the Insurers. Generally, plaintiffs in tort actions may not directly sue insurers. See Tuckey v. Harleysville Ins. Co., 236 N.J. Super. 221, 226 (App. Div. 1989) (holding that direct action against insurer failed to state a claim on which relief could be granted). Here, the question is whether N.J.S.A. 21:3-5 and the policy provide an exception to the general rule. In McBride v. Maryland Casualty Co., 128 N.J.L. 64 (E & A 1942), a spectator, who was injured by an exploding rocket during a fireworks display, brought a direct action against the issuer of a surety bond insuring the display. Like plaintiff in the present case, the plaintiff in McBride first filed a negligence action against the fireworks exhibitor. The surety bond had been issued to satisfy the requirements of the predecessor to N.J.S.A. 21:3-5. The Court of Errors and Appeals interpreted the bond as authorizing a direct action against the surety regardless of fault. Although the Court recognized that the "gravamen of the complaint . . . is breach of contract," it noted that the bond tracked "almost literally the language of the statute." Id. at 67. Reasoning that the bond was designed to extend to an injured party the identical rights granted by the statute, the Court interpreted the bond and statute as co-extensive. The Court held that the plaintiff could proceed directly on the bond without first obtaining a judgment against the fireworks exhibitor. Ibid;
file:///C|/Users/Peter/Desktop/Opinions/a-145-97.opn.html[4/20/2013 1:12:12 PM]

Rutgers School of Law

see also Carlo v. The Okonkite-Callender Cable Co., 3 N.J. 253 (1949) (construing McBride as interpreting statute to authorize direct action on surety bond without proof of underlying negligence). For over half a century, fireworks exhibitors and their insurers have known that N.J.S.A 21:3-5 and its predecessor have authorized an injured party to maintain a direct action against the insurer of a fireworks exhibitor without proof of the exhibitor's fault. Our own interpretation of the statute leads to the same conclusion. The Legislature's failure to modify the McBride Court's construction of the statute, although not dispositive, reflects acceptance of that construction. Massachusetts Mut. Life Ins. Co. v. Manzo, 122 N.J. 104, 116 (1991). That conclusion becomes more persuasive on considering that the Legislature amended N.J.S.A. 21:3-5 by replacing the term "bond" with the phrase "surety which may be cash, government bonds, personal bond, or other form of insurance." Notwithstanding that amendment, the Legislature left unchanged the provision that permitted a direct action against a surety. The general word "surety" helps to define the ensuing specific terms, each of which, in turn, helps to define the other. See Germann v. Matriss, 55 N.J. 193, 220 (1970) ("It is an ancient maxim of statutory construction that the meaning of words may be indicated and controlled by those with which they are associated."). Fairly read, the amendment expands the permissible forms of surety instruments beyond bonds, while leaving in effect an injured party's direct cause of action against the surety. As defined by the statute, the word "surety" denotes a class of instruments that includes the term "other form of insurance." As "a form of insurance" general liability insurance thus meets the requirements of a "surety." The nature of suretyship confirms our interpretation of the statute to permit a direct cause of action against the surety. A traditional suretyship contract involves three parties: an obligee who is owed a debt or duty; a primary obligor, who is responsible for the payment of the debt or performance of the duty; and a secondary obligor, or surety, who agrees to answer for the primary obligor's debt or duty. An obligee may bypass the primary obligor and enforce the obligation directly against the surety. Restatement (Third) of Suretyship and Guaranty, supra,

Download a-145-97.opn.pdf

New Jersey Law