(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)
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.
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 Cruz-Mendez'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
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.
2A:15-5.1 to -5.8, constitutes an affirmative defense.
On July 4, 1991, the Golf Club sponsored a fireworks display on its property in the Township of West Orange (“Township”). Five days after the display, Cruz-Mendez, a Golf Club grounds keeper, found a firework in the glove compartment of a golf cart used for groundskeeping. He recognized the device as a firework, which he said looked "similar to the ones [he] had cleaned up on July 5th." Cruz-Mendez removed the firework from the glove compartment. The fuse was burned. He believed that the firework had exploded. Nevertheless, Cruz-Mendez enlarged a small hole in the device with a “small shovel” to reach an unburned part of the fuse. Then he lit the fuse. The firework exploded, injuring his left hand.
Before conducting a fireworks display in New Jersey, the exhibitor must obtain a municipal permit. Grant of the permit is subject to the conditions of N.J.S.A. 21:3-3 and -5.
N.J.S.A. 21:3-3 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, 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,
the Township approved the Golf Club's application for a
fireworks-display permit, subject to the following condition:
Proof of general liability in the sum of
$1,000,000 and $2,000,000 providing for the
payment of all damages to persons and/or
property arising from any acts of the
licensee, its agents, employees or
subcontractors with the Township of West
Orange and the Montclair Golf Club as
additional insureds and shall be for the use
and benefit of any person, persons or owner
or owners of any property so damaged who is
or are authorized to maintain an action
thereon, or his or their heirs, executors,
administrators, successors or assigns.
The policy was a standard policy issued to members of the
American Pyrotechnic Association. Girone previously had been
covered under an identical policy for the two prior years. For
the period of January 1, 1991, to January 1, 1992, the policy
provided “general liability” and “display or special effects
liability” coverage, with limits of $1 million per accident and
$2 million in the aggregate. The policy stated:
Underwriters agree subject to the Insuring
Agreements, Exclusions, Conditions,
Definitions and Declarations contained in
this Policy, to indemnify the Insured . . .
in respect of their [sic] operations anywhere
in the World, for Ultimate Net Loss by reason
of the liability imposed upon the Insured by
law or assumed under contract, for damages in
respect of a Claim . . . which arises solely
by reason of:
a. Bodily Injury
b. Property Damage
resulting from an Accident.
[T]he following are included in the
definition of the 'Insured' under this
Policy:
a) the Named Insured . . .
. . .
d) any person or entity to whom the Insured
is obligated by virtue of a contract to
provide insurance such as is afforded by this
Policy . . .
e) . . . those entities for whom the Insured
requires coverage subsequent to the inception
date of this Policy . . .
f) and the Insured's employees but only for
acts within the scope of their employment by
the Insured.
Liability to pay under this Policy shall not
attach unless and until the Insured has, with
Underwriters' prior written consent, paid an
amount of Ultimate Net Loss which exceeds the
each Accident retention set out in Item 2 of
the Declarations.
* * *
The words 'Ultimate Net Loss', wherever used in this Policy, shall mean the total sum the Insured is obligated to pay through judgment or settlement, as damages resulting from a Claim . . . .
* * *
Any amount for which Underwriters are liable under this Policy shall be due and payable solely to the First Designated Named Insured.
Plaintiff instituted a negligence action against the Golf
Club, Girone, and Vineland Fireworks Co., Inc., a related
company. Thereafter, plaintiff filed a second complaint,
asserting under the policy a direct, strict-liability claim
against Underwriters at Lloyd's, London, the issuer of the
policy; ISU/Insurance Services of San Francisco, the brokers that
procured the policy; and Girone. In January 1995, plaintiff
named the Underwriters that issued the policy as additional
defendants to the second complaint: CNA Reinsurance of London,
Ltd.; St. Paul Fire and Marine Insurance Co. (U.K.) Ltd.;
Unionamerica Insurance Company, Ltd.; and John D. Fenn as
Representative of Certain Underwriters at Lloyd's, London
(collectively, the “Insurers”). The Law Division dismissed the
complaint against the Golf Club, from which plaintiff had
received workers' compensation benefits.
Subsequently, plaintiff amended the second complaint to
allege that Girone and the Insurers negligently represented that
they had procured the surety required by law, when in fact they
had not.
The Law Division consolidated all of the actions for
discovery. On completion of discovery, Girone and the Insurers
moved for summary judgment dismissing the complaint, and
plaintiff cross-moved for summary judgment on liability.
The Law Division granted summary judgment for plaintiff.
It interpreted 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.
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; 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, § 51 (1995). The availability of a direct action against the secondary obligor distinguishes a “surety” contract from contracts of guaranty and indemnity. Under a guaranty contract, the guarantor, in a separate contract with the obligee, promises to answer for the primary obligor's debt on the default of the primary obligor. The absence of a relationship between the obligee and the secondary obligor distinguishes a contract of indemnity from one of guaranty. The secondary obligor's duty runs only to a primary obligor.
Notwithstanding the temptation elsewhere to blur the distinction between contracts of suretyship, guaranty, and indemnity, 74 Am Jur 2d Suretyship § 2 (1974); see, e.g., American Guar. Corp. of Cal. v. Stoody, 41 Cal. Rptr. 69 (Ct. App. 1964) (acknowledging that California Legislature has abolished distinction between guarantors and sureties), the unique characteristics of suretyship remain intact in New Jersey, Newark Fin. Corp. v. Accocella, 115 N.J.L. 388 (Sup. Ct. 1935) (explaining that surety undertakes "direct and primary" obligation, as distinguished from guarantor, whose obligation is "secondary" and "collateral"); Peoples Nat'l Bank v. Fowler, 73 N.J. 88 (1977) (stating that "[i]n the classical suretyship, the surety was a party to the primary obligation"); see also Fengya v. Fengya, 156 N.J. Super. 340, 345 (App. Div. 1978) (holding that surety or guaranty contract is different from "liability or indemnity policy of insurance"). Presumably, the Legislature understood the term "surety" as including those characteristics. See Merin v. Maglaki, 126 N.J. 430, 434 (1992) ("The words chosen by the Legislature are deemed to have been chosen for a reason."). So understood, the term "surety" in N.J.S.A. 21:3-5 designates a specific contractual relationship permitting a direct action against the surety.
In one respect, the surety instrument mandated by N.J.S.A. 21:3-5 differs from a traditional surety contract. Traditional suretyship expressly recognizes that the obligee may maintain a direct action under the contract against the surety. Under N.J.S.A. 21:3-5, by comparison, the injured party is not a party to the surety contract. The statute, however, fills the gap by expanding the class of obligees to include persons injured by the fireworks exhibit. Specifically, N.J.S.A. 21:3-5 provides that the surety “shall run to the municipality in which the license is granted, and shall be for the use and benefit of any person . . . so damaged." The statute, however, does not otherwise alter the suretyship contract. See Restatement (Third) of Suretyship and Guaranty, supra, § 71 cmt f (observing that most statutes that mandate posting of surety to receive license provide that private persons harmed by licensee have action against surety).
Although the statute is in derogation of the common law, it need not be narrowly construed. The canon urging narrow construction of a statute in derogation of the common law must yield to the obvious intent of the Legislature. Dacunzo v. Edgye, 19 N.J. 443, 452 (1955). A canon of statutory construction is merely a means of interpreting legislative intent. As the McBride Court recognized, the Legislature, when enacting the predecessor of N.J.S.A. 21:3-5, intended to abrogate the common-law rule prohibiting direct actions against insurers. McBride, supra, 128 N.J.L. at 67.
Nor does the absence of privity between the surety and the injured party provide a defense. See 44 Am. Jur 2d Insurance § 1445 (2d ed. 1982). By its terms, the statute remedies the absence of privity.
Finally, we reject the contention that N.J.S.A. 21:3-5, in directing municipalities to require a surety, is permissive, not mandatory. By using the word "shall" rather than "may" in stating that "the governing body of the municipality shall require surety," the Legislature obviously intended to mandate, rather than merely permit a surety. In sum, we conclude that N.J.S.A. 21:3-5 requires an exhibitor applying for a permit to conduct a fireworks display to obtain a surety instrument providing for a direct action against the insurer. We now turn to the question whether the subject policy may be deemed such a surety.
The Insurers contend that, even if the statute requires the posting of surety, the policy can be read only as a general liability insurance policy. We disagree.
When interpreting a contract, our goal is to ascertain the “intention of the parties to the contract as revealed by the language used, taken as an entirety . . . , the situation of the parties, the attendant circumstances, and the objects they were thereby striving to attain.” Onderdonk v. Presbyterian Homes, 85 N.J 171, 184 (1981) (quoting Atlantic N. Airlines, Inc. v. Schwimmer, 12 N.J. 293, 301 (1953)). With insurance policies, ambiguous contractual language is construed in favor of the insured and against the insurer. Doto v. Russo, 140 N.J. 544, 556 (1995). Because insurance policies are often contracts of adhesion, we assume “a particularly vigilant role in ensuring their conformity to public policy and principles of fairness.” Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992).
The Insurers argue that the policy's terms constitute the policy as one for indemnity, which would require plaintiff to obtain a judgment against Girone before recovering under the policy. Our reading of the policy leads us to a different conclusion. The policy stated that the Insurers would “indemnify the Insured . . . for Ultimate Net Loss by reason of the liability imposed upon the Insured by law or assumed under contract.” Furthermore, “[l]iability to pay under this Policy shall not attach unless and until the Insured has, with Underwriters' prior written consent, paid an amount of Ultimate Net Loss.” Finally, the policy provided that “[a]ny amount for which Underwriters are liable under this policy shall be due and payable solely to the First Designated Named Insured.”
Generally, when interpreting a surety agreement or other type of insurance policy, a secondary obligor “is chargeable only according to the strict terms of its undertaking and its obligations cannot and should not be extended by implication or by construction beyond the confines of its contract.” Eagle Fire Corp. v. First Ins. Co., 145 N.J. 345, 356 (1996). Departure from the policy terms may be appropriate when the policy is issued to satisfy a statutory requirement for the protection not just of the insured, but of the general public. 8 John A. Appleman & Jean Appleman, Insurance Law and Practice § 4862 (rev. ed. 1981). If the terms of an insurance contract diverge from the contracting parties' purpose in entering the contract, the focus shifts to that purpose to determine coverage. Otherwise, an insurer could avoid liability through the simple expediency "of adopting a form that masks the transaction's substance." Restatement (Third) of Suretyship and Guaranty, supra, Introduction to Ch. 1. The mere absence of the term “surety” therefore, does not preclude an interpretation of the policy as one of suretyship authorizing a direct action.
The purpose of the policy was to satisfy the requirement of N.J.S.A. 21:3-5 that the exhibitor supply a surety to protect the public. The Insurers' choice of language may not circumvent that requirement. Girone acquired this policy for the sole purpose of satisfying N.J.S.A 21:3-5. It was contractually bound to provide surety, in the form of an insurance policy, to the Golf Club. Indeed, the Golf Club represented to the Township that its application to conduct the fireworks display was accompanied by the surety that N.J.S.A. 21:3-5 required.
Notwithstanding the expectations of Girone, the Golf Club, and the Township, the Insurers argue that they understood that the policy merely provided for indemnification. The argument is disingenuous. The subject policy was a standard policy issued only to members of the American Pyrotechnic Association conducting fireworks displays. In the two previous years, the Insurers had issued Girone this same policy. Girone conducts ninety percent of its fireworks displays in New Jersey. Furthermore, the Insurers revised the Certificate of Insurance specifically to include the Township as an “Additional Insured.” To suggest that the Insurers did not realize that they were issuing the policy to satisfy the requirements of N.J.S.A. 21:3-5 is to ignore both the sophistication of the insurance industry and the facts of the case.
The Insurers' expectations, moreover, must yield to the objectively reasonable expectations of the insured. Doto, supra, 140 N.J. at 556. Furthermore, an insurance policy issued to satisfy a statutory requirement for a suretyship should be liberally construed to effectuate the statutory purpose. See Restatement (Third) of Suretyship and Guaranty, supra, § 71 reporter's note; 9 Appleman, supra, § 5277; see, e.g., Treasurer & Receiver General v. Massachusetts Bonding & Ins. Co., 207 N.E 2d 684, 685-86 (Mass. 1965) (“A bond given pursuant to a statute should naturally be construed to provide the coverage which the legislature has required as a condition of the right or relief which the statute gives.” (quoting United States v. Hartford Acc. & Indem. Co., 117 F.2d 503, 505 (2d Cir. 1941))). In sum, the policy should be construed to provide the required protection of the public against injury or damage from a fireworks display that the Legislature has deemed a threat to the public's health, safety and welfare.
The statute leaves no doubt about the standard of liability applicable to one injured by a fireworks display. At common law, one injured by fireworks must prove the exhibitor's negligence. See Robinson v. Unexcelled Mfg. Co., 104 N.J.L. 589 (E & A 1928) (refusing to impose absolute liability on exhibitor for injuries resulting from fireworks display). The statute's broad language, however, demonstrates a legislative intent to expand the scope of common-law liability. N.J.S.A. 21:3-5 provides that the surety instrument must be “conditioned for the payment of all damages, which may be caused . . . by reason of the display . . . and arising from any acts of the licensee, his agents, employees or subcontractors.” The use of the adjectives “any” and “all” indicates a legislative intent to impose liability even when the display is conducted carefully.
The legislative purpose confirms the plain meaning of the statute. When enacting the statute, the Legislature recognized that “[t]he sale, exposure for sale, use, distribution or possession of fireworks or pyrotechnics in the state of New Jersey . . . [is] against the public health, safety and welfare of the people of the state of New Jersey.” N.J.S.A. 21:3-1. That statement makes manifest that the Legislature imposed the surety requirement as part of an overall regulatory scheme to protect the public from a highly dangerous activity. The Legislature has recognized that fireworks, although colorful, are dangerous. A fireworks exhibitor "is charged with knowledge that if injury ensues he will have acted at his peril." Carlo, supra, 3 N.J. at 264. The statute requires exhibitors to obtain insurance policies under which their insurers are strictly liable for injuries caused by fireworks displays. The cost of the risk of a fireworks display is thus borne not by the public, but by the exhibitors and their insurers.
Finally, our construction of N.J.S.A. 21:3-5 is consistent with the Court of Errors and Appeals' construction of the predecessor statute. In McBride, the Court held that the surety bond, and by extension the statute, entitles an injured party to bring a cause of action without proof of the exhibitor's fault. McBride, supra, 128 N.J.L. at 67.
“Proximate cause,” although a basic element of tort law, defies precise definition. The model jury instruction defines proximate cause as a “cause which naturally and probably led to and might have been expected to produce the accident complained of.” Scafidi v. Seiler, 119 N.J. 93, 101 (1990) (quoting current Model Jury Charges (Civil) § 7.10). Other courts have defined "proximate cause" as a “cause which in the natural and continuous sequence, unbroken by an efficient intervening cause, produces the result complained of and without which the result would not have occurred.” Daniel v. Department of Transp., 239 N.J. Super. 563, 595 (App. Div.) (quoting Polyard v. Terry, 160 N.J. Super 497, 511 (App. Div. 1978), aff'd o.b., 79 N.J 547 (1979)), certif. denied, 122 N.J. 325 (1990). Intervening causes that are reasonably foreseeable or are normal incidents of a risk, however, do not relieve a tortfeasor of liability. Rappaport v. Nichols, 31 N.J. 188, 203 (1959).
Consistent with these general principles, N.J.S.A. 21:3-5 contemplates proof of causation. Under the statute, an injured party may recover only for “damages, which may be caused either to a person or persons or to property, by reason of the display . . . and arising from any acts of the licensee, his agents, employees or subcontractors.” The term “caused” suggests that the Legislature intended to import proof of proximate cause. See Westchester Fire Ins. Co. v. Continental Ins. Co., 126 N.J. Super. 29, 38 (App.Div. 1973) (observing that phrase “caused by” clearly conveys idea of proximate cause). Similarly, the phrase “by reason of” also signifies the need to prove proximate causation. See McNeilab Inc. v. North River Ins. Co., 645 F.Supp. 525, 535 (D.N.J. 1986) (“The causal connection implied by the phrase 'by reason of' is normally that of proximate causation.”). The use of the phrase "arising from" is consistent with that conclusion. Compare Money v. Coin Depot Corp., 299 N.J. Super. 434, 437 (App. Div.) (holding that phrase “arising out of,” in context of the Workers' Compensation Act, refers to “causal origin” of an accident), certif. denied, 151 N.J. 71 (1997), with Westchester Fire Ins. Co., supra, 126 N.J. Super. at 337 (interpreting phrase “arising out of,” in insurance policy, to require showing of “substantial nexus,” not proximate cause).
In an action on a surety contract issued to satisfy N.J.S.A. 21:3-5, therefore, a plaintiff 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 an issue of fact for the jury. Scafidi v. Seiler, supra, 119 N.J. at 101; Prosser & Keeton on Torts, supra, § 41. Only in the rare case in which “it appears to the court highly extraordinary that [the actor's conduct] should have brought about the harm,” will courts remove the issue of proximate cause from the jury. Captuzal v. Lindsay Co., 48 N.J. 69, 78 (1966).
The facts of this case prevent our holding that the fireworks display was the proximate cause of plaintiff's injury. A jury could find that plaintiff's action in removing the firework from the glove compartment, drilling a hole in the device, and lighting the fuse constituted an intervening cause so unforeseeable that it breaks the chain of causation.
Similar considerations prevent the conclusion as a matter of law that the fireworks exhibit was not the proximate cause of plaintiff's injury. A jury could find it objectively foreseeable that someone might light an unexploded firework left after a display. Indeed, the regulatory scheme is designed not to prevent only injuries resulting directly from the display, but also those that are incidental to it.
Our opinion last term in Vega v. Piedilato, 154 N.J. 496 (1998) is distinguishable. In that case, a boy attempting to jump from the roof of one apartment building to another tripped and fell into the air shaft between the buildings. The plaintiff argued that the owners of the apartment buildings were negligent in failing to implement various security measures to keep children off the roof, where they knew children would play. Reasoning that the plaintiff's attempted leap was an intervening cause, we held that no reasonable jury could find that the lack of security measures was the proximate cause of his fall. As a matter of law, the plaintiff's attempt to leap over the air shaft from one apartment building to another was not a foreseeable intervening cause.
The Insurers argue that the fireworks display cannot be the proximate cause of plaintiff's injury because the firework was found in the golf cart five days after the display, rendering this cause too remote in time and place. That argument, however, misconstrues the meaning of proximate cause. “Proximate cause connotes not nearness of time or distance, but closeness of causal connection.” Powers v. Standard Oil Co., 98 N.J.L 730 (Sup. Ct. 1923). Our reading of the record leads us to conclude that a jury could find that the fireworks exhibition was a proximate cause of plaintiff's injury.
The final issue concerns the effect of plaintiff's comparative negligence on the Insurers' liability under N.J.S.A. 21:3-5. That issue requires consideration of the Comparative Negligence Act, N.J.S.A. 2A:15-5.1 to -5.8, which provides that a plaintiff's own negligence may be considered in allocating liability among the parties. A plaintiff's negligence may diminish his or her recovery “by the percentage sustained of negligence attributable to the person recovering.” N.J.S.A. 2A:15-5.1. The Act applies in strict-liability actions. Gennari v. Weichert Co. Realtors, 148 N.J. 582, 608-09 (1997); see also Suter v. San Angelo Foundry & Mach. Co., 81 N.J. 150, 164 (1979) (holding that Act provides a defense in most strict-liability actions, except in some workplace injury cases in which worker had no meaningful choice whether to encounter risk). A plaintiff's fault is an affirmative defense in a strict-liability action if his or her conduct constitutes an “unreasonable and voluntary exposure to a known risk.” Lewis v. American Cyanamid Co., 155 N.J. 544, 559 (1998); Cartel Capital Corp. v. Fireco of N.J., 81 N.J 548, 563 (1980). To establish an affirmative defense, therefore, the Insurers must prove that plaintiff voluntarily encountered the risk with actual knowledge of the danger. The mere fact that plaintiff was negligent will not suffice.
As in other strict-liability actions, we find the Act applicable in this case. Generally, a secondary obligor that issued a surety contract may present any defenses available to the insured. Restatement (Third) of Suretyship and Guaranty, supra, § 34. The availability of a direct action against the surety “do[es] not enlarge the insurer's liability, but merely enable[s] the injured person to succeed to the insured's rights against the insurer, with the consequence that defenses good against the insured are good against the injured person.” 44 Am. Jur 2d Insurance, supra, § 1448.
In support of the argument that plaintiff's conduct may not mitigate his damages, plaintiff relies on a statement in McBride that “plaintiffs are entitled to prosecute [the surety bond] just as employees may prosecute suits on workmen's compensation policies, when the employee is injured, with or without negligence.” McBride, supra, 128 N.J.L. at 67. This statement, however, refers not to the negligence of a plaintiff, but that of a defendant. In McBride, the injured party was a spectator who was injured by an exploding rocket at the fireworks display. The spectator's contributory negligence was not an issue. Thus, the quotation from the McBride opinion on which plaintiff relies is irrelevant. We conclude that the effect of plaintiff's negligence and the allocation of responsibility among the parties, like the issue of proximate cause, is one for the jury. See, e.g., Johansen v. Makita U.S.A., Inc., 128 N.J. 86, 94-95 (1992).
The 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.
NO. A-145 SEPTEMBER TERM 1997
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
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.
DECIDED January 13, 1999
Chief Justice Poritz PRESIDING
OPINION BY Justice Pollock
CONCURRING OPINION BY
DISSENTING OPINION BY