Title: Dynasty, Inc. v. The Princeton Insurance Company
Citation: N/A
Docket Number: a-31-99
State: new-jersey
Issuer: new-jersey Supreme Court
Date: July 24, 2000

(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). VERNIERO, J., writing for a Majority of the Court. This case involves an insurance claim for a loss due to fire at a commercial premises. The sole issue is whether the trial court adequately instructed the jury. In or about April 1993, Dynasty, Inc., purchased a restaurant known as Antonio's . At the time, Dynasty's principals were Donald Esposito and Thomas Gatto ( the partners ). The partners transformed the restaurant into a nightclub known as Hollywood Lights. As a result, the partners were required by the Bloomfield Fire Department to install a sprinkler system. The system was installed in April 1994. Due to Dynasty's subsequent financial difficulties and differences of opinion as to how to run the business, the partners split up and Esposito remained the sole principal of the company. On June 5, 1994, a fire destroyed Hollywood Lights. It appears from the testimony that the fire was deliberately set, though it is not clear who set the fire or whether Esposito or Gatto had anything to do with it. The sprinkler system was locked in the off position at the time of the fire. Dynasty was insured by The Princeton Insurance Company ( Princeton ). Princeton denied the claim, alleging that the sprinkler system was intentionally shut off and that this violated the increase-of-hazard clause of the insurance policy. That clause provided that unless otherwise provided in writing added hereto this Company shall not be liable for loss occurring . . . while the hazard is increased by any means within the control of the insured. This language is standard contract language required by statute, N.J.S.A. 17:36-5.20. Esposito had stated under oath to Princeton and testified at trial that he had nothing to do with the fire and denied ever having turned off the sprinkler system. Esposito testified that there was a key near the shut-off valve that was to be used in case the system was intentionally set off by a patron, since the ceilings were quite low. Dynasty argued that the trial court should have charged the jury that the insurance company would not be liable for loss occurring while the hazard is increased by any means within the control or knowledge of the insured. Instead, the court instructed the jurors that if you find that the fire in this matter was brought about by or at the direction of or with the knowledge, consent, or acquiescence of the named insured, through its officer, Don Esposito, then there is no coverage under the insurance policy in this case. The trial court reasoned that the charge proposed by Princeton was duplicative of the charge actually given and that any interference by Esposito with the proper functioning of the sprinkler system was tantamount to actually starting the fire. The jury returned a verdict in favor of Dynasty and judgement against Princeton was entered in the amount of $150,000. The Appellate Division affirmed. The Supreme Court granted Princeton's petition for certification. HELD: The trial court committed reversible error by failing to instruct the jury that the insurance company could not be found liable for the loss if the fire hazard was increased by any means within the control or knowledge of the insured. 1. By design, increase-of-hazard clauses are stated in general terms and as such do not spell out every possible scenario that may lead to an increase of hazard. An insured's unjustified disabling of a sprinkler system falls within the realm of an increase-of-hazard clause. (Pp. 10-15) 3. There was sufficient evidence in the record regarding the disabling of the sprinkler system to require a separate increase-of-hazard charge. (Pp. 17-24) 4. The trial court's rejection of Princeton's jury charge constituted plain error because it denied the defendant an alternative basis on which to defend itself. A new trial is required because the question whether there has been an increase-of-hazard is a question of fact to be determined by the jury. (Pp. 24-27) Judgment of the Appellate Division is REVERSED and the matter is REMANDED for a new trial consistent with this opinion. JUSTICE LONG has filed a separate dissenting opinion, expressing the view that although arson and increase-of-hazard can exist simultaneously in a single case, the evidence in this case did not support an increase-of hazard instruction. CHIEF JUSTICE PORITZ and JUSTICES O'HERN, STEIN, COLEMAN, and LaVECCHIA join in JUSTICE VENIERO'S opinion. JUSTICE LONG filed a separate dissenting opinion. DYNASTY, INC., T/A HOLLYWOOD LIGHTS, Plaintiff-Respondent, v. THE PRINCETON INSURANCE COMPANY, Defendant-Appellant. Argued March 13, 2000 -- Decided July 24, 2000 On certification to the Superior Court, Appellate Division. Allan Maitlin argued the cause for appellant (Sachs, Maitlin, Fleming, Greene, Wilson &amp; Marotte, attorneys). James J. Guida argued the cause for respondent. The opinion of the Court was delivered by VERNIERO, J. In this insurance litigation, plaintiff seeks payment from defendant insurer for the loss of plaintiff's commercial premises. The Appellate Division upheld the jury's verdict in favor of plaintiff. The sole issue before this Court is whether the trial court adequately instructed the jury. We hold that the trial court committed reversible error by failing to give an increase-of-hazard instruction. That instruction would have informed the jury that defendant could not be found liable for the loss if the fire hazard was increased by any means within the control or knowledge of plaintiff. In view of our holding, we remand the matter for a new trial. Consistent with those observations, we are persuaded that an insured's unjustified disabling of a sprinkler system falls within the realm of an increase-of-hazard clause. Accordingly, coverage will be suspended pursuant to that clause provided the insurer proves the insured's conduct to the satisfaction of the jury. DYNASTY, INC., T/A HOLLYWOOD LIGHTS, Plaintiff-Respondent, v. THE PRINCETON INSURANCE COMPANY, Defendant-Appellant. ________________________________________________________________ LONG, J., dissenting. I am in complete agreement with the majority's crystalline clarification of the previously murky law of increase-of-hazard. I part company from my colleagues only insofar as they have concluded that this record warrants a reversal. Like the trial court and the Appellate Division, I do not find an evidential basis for an increase-of-hazard instruction. There is no direct evidence that Esposito or anyone under his control or with his knowledge ever locked the sprinkler system in the off-position. In fact, the only evidence is that, except during the actual fire, the sprinkler system was locked in the on-position, shown by the fact that Esposito left a key for his employees so they could momentarily turn off the system if it was activated accidentally (by a smoker for example). Obviously, if the system was locked in the off-position, no key would have been necessary. Given the absence of any direct evidence of Esposito's complicity in locking the sprinkler system, it was his financial motive that got the arson case to the jury. As the majority properly notes, Princeton's theory at trial was that Esposito set the fire or facilitated it by disabling the sprinkler system to obtain the insurance proceeds and thus alleviate his financial burdens. Ante at ___ (slip op. at 9). A thin circumstantial case pivoting off financial motive was advanced on that point. There was, however, no evidence, circumstantial or otherwise, that Esposito (or anyone in his control or with his knowledge) locked the system in the off position for a reason other than to facilitate the arson. That missing proof is what would have been necessary to justify an increase-of-hazard instruction. The possibilities here are that Esposito locked the sprinkler system in the off-position to facilitate an arson; locked it for a different purpose, thus increasing the hazard; or did not lock it at all. Only the first and last of those scenarios can fairly be inferred from the record. The reason the trial court refused the increase-of-hazard instruction was because the trial, at heart, had been about arson; the court recognized that there was no separate evidence to support another theory of defense. As the Appellate Division aptly observed, Princeton's case was tried on the theory that [Esposito] set the fire or intentionally facilitated the arson by locking off the sprinkler system. Thus, if [Esposito] had turned off the sprinkler system, defendant did not have to pay under its policy. There was no evidence to suggest that [Esposito] had deactivated the system negligently or for some purpose unrelated to the arson. That is not to suggest locking the sprinkler could not constitute an increase-of-hazard, or that arson and increase-of hazard can not exist simultaneously in a single case. For example, an insured who deliberately locks a sprinkler system for a purpose other than arson can be denied coverage on increase-of hazard grounds. Likewise, if there had been evidence in this case, in addition to the arson evidence, that Esposito or an employee locked the sprinkler system in the off-position to save them the trouble of disengaging it if it accidentally activated, both an increase-of-hazard charge and an arson instruction would have been necessary. However, there was no such evidence here; thus the arson charge alone was adequate. I would affirm the Appellate Division and allow Esposito's verdict to stand. NO. A-31 DYNASTY, INC., T/A HOLLYWOOD LIGHTS, Plaintiff-Respondent, v. THE PRINCETON INSURANCE COMPANY, Defendant-Appellant. DECIDED July 24, 2000 Chief Justice Poritz