Court Opinion

ID: 9646809
Source: CourtListenerOpinion
Date Created: 2023-08-23 13:11:47.551169+00
Date Added: 2024-06-11T14:59:06.935037
License: Public Domain

GARIBALDI, J.,
dissenting.
Ultimately, the issue in this appeal is whether the long-standing rule granting common-law tort immunity to private water companies or its abrogation, with or without subrogation, will best serve the citizens of the state. The answer to this question will have a significant impact on the delivery of water to a large segment of the public and on the rates it will pay for this essential commodity. The Board of Public Utilities (BPU), the agency that the Legislature has authorized to regulate the industry, has advised this Court that the abrogation of immunity is against public policy because it jeopardizes the continued viability of many water suppliers and will increase water rates to one-third of the state’s water consumers.1
Both the majority and I agree with the BPU that simple abrogation of water company immunity is contrary to public policy primarily because “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.” Ante 492. By precluding fire insurance companies from asserting subrogated claims, the majority believes it can avoid the adverse economic impact warned of by the BPU. There is, however, no evidence to support that assumption.
*499The sweeping policy change effected by the majority’s no immunity/no subrogation scheme—a change that affects a basic service to so many consumers—should be made by the Legislature based on information and forecasts supplied by the BPU and the Commissioner of Insurance. It should not be based on judicial speculation. Most certainly this Court should not decree such a change in contravention of the express position of the governmental agency charged with regulating the industry. Therefore, I must dissent.
I
In Reimann v. Monmouth Consolidated Water Co., 9 N.J. 134 (1952), we stated that the major policy question of whether to alter the long-standing rule of immunity for water companies was more properly addressed to the Legislature than the Court. See id. at 139.2 Despite Reimann’s direct invitation to the Legislature to abolish the tort immunity of private water companies, thirty-five years have passed and it has not done so. During this period, the Legislature has not been unaware of these companies. In 1983, for example, it amended the Safe Drinking Water Act, N.J.S.A. 58:12A-1 to -11, to require periodic testing of public water supplies. And in 1981, it passed the Facilities and Services of Small Water Companies Act (commonly referred to as the Small Water Company Takeover Act), N.J.S.A. 58:11-59 to -63, under which a small water company may be acquired by a public or private entity when the company is unable to comply with certain operating standards. In the face of these enactments regarding water companies, the Legislature’s continued acquiescence in the Reimann rule indicates .that the rule remains consistent with legislative intent. See Lemke v. Bailey, 41 N.J. 295, 301 (1963) (“The construction of a *500statute by the courts, supported by long acquiescence on the part of the Legislature, or by continued use of the same language or failure to amend the statute, is evidence that such construction is in accordance with the legislative intent.”).
More importantly, insofar as the Legislature has acted in this area, it has given broad statutory authority to the BPU to regulate water companies. See N.J.S.A. 48:2-13. The BPU has authority to order utilities to provide safe, adequate service, N.J.S.A. 48:2-23. Water companies supply an essential commodity and, therefore, are extensively regulated by the BPU. Indeed, a BPU regulation specifically provides that “[e]ach water utility shall maintain sufficient pressure and volume of water at all fire hydrants to assure adequate streams for the fighting of fires.” N.J.A.C. 14:9-2.2(b).
Because the BPU not only is authorized to regulate water companies, but also is the agency that will approve the increased rates that will be charged to consumers as a result of the companies’ new tort liability, we invited it to take a post-argument position on the Reimann rule. We expressly requested it to address the impact that the abrogation of immunity would have on water rates and the availability of liability insurance for the companies. In response to our inquiry, the BPU strongly urged the continuation of the Reimann immunity rule, stating:
[U]nlike the time-worn doctrines of spousal and familial immunity cited by appellants as illustrative of a judicial trend away from immunity, the reasons justifying the immunity traditionally granted water companies for fire losses continue valid to this day.3 One need only recall the recent conflagration in Passaic, one of New Jersey’s largest industrial cities, to illustrate the potential *501scope of loss resulting from an uncontrollable fire.4 What if insufficient water pressure had contributed to the losses in Passaic, and what if, as a matter of law, the water supplier could be held liable for the extent of such losses. “(T)he ensuing litigation would doubtless be great,” as predicted by the Reimann court, and the “degree of confusion that would follow so revolutionary a decision” unimaginable. [9 N.J.] at 139-140. Could any water company survive such financial exposure? Would any insurer be willing to take on such a risk? Would the inner city resident be compelled to pay substantially higher rates for water service than would his suburban counterpart because of a higher risk of fire? Adding to the confusion would be the need to define the scope of liability. For example, would compensable losses be limited by type, dollar amount or customer category? There are no certain answers to these questions, but some fair assumptions can be drawn from the Board’s prior experience with water utility insurance issues.
In concluding that the immunity of private water companies continues to serve the public interest, the BPU reaffirmed the position it took in Button Leasing Co. v. Hackensack Water Co., No. 684-160, aff'd, No. A-1794-69 (App.Div.1970). In that case, the Appellate Division affirmed the BPU’s determination that it would be against the public interest to hold a water company liable for damage due to the company’s failure to furnish sufficient water at adequate pressure for fire-fighting purposes. The Button Leasing Company had sought to force the Hackensack Water Company to eliminate from its fire-service contracts a clause exculpating it from liability for gross or willful negligence in failing to furnish sufficient water pressure for fire-fighting purposes. The prohibitive cost of insurance to cover such liability convinced the BPU not to impose it.5 The BPU determined that elimination of the exculpatory provision from the companies’ private fire protection contracts would have “a substantial adverse economic effect on the water *502company and its customers,” and would confer no real benefit upon property owners who would most likely retain their private fire insurance policies.
The BPU’s opposition to the tort liability endorsed by the majority is even stronger today than it was in Button. Its recent survey of the insurability of water companies has convinced the BPU that “judicial imposition of yet another level of liability could easily precipitate an insurance crisis in the water industry.”6 We have every reason to respect that assessment. See generally [Insurance] Commissioner’s Statement of Imminent Peril dated September 16, 1985; see also N.J.A.C. 11:1-20, -20.1 and -22 (emergency regulations adopted by the Commissioner of Insurance on September 17, 1985, and re-adopted November 16, 1985, that restrict the rights of insurance carriers to cancel or refuse to renew property and casualty insurance policies; N.J.A.C. ll:l-20.3(a)(8) (effective August 21, 1986) (allowing commercial insurors to cancel policies as a *503result of new statutory or case law which materially increases exposure).
We have consistently held that the Legislature intended to delegate the widest range of regulatory power over public utilities to the BPU. See Boss v. Rockland, 95 N.J. 33 (1983); Township of Deptford v. Woodbury Township Sewerage Corp., 54 N.J. 418, 424 (1969). In so doing, we have recognized the BPU’s expertise in balancing the interests of the public against the interests of the utilities. In Boss, we held that the lower court should have referred the issue of what was “necessary for the proper operation and maintenance” of an electric company to the BPU for resolution, rather than deciding the issue itself. See 95 N.J. at 39. We further warned that “[c]ourts should be sensitive to purported legal claims that are really regulatory issues and should be referred to the agency.” Id. at 42. We should be guided by that sensitivity today, and should heed the BPU’s recommendation.
II
The majority decision not only conflicts with the Legislature’s policies toward the immunity and regulation of private water companies, it also obstructs the legislative design for subrogation rights.
N.J.S.A. 17:36-5.20 specifically addresses the issue of subrogation rights for fire insurance companies:
Every fire insurance policy shall contain certain standard provisions which shall be in the words and in the order hereinafter set forth:
***4(31[**>1<
Subrogation. This Company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefor is made by this Company.
“Where the terms of the particular policy are prescribed by statute, the statute will also govern the right to subrogation____” 16 Couch on Insurance § 61:6 at 82 (2d ed. 1983). Nevertheless, without any hearing on this issue, the Court on its own motion holds that an insurance carrier’s subrogation *504claims, specifically provided for by N.J.S.A. 17:36-5.20, are unenforceable against the water company. The majority’s cavalier disregard for contractual clauses entered into under the authority of N.J.S.A. 17:36-5.20 is unsupportable. The majority relies on A. & B. Auto Stores of Jones Street, Inc. v. City of Newark, 59 N.J. 5 (1971), but our decision to deny insurance companies the right to bring subrogation claims in that case did not contravene any legislative provision, as the majority decision today does. As it applied in that case, the Riot Act Statute was silent on the issue of subrogation rights. See id. at 22-23. After that case was initiated, but before it was decided, the Legislature amended that statute so that it specifically denied subrogation rights. Although the amendment was not applicable to the claims at bar, it did provide this Court with “a fresh legislative redetermination of the underlying policy question.” Id. at 19.
In A. & B. Auto Stores, we relied on the proposition, as had the courts in Interstate Fire & Casualty Co. v. City of Milwaukee, 45 Ms.2d 331, 173 N.W.2A 187 (1970), and William Burford & Co. v. Glascow Water Co., 223 Ky. 54, 2 S'. W.2d 1027 (1928), that a court may block subrogation in the interests of justice when the party that the insurance company hopes to collect from is not culpable of tortious behavior.7 Because the linchpin of today’s majority decision creates tort liability for culpable water companies, the cited decisions do not provide precedent for the majority’s decision. Here, the Court is shifting the risk of loss away from the wrongdoer (the water company) and placing it on the fire insurance companies, who are not at fault.
*505At the very least, the important policy of precluding subrogation claims should be decided on an appropriate record. This is not a subrogation case. Neither the parties nor BPU nor the National Association of Water Companies briefed or argued subrogation. See generally Busch v. Home Insurance Co., 97 NJ.Super. 54, 57 (App.Div.1967) (“[T]he question of whether a provision for subrogation should not be permitted in a policy because impractical or unfair is for the Commissioner of Banking and Insurance to decide.”) No insurance companies appeared before the court. Indeed, only Amicus Department of Public Advocate in its brief raised the issue of subrogation and it concluded that
[t]here are sound reasons for not addressing this complex question at the present time. The record does not yet indicate whether either party has first party insurance or whether the water company is negligent. The views of the first party insurers and the liability carriers for water companies are not before the court on this issue. The economic burden of tort liability is not as well known as it will be after the Board of Public Utilities has decided on a specific ratemaking treatment of liability costs.
There are no forecasts by the BPU or the Commissioner of Insurance of the impact of the no immunity/no subrogation proposal established by today’s decision. Neither I nor, I respectfully submit, the majority knows how subrogation will affect either water rates or fire insurance premiums for consumers, or the availability and cost of liability insurance for the water companies. In a perfect world, perhaps, the aggregate premium reduction for fire insurance would equal the aggregate increase of water rates. However, this result seems highly unlikely, especially because the water companies and property owners will not all use the same carriers.
Ill
Most importantly, I do not agree with the majority that its subrogation doctrine will be effective in reducing the plight of the water consumer. The policy reasons advanced by the BPU to continue the immunity are equally applicable to continuing the immunity even with the preclusion of subrogation claims.
*506With or without subrogation, water companies will need new liability insurance policies to cover claims by underinsured 8 or uninsured property owners. It is simply unreasonable in this time of reduced insurance availability and escalated premiums to assume that this insurance will not be costly, particularly in light of the fact that water companies have no way of knowing which properties within the zone of danger—residential or commercial, within or without their service areas—are fully insured for fire loss; which are insured only for the structure and not the contents; and which are underinsured for the structure and/or the contents.
As the majority acknowledges, most of the people who will be injured by the water company’s negligence already have fire insurance protection and will continue to insure their property adequately against the risk of fire damage regardless of today’s decision. For these people, the abolition of immunity is unnecessary. Recovery for these owners under their fire insurance policy is a more reliable compensation mechanism than litigation seeking recovery for negligence. In short, for these insured property owners—and for tenants who have comprehensive property protection insurance—the only likely result is higher water rates. For these consumers, abandoning the immunity rule is not only inefficient, it is also unfair. Fire insurance premiums take into account the value of the insured property as well as the risk the property presents—the greater the value and/or risk, the higher the premium. In contrast, water companies charge uniform rates for equivalent water service. If fire insurance premiums are in this sense analogous to a progressive tax, water rates are like a regressive tax. An owner of a home worth $100,000 pays the same uniform water rate as the owner of commercial property worth $1,000,000. *507Yet, the water company’s exposure to risk of loss for damage due to its negligence to the $1,000,000 property, and its insurance premiums for such a risk, are much greater than for its exposure to damage to the homeowner. I believe it is fairer to allocate the risk of protecting the more valuable property to those who own the property.
Moreover, water companies serving older, more crowded neighborhoods where the fire risk is greater than in newer, more affluent communities will likely have to pay substantial premiums to secure liability insurance, if such insurance is even available. These higher premiums will result in higher water rates for consumers in these areas, who in many cases will be unable to afford an increase.
In sum, the new rules benefit few. Granted there are some uninsured or underinsured persons whose property will be damaged and some persons who will be personally injured as the result of negligence of the water company that will receive reimbursement they presently are not entitled to receive. Nevertheless, to compensate these few, I believe that the vast majority of water consumers will pay higher utility rates.
IV
In conclusion, the balancing of the conflicting interests of the persons injured by the water company’s negligence and the water consumers should be done by the Legislature. I submit that the Legislature, by enacting its regulatory scheme, has concluded that the BPU’s regulation of water companies better serves the public interest than would the imposition of this new tort liability. The BPU has the expertise to determine if fire hydrants are being properly maintained and the authority to levy fines and other sanctions against companies that fail to provide adequate service, without disrupting the level of service *508to the public or imposing burdensome consequences on the consumers. N.J.S.A. 48:2-51.9
The speculative nature of the majority decision illustrates how correct this Court was in Reimann to characterize the abolition of tort immunity for water companies as a legislative rather than judicial question. Further study of the issue may provide economic forecasts and empirical evidence that establishes that the majority’s no immunity/no subrogation policy will not have an adverse impact on one-third of the water consumers in New Jersey. However, we have no evidence of this. Accordingly, I would not abolish the immunity.
For reversal and remandment—Chief Justice WILENTZ and Justices CLIFFORD, HANDLER, POLLOCK, O’HERN and STEIN—6.
For affirmance—Justice GARIBALDI—1.

 Amicus Curiae, National Association of Water Companies, New Jersey Chapter, a trade association of investor-owned water companies providing water services within New Jersey, states that its members provide water service to approximately one-third of the population of New Jersey.

We affirmed Reimann 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).

The BPU correctly points out that spousal and parental immunity were based on outdated societal assumptions, see Merenoff v. Merenoff, 76 N.J. 535 (1978) (abolishing interspousal tort immunity); Foldi v. Jeffries, 93 N.J. 533 (1983) (explaining the extremely limited scope of modern intrafamily tort immunity), while water company immunity is based on practical and current economic reality.

At oral argument, the BPU explained that claims arising out of the Labor Day 1985 fire in Passaic exceeded $500 million.

The Hearing Officer in his Report found that the total annual operating cost to the water company relating to fire protection insurance would have been $125,000. If this amount were then distributed among the water company’s private fire protection customers, they would have experienced an increase of $93 over the then existing average service charge of $585, an increase of approximately 16%.

In its brief the BPU cautions that the Button Leasing figures are 1970 estimates and that the insurance in question would have covered only those customers who specifically contracted for fire protection service. Moreover, the utility involved in Button Leasing was (and remains) one of the state’s largest water utilities with a large customer base over which to distribute increased costs, while most of New Jersey’s privately owned water companies are much smaller utilities with smaller customer bases.
Fifty-six of eighty-two water companies responded to the BPU’s recent survey of the insurability of water companies for risks for which there is no immunity. The twelve largest water companies (Class A companies having annual operating revenues of $500,000 or more) pay a total of $3,800,000 in liability insurance premiums annually. These companies have been unable to procure pollution coverage and have experienced cancellations and nonrenewals of various policies. The Hackensack Water Company, which was involved in the 1969 Button Leasing case, reported an annual liability premium of $848,000 in 1986. In 1987 its premiums are expected to increase by $636,000. In 1985 the premium was $475,000. The company also reports an increase in the deductible of its General Liability policy. Smaller water companies report paying approximately $365,000 in liability insurance premiums. The BPU reveals that the majority of these companies have not yet experienced the difficulties faced by the larger water companies with regard to the exposure they faced before today.

in Interstate, the City of Milwaukee was liable under a statute that, like the one in A. & B. Auto Stores, made it a surety for riot damage without regard to fault. See 45 Wis.2d at 337, 173 N.W.2d at 191. In Burford, the water company "was not guilty of a tort. Its liability [to the property owners was] predicated solely on the breach of its contract [with the city] to furnish sufficient facilities to extinguish the fire.” 223 Ky. at 57, 2 S.W.2d at 1028.

Obviously, many property owners will consider themselves to have been underinsured after they settle with their fire insurance companies. Thus, water companies will be forced to endure significant additional litigation as a result of today’s holding.

Failure of a utility to perform acts required by the BPU is a misdemeanor under NJ.S.A. 48:2-51. Also, NJ.S.A. 48:2-42 provides that any person or public utility that fails to comply with an Order of the BPU is subject to a penalty of one hundred dollars for every day during which the default continues. Furthermore, under N.J.S.A. 48:2-13, its general grant of jurisdiction and authority, the BPU might revoke the franchise of a utility that fails to provide proper service, and substitute another utility.