Continental Fidelity New Company Columbia v. Honeywell
Annotate this CaseNOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0
A-1100-13T1
Continental Insurance Company,
Fidelity & Casualty Company of
New York, Commercial Insurance
Company of Newark, N.J., and
Columbia Casualty Company,
Plaintiffs,
v.
Honeywell International, Inc.
(f/k/a AlliedSignal, Inc.,
successor to Bendix Aviation
Corporation and Bendix
Corporation),
Defendant-Respondent,
and
St. Paul Fire and Marine Insurance
Company,
Defendant-Appellant,
and
Affiliated FM Insurance Company,
Allstate Insurance Company,
American Home Assurance Company,
American Insurance Company,
California Union Insurance
Company, Century Indemnity
Company, Commercial Union
Insurance Company as successor to
Employers Liability Assurance
Corporation, Ltd., Employers
Insurance of Wausau, Fireman's
Fund Insurance Company, Granite
State Insurance Company, Great
American Insurance Company, Home
Insurance Company, Insurance
Company of North America, National
Union Fire Insurance Company of
Pittsburgh, PA, North River
Insurance Company, Travelers
Indemnity Company, Underwriters at
Lloyds London and certain London
Market Companies, including Anglo
Saxon Insurance Assoc. Ltd.,
Dominion Insurance Company, Drake
Insurance Company, Eagle Star
Insurance Company, Institute of
London Underwriters, London &
Edinburgh Insurance Company
Ltd., Prudential Assurance Company
Ltd., Southern Insurance Company,
and World Auxiliary Insurance
Corp., Ltd.,
Defendants,
and
Honeywell International, Inc.
(f/k/a AlliedSignal, Inc.,
successor to Bendix Aviation
Corporation and Bendix
Corporation),
Defendant/Third-Party
Plaintiff-Respondent,
v.
Travelers Casualty & Surety
Company (f/k/a Aetna Casualty &
Surety Company),
Third-Party Defendant-
Appellant,
and
AIU Insurance Company, American
Centennial Insurance Company,
Associated International Insurance
Company, Centre Insurance Company
(f/k/a London Guarantee and
Accident Company of New York),
Continental Casualty Company, The
Continental Insurance Company as
successor in interest to Harbor
Insurance Company (f/k/a Harbor
Insurance Company), Everest
Reinsurance Company (f/k/a
Prudential Reinsurance Company),
Executive Risk Indemnity Inc.
(f/k/a American Excess Insurance
Company), Federal Insurance Company,
First State Insurance Company,
Fremont Indemnity Company (f/k/a
Industrial Indemnity Company),
General Reinsurance Corporation,
Hartford Accident & Indemnity
Company, International Insurance
Company (f/k/a International
Surplus Lines Insurance Company),
Lexington Insurance Company, Mt.
McKinley Insurance Company (f/k/a
Gibraltar Casualty Company), Mutual
Fire, Maine & Inland Insurance
Company, Royal Indemnity Company,
The Tokio Marine & Fire Insurance
Company, Ltd., Twin City Fire
Insurance Company, Utica Mutual
Insurance Company, Westport
Insurance Company (f/k/a Puritan
Insurance Company), and Certain
London Market Companies, including
Accident & Casualty Insurance
Company, Alba General Insurance
Company (f/k/a Alba General Insurance
Company Limited), Aviation & General
Insurance Company Limited, AXA
Insurance PLC (f/k/a Provincial
Insurance Public Limited Company),
The British Aviation Insurance
Company Limited, British Law Insurance
Company Limited, British Reserve
Insurance Company Limited, British
Traders Insurance Company Ltd.,
C.A.M.A.T. Insurance Company Limited,
C.F.A.U., Continental Assurance
Company of London, Ltd., Cornhill
Insurance Public Limited Company
(f/k/aCornhill Insurance Company
Limited), Edinburgh Assurance Company
Ltd., Edinburgh Insurance Company
Limited, Edinburgh No. 2 Group,
Elvia Swiss Insurance Company (f/k/a
Helvetia Accident Insurance Company
Limited), Excess Insurance Company
Limited, Fidelidade Insurance Company
of Lisbon, GE Specialty Insurance (UK)
Limited (f/k/a Threadneedle Insurance
Company Limited), General Insurance
Company Helvetia Limited, Groupama
Insurance Company Limited (f/k/a
Minister Insurance Company Limited),
Helvetia Insurance Company Ltd.,
Helvetia Swiss Insurance Company
Limited (f/k/a Helvetia Accident Swiss
Insurance Company), Iron Trades Insurance
Company Limited (f/k/a Iron Trades
Mutual Insurance Company Limited),
La Minerve Insurance Company Limited,
Lombard Marine & General Insurance
Company Ltd., London & Edinburgh
General Insurance Company, London &
Overseas Aviation A.C., Motor Union
Insurance Company Limited, National
Casualty Company, National Casualty
Company of America, The New India
Assurance Company Limited, Phoenix
Assurance Public Limited Company,
Phoenix Aviation Insurance Company
Limited, Phoenix Insurance Company
Ltd., River Thames Insurance Company
Limited, Road Transport & General
Insurance Co. LTD., Royal Scottish
Assurance PLC (f/k/a The Royal
Scottish Insurance Company Limited),
Scottish Lion Insurance Company Ltd.,
Stronghold Insurance Company Limited,
Swiss National Insurance Company
Limited, Swiss Union General Insurance
Company Limited, Switzerland General
Insurance Company Limited, Trent
Insurance Company Limited, Turegum
Insurance Company Limited, Ulster
Insurance Company Limited, UMA,
United Scottish Insurance Company
Aviation Ltd., United Scottish
Insurance Company Limited, Vanguard
Insurance Company Limited, Victoria
Aviation, Victoria Insurance Company,
Ltd., and The World Marine & General
Insurance PLC (f/k/a The World Marine
& General Insurance Company Limited),
Third-Party Defendants.
_________________________________________
Continental Insurance Company,
Fidelity & Casualty Company of
New York, Commercial Insurance
Company of Newark, N.J., and
Columbia Casualty Company,
Plaintiffs,
v.
Honeywell International, Inc.
(f/k/a AlliedSignal, Inc.,
successor to Bendix Aviation
Corporation and Bendix
Corporation),
Defendant-Appellant,
and
St. Paul Fire and Marine Insurance
Company,
Defendant-Respondent,
and
Affiliated FM Insurance Company,
Allstate Insurance Company,
American Home Assurance Company,
American Insurance Company,
California Union Insurance
Company, Century Indemnity
Company, Commercial Union
Insurance Company as successor to
Employers Liability Assurance
Corporation, Ltd., Employers
Insurance of Wausau, Fireman's
Fund Insurance Company, Granite
State Insurance Company, Great
American Insurance Company, Home
Insurance Company, Insurance
Company of North America, National
Union Fire Insurance Company of
Pittsburgh, PA, North River
Insurance Company, Travelers
Indemnity Company, Underwriters at
Lloyds London and certain London
Market Companies, including Anglo
Saxon Insurance Assoc. Ltd.,
Dominion Insurance Company, Drake
Insurance Company, Eagle Star
Insurance Company, Institute of
London Underwriters, London &
Edinburgh Insurance Company
Ltd., Prudential Assurance Company
Ltd., Southern Insurance Company,
and World Auxiliary Insurance
Corp., Ltd.,
Defendants,
and
Honeywell International, Inc.
(f/k/a AlliedSignal, Inc.,
successor to Bendix Aviation
Corporation and Bendix
Corporation),
Defendant/Third-Party
Plaintiff-Appellant,
v.
Travelers Casualty & Surety
Company (f/k/a Aetna Casualty &
Surety Company),
Third-Party Defendant-
Respondent,
and
AIU Insurance Company, American
Centennial Insurance Company,
Associated International Insurance
Company, Centre Insurance Company
(f/k/a London Guarantee and
Accident Company of New York),
Continental Casualty Company, The
Continental Insurance Company as
successor in interest to Harbor
Insurance Company (f/k/a Harbor
Insurance Company), Everest
Reinsurance Company (f/k/a
Prudential Reinsurance Company),
Executive Risk Indemnity Inc.
(f/k/a American Excess Insurance
Company), Federal Insurance Company,
First State Insurance Company,
Fremont Indemnity Company (f/k/a
Industrial Indemnity Company),
General Reinsurance Corporation,
Hartford Accident & Indemnity
Company, International Insurance
Company (f/k/a International
Surplus Lines Insurance Company),
Lexington Insurance Company, Mt.
McKinley Insurance Company (f/k/a
Gibraltar Casualty Company), Mutual
Fire, Maine & Inland Insurance
Company, Royal Indemnity Company,
The Tokio Marine & Fire Insurance
Company, Ltd., Twin City Fire
Insurance Company, Utica Mutual
Insurance Company, Westport
Insurance Company (f/k/a Puritan
Insurance Company), and Certain
London Market Companies, including
Accident & Casualty Insurance
Company, Alba General Insurance
Company (f/k/a Alba General Insurance
Company Limited), Aviation & General
Insurance Company Limited, AXA
Insurance PLC (f/k/a Provincial
Insurance Public Limited Company),
The British Aviation Insurance
Company Limited, British Law Insurance
Company Limited, British Reserve
Insurance Company Limited, British
Traders Insurance Company Ltd.,
C.A.M.A.T. Insurance Company Limited,
C.F.A.U., Continental Assurance
Company of London, Ltd., Cornhill
Insurance Public Limited Company
(f/k/aCornhill Insurance Company
Limited), Edinburgh Assurance Company
Ltd., Edinburgh Insurance Company
Limited, Edinburgh No. 2 Group,
Elvia Swiss Insurance Company (f/k/a
Helvetia Accident Insurance Company
Limited), Excess Insurance Company
Limited, Fidelidade Insurance Company
of Lisbon, GE Specialty Insurance (UK)
Limited (f/k/a Threadneedle Insurance
Company Limited), General Insurance
Company Helvetia Limited, Groupama
Insurance Company Limited (f/k/a
Minister Insurance Company Limited),
Helvetia Insurance Company Ltd.,
Helvetia Swiss Insurance Company
Limited (f/k/a Helvetia Accident Swiss
Insurance Company), Iron Trades Insurance
Company Limited (f/k/a Iron Trades
Mutual Insurance Company Limited),
La Minerve Insurance Company Limited,
Lombard Marine & General Insurance
Company Ltd., London & Edinburgh
General Insurance Company, London &
Overseas Aviation A.C., Motor Union
Insurance Company Limited, National
Casualty Company, National Casualty
Company of America, The New India
Assurance Company Limited, Phoenix
Assurance Public Limited Company,
Phoenix Aviation Insurance Company
Limited, Phoenix Insurance Company
Ltd., River Thames Insurance Company
Limited, Road Transport & General
Insurance Co. LTD., Royal Scottish
Assurance PLC (f/k/a The Royal
Scottish Insurance Company Limited),
Scottish Lion Insurance Company Ltd.,
Stronghold Insurance Company Limited,
Swiss National Insurance Company
Limited, Swiss Union General Insurance
Company Limited, Switzerland General
Insurance Company Limited, Trent
Insurance Company Limited, Turegum
Insurance Company Limited, Ulster
Insurance Company Limited, UMA,
United Scottish Insurance Company
Aviation Ltd., United Scottish
Insurance Company Limited, Vanguard
Insurance Company Limited, Victoria
Aviation, Victoria Insurance Company,
Ltd., and The World Marine & General
Insurance PLC (f/k/a The World Marine
& General Insurance Company Limited),
Third-Party Defendants.
_________________________________________
July 20, 2016
Argued March 2, 2016 - Decided
Before Judges Fuentes, Koblitz and Gilson.
On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-1523-00.
Andrew T. Frankel argued the cause for appellants St. Paul Fire and Marine Insurance Company and Travelers Casualty and Surety Company in A-1071-13 (Windels Marx Lane & Mittendorf, L.L.P., and Simpson Thacher & Bartlett, L.L.P., attorneys; Stefano V. Calogero, of counsel; Mr. Calogero and Mr. Frankel, on the joint brief).
Michael J. Lynch of the Pennsylvania bar, admitted pro hac vice, argued the cause for respondent Honeywell International, Inc. in A-1071-13 (K&L Gates L.L.P., Donald E. Seymour of the Pennsylvania bar, admitted pro hac vice, John T. Waldron, III of the Pennsylvania bar, admitted pro hac vice, and Mr. Lynch, attorneys; Mr. Seymour, Mr. Lynch, Mr. Waldron, and Donald W. Kiel, on the brief).
Donald W. Kiel argued the cause for appellant Honeywell International, Inc. in A-1100-13 (K&L Gates L.L.P., Donald E. Seymour of the Pennsylvania bar, admitted pro hac vice, Melissa J. Tea of the Pennsylvania bar, admitted pro hac vice, and John T. Waldron, III of the Pennsylvania bar, admitted pro hac vice, attorneys; Mr. Seymour, Mr. Waldron, Ms. Tea, and Mr. Kiel, on the brief).
Andrew T. Frankel argued the cause for respondents St. Paul Fire and Marine Insurance Company and Travelers Casualty and Surety Company in A-1100-13 (Windels Marx Lane & Mittendorf, L.L.P., and Simpson Thacher & Bartlett, L.L.P., attorneys; Stefano V. Calogero, of counsel; Mr. Calogero, Mr. Frankel, and Tanya M. Mascarich, on the joint brief).
PER CURIAM
These consolidated appeals involve insurance coverage disputes concerning asbestos-related product liability claims allegedly caused by brake and clutch pads that contained asbestos. The Bendix Corporation (Bendix), the corporate predecessor of Honeywell International, Inc. (Honeywell), manufactured and sold brake and clutch pads that contained asbestos. Those pads are also referred to as friction material products. Honeywell has been sued in tens of thousands of actions asserting personal injuries and wrongful death from exposure to asbestos from Bendix pads. As a consequence, Honeywell and its insurers have spent over $1 billon in defending, settling, and paying asbestos-related claims.
Following thirteen years of litigation, seeking declarations of the rights and obligations among Honeywell and its various insurers, all parties settled except Honeywell and two of its excess carriers, Travelers Casualty & Surety Company (Travelers) and St. Paul Fire and Marine Insurance Company (St. Paul). Travelers and St. Paul appeal two orders that held (1) New Jersey law applies to insurance allocation determinations, and (2) Honeywell need not share in coverage allocations as if it were self-insured after 1987 because excess insurance for asbestos bodily injury claims was no longer available after 1987. Honeywell appeals an order and portions of the final judgment that held (1) St. Paul excess policies did not provide coverage for Honeywell's defense costs; (2) certain excess insurance policies did not provide coverage for Honeywell's defense costs; (3) certain excess policies attach only when all underlying policies are exhausted; and (4) Honeywell was not entitled to counsel fees and costs.
We have consolidated these appeals for purposes of this opinion. After reviewing the record and the applicable law, we affirm all the orders and the final judgment, except for one. We remand the order dated July 22, 2011, for the limited purpose to conform its content to the trial judge's oral ruling.
I.
We summarize the relevant facts and procedural history focusing on the issues raised in these appeals.
Bendix was incorporated in Delaware in 1929, and was headquartered in Indiana until 1969. Between 1969 and 1983, Bendix was headquartered in Michigan. In 1983, Allied Corporation acquired Bendix and operated Bendix as a wholly-owned subsidiary. Allied was incorporated in New York and had its principal place of business in New Jersey. Allied merged with Signal Companies and ultimately became AlliedSignal, Inc. In 1999, AlliedSignal merged with Honeywell. Honeywell is a Delaware corporation, with its headquarters and principal place of business in New Jersey.
Bendix manufactured and sold friction products, such as brake and clutch pads for cars and trucks. For decades, Bendix used asbestos as a component of its friction products. Beginning in 1975, numerous individuals sued Bendix in jurisdictions throughout the United States alleging Bendix friction products caused them to experience a number of maladies by exposing them to asbestos. Bendix has vigorously defended those litigations and contends the asbestos in its friction products was not harmful. Bendix ceased using asbestos in its brake and clutch pads in 2001.
Bendix had purchased general liability insurance covering the products it manufactured. Beginning in 1940, Bendix purchased primary insurance policies from Continental Insurance Company (Continental). "Primary insurance provides first dollar liability coverage up to the limits of the insurance contract, usually subject to a deductible. It potentially attaches upon the happening of an insured liability." Spaulding Composites Co. v. Aetna Cas. & Sur. Co., 176 N.J. 25, 36 n.4 (2003), cert. denied, 540 U.S. 1142, 124 S. Ct. 1061, 157 L. Ed. 2d 953 (2004). Bendix also purchased excess coverage policies from numerous insurers, including St. Paul and Travelers. "Excess insurance is secondary coverage that ordinarily attaches only after a predetermined amount of primary insurance or self-insured retention has been exhausted." Ibid.
From 1940 to 1986, the insurance policies issued to Bendix and its corporate successors did not contain asbestos exclusions. Beginning in April 1986, however, the primary insurance policies excluded any coverage for bodily injuries caused by exposure to asbestos. Starting in 1987, the excess insurance policies issued to Bendix also contained asbestos exclusions.
In 2000, Continental filed an action in New Jersey against Honeywell and many of Honeywell's other insurers seeking declaratory relief concerning the rights and obligations associated with the insurance coverage for personal injury asbestos claims against Honeywell as successor to Bendix. Honeywell asserted cross-claims and third-party claims against numerous insurers, including Travelers and St. Paul. Ultimately, Honeywell settled with Continental and all other insurers, except for Travelers and St. Paul.
Thus, there are ten high-level excess insurance policies at issue in these appeals. Eight of the policies were issued to Bendix between 1977 and 1983 by Travelers's predecessor, Aetna Casualty & Surety Company (Aetna). At the time those policies were issued, Bendix was headquartered in Michigan. Two of the policies were issued by St. Paul and covered periods from 1968 to 1970. At the time St. Paul issued those policies, Bendix was headquartered in Indiana and then Michigan. Travelers has also acquired St. Paul. To avoid confusion, we refer to St. Paul and Travelers separately.
In 2006, Honeywell filed a motion for partial summary judgment, seeking application of New Jersey insurance allocation law. Travelers opposed that motion and cross-moved, arguing for the application of Michigan allocation law to its eight excess policies. St. Paul neither opposed Honeywell's motion, nor did it move for application of Michigan law. Following oral argument, the motion judge granted Honeywell's motion, denied Travelers's cross-motion, and ruled that the law of New Jersey would apply to insurance allocation issues. That ruling was memorialized in an order filed on November 9, 2006.
In 2007, a co-defendant moved for partial summary judgment, seeking a ruling that Honeywell was required to participate in the allocation of coverage for pre-1987 claims. Travelers contended Honeywell had effectively self-insured between 1987 and 2001 by continuing to manufacture friction materials with asbestos. Honeywell opposed that motion and cross-moved seeking a ruling that such claims were covered by its pre-1987 insurance policies. Honeywell does not contend that its insurers are responsible for asbestos-related claims that arise after 1987, when its insurers excluded such coverage. Instead, Honeywell maintains that if a claimant alleges injuries from exposure to asbestos from a Bendix product before 1987, Honeywell should not participate in the allocation of insurance coverage even if the injuries manifest themselves after 1987.
Initially, the motion judge denied both motions reasoning that a plenary hearing was required. In 2011, Honeywell filed two related motions seeking partial summary judgment to preclude allocation of liabilities to it for any period after 1987, contending it did not have the opportunity to obtain excess insurance coverage for asbestos-related claims and a ruling that excess insurance was not readily available beginning in 1987. A different motion judge granted Honeywell's motion in an order filed on July 22, 2011. The judge found excess insurance coverage for asbestos liabilities was not reasonably available beginning in April 1987 and, thus, Honeywell was not responsible for pre-1987 exposure claims that manifested injury after 1987. Having granted partial summary judgment, the motion judge also held that a plenary hearing was no longer necessary.
In 2011, St. Paul moved for partial summary judgment seeking a ruling that its two excess insurance policies did not require it to cover Honeywell's defense costs. In an order filed on July 22, 2011, the motion judge granted St Paul's motion.
In 2013, by consent, a special allocation master (SAM) was appointed to make recommendations on allocation-related issues. The SAM held hearings, heard arguments from counsel, and issued a report and supplemental report containing his recommendations. Among other things, the SAM recommended that certain excess policies issued by American Insurance Company (AIC) did not include the obligation to pay defense costs and, thus, those AIC policies "will not exhaust until Honeywell can prove that the indemnity limits of the relevant AIC polic[ies are] exhausted by paying the stated policy limits with indemnity dollars." (This issue is referenced as "Issue Five" in the SAM's report.) The SAM also recommended that AIC and Aetna excess policies required "all underlying indemnity limits of quota share policies to exhaust before [Travelers or St. Paul are] called upon to pay any part or all of [their] indemnity limits, irrespective of whether the underlying policies provide coverage that allow some of the policies to exhaust before other policies in the same layer of coverage." (This issue is referred to as "Issue Six" in the SAM's report.)
The trial court adopted all of the SAM's recommendations, with one exception that is not relevant to these appeals. The trial court then embodied the adopted recommendations in a final judgment that was entered on September 16, 2013. The trial court also denied Honeywell's application for attorney's fees and costs in the final judgment.
II.
Travelers and St. Paul jointly appeal from two orders: the November 9, 2006 order granting Honeywell's motion for partial summary judgment to apply New Jersey allocation law; and the July 22, 2011 order granting Honeywell's motion for partial summary judgment holding that Honeywell is not responsible for allocation because it could not obtain insurance coverage for asbestos claims after 1987. Honeywell separately appeals from another July 22, 2011 order and portions of the final judgment. Specifically, Honeywell raises three arguments on its appeal: (1) the July 22, 2011 order improperly granted St. Paul's motion for partial summary judgment holding that St. Paul's policies did not require payment of defense costs; (2) the trial court incorrectly adopted the SAM's recommendations on Issues Five and Six; and (3) the trial court improperly denied Honeywell's application for attorney's fees and costs.
Thus, there are six issues presented by these two consolidated appeals: whether the trial court erred by ruling that (1) New Jersey allocation law applied to the insurance policies at issue; (2) excess insurance for asbestos-related claims was not reasonably available to Honeywell beginning in 1987; (3) St. Paul's two excess policies did not require payment for Honeywell's defense costs; (4) AIC's policies did not provide coverage for Honeywell's defense costs; (5) AIC and Aetna's policies, which immediately overlay a quota share layer of insurance, do not attach until all of the quota share policies in that layer are exhausted; and (6) Honeywell was not entitled to counsel fees and costs. We will address each of these issues accordingly.
1. Choice of Allocation Law
Travelers and St. Paul contend the trial court erred by ruling that New Jersey insurance allocation law, not Michigan law, applies to the ten excess insurance policies issued by Travelers and St. Paul.
Initially, we note that St. Paul cannot appeal the trial court's choice-of-allocation-law ruling because it neither moved before the trial court for the application of Michigan law, nor opposed Honeywell's motion for the application of New Jersey allocation law. "[A]ppellate courts will decline to consider questions or issues not properly presented to the trial court when an opportunity for such a presentation is available." State v. Witt, 223 N.J. 409, 419 (2015) (quoting State v. Robinson, 200 N.J. 1, 20 (2009)); Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). Accordingly, we will consider the choice-of-law issues only with respect to Travelers's eight excess policies.
"We exercise plenary review of a trial court's ruling on a choice-of-law issue." DeMarco v. Stoddard, 434 N.J. Super. 352, 367 (App. Div. 2014) (quoting Bondi v. Citigroup, Inc., 423 N.J. Super. 377, 418 (App. Div. 2011), certif. denied, 210 N.J. 478 (2012)), rev'd on other grounds, 223 N.J. 363 (2015). Because New Jersey is the forum state, we evaluate the conflict-of-law issue under New Jersey choice-of-law principles. Rowe v. Hoffman-La Roche, Inc., 189 N.J. 615, 621 (2007). "[C]hoice-of-law determinations must be made on an 'issue by issue' basis, in which each issue is analyzed separately, and different issues in the same litigation may be governed by the law of different states." N. Jersey Neurosurgical Assocs., P.A. v. Clarendon Nat'l Ins. Co., 401 N.J. Super. 186, 192 (App. Div. 2008) (citing Rowe, supra, 189 N.J. at 621).
The first step in a choice-of-law analysis is to determine whether there is an actual conflict of law. P.V. ex rel. T.V. v. Camp Jaycee, 197 N.J. 132, 143 (2008). "If the laws of the two jurisdictions do not differ significantly, then there is no choice-of-law issue to be resolved, and the forum state applies its own law. The party seeking application of the foreign law must demonstrate that the laws of the two jurisdictions differ." DeMarco, supra, 434 N.J. Super. at 367 (citations omitted).
Here, Travelers contends that Michigan uses the time-on-the-risk allocation approach that differs from New Jersey's pro rata allocation approach. Honeywell, in contrast, argues Michigan has not adopted a clear allocation rule and, thus, no conflict of law exists. The trial court found that no conflict of law existed because Michigan insurance allocation law remained unsettled. Nevertheless, the trial court alternatively assumed that if there were a conflict of law, New Jersey law would apply to the allocation issue. We disagree with the trial court insofar as it held that no conflict of law existed, but agree that under New Jersey's conflict-of-law analysis, New Jersey law applies to the insurance allocation issues.
New Jersey has adopted a methodology for determining allocation of liability among insurers whose policies cover asbestos-related diseases over a period of years. See Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 474-75 (1994). In Owens-Illinois, our Supreme Court adopted a pro rata allocation methodology that considers both the insurer's time on the risk and the degree of risk that is assumed. Ibid.; see also In re Liquidation of Integrity Ins. Co., 427 N.J. Super. 521, 531 (App. Div. 2012), certifs. denied, 213 N.J. 44 (2013). Specifically, the Court found that the "better formula" was to "allocate[] the losses among the carriers on the basis of the extent of the risk assumed, i.e., proration on the basis of policy limits, multiplied by years of coverage." Owens-Illinois, supra, 138 N.J. at 475. That methodology has also been applied by our Supreme Court to evaluate the relative responsibilities of primary and excess insurers. Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 325-28 (1998); see also Franklin Mut. Ins. Co. v. Metro Prop. & Cas. Ins. Co., 406 N.J. Super. 586, 593-94 (App. Div. 2009) (holding that a separate Owens-Illinois allocation must be conducted for each policyholder in continuous property damage case involving multiple policyholders).
In contrast, Michigan insurance allocation law remains unsettled. To date, the Michigan Supreme Court has not adopted an insurance allocation methodology. The only published decision by the Michigan Court of Appeals adopted the "time-on-the-risk" methodology, which "allocates liability among triggered policies using the periods covered by each insurer without considering the coverage limits of the triggered policies." Arco Indus. Corp. v. Am. Motorists Ins. Co., 594 N.W.2d 61, 68-69 (Mich. Ct. App. 1998), aff'd by an equally divided court, 617 N.W.2d 330 (Mich. 2000). Although the Michigan Supreme Court affirmed Arco Industries Corp., the Michigan Supreme Court's decision was evenly split and, therefore, was not precedential. See In re Martin, 602 N.W.2d 630, 632 n.2 (Mich. Ct. App. 1999).
The parties have cited an unpublished opinion issued by a separate panel of the Michigan Court of Appeals. See Dow Corning Corp. v. Cont'l Cas. Co., Nos. 200143-200154 (Mich. Ct. App. Oct. 12, 1999). The appeals court in Dow Corning disagreed with Arco Industries Corp. and adopted an "all sums" method of allocation based on the policy language at issue, which provided that the insurers would pay all of the insured's liability without temporal limitations. Dow Corning, supra, slip op. at 18-24. Unpublished opinions in Michigan, however, are not precedential and, therefore, are not binding. Mich. Ct. R. 7.215(C)(1). Accordingly, the Dow Corning decision has no precedential value, see R. 1:36-3, and we only reference it to address the parties' contentions.
When the highest court in the foreign jurisdiction has not ruled on an issue, a court "is bound by the state's intermediate appellate courts unless it 'is convinced that the state's highest court would decide otherwise.'" Fantis Foods, Inc. v. N. River Ins. Co., 332 N.J. Super. 250, 260-61 (App. Div.) (quoting Gares v. Willingboro Twp., 90 F.3d 720, 725 (3d Cir. 1996)), certif. denied, 165 N.J. 677 (2000). Here we see nothing that convinces us that the Michigan Supreme Court would not adopt the allocation rule applied in Arco Industries Corp.
The Michigan Supreme Court has instructed its courts that "it is the policy language as applied to the specific facts in a given case that determines coverage." Gelman Scis., Inc. v. Fid. & Cas. Co. of N.Y., 572 N.W.2d 617, 622 (Mich. 1998). Here, though Travelers's policies contain the "all sums" language, nothing in the policies extends coverage to injuries continuing beyond the end of the policy; rather, the policies limit coverage to "an accident or occurrence during the policy." Thus, the language in Travelers's policies is inconsistent with the all sums approach. See Arco Indus. Corp., supra, 594 N.W.2d at 69 (rejecting allocation "on a joint and several or 'all sums' basis, since that method would require [the insurer] to indemnify [the insured] for damage occurring outside the policy period" when the policy language "unequivocally" limited coverage to injuries that take place "during the policy period"). Further, the all sums approach is inconsistent with Michigan's use of an injury-in-fact trigger. See ibid. (citing N. States Power Co. v. Fid. & Cas. Co. of N.Y., 523 N.W.2d 657, 662 (Minn. 1994)). Consequently, we hold that there is a conflict of law between the insurance allocation methodologies used under Michigan law as compared to New Jersey law.
The next step is to evaluate the facts of the case under the proper New Jersey choice-of-law standard. "New Jersey no longer follows traditional concepts of lex loci delicti for torts" or lex loci contractus for contracts. DeMarco, supra, 434 N.J. Super. at 374. Instead, New Jersey looks to the factors and contacts set forth in the Restatement (Second) of Conflict of Laws (1971) (Restatement) sections 188, 193 and 6. In re Liquidation of Integrity, supra, 427 N.J. Super. at 533-35; Lonza, Inc. v. Hartford Accident & Indem. Co., 359 N.J. Super. 333, 345-46 (App. Div. 2003). Our Supreme Court has referred to this analysis as the "most significant relationship test." P.V., supra, 197 N.J. at 135-36; see also Cornett v. Johnson & Johnson, 211 N.J. 362, 372 (2012). Restatement section 188 provides the choice-of-law rule with respect to contracts in general.1 Restatement section 193 provides guidance in applying section 188 to casualty-insurance contracts, including liability policies. Section 193 provides that the rights created by such contracts
are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship under the principles stated in 6 to the transaction and the parties, in which event the local law of the other state will be applied.
Here, section 193's site-specific approach is inapplicable because the risks covered by Travelers's insurance policies were nationwide, given that Bendix was selling its friction material throughout the United States. See Pfizer, Inc. v. Emp'rs Ins. of Wausau, 154 N.J. 187, 195 n.3 (1998) (noting that section 193's site-specific approach "may not be readily transferable from environmental-coverage cases to products-liability cases"); In re Liquidation of Integrity, supra, 427 N.J. Super. at 533 ("[I]n light of the nature of the legal actions for which claimants seek payment product liability suits with no particular connection to the claimants' states of domicile an analysis employing the factors set forth in [Restatement] section 6 is required.").
Accordingly, in this case section 6 of the Restatement provides the most relevant factors to be analyzed. Section 6 specifies that
[T]he factors relevant to the choice of the applicable rule of law include
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
The New Jersey Supreme Court has distilled these factors into the following four
1. The competing interests of the states[, which] require courts to consider whether application of a competing state's law under the circumstances of the case "will advance the policies that the law was intended to promote" . . . [;]
2. The interests of commerce among the states[, which] requires courts to consider whether application of a competing state's law would frustrate the policies of other states[;]
3. The interests of parties[, which] require courts to focus on their justified expectations and their needs for predictability of result[; and]
4. The interests of judicial administration[, which] require a court to consider whether the fair, just and timely disposition of controversies within the available resources of the courts will be fostered by the competing law chosen.
[Pfizer, supra, 154 N.J. at 198-99 (emphasis omitted) (citations omitted) (citing Gen. Ceramics Inc. v. Firemen's Fund Ins. Cos., 66 F.3d 647, 656 (3d Cir. 1995)); see also Lonza, supra, 359 N.J. Super. at 347-48.]
Turning to the first factor, we must "consider whether application of a competing state's law under the circumstances of the case 'will advance the policies that the law was intended to promote,'" Pfizer, supra, 154 N.J. at 198 (quoting Gen. Ceramics Inc., supra, 66 F. 3d at 656). "The focus of this inquiry should be on 'what [policies] the legislature or court intended to protect by having that law applied to wholly domestic concerns, and then, whether those concerns will be furthered by applying that law to the multi-state situation.'" Ibid. (quoting Gen. Ceramics Inc., supra, 66 F. 3d at 656). Accordingly, our focus is on whether application of New Jersey's or Michigan's allocation approach will advance, in the circumstances of this case, the policies that those states intended to promote.
New Jersey's pro rata approach serves several public policy interests, including "(1) maximizing resources to cope with environmental injury or damage; (2) giving the greatest incentive to insureds to acquire insurance; and (3) notions of simple justice." Spaulding Composites Co., supra, 176 N.J. at 36; see also Owens-Illinois, supra, 138 N.J. at 472-73. Our Supreme Court has further explained the "public interest factors" of the pro rata allocation approach
Firstly, this approach makes efficient use of available resources because it neither minimizes nor maximizes the liability of either primary or excess insurance, thereby promoting cost efficiency by spreading costs. That method also promotes "simple justice" by respecting the distinction between primary and excess insurance while not permitting excess insurers unfairly to avoid coverage in long-term, continuous-trigger cases. Additionally, adoption of that allocation method will introduce a degree of certainty and predictability into the complex world of environmental insurance litigation in continuous-trigger cases.
[Carter-Wallace, supra, 154 N.J. at 327 (citations omitted).]
The Michigan Court of Appeals explained: "The time-on-the-risk method should be adopted by courts because its inherent simplicity promotes predictability, reduces incentives to litigate, and ultimately reduces premium rates." Arco Indus. Corp., supra, 594 N.W.2d at 70 (quoting Michael G. Doherty, Comment, Allocating Progressive Injury Liability Among Successive Insurance Policies, 64 U. Chi. L. Rev. 257, 281 (1997)).
Here, application of New Jersey's allocation law furthers the policies that it was intended to promote. New Jersey has an interest in the issue of whether Travelers's policies have attached and payment is required to avoid a breach of contract, which is a matter that implicates New Jersey's pro rata approach to resolve allocation issues. See Pfizer, supra, 154 N.J. at 198. In contrast, the policies underlying Michigan's time-on-the-risk approach would not be undercut by using New Jersey's allocation approach. Moreover, some of the policies sought to be promoted by Michigan's allocation approach would not be realized here because only Travelers's excess insurance policies remain at issue in this action. Consequently, the first factor favors application of New Jersey law.
We next turn to the evaluation of the interests of commerce among the states, a process that requires us to "consider whether application of a competing state's law would frustrate the policies of other states." Pfizer, supra, 154 N.J. at 198. Because this analysis implicates many of the same considerations that we have evaluated under the first factor, the second factor also favors application of New Jersey law. Moreover, application of Michigan allocation law would frustrate the policies that New Jersey's pro rata approach aims to promote. See Owens-Illinois, supra, 138 N.J. at 462-63. Therefore, the second factor also favors application of New Jersey law.
The third factor requires an evaluation of the interests of the parties, "their justified expectations and their needs for predictability of result." Pfizer, supra, 154 N.J. at 199. "Restatement section 188 'contacts' with the states, the domicile or residence of the parties, and places of incorporation, business, contracting, and performance, come into play here in assessing what parties might reasonably have expected to be predictable." Ibid.
Here, the record establishes that Travelers's eight excess policies were brokered, negotiated, underwritten, issued and delivered to Bendix in Michigan. Nevertheless, at the time that those contracts were entered into, neither Bendix nor Travelers could have reasonably anticipated that Michigan would adopt the time-on-the-risk allocation approach. Nor could the parties have predicted that Bendix would ultimately relocate to New Jersey. What was clear when the parties entered into the excess insurance policies was that Bendix was operating on a nationwide basis and that claims against it relating to product liability could be expected to arise in a number of different states. Travelers places heavy emphasis on the place of contracting in the analysis of the appropriate choice of law. As already pointed out, however, New Jersey has rejected the lex loci contractus approach. DeMarco, supra, 143 N.J. Super. at 374. Thus, the evaluation of the third factor neither favors nor weighs against application of New Jersey allocation law.
The final and fourth factor focuses on the interest of judicial administration. Pfizer, supra, 154 N.J. at 199. This factor "require[s] a court to consider whether the fair, just and timely disposition of controversies within the available resources of courts will be fostered by the competing law chosen. In other words, what choice of law works best to manage adjudication of the controversy before the court." Ibid. In Owens-Illinois the Court noted that continuous-trigger cases should be given "special attention, such as the use of special case calendars, management conferences, monitoring, alternative methods of dispute resolution, or other specialized treatment," which can provide efficiencies in litigation. Owens-Illinois, supra, 138 N.J. at 477-78 (remanding to a special master whose purpose "[a]bove all, [is to] develop a workable system for efficient assignment and administration of the claims"). Thus, judicial administration will be furthered by application of New Jersey law because this state has created a special judicial framework to efficiently handle the allocation method developed in Owens-Illinois. Moreover, here, judicial administration will also be furthered by application of New Jersey law because this state has an interest in protecting the rights of its insureds (Honeywell) and promoting responsiveness on the part of insurers (Travelers). See Fantis Foods, supra, 332 N.J. Super. at 256.
In summary, our plenary review of the choice of law of the insurance allocation issue supports the application of New Jersey law. We, therefore, affirm the trial court's ruling that New Jersey allocation law applies to Travelers's eight excess policies, which were in effect between February 1, 1977 and October 1, 1983.
2. Availability of Insurance
In an order dated July 22, 2011, the trial court granted Honeywell partial summary judgment, ruling that insurance coverage for Honeywell's asbestos liabilities was not reasonably available after 1986 (for primary insurance) and 1987 (for excess coverage). The practical effect of this ruling means that Honeywell need not share in the allocation of insurance coverage as if it were self-insured for the period of time from 1987 to 2001. Honeywell is not seeking coverage from Travelers or St. Paul for asbestos-related injuries that arise after 1987; rather, Honeywell seeks to have its pre-1986/1987 insurers cover asbestos-related injuries that claim exposure to asbestos before 1986/1987, but manifest or continue to manifest injuries after 1986/1987.
Given that this was a summary judgment ruling, we use the same standard as the trial court and "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). "The inquiry is 'whether the evidence presents a sufficient disagreement to require submission to a [finder of fact] or whether it is so one-sided that one party must prevail as a matter of law.'" Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007) (quoting Brill, supra, 142 N.J. at 536). "[T]he legal conclusions undergirding the summary judgment motion itself" are reviewed on a "plenary de novo basis." Estate of Hanqes v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 385 (2010).
In Owens-Illinois, our Supreme Court established the "continuous-trigger" theory of insurance coverage for long-term environmental losses, such as exposure to asbestos. Owens-Illinois, supra, 138 N.J. at 478-79. Under this theory, "occurrence" in comprehensive general liability (CGL) insurance policies means a separate triggering event for insurance coverage in each year from the time a claimant alleging injury first is exposed to asbestos until manifestation of an asbestos-related disease. Ibid. The Court reasoned that in the context of long-lasting, individual injury, injuries occur continuously over a period of years from first exposure through the manifestation of actual disease. Consequently, the Court determined that under the continuous-trigger theory, the policies for each year from the date of first exposure through manifestation are triggered. Id. at 451.
The Court further held that in instances where multiple policies of insurance were triggered under the continuous-trigger theory
it becomes necessary to determine the extent to which each triggered policy shall provide indemnity. "Other insurance" clauses in standard CGL policies were not intended to resolve that question. A fair method of allocation appears to be one that is related to both the time on the risk and the degree of risk assumed.
[Id. at 479.]
The Court also addressed the circumstances where the policy holder has no insurance for some part of the time during which the injury was progressing. In that regard, the Court stated: "When periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable." Ibid.
Thus, the Court distinguished between a situation where the insured consciously decides not to buy available insurance for a period of time, as compared to a situation where no insurance was reasonably available to purchase. In the former situation, a pro-rated portion of the liability would be allocated to that uninsured time period and, hence, the policyholder would cover that period. In the latter situation, no portion of liability would be allocated to the time period where insurance is not available to the insured.
Travelers and St. Paul argue that the trial court here incorrectly interpreted the "unavailability exception" set forth in Owens-Illinois. Specifically, they argue that the court should not have focused solely on whether insurance was available to Honeywell; instead, the focus should have been on whether Honeywell assumed the risk by continuing to manufacture and sell asbestos-containing products after 1987. No New Jersey case has adopted the concept of assumption of the risk as advocated for by Travelers and St. Paul. Instead, cases applying the Owens-Illinois rule have focused on the availability of insurance and have only found that the insured assumed the risk when insurance was available and the insured chose not to purchase coverage. See Farmers Mut. Fire Ins. Co. of Salem v. N.J. Prop.-Liab. Ins. Guar. Ass'n, 215 N.J. 522, 538 (2013) (explaining that the Owens-Illinois court "determined that a person or entity that is insured for some periods but chose not to be insured for other is liable for those uninsured periods"); Champion Dyeing & Finishing Co. v. Centennial Ins. Co., 355 N.J. Super. 262, 277 (App. Div. 2002) (requiring the insurers to indemnify the insured for subsequent damages occurring during a period when the insured was unable to purchase insurance); Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210, 231 (3d Cir. 1999) (interpreting the unavailability language in Owens-Illinois to mean that if insurance was not available to the insured, then the insured should not be required to absorb part of its indemnity costs). Accordingly, we reject the argument of Travelers and St. Paul.
Given the facts of this case, we conclude that the correct focus was whether Honeywell could reasonably have purchased insurance for asbestos-related claims. In the context of this case, the assumption of the risk language in Owens-Illinois did not refer to when an insurer sells or manufacturers a product that might lead to a claim of exposure to asbestos. Instead, the assumption of the risk occurs when an insurer fails to purchase insurance that was reasonably available. Owens-Illinois, supra, 138 N.J. at 479.
Here, the record establishes that excess insurance for asbestos-related personal injury claims was not available after April 1, 1987. Indeed, Travelers and St. Paul have effectively conceded this undisputed fact. Consequently, Honeywell did not assume the risk after 1987.
In support of their position that Honeywell should have to share in the allocation of asbestos claims manifesting injury after 1987, but alleging first exposure before 1987, Travelers and St. Paul cite an unpublished trial-level case from Connecticut. See Steadfast Ins. Co. v. Purdue Frederick Co., No. X08CV020191697S (Conn. Super. Ct. May 18, 2006). The rules governing practice in Connecticut do not expressly state whether unpublished cases have any precedential value. See Conn. Practice Book 5-9 (allowing an unreported case to be cited only if copies of the decision are provided) (repealed 2014); Conn. Practice Book 67-9 (same for appellate procedure and only in effect for appeals filed before July 2, 2013). This unpublished opinion, however, has no precedential value in New Jersey. See R. 1:36-3. Moreover, the case dealt with the insurer's liability for defense costs incurred in a large number of cases filed throughout the country against the insured alleging injuries and damages resulting from the ingestion of its insured's pharmaceutical product Oxycodone. Accordingly, the Steadfast decision is distinguishable because it did not involve long latency loss claims such as asbestos exposure. Thus, we reject Travelers's and St. Paul's reliance on that unpublished case.
Travelers and St. Paul also contend that Honeywell's continued manufacture of asbestos-containing pads after 1987 constituted "an exceptional circumstance" because Honeywell was allegedly fully aware of the health risks and mounting liabilities and was capable of producing an asbestos-free friction product. Again, no New Jersey case has accepted the definition of "exceptional circumstances" as proposed by Travelers and St. Paul. Given the facts of this case, we decline to create such an exception.
Finally, Travelers and St. Paul argue that there are several issues of disputed material facts that should preclude granting summary judgment to Honeywell on this issue. The facts that Travelers and St. Paul cite, however, are not material to this issue. Instead, Travelers and St. Paul argue that Honeywell chose to retain the risk during 1987 to 2001 when it became aware that insurance was unavailable. We have already rejected this argument as not legally relevant to the question under Owens-Illinois. Travelers and St. Paul also argue that Honeywell's conduct after 1987 increased its exposure to claims that trigger pre-1987 policies. There is, however, no support for that contention in the record and it does not make logical sense.
In short, we find no error in the trial court's decision granting Honeywell's motion for partial summary judgment and ruling that Honeywell was precluded from purchasing insurance for asbestos coverage after 1987 because it was not reasonably available for purchase.
3. St. Paul's Defense Obligations
We now turn to Honeywell's appeal. Honeywell first argues that the trial court erred in granting partial summary judgment to St. Paul and ruling that St. Paul's excess policies did not obligate St. Paul to pay for defense costs. This issue is a question of law, involving the interpretation of St. Paul's policies, which we review de novo. See Templo Fuente De Vida Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 199 (2016).
"[A]n insurance policy is a contract, and like other contracts, the terms of the policy define the parties' rights and obligations." Webb v. Witt, 379 N.J. Super. 18, 33 (App. Div. 2005). "If the policy terms are clear, courts should interpret the policy as written and avoid writing a better insurance policy than the one purchased." President v. Jenkins, 180 N.J. 550, 562 (2004). In other words, "[i]f the language of a particular provision is clear and unambiguous, the inquiry is concluded." Ohio Cas. Ins. Co. v. Island Pool & Spa, Inc., 418 N.J. Super. 162, 169 (App. Div.), certif. denied, 206 N.J. 329 (2011). Moreover, "court[s] should not engage in a strained construction to support the imposition of liability." Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 273 (2001). "A 'genuine ambiguity' arises only 'where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage.'" Id. at 274 (quoting Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 247 (1979)).
St. Paul issued two policies to Bendix. Both policies contained identical language concerning coverage and conditions. As to coverage, the policies provided that St. Paul would indemnify the insured against "loss." "Loss" is defined as "the sums paid in settlements of losses for which the Insured is liable after making deductions for all other recoveries, salvages and other insurances (other than recoveries under the policy/ies of the Primary Insurer), whether recoverable or not, and shall exclude all expense[s] and costs)." "Costs" is defined as "interest on judgments, investigations, adjustment[s] and legal expenses (excluding, however, all expense[s] for salaried employees and retained counsel of and all office expense[s] of the Insured)."
In addition, both policies included conditions, including the following
It is agreed that this Policy, except as herein stated, is subject to all conditions, agreements and limitations of and shall follow the Primary Insurance in all respects . . . .
Notice of any accident, which appears likely to involve this Policy, shall be given to [St. Paul], which at its own option, may, but is not required to, participate in the investigation, settlement or defense of any claim or suit. In the event expenses and/or costs in connection with any claim or suit is incurred jointly by mutual consent of [St. Paul] and of the Insured or Primary Insurer, [St. Paul], in addition to its limits of liability as expressed in Item 5, Section I of the Declarations, shall be liable for no greater proportion of such expense[s] and/or costs than the amount payable by [St. Paul] under this Policy bears to the total loss payment.
A plain reading of the St. Paul policies establishes that St. Paul is not obligated to pay defense costs for claims against Honeywell, unless, at its own option, St. Paul elects to participate in paying defense costs. The St. Paul policies state that they will cover "loss" and the term "loss" expressly excludes "costs," including "legal expenses." The condition that allows St. Paul to participate in "defense of any claim" expressly states that such participation is at St. Paul's "own option" and St. Paul "is not required to" participate in the "defense of any claim or suit." Likewise, the condition that St. Paul's excess insurance policy "follows" the primary insurance policies incorporates only conditions that are not excluded by the St. Paul policy.
Thus, we agree with the trial court's interpretation of the St. Paul policies. That interpretation is also supported by cases that have interpreted similar insurance coverage language. See AstenJohnson, Inc. v. Columbia Cas. Co., 562 F.3d 213, 230 (3d Cir.) (applying Pennsylvania law and construing similar policy language as not obligating the insurer to pay defense costs "in the absence of contractual language creating such an obligation"), cert. denied, 558 U.S. 991, 130 S. Ct. 501, 175 L. Ed. 2d 348 (2009); Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178, 1219 (2d Cir. 1995) ("[T]he insurer has no duty to defend or pay costs, but only has the right to do so at its own election. The insurer can permit the insured's defense to proceed and take the chance that the insured might exceed the limits of other liability coverage, or participate in the defense and agree to pay all or part of the defense costs incurred.").
Honeywell argues (1) the provision that allows St. Paul to participate in the defense of claims creates a "mutual consent" obligation and St. Paul cannot unreasonably withhold consent without violating its implied duty of good faith; and (2) the "follow form" clause of the policies incorporate the duty to pay defense costs from the underlying policies. We disagree.
The "mutual consent" language referenced by Honeywell comes after the language giving St. Paul the unilateral option to participate in defense costs. Thus, if St. Paul elects to participate in the defense, then and only then does it incur "jointly by mutual consent" additional costs beyond the limits of its stated liability coverage. We reject Honeywell's argument that such "mutual consent" language contains an implied prohibition against the unreasonable refusal to defend. The implied covenant of good faith and fair dealing addresses issues not expressly covered by the language of a contract. See, e.g., Palisades Props., Inc. v. Brunetti, 44 N.J. 117, 130 (1965) (explaining that the covenant permits inclusion of terms not expressly provided but are "necessarily involved in the contractual relationship"); see also Wilson v. Amerada Hess Corp., 168 N.J. 236, 244-47 (2001) (when contract explicitly vests party with discretion to set a price). Here, the policy terms are clear; St. Paul expressly reserved "at its own option" the right to elect to participate in defense costs. Thus, a court should not read into these contracts something that conflicts with the express language of the policies. See Villa v. Short, 195 N.J. 15, 23 (2008) (explaining that courts must "avoid writing a better insurance policy than the one purchased" (quoting President, supra, 180 N.J. at 562)).
We likewise reject Honeywell's argument that the "follow form" clause in St. Paul's policies incorporates the obligation to pay defense costs contained in the underlying primary policies. Here, the two underlying primary policies covered liability for "ultimate net loss" and defined that term to include both indemnity and defense costs. The "follow form" clause expressly states that St. Paul's policies "shall follow the Primary Insurance," "except as herein stated." The St. Paul policies then expressly exclude the obligation to pay defense costs. The plain and unambiguous meaning of such language is that any obligation to pay defense costs in the primary policies was not incorporated into St. Paul's excess policies. In short, the "follow form" clause does not create an obligation that St. Paul expressly excluded. See AstenJohnson, supra, 562 F.3d at 229-30.
In summary, we affirm the grant of partial summary judgment to St. Paul on the issue concerning its obligation to pay defense costs. The July 22, 2011 order concerning this ruling, however, incorrectly states that "there is no insurance coverage for defense costs under" St. Paul's policies. In his oral decision, the trial judge correctly stated that St. Paul was not obligated to pay defense costs, but could elect to participate in such costs if it chose. Consequently, we remand for the limited purpose so the trial court can amend the July 22, 2011 order to accurately state that St. Paul has no duty to provide insurance coverage for defense costs under its two excess policies but, at its option, can participate in such costs. See Taylor v. Int'l Maytex Tank Terminal Corp., 355 N.J. Super. 482, 498 (App. Div. 2002) ("Where there is a conflict between a judge's written or oral opinion and a subsequent written order, the former controls.").
4. SAM Issue Five
Honeywell next contends that the trial court erred by adopting the SAM's recommendation that certain AIC policies did not require defense costs to be paid within the stated policy limits. This ruling effectively means that the Travelers and St. Paul excess policies, which sit above the AIC policies, will not attach as soon as they would if AIC's policies treated defense costs as payable within limits. Resolution of this issue primarily involves a question of law; that is, an interpretation of the language of the AIC policies. There are also related factual issues because Honeywell argues that it had established a course of dealing with AIC that helps to demonstrate the proper interpretation of AIC's policies. We review the legal issues de novo. Sealed Air Corp. v. Royal Indem. Co., 404 N.J. Super. 363, 375 (App. Div. 2008); Kieffer v. Best Buy, 205 N.J. 213, 222 (2011). As to the factual issues, because the SAM heard testimony and made findings, and because those recommendations were accepted by the trial court, we defer to such factual findings as long as they are supported by credible evidence in the record. See R. 4:41-5(b) ("[T]he court shall accept the [special] master's findings of fact unless contrary to the weight of the evidence."); see also Pressler & Verniero, Current N.J. Court Rules, comment 3 on R. 4:41-5 (2016) ("A Special Master's findings and conclusions are reviewed by the same standard applicable to trial judges, that is, the appellate court will defer to findings supported by credible evidence in the record but will not defer to determinations of law.").
The parties agree that all the AIC policies at issue had identical language concerning coverage. In its policies, AIC agreed to indemnify the insured for the insured's "ultimate net loss" subject to the limits of its liabilities. "Ultimate net loss" is defined as "all sums actually paid, or which the Insured is legally obligated to pay, as damages in settlement or satisfaction of claims or suits for which insurance is afforded by this policy, after proper deduction of all recoveries or salvage."
Condition Four of the AIC policies permits AIC to consent to the payment of defense costs
Payment of Expenses. Loss expenses and legal expenses, including court costs and interest, if any, which may be incurred by the Insured with the consent of the Company in the adjustment or defense of claims, suits or proceedings shall be borne by the Company and the Insured in the proportion that each party's share of loss bears to the total amount of said loss.
Read together, the definition of ultimate net loss and Condition Four, make it clear and unambiguous that AIC's policies do not require payment of defense costs as part of "damages and settlement or satisfaction of claims or suits." The term "damages" is not independently defined in the AIC policies. There would, however, be no need to have a separate condition requiring AIC's consent to incur "legal expenses" if such defense costs were part of the damages under the definition of "ultimate net loss." In other words, Condition Four of the AIC policies helps to define and clarify that damages as that term is used in the definition of "ultimate net loss" does not include defense costs. Consequently, we agree with the SAM and the trial judge that the language of the AIC policies is clear and unambiguous in establishing that AIC was not required to pay defense costs.
Honeywell argues that AIC's policies provided coverage for defense costs because AIC consented to such costs. Specifically, Honeywell points to Condition Four, the payment of expenses condition, and contends that AIC consented to such defense costs through a course of dealing and through AIC's settlement with Honeywell.
To support its course of dealing argument, Honeywell relies on the testimony of Dick Lindsey and David Forsman, who were designated witnesses from AIC and who testified before the SAM. The SAM, however, found Lindsey's testimony to be "untrustworthy" and found that Forsman's testimony did not create any ambiguity concerning the plain meaning of AIC's policy language. Those findings were accepted by the trial court and we also accept them because they are supported by credible evidence in the record. See R. 4:41-5(b).
The SAM and trial judge also rejected Honeywell's argument that the settlement agreement between Honeywell and AIC established consent within the meaning of Condition Four of the AIC policies. In that regard, the SAM reasoned
The law, however, is that course of conduct evidence is relevant to interpreting a contract if the conduct occurs in the "performance of a contract." State Troopers Fraternal Assn. v. State[], 149 N.J. 38, 50 (1997). A settlement agreement is not performance. Rather, it is evidence only of a resolution of disputed claims stemming from allegations of breach.
In addition, the SAM found: "At best, AIC only gave its consent to settle and pay defense costs so long as they eroded limits. That is not the same legal result that 'consent' given under Condition Four of the polic[ies] brings about." The SAM also noted that Forsman (AIC's claim representative) testified that "consent from AIC would provide for payment in addition to limits."
We agree with the SAM's legal reasoning and we defer to the related fact-findings made by the SAM because they are supported by credible evidence in the record. In the context of this case, Honeywell did not establish that the settlement agreement with AIC established a course of conduct. To the contrary, the fact that AIC and Honeywell disputed whether defense costs were covered does not establish consent within the meaning of Condition Four.
Honeywell also argues that the SAM and trial judge incorrectly held that any payment of defense costs by AIC would be in addition to the limits of AIC's policies. That argument is not accurate. Neither the SAM nor the trial judge ruled that AIC had to pay defense costs in addition to the policy limits. Instead, it is undisputed that under Honeywell's settlement with AIC, AIC defense costs will be applied against AIC's limits of liabilities. The SAM and trial judge made the ruling that they were asked to make: whether the AIC policies required payment of defense costs by AIC. The practical effect of the trial court's ruling is that, consistent with AIC's policies, the AIC policies will not exhaust for purposes of triggering the excess policies of Travelers or St. Paul until Honeywell can prove that the indemnity limits of the relevant AIC policies are exhausted by paying the stated policy limits with indemnity dollars. In other words, it was Honeywell's own settlement with AIC that brings about the problem Honeywell now complains of.
Lastly, Honeywell contends that Travelers's and St. Paul's position that AIC's insurance policies provide for payment of defense costs in addition to indemnity limits is against public policy. Here again, this alleged public policy problem arises out of Honeywell's settlement with AIC. Nothing the trial court did mandates AIC to pay defense costs in addition to its indemnity limits. Instead, as already pointed out, Honeywell's settlement with AIC means that Honeywell must pay its own defense costs and apply the AIC payments to the damages it incurs in settling or satisfying claims or suits for which insurance is afforded by the AIC policies. Thus, we perceive no violation of public policy.
We, therefore, find no error in the trial court's adoption of the SAM's recommendation that AIC's policies did not provide for payment of Honeywell's defense costs within indemnity limits and we affirm that ruling.
5. SAM Issue Six
Honeywell next contends that the trial court erred by adopting the SAM's recommendation that certain excess policies provided by Aetna and AIC, which sat above the underlying quota share layers, attached only when all such underlying quota share policies exhausted. The SAM found that the policies provided by Aetna and AIC required all underlying indemnity limits of quota share policies to be exhausted before Aetna or AIC were required to provide coverage. The trial court then adopted that recommendation. Like Issue Five, the practical effect of this dispute is that if the SAM and trial court are correct, then Travelers's and St. Paul's excess policies will be triggered later, rather than sooner.
Resolution of this issue also involves legal questions of insurance contract interpretation. Thus, we use a de novo standard of review. Templo Fuente, supra, 224 N.J. at 199.
A "quota share" layer is when multiple insurers take a percentage of the risk of that layer of insurance.2 Because each insurer issues its own policy, there are times when the insurers in a layer provide different coverage. For example, one insurer may cover defense costs within its limits, while another insurer in the same layer does not cover defense costs. Thus, there are times when some policies within a quota share layer are exhausted before other policies within that same layer. The question then becomes when are excess policies above that quota share layer triggered?
Here, Honeywell argues that AIC's and Aetna's policies are triggered when any policy in an underlying quota share layer is exhausted, even though other policies in that same layer still continue to pay coverage. In other words, the AIC or Aetna policy would fill in for the percentage of the exhausted policy or policies, while the insurers in that quota share layer would continue to pay their percentage share of covered liabilities. In contrast, Travelers and St. Paul contend that all policies in the underlying quota share layer must be exhausted before the excess policies provided by Aetna or AIC are triggered.
All parties agree that this issue is a question of first impression in New Jersey. Indeed, the parties have not cited any cases from any jurisdiction that address this issue. Nevertheless, the question is a matter of contract interpretation and, thus, is governed by the language of the policies issued by Aetna and AIC.
The Aetna policies at issue state that they provide coverage for "Excess Net Loss" and define "Excess Net Loss" to mean
that part of the total of all sums which the INSURED becomes legally obligated to pay or has paid, as damages on account of any one accident or occurrence, and which would be covered by the terms of the Controlling Underlying Insurance, if written without any limit of liability, less realized recoveries and salvages, which is in excess of any self-insured retention and the total of the applicable limits of liability of all policies described in Section 3. Schedule of Insurance; whether or not such policies are in force.
The AIC policies at issue state that AIC will pay coverage "subject to the limits of liability, exclusions, conditions and other terms of this policy[.]" The policies "Limits of Liability" and "Conditions" state
The [Insurer] shall be liable only for the limit of liability stated in Item 3 of the Declarations in excess of the limit or limits of liability of the applicable underlying insurance policy or policies all as stated in the declarations of this policy.
. . . .
It is a condition of this policy that the insurance afforded under this policy shall apply only after all underlying insurance has been exhausted.
Section 3 of the Schedule of Underlying Insurance then lists all underlying insurance policies with each policy respective limits of liability.
The SAM found, and the trial court agreed, that the language in Aetna's and AIC's policies unambiguously required exhaustion of all underlying indemnity limits of all quota share policies before Aetna or AIC would be required to provide coverage without regard to "whether the underlying policies provide coverage that allow some of the policies to exhaust before other policies in the same layer of coverage." We agree.
The language stating that Aetna will provide coverage "which is in excess of any self-insured retention and the total of the applicable limits of liability of all policies described in Section 3. Schedule of Underlying Insurance" is plain and unambiguous. Similarly, the language that AIC would provide coverage "only after all underlying insurance has been exhausted" is also plain and unambiguous. Such language can only reasonably be read and understood to mean that the policies provided by Aetna and AIC will only be triggered when all underlying policies are exhausted.
It is also significant to note that the SAM, and the trial court by adoption, interpreted other excess policies to attach and provide pro rata shared coverage as an individual underlying quota share policy exhausted. While no party has appealed those rulings, we note those rulings because it underscores the point that these issues are governed by interpretation of the language of the relevant excess policies. Here that language is unambiguous and, therefore, the plain language of the policy controls the outcome.
Honeywell makes a number of arguments in support of its contention that the trial court erred in adopting the SAM's recommendation on the quota share exhaustion issue. First, Honeywell argues that the SAM and trial court failed to enforce the "follow form" provisions in the AIC and Aetna policies. The plain language in both the Aetna and AIC policies, however, refute Honeywell's contention. The Aetna policies expressly state that coverage is only triggered when the "total" of "all policies described in Section 3. Schedule of Underlying Insurance" are exhausted. That plain language is also further clarified by looking at the top of the Schedule of Underlying Insurance, which states: "Each policy or groups of quota-share policies listed is excess of all policies listed below it."
The AIC policies expressly state that the "follow form" provisions only incorporate the underlying policies "unless otherwise specifically provided in" the AIC policies. The AIC policies otherwise state "that the insurance afforded under this policy shall apply only after all underlying insurance has been exhausted." Consequently, the "follow form" provisions are limited by the express language of the AIC and Aetna policies.
Second, Honeywell argues that the trial court failed to enforce the unambiguous term "applicable" as used in Aetna's policies. According to Honeywell, "applicable" means that only certain underlying insurance policies are applicable to Aetna's policy. In other words, Honeywell argues that when certain quota share policies exhaust to Aetna, the excess policy must "drop down" to fill the gap in coverage because there is no "applicable" insurance coverage. The SAM rejected this argument reasoning that the word "applicable" was really used in the phrase "applicable limits" and was properly understood in the context of the entire provision. That entire provision went on to state that Aetna's policies would only attach when "the total of the applicable limits of liability of all policies described in Section 3. Schedule of Underlying Insurance" was exhausted. We agree with the SAM that "applicable limits" unambiguously refers to the category of coverage applicable to the incident from which Honeywell's liability arises. Accordingly, that phrase does not change the clear meaning that Aetna's obligation is only triggered when all underlying policies are exhausted. Indeed, this reading of the contract language is consistent with several cases that have examined similar insurance contract language. See U.S. Fire Ins. Co. v. Charter Fin. Grp., Inc., 851 F.2d 957, 961 (7th Cir. 1988) (finding the excess policy language, "applicable limits of [listed] underlying policies," unambiguous and obligates the insurer only to the amount listed in the policy's Schedule A); see also Fried v. N. River Ins. Co., 710 F.2d 1022, 1026 (4th Cir. 1983) ("The term 'applicable limits,' in relation either to the Schedule A or other underlying insurance policies, refers only to the category of coverage applicable to the incident from which the insured's liability arises.").
Third, Honeywell argues that the plain language of an insurance policy should not be enforced if the language is inconsistent with principles underlying New Jersey law. To support its claim, Honeywell cites to Werner Industries, Inc. v. First State Insurance Co., 112 N.J. 30, 35-36 (1988). Honeywell has failed, however, to establish that enforcement of the plain language of the AIC and Aetna policies would be contrary to any well-established principle of New Jersey law. To reiterate, when interpreting an insurance policy, courts give the words used their "plain and ordinary meaning." Mem'l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512, 525 (2012) (quoting Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010)). The plain language of the AIC and Aetna policies created the expectation by the insured and the insurer that these excess policies would not be triggered until all the underlying policies were exhausted. Enforcement of such a provision is not inconsistent with the allocation approach adopted by our Supreme Court in Owens-Illinois and its prodigy. See Owens-Illinois, supra, 166 N.J. at 476; Carter-Wallace, supra, 154 N.J. at 325.
Honeywell's remaining arguments all rely on the contention that the language in the AIC and Aetna policies is ambiguous and should be construed against the insurer.3 Thus, Honeywell argues (1) the trial court's construction created gaps in its coverage and contradicted Honeywell's reasonable expectations; (2) the doctrine of contra proferentem supports Honeywell's position; and (3) Honeywell's position is consistent with New Jersey allocation law. Because we have already held that the language in the AIC and Aetna policies is clear and unambiguous, we reject all of these arguments. We also note that this is not a situation concerning a contract of adhesion. Honeywell is a large and sophisticated corporation with a knowledgeable risk management division. Accordingly, Honeywell and its predecessor Bendix, were on equal bargaining positions when they negotiated their insurance contracts with their insurers. See Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231, 246 (2008) ("[T]he rules tending to favor an insured that has entered into a contract of adhesion are inapplicable where, as here, both parties are sophisticated commercial entities with equal bargaining power.").
6. Attorney's Fees and Costs
Lastly, Honeywell contends that the trial court erred by failing to award it counsel fees and costs. We review that ruling under an abuse of discretion standard. Passaic Valley Sewerage Comm'rs v. St. Paul Fire & Marine Ins. Co., 206 N.J. 596, 619 (2011). Abuse of discretion is shown when a trial judge's decision was "made without a rational explanation, inexplicitly departed from established policies, or rested on an impermissible basis." Flagg v. Essex Cty. Prosecutor, 171 N.J. 561, 571 (2002) (quoting Achacoso-Sanchez v. Immigration & Naturalization Serv., 779 F.2d 1260, 1265 (7th Cir. 1985)).
New Jersey courts have traditionally adhered to the "American Rule," which generally "prohibits recovery of counsel fees by the prevailing party against the losing party." In re Estate of Vayda, 184 N.J. 115, 120 (2005) (quoting In re Niles Tr., 176 N.J. 282, 294 (2003)). Notwithstanding that general rule, counsel fees may be awarded in certain circumstances. See Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 404-05 (2009). Rule 4:42-9(a) authorizes fee shifting in specific circumstances, including "an action upon a liability or indemnity policy of insurance, in favor of a successful claimant." R. 4:42-9(a)(6). "Fee shifting under Rule 4:42-9(a)(6) discourages insurance companies from attempting to avoid their contractual obligations and force their insureds to expend counsel fees to establish the coverage for which they have already contracted." Occhifinto v. Olivo Constr. Co., 221 N.J. 443, 450 (2015) (citing Sears Mortg. Corp. v. Rose, 134 N.J. 326, 356 (1993)).
Our Supreme Court has recently explained that "[t]he term successful claimant is broadly defined as a party that 'succeed[s] on any significant issue in litigation which achieves some benefit the parties sought in bringing suit.'" Id. at 450-51 (alteration in original) (quoting R.M. v. Supreme Court of N.J., 190 N.J. 1, 10 (2007)). "A party who 'obtain[s] a favorable adjudication on the merits on a coverage question as the result of the expenditure of [counsel] fees,' is a successful claimant under Rule 4:42-9(a)(6)." Id. at 451 (alterations in original) (quoting Transamerica Ins. Co. v. Nat'l Roofing, Inc., 108 N.J. 59, 63 (1987)).
The trial court here denied Honeywell's application for attorney's fees and costs on two grounds: (1) this case was primarily a dispute concerning insurance allocation and Honeywell did not prevail on all issues; and (2) the affidavits and materials submitted in support of the application were inadequate. Specifically, the trial court found
Overwhelmingly this is a case about nothing more than allocation. This is not a case about denial of coverage. And there were complex allocation issues, some Honeywell won, some they [Travelers and St. Paul] won, many were issues that have not been resolved before. This is not the kind of case for which the rule was designed to give counsel fees to an insured.
Apart from that without any doubt the position taken by the insurance company is correct, the submission is totally inadequate. All the submission consists of is broad general summaries of all of the work that was done in the case. It's not broken down day by day. I can't tell what lawyer was doing on what particular day and how much time he [or she] took to do it. And unfortunately that is what the rules expect me to do.
Honeywell argues that the trial court abused its discretion in four ways: (1) it unduly restricted Rule 4:42-9(a)(6) by reasoning that the rule did not apply because this case was primarily a dispute over insurance allocation; (2) it failed to fully consider Honeywell's detailed affidavits and the attached submissions; (3) it incorrectly found that those affidavits and related fee invoices were "inadequate"; and (4) it improperly rejected a $9 million portion of the fee application that was "uncontested."
First, Honeywell takes issue with the trial court's reasoning that this case was "[o]verwhelmingly" about allocations. That observation, however, is not the only basis for the trial court's denial of attorney's fees. More importantly, the trial court found that among the complex issues decided between Honeywell and Travelers and St. Paul "some Honeywell won, some they [Travelers and St. Paul] won, [and] many were issues that have not been resolved before." Importantly, the final allocation ruling adopted by the trial court did not obligate either Travelers or St. Paul to provide excess coverage because the excess policies of Travelers and St. Paul have not yet been triggered. Thus, the trial court never held that Travelers or St. Paul failed to honor their respective insurance contracts. See Pressler & Verniero, supra, comment 2.6 on R. 4:42-9 (explaining that the rule is designed "to permit an award of attorney's fees only where an insurer refuses to indemnify or defend in respect of its insured's third-party liability to another"); see also Giri v. Med. Inter-Ins. Exch. of N.J., 251 N.J. Super. 148, 151 (App. Div. 1991). Instead, as the trial court correctly found, Honeywell was successful on certain issues and St. Paul and Travelers were successful on other issues. Given the procedural history and multiple rulings in this complex insurance case, we discern no abuse of discretion in the trial court's finding that Honeywell was not a "successful claimant" within the meaning of Rule 4:42-9(a)(6).
In support of its contentions that it was a successful claimant, Honeywell cites and relies principally on Occhifinto, supra, 221 N.J. at 450-51, where the insured who prevailed on the issue of duty to defend was a successful claimant despite losing the underlying indemnity case, and Universal-Rundle Corp. v. Commercial Union Ins. Co., 319 N.J. Super. 223, 246-48 (App. Div.), certifs. denied, 161 N.J. 149 (1999), where an insurer was required to pay its portion of counsel fees because it refused to defend its insured based on its insistence that there was no triggering "occurrence." Both of those cases are factually distinguishable from this case and do not support Honeywell's contention that the trial court, here, departed from established legal principles.
Honeywell's remaining arguments take issue with the trial court's alleged failure to fully review and appreciate all of the affidavits, invoices and various other information submitted in support of the fee and cost application. As that was an alternative basis for the trial court's denial, we need not and do not reach those issues. We note, however, that our independent review of the record shows that although Honeywell provided a great deal of information, it did not provide any meaningful descriptions of the legal services provided. See R. 4:42-9(b) (explaining that "all applications for the allowance of fees shall be supported by an affidavit of services addressing the factors enumerated by RPC 1.5(a)"). Nor do the affidavits specify the hours spent on the claims on which Honeywell actually prevailed. See Walker v. Giuffre, 415 N.J. Super. 597, 606-07 (App. Div. 2010), aff'd in part, rev'd in part, 209 N.J. 124 (2012).
In overall summary, we affirm all the orders and portions of the final judgment being appealed. We remand so that the July 22, 2011 order can be amended to accurately reflect the court's oral decision that St. Paul had no duty to provide insurance coverage for defense costs under its two excess policies, but could, at its own discretion, choose to participate in the defense.
Affirmed with a limited remand. We do not retain jurisdiction.
1 Section 188 states, in relevant part
[T]he contacts to be taken into account in applying the principles of 6 to determine the law applicable to an issue include
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
2 Quota share reinsurance has been defined as
an arrangement where the reinsurer accepts a fixed proportion of the risk or risks along with other quota share participants. For example, five separate quota share reinsurers may agree to divide the reinsurance of a particular risk or class of risks on an even basis where each would provide "twenty percent quota share" of the total risk.
[George J. Kenny & Frank A. Lattal, New Jersey Insurance Law 8-14, at 229 (2014).]
3 Honeywell also reiterates its argument that the course of conduct under the AIC policy supports its position on Issue 6, as that course of conduct supported its position on Issue 5. For the same reasons that we rejected that course of conduct argument in Issue 5, we also reject it here.
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