BERGEN COMMUNITY COLLEGE v. DIAMOND STATE INSURANCE COMPANY

Annotate this Case

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

BERGEN COMMUNITY COLLEGE,

Plaintiff-Respondent,

v.

DIAMOND STATE INSURANCE COMPANY,

Defendant-Appellant,

and

AMERICAN INTERNATIONAL GROUP,

Defendant.

___________________________________

Argued telephonically October 2, 2014 Decided October 9, 2014

Before Judges Yannotti, Fasciale and Whipple.

On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-1135-11.

Anthony J. Accardi argued the cause for appellants (Accardi & Mirda, P.C., attorneys; Mr. Accardi, on the brief).

Victoria A. Flynn argued the cause for respondent (DeCotiis, FitzPatrick & Cole, LLP, attorneys; Ms. Flynn, of counsel; Alice M. Penna and Audrey O. Anyaele, on the brief).

PER CURIAM

In this insurance coverage dispute, Diamond State Insurance Company ("Diamond State") appeals from an August 3, 2012 order granting summary judgment to its insured Bergen County Community College ("BCC"); and a July 5, 2013 order compelling Diamond State to indemnify BCC for the amount of a claim that BCC settled (the "underlying lawsuit") and awarding BCC counsel fees.

Norberto Ocampo, one of BCC's faculty members, alleged in the underlying lawsuit against BCC that he was the victim of employment discrimination. The coverage dispute between Diamond State and BCC arises out of those allegations. BCC forwarded to Diamond State the complaint in the underlying lawsuit expecting that Diamond State would defend the allegations, but Diamond State denied insurance coverage. As a result, BCC defended the allegations and ultimately settled its dispute with Ocampo.

We reverse the August 3, 2012 order and remand for further proceedings to resolve whether Diamond State properly denied coverage under section II, paragraph N ("paragraph N"), of its claims-made policy (the "policy"). We also reverse the July 5, 2013 order requiring indemnification and awarding counsel fees.

We direct the judge on remand to make findings of fact and conclusions of law regarding whether (1) there existed "any circumstance[s] or fact[s] known at the time [BCC applied for insurance with Diamond State] which any [i]nsured[] could reasonably expect would result in a claim" pursuant to the exclusionary language in paragraph N of the Diamond State policy; and (2) BCC and Ocampo entered into the settlement in good faith, and if so, whether the settlement amount was reasonable. If the judge concludes that BCC and Ocampo entered into the settlement in good faith and that the settlement is reasonable, then the judge should determine the amount of Diamond State's indemnification obligation, so long as coverage is not excluded under paragraph N.

I.

BCC first learned of Ocampo's allegations in February 2006, when Ocampo wrote a grievance letter (the "grievance letter") to a compliance officer (the "CO") at BCC complaining that BCC had discriminated against him based on Ocampo's national origin, race, and age by continually denying his applications for tenure-track positions.1 Rather than seek money damages in his grievance letter, Ocampo requested the CO to respond immediately to this alleged "pattern of discrimination and unfair treatment."

The CO asked Ocampo to meet with him to learn more about the allegations, but Ocampo refused. Instead, Ocampo requested that the CO investigate the matter based solely on the contents of his grievance letter. In April 2006, the CO indicated to Ocampo that the allegations were either without merit or that Ocampo had supplied insufficient information to respond adequately.

In March 2007, Ocampo filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC) (the "EEOC charge"). Like in the grievance letter, Ocampo did not seek money damages. Instead, Ocampo alleged that BCC had subjected him to "disparate terms and conditions of employment . . . includ[ing] . . . job assignments, schedules, tuition waivers for relatives, office assignments, tuition assistance to pursue further education, and reassignment of classes," and retaliated against him for writing the grievance letter.

In April 2007, the EEOC indicated that it would investigate the allegations, and requested that BCC provide a written statement of its position. The EEOC also notified Ocampo that he could submit the allegations to mediation, which Ocampo apparently did not pursue. In January 2008, the EEOC closed its file and informed Ocampo that he had the right to file a lawsuit.

In June 2007, BCC applied for educators' legal liability insurance with Diamond State. In its insurance application, BCC disclosed to Diamond State that there were "pending complaints or investigations regarding employee hiring, compensation, promotion, demotion, or termination of employment." It is unclear from the record whether BCC attached Ocampo's grievance and EEOC complaint to its application.2 Diamond State then issued the policy with coverage of $2 million and a policy period of July 1, 2007 to July 1, 2008. The policy had a $100,000 deductible for each claim, and its policy limits would be depleted by the costs of defense.

In April 2008, during the policy period, Ocampo filed the underlying lawsuit. He alleged that he had been the victim of employment discrimination and sought compensatory and punitive damages.3 BCC provided Diamond State with the complaint in the underlying lawsuit, which BCC treated as the first notice of a claim under the policy.

In June 2008, Diamond State issued a denial of coverage letter to BCC. Diamond State primarily contended that Ocampo's allegations were not covered under the policy because Ocampo had made a claim prior to the policy period by issuing his grievance letter and by filing his EEOC charge. Diamond State maintained that even if the underlying lawsuit constituted the first notice of a claim, then insurance coverage would be excluded under paragraph N of the policy because the grievance letter and EEOC charge constituted "any circumstance[s] . . . known at the time of [BCC's insurance application] which any [i]nsured[] could reasonably expect would result in a claim." In other words, Diamond State asserted that paragraph N applied because the Ocampo employment-related dispute provided sufficient information for BCC to reasonably expect that a claim would be made. As a result of the denial of coverage, BCC defended the underlying lawsuit on its own.

In September 2010, BCC obtained partial summary judgment in the underlying lawsuit dismissing several of Ocampo's claims.4 In February 2011, BCC and Ocampo settled the remaining claims for $175,000. BCC then filed its complaint against Diamond State seeking reimbursement for the settlement amount plus the counsel fees that it had incurred by defending the underlying lawsuit.5

BCC and Diamond State filed cross-motions for summary judgment. Diamond State argued that it was entitled to summary judgment for the reasons that it expressed in its denial letter. BCC maintained that the underlying lawsuit constituted the first notice of a claim under the policy. BCC contended that it had disclosed Ocampo's grievance letter and EEOC charge to Diamond State before Diamond State issued the policy. To support that contention, BCC produced its insurance application purportedly showing that it disclosed that information. BCC argued that paragraph N was therefore unavailable to exclude coverage and that it was entitled to reimbursement of the settlement amount.

The judge held oral argument, issued the August 3, 2012 order, and rendered a written opinion. She concluded that the grievance letter and EEOC charge were insufficient to constitute a claim as that term is defined under the policy. She also determined that BCC disclosed to Diamond State the existence of Ocampo's grievances in BCC's insurance application. The judge then entered the August 3, 2012 order compelling Diamond State to provide insurance coverage to BCC for the allegations contained in the complaint in the underlying lawsuit.

Thereafter, BCC filed a second motion for summary judgment and sought to compel Diamond State to indemnify it for the settlement amount. The judge denied that motion, but scheduled a plenary hearing to determine the amount of indemnification. BCC filed a motion for reconsideration and sought counsel fees that it had incurred by defending the underlying lawsuit.

The judge issued the July 5, 2013 order without conducting the hearing. She believed that given the August 3, 2012 order, the only remaining issue was the award of counsel fees. She granted counsel fees to BCC in the amount of $170,221.86, which included fees and costs for the underlying litigation as well as the coverage dispute, and ordered Diamond State to indemnify BCC for the full settlement amount ($175,000) minus BCC's $100,000 deductible.

The judge made no findings regarding whether (1) the grievance letter and EEOC charge constituted, under paragraph N, "any circumstance[s] . . . known at the time of [BCC's insurance application] which any [i]nsured[] could reasonably expect would result in a claim;" and (2) BCC and Ocampo entered into the settlement in good faith, and if so, whether the amount of the settlement was reasonable.

On appeal, Diamond State argues primarily that the judge erred by (1) concluding that the grievance letter and EEOC charge were insufficient to constitute a claim under the policy; (2) rejecting its contention that the policy language excluded coverage for the allegations in the underlying lawsuit; and (3) entering an award requiring it to indemnify BCC and pay counsel fees without conducting a hearing to determine reasonableness and good faith.

In reviewing a grant of summary judgment, we apply the same standard under Rule 4:46-2(c) that governed the trial court. Wilson ex rel. Manzano v. City of Jersey City, 209 N.J. 558, 564 (2012). We must "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). We accord no deference to the motion judge's conclusions on issues of law, Manalapan Realty, L.P., v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995), which we review de novo.

II.

We reject Diamond State's first contention that the Ocampo grievance letter and EEOC charge constituted a claim under the policy. We conclude, as did the judge, that Ocampo's complaint in the underlying lawsuit acted as the first notice of the claim.

Section III, paragraph A, of the policy defines a claim to mean "any written demand for money damages." Ocampo did not include a written demand for monetary damages in his grievance letter or EEOC charge. The first time that Ocampo made a written demand for monetary relief was when he filed his federal complaint in the underlying lawsuit.

III.

As to Diamond State's second argument, that the policy excludes coverage even if the underlying lawsuit constituted the first notice of a claim, we conclude that the record must be more fully developed to address whether paragraph N excludes coverage for the underlying lawsuit.

On remand, the judge must focus on the circumstances or facts known at the time BCC applied for insurance with Diamond State. The inquiry on remand, using the language of paragraph N, must be whether those facts or circumstances could lead to the conclusion that "any [i]nsured[] could reasonably expect would result in a claim" under the policy.

Pursuant to Rule 1:7-4(a), the judge should make the requisite findings of fact and conclusions of law on this issue and determine the enforceability of paragraph N in the context of a claims-made policy. This is particularly relevant here because the parties did not provide the attachments to paragraph sixteen in BCC's insurance application. Diamond State is not contending that all claims-related actions that occurred before the effective date of the policy will always be excluded pursuant to paragraph N. Rather, it maintains that the exclusion applies only to those circumstances or facts that BCC knew at the time it applied for insurance that "any [i]nsured[] could reasonably expect would result in a claim" under the policy. Producing the attachments to the insurance application is probative to show what circumstances or facts BCC disclosed in its application and whether BCC anticipated that Ocampo's employment-related dispute could result in a claim for damages.

On remand, the trial court should consider whether paragraph N would apply even if BCC provided Diamond State with information about Ocampo's grievance letter and EEOC charge. The court should consider whether paragraph N excludes the claim if BCC had reason to believe Ocampo's grievance letter and EEOC charge would result in a claim, even if BCC had disclosed this information to Diamond State.

Thus, this determination is central to resolving whether Diamond State properly denied coverage under the policy. On remand, we leave to the discretion of the judge whether to open the record for that purpose.

IV.

We agree with Diamond State in part on its third contention, that the judge did not determine the reasonableness and good faith of the settlement.

In general, an insurer forfeits its rights to control settlements "'when it violates its own contractual obligation to the insured.'" Passaic Valley Sewerage Comm'rs v. St. Paul Fire and Marine Ins. Co., 206 N.J. 596, 615 (2011) (quoting Fireman's Fund Ins. Co. v. Sec. Ins. Co. of Hartford, 72 N.J. 63, 71 (1976). Here, subject to the judge's findings regarding paragraph N, Diamond State may have wrongfully refused insurance coverage and a defense to BCC. As a result, Diamond State may be liable for the amount of the settlement between BCC and Ocampo, so long as the settlement is reasonable and payment is made in good faith. As the Supreme Court aptly stated

Where an insurer wrongfully refused coverage and a defense to its insured, so that the insured is obliged to defend [itself] in an action later held to be covered by the policy, the insurer is liable for the amount of the judgment obtained against the insured or of the settlement made by him. The only qualifications to this rule are that the amount paid in settlement be reasonable and that the payment be made in good faith.

[Ibid. (quoting Griggs v. Bertram, 88 N.J. 347, 364 (1982).]

To establish the reasonableness of a settlement, Griggs imposes the initial burden of production on the insured, and the ultimate burden of persuasion on an insurer. Griggs, supra, 88 N.J. at 368.

It is the judge's responsibility to review independently the settlement to determine whether it is reasonable and made in good faith. Fireman's Fund Ins. Co., v. Imbesi, 361 N.J. Super. 539, 566 (App. Div.), certif. denied, 178 N.J. 33 (2003). The judge did not do that here. In analyzing the reasonableness of the settlement, the judge must consider the liability exposure of the settling parties. Id. at 571 (citing Vargas v. Hudson Cty. Bd. of Elections, 949 F.2d 665, 674 (3d Cir. 1991)). In so doing, the judge should consider the effect of BCC's success in purportedly reducing its liability risk by obtaining partial summary judgment in the underlying lawsuit.

V.

After a review of the record and consideration of the controlling legal principles, we conclude that Diamond State's remaining arguments that relate to the award of attorney's fees need not be addressed in light of our decision.

Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.


1 Ocampo asserted this discrimination was illustrated by an excessive working schedule, including limited days off and no breaks between classes without additional compensation; substandard office facilities as compared to his Caucasian colleagues; BCC's refusal to accommodate requests for Asian history and heritage events; and a denial of a request for free tuition for Ocampo's son.

2 At oral argument before us, counsel were unable to describe the documentation that BCC attached to its insurance application. Although the application refers in paragraph sixteen to "see attached," the attachments were not part of the record.

3 In the underlying lawsuit, Ocampo alleged violations of the New Jersey Law Against Discrimination ("NJLAD"), N.J.S.A. 10:5-1 to -49, based upon race, national origin, age and disability (Counts 1 and 2); retaliatory action in violation of the NJLAD (Count 3); violations of Title VII based upon race and national origin, 42 U.S.C.A. 2000e-2 (Count 4); retaliation under Title VII (Count 5); violation of the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C.A. 621 634 (Count 6); violation of the Americans with Disabilities Act ("ADA"), 42 U.S.C.A. 12101 12117 (Count 7); harassment and a hostile work environment (Count 8); violation of the Conscientious Employee Protection Act ("CEPA"), N.J.S.A. 34:19-1 to -14 (Count 9); and violation of the Family Medical Leave Act, 29 U.S.C.A 2601 2654 (Count 10).

4 The record indicates that the court dismissed the NJLAD claims that existed prior to April 30, 2006; the Title VII claims existing prior to May 29, 2006; the entire hostile work environment claim (Count 8); and the NJLAD claims against former BCC President Judith Winn.

5 BCC also sued National Union Fire Insurance Company of Pittsburg, P.A. ("National Union") seeking coverage under a policy in effect prior to the Diamond State policy. The trial court granted summary judgment finding that BCC was not entitled to coverage under the National Union policy.