STATE NATIONAL INSURANCE COMPANY v. THE COUNTY OF CAMDEN
Filing
474
OPINION. Signed by Judge Noel L. Hillman on 12/19/2012. (dmr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
STATE NATIONAL INSURANCE
COMPANY,
Plaintiff,
v.
CIV. NO. 08-5128(NLH)(AMD)
OPINION
THE COUNTY OF CAMDEN,
Defendants.
THE COUNTY OF CAMDEN,
Counterclaimant and
Third-Party Plaintiff,
v.
STATE NATIONAL INSURANCE
COMPANY,
Counterclaim-Defendant
and
NICHOLAS M. ANDERSON,
Third-Party Defendant,
and
SCIBAL ASSOCIATES, INC.,
Third-Party Defendant and
Third-Party Counterclaimant.
THE INSURANCE COMPANY OF THE
STATE OF PENNSYLVANIA,
Intervening Plaintiff,
v.
THE COUNTY OF CAMDEN and SCIBAL
ASSOCIATES,
Defendants.
APPEARANCES:
ROBERT J. MORROW
HUNTON & WILLIAMS LLP
200 PARK AVENUE
NEW YORK, NY 10166
WALTER J. ANDREWS
MICHAEL S. LEVINE
HUNTON & WILLIAMS LLP
1751 PINNACLE DRIVE
SUITE 1700
MCLEAN, VA 22102
On behalf of State National Insurance Company
WILLIAM M. TAMBUSSI
JOSEPH T. CARNEY
WILLIAM F. COOK
BROWN & CONNERY, LLP
360 HADDON AVENUE
P.O. BOX 539
WESTMONT, NJ 08108
On behalf of the County of Camden
HILLMAN, District Judge
This matter concerns which entity is liable to pay for a
multi-million dollar state court jury verdict in favor of a
plaintiff who sued the County of Camden, New Jersey for injuries he
sustained when he drove off the road and into a guardrail owned and
maintained by the County.
Presently before the Court is the issue
of which party must first produce its expert reports.
The parties
have agreed that the order of expert disclosure should follow the
burden of proof, with the party bearing the burden on a claim to
first disclose its witnesses offering opinion testimony, followed
by the non-burdened party’s disclosure of its opinion witnesses.
The parties have also agreed as to which party has the burden of
proof on all claims, except for the determination as to whether the
County provided an adequate defense and investigation of the
2
underlying Anderson litigation.
This issue is a dispositive factor
in whether the State National insurance policy with the County is
implicated.
The State National Policy provides $10 million in coverage
over a $300,000 self-insured retention.
The State National
Policy states:
We [State National] will pay those sums that
the insured becomes legally obligated to pay
as damages because of “bodily injury” or
“property damage” to which this insurance
applies.
We [State National] will have the
right and duty to defend any “suit” seeking
those damages.
The Self-Insured Retention Endorsement (“SIR Endorsement”)
states, in relevant part:
1. In consideration of the premium charged and as a
condition to the issuance and continuation of the
Policy, it is agreed that the NAMED INSURED shall
retain, as a self-insured retention, per occurrence and
as respects combined insured damages and insured
allocated costs and expenses of investigation, defense,
negotiation and settlement applicable to such damages,
the sum of [$300,000.00]. The company's limit of
liability, as stated elsewhere in the Policy, shall
apply solely in excess of the NAMED INSURED'S
self-insured retention. Allocated costs and expenses of
investigation, defense, negotiation and settlement shall
not include any costs or expenses of any:
A. claims management or service company of any INSURED,
or
B. wages or salaries of any employee of any INSURED, or
C. operating expenses of any INSURED.
* * *
4. In the event of any occurrence which, in
3
the opinion of any INSURED, is likely to
give rise to liability under this Policy,
no costs or expenses, other than for
immediate first aid to others, shall be
incurred by any INSURED, except at his or her
own cost, peril and expense, without the
written consent of the company. The NAMED
INSURED shall be obligated to
A. provide an adequate defense and
investigation of any action for or notice
of any actual, potential or alleged damages,
and
B. accept any reasonable offer or settlement
within the NAMED INSURED’S self-insured
retention,
and, in the event of any NAMED INSURED’S
failure to comply with any part of this
paragraph, the company shall not be liable
for any damages or costs or expenses
resulting from any such occurrence.
5. The company may, at its sole option, pay, as
damages, costs and expenses, any part or
all of the NAMED INSURED’S self-insured retention
in order to effect settlement of any and all
actions against any INSURED and, upon notice to
any NAMED INSURED of the company having done so,
the NAMED INSURED shall, within ten (10) calendar
days of sending of such notice, fully reimburse
the company.
State National argues that it is the County’s burden to
demonstrate that as a condition precedent to coverage it met its
obligation to provide an adequate defense and investigation.
In
contrast, the County argues that it is State National’s burden to
demonstrate that the County did not provide an adequate defense
and investigation because that condition is a policy exclusion.
After a careful examination of what we consider a close
question, the Court finds that the adequate defense and
4
investigation provision in the SIR Endorsement is a condition
precedent to coverage, and the County has the burden of proving
that it fulfilled that condition.
Insurance contracts often contain two typical provisions-conditions to coverage and exclusions to coverage.
In general, a
condition precedent is either an act of a party that must be
performed or a certain event that must happen before a contractual
right accrues or contractual duty arises.
Contracts § 38:7 (4th ed.).
13 Williston on
An exclusion in a policy of insurance
is a limitation of liability or a carving out of certain types of
loss to which the coverage or protection of the policy does not
apply.
13 Williston on Contracts § 49:111.
Even though insurance contracts are contracts of adhesion,
and “the entire burden of proof . . . usually rests on one party,
namely, the insurer,” Griggs v. Bertram, 443 A.2d 163, 173 (N.J.
1982) (citations omitted), it is well-settled that the insured
bears the burden of establishing that a claim lies within the
policy’s scope of coverage, Shaler ex rel. Shaler v. Toms River
Obstetrics & Gynecology Associates, 893 A.2d 53, 60 (N.J. Super.
App. Div. 2006) (citation omitted).
That principle is contrasted,
however, with the understanding that insurance policies should be
construed liberally in the insured’s favor so that coverage is
afforded to the full extent that any fair interpretation will
allow.
Longobardi v. Chubb Ins. Co. of New Jersey, 582 A.2d 1257,
1260 (N.J. 1990) (citations omitted).
5
Thus, to determine whether an insured has complied with a
condition to coverage or whether an insured’s claim for coverage
is excluded from the policy, the burdens of proof are assigned
depending on which type of provision is at issue.
Where a
condition to coverage is implicated, the burden of proving that
the insured complied with a condition precedent is on the insured.
See, e.g., Griggs, 443 A.2d at 169 (“Obviously the insured must
avoid independent action which will contravene any of the
essential terms of the policy; compliance with such provisions is
a condition precedent to recovery under the policy and their
breach can cause a forfeiture of coverage.”).
In contrast, the
burden of proving that an exclusion to coverage applies rests with
the insurer.
See Princeton Ins. Co. v. Chunmuang, 698 A.2d 9, 16-
17 (N.J. 1997) (“[I]nsurance policy exclusions must be narrowly
construed; the burden is on the insurer to bring the case within
the exclusion.”).
Here, in order for the policy to afford coverage to the
County, the County must, in relevant part: (1) pay the policy
premium, and (2) retain a $300,000.00 self-insured retention.
Under the SIR Endorsement, the County “shall” also “be obligated
to,” in the event of any occurrence that is likely to give rise to
liability under the policy, (3) provide “an adequate defense and
investigation of any action.”
Because this provision is clearly
“an act of a party that must be performed . . . before a
contractual right accrues,” rather than
6
a “carving out of certain
types of loss to which the . . . protection of the policy does not
apply,” the adequate defense and investigation provision in the
SIR Endorsement must be considered a condition precedent to
coverage.
Because it is a condition to coverage, the County bears
the burden of proving its compliance with that provision.
In arguing that the adequate defense and investigation
provision in the SIR Endorsement must be considered a policy
exclusion, the County contends that to find otherwise would
require it to prove a negative fact--that is, that the County did
not fail to provide an adequate defense.
The County argues that
the New Jersey Supreme Court is loath to place the burden on an
insured to prove a negative fact.
See Carter-Wallace, Inc. v.
Admiral Ins. Co., 712 A.2d 1116, 1126 (N.J. 1998) (explaining the
court’s “inherent reluctance to place the burden of proving a
negative fact on a litigant”).
Although this Court understands the County’s point of view-that the provision requires it to prove that it did not not
provide an adequate defense and investigation--placing the burden
of proof onto the County in this way is not the kind of “negative
fact” disfavored by the New Jersey Supreme Court.
For instance,
in Carter-Wallace, the policy provided coverage for an
“occurrence,” defined as “an accident or a happening or event or a
continuous or repeated exposure to conditions which unexpectedly
and unintentionally results in personal injury, property damage or
advertising liability during the policy period.”
7
Carter-Wallace,
712 A.2d at 1126.
The court interpreted that provision to be a
policy exclusion, because to require “an insured to prove a
negative fact--that it did not intend or expect environmental
damage--in this context” would be highly impractical since “the
insured’s incentive consists of little more than a motivation to
present general testimony that it had no expectation that its
activities would result in property damage.”
Id.
In this case, the adequate defense and investigation provision
does not require the County to generally opine on the adequacy of
its abilities to defend and investigate all law suits against it
in order to meet the condition for coverage.
Instead, the policy
requires that the County demonstrate that in handling the Anderson
lawsuit, it took certain steps and made certain decisions, and
that conduct was “adequate.”1
The showing of that adequacy in this
context does not require the County to prove a negative fact, but
to require the County to simply prove relevant facts limited in
scope and time.2
1
Relatedly, even if the County can prove that its in-house
counsel did not commit legal malpractice, it still must prove
that its defense and investigation, although not considered
malpractice, were adequate. Stated differently, the condition
precedent still applies even if the elements of legal malpractice
cannot be met.
2
The general principle that it is more difficult to prove a
negative is actually a misnomer. For example, in a criminal
prosecution of a bank robbery it should not be more difficult for
the prosecution to prove the defendant committed the crime based
on eyewitnesses and surveillance tape than it would be for the
defendant, if he chose to, to prove that he was in another state
during the precise hour of the robbery. Presumably since he was
8
The County also suggests that the adequate defense and
investigation provision in the SIR Endorsement is essentially an
exclusion cloaked in a condition precedent’s clothing.
The County
argues that because the language “In consideration of the premium
charged and as a condition to the issuance and continuation of the
Policy,” is contained in paragraph 1 of the SIR Endorsement, but
not in paragraph 4, which contains the adequate defense and
investigation provision, paragraph 4 cannot be considered a
condition.
Viewing it in a different way, the County also argues
that the placement of the adequate defense and investigation
provision in the SIR Endorsement, if the entire SIR Endorsement
provision were to constitute a condition precedent, cannot hide
somewhere at that point in time, “I was not there” - a negative is not more difficult to prove than “It’s him.” Similarly in a
civil action for negligence arising out of a car accident, both
sides would seem to have an equal chance to prove that the light
was green, or the opposing negative, that the light was red when
the defendant’s car drove through and struck the plaintiff. As
one commentator has noted, the real difficulty is not proving a
negative but being asked to prove a “universal” when your
adversary must merely prove an “existential.” See Kevin W.
Saunders, The Mythic Difficulty in Proving a Negative, 15 Seton
Hall L. Rev. 276 (1984-1985). For example, putting aside the 5th
Amendment for a moment, it would not be fair to compel the
defendant to prove he had never robbed a bank ever in his life e.g., “I have never been a bank robber.” That “universal”
couched in the language of a negative would require a searching
inquiry and endless proofs. On the other hand, there is no
unfairness in asking the plaintiff in the civil case described
above to prove the negative of the defense of a green light that is, the “existential” of the light being red. Here, the
County is not being compelled to prove a negative as much as it
is being asked to prove the polar opposite of the existential at
issue - was an adequate defense provided. This is nowhere more
evident than in that fact that both parties are able in their
briefs to fashion their burden in negative language.
9
what it truly is--an exclusion.
This Court recognizes that Carter-Wallace and other cases make
it clear that the placement of an insurance contract provision in
a policy cannot mask its inherent nature.
See, e.g.,
Carter-Wallace, Inc. v. Admiral Ins. Co., 712 A.2d 1116, 1126
(N.J. 1998) (citing cases) (“We agree that exclusions do not shed
their essential character when they are moved from one section of
a policy and are crafted as part of that policy’s grant of
coverage.”).
The plain and ordinary meaning of the SIR
Endorsement provision, however, shows that the essential character
of the adequate defense and investigation provision is the
insured’s demonstration that it complied with that provision as a
condition to coverage, as opposed to the insurer’s burden to prove
that the insured’s conduct excludes it from coverage.
Absent
compelling circumstances demonstrating a different intent or
meaning, the plain language should control.
See President v.
Jenkins, 853 A.2d 247, 254 (N.J. 2004) (“If the policy terms are
clear, courts should interpret the policy as written and avoid
writing a better insurance policy than the one purchased.”).
One final concern on this burden of proof issue is which party
is in the best position to provide evidence concerning the
adequacy of the County’s defense and indemnification.
As
mentioned above, typically the insurer has the burden of proof on
all issues, but particularly when enforcing a policy exclusion.
But even in instances where the insurer usually has the burden of
10
proof, courts have imposed the burden of producing evidence onto
the insured instead of the insurer in instances where the insured
“is far more likely to know, or have superior access to, facts
relevant to” the dispositive coverage issue.
See, e.g. Diebold,
719 F. Supp. 2d 451, 465 (D.N.J. 2010) (explaining that the
insurer would not have nearly the same access to relevant
information as the insured, who had the knowledge of its losses
when its ATM machines were compromised by its subcontractor hired
to service the machines); Griggs, 443 A.2d at 173 (finding that
even though the insurer failed in its duty promptly to notify its
insured that it would not provide a defense because the claim was
not covered under the policy, and that delay caused the insured to
independently defend and settle the case without any involvement
by the insured, the burden of producing evidence must be placed
upon the insured because it had control of the case and the
opportunity for discovery as to all essential information).
In this case, not only does the County have the burden of
proof with regard to its compliance with the condition precedent,
even if the adequate defense and investigation provision were
considered an exclusion, the County would be in the superior
position to provide evidence of its defense and investigation of
the Anderson matter.
It is undisputed that State National was not
notified of the Anderson lawsuit until after the close of
discovery and the trial was scheduled.
Thus, the County possesses
the bulk of information regarding its conduct in the investigation
11
and defense of the matter.
Although during discovery in this case
State National presumably has received from the County all the
relevant documents concerning the Anderson matter, and has taken
testimony from all relevant County witnesses who have knowledge of
the Anderson case, the County’s exclusive control over the case
for such a long period tips the burden of proof on the adequate
defense and investigation provision onto the County.
Accordingly, for the foregoing reasons, the adequate defense
and investigation provision in the SIR Endorsement is a condition
precedent to coverage, and as such, the burden of proof is on the
County to prove its fulfillment of that condition.
An appropriate
Order will be entered.
Date: December 19, 2012
At Camden, New Jersey
s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.
12
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?