HARTFORD CASUALTY INSURANCE COMPANY v. PEERLESS INSURANCE COMPANY et al
Filing
200
OPINION. Signed by Judge Kevin McNulty on 9/30/16. (cm )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
HARTFORD CASUALTY INSURANCE
COMPANY,
Civ. No. 10-6235 (KM)(MAH)
Plaintiff,
OPINION
V.
PEERLESS INSURANCE COMPANY,
THE NETHERLANDS INSURANCE
COMPANY, UNIVERSAL UNDERWRITERS
INSURANCE COMPANY, ZURICH
AMERICAN INSURANCE COMPANY,
Defendants.
KEVIN MCNULTY, U.S.D.J.:
Hartford Casualty Insurance Company (“Hartford”) brings this
action pursuant to 28 U.S.C.
§ 2201, seeking a declaration that Defendant
Peerless Insurance Company and The Netherlands Insurance Company
(collectively, “Peerless”) contribute defense costs and indemnity in connection
with the defense of their mutual insured, Carquest Corporation (“Carquest”), in
a personal injury lawsuit. (ECF. No. 1) Peerless brings counterclaims for breach
of contract, breach of fiduciary duty, and negligence. (ECF No. 28) Hartford’s
claim and Peerless’s counterclaims come before the Court on cross-motions for
summary judgment pursuant to Fed. R. Civ. P. 56. (ECF No. 155 and 158)
Hartford contends that there is no dispute that Peerless was
Carquest’s primary insurer and that Hartford is entitled to contribution for
reasonable defense and settlement costs. To some degree, I find that Hartford
is entitled to prevail on its contentions. Peerless argues that Hartford held itself
out as Carquest’s primary insurer and, while it controlled Carquest’s defense,
botched it so completely the Court should deny Hartford’s contribution claim.
1
Indeed, Peerless says, it has been so prejudiced by Hartford’s bungli
ng that the
Court should award Peerless summary judgment on its counterclaim
s and
force Hartford to indemnify Peerless. I find that Peerless has not establi
shed
that it is entitled to summary judgment. For the reasons detailed below,
summary judgment is GRANTED in part and DENIED in part to Hartfo
rd, and
DENIED to Peerless.
I.
FACTUAL AND PROCEDURAL BACKGROUND
A.
The Underlying Action
1.
The Trouble Light
On July 3, 2007, John Michael Mechin, a 21-year-old car
mechanic, suffered second and third degree burns over 42% of his body
as a
result of an accident that occurred while he was working at an auto
repair
shop.’ (P1. Ex. 1, p. 2; DeE Ex. A,
¶
12) As he was working, a gasoline tank fell,
Citations to the record will be abbreviated as follows:
“P1. Br.”
Plaintiff’s Brief in Support of its Motion for Summary Judgment, ECF No.
—
155.
“Def. Opp. Br.”
Defendant’s Brief in Opposition to Plaintiff’s Motion for Summary
Judgment, ECF. No. 169-1.
—
“P1. Reply Br.”
Plaintiff’s Reply Brief to Defendant’s Opposition to Plaintiffs Motion for
Summary Judgment, ECF No. 170.
—
“Def. Br.”
No. 161.
—
Defendant’s Brief in Support of its Motion for Summary Judgment,
ECF
“P1. Opp. Br.”
Plaintiff’s Brief in Opposition to Defendant’s Motion for Summary
Judgment, ECF No. 164.
“Def. Reply Br.”
Defendant’s Reply Brief to Plaintiff’s Opposition to Defendant’s
Motion for Summary Judgment, ECF No. 172-1.
—
“P1. Ex.”
Plaintiff’s Exhibits to the Certifications of Gerald D. Wixted, dated Octobe
r 6,
2014, November 5, 2014, and November 19, 2014, submitted in Suppo
rt of Plaintiff’s Motion
for Summary Judgment, Plaintiff’s Opposition to Defendants’ Motion
for Summary Judgment,
and Plaintiff’s Reply to Defendant’s Opposition to Plaintiff’s Motion for Summ
ary Judgment,
ECFnos. 155, 156, 164, 170.
—
“Def. Ex.”
Defendant’s Exhibits, attached to the Certification and Supplemental
Certification of John T. Coyne, dated October 6, 2014, November 5,
2014, submitted in support
of Defendant’s Motion for Summary Judgment and Defendant’s Oppos
ition to Plaintiff’s Motion
for Summary Judgment, ECF nos. 158, 161, 169.
—
“PSF”
—
Plaintiff’s Statement of Material Undisputed Facts, ECF No. 156-1.
2
spilling gasoline on the floor and Mechin’s clothes. (Id.) The gasolin
e then came
into contact with a product known as the “Professional-Duty Troubl
e Light on
Reel” (hereinafter, “Trouble Light”). (Id.) The Trouble Light ignited
the gasoline
and set Mechin on fire. (Id.) Mechin was in a coma for four weeks,
and
underwent several skin graft surgeries. He has permanent scarrin
g on his
neck, upper extremities, torso, and hands. (P1. Ex. 1,
p. 2)
2.
The Mechin Defendants and Their Insurers
In December 2007, Mechin filed a product liability lawsuit agains
t
Carquest, which allegedly had manufactured, designed, distrib
uted, or
marketed the Trouble Light. (P1. Ex. 2,
¶ 1) In April 2008, Mechin amended his
complaint to include defendants Carquest Products, Inc. (“CPI”
), BWP
Distributors, Inc. (“BWP”), and Voltec Industries, Inc. (“Voltec”)
(collectively, the
“Carquest Entities”), and alleged that each had manufactured,
designed,
distributed or marketed the Trouble Light. (P1. Ex. 3,
¶f 45)2
The precise relationship between Carquest, CPI, and BPW is
unclear, and the extent to which each was involved in the
manufacture, design
,
distribution or marketing of the Trouble Light is disputed. (See,
e.g., DSMF ¶ 3;
PRDSMF ¶ 3; DSMF ¶J 24, 26-3 1, PRDSMF
¶{ 24, 26-3 1) Nevertheless, certain
essential facts concerning the Mechin defendants can be stated
as follows:
“DRPSF”
ECF No. 169-2
“DSF”
—
Defendant’s Reply to Plaintiffs Statement of Material Undisp
uted Facts,
Defendant’s Statement of Material Undisputed Facts, ECF
No. 161.
“PRDSF”
Plaintiffs Reply to Defendant’s Statement of Material Undisp
uted Facts,
ECF No. 164-i
—
—
“PCDSF”
Plaintiffs Counter-Statement of Facts to Defendant’s Statem
ent of Material
Undisputed Facts, ECF No. 164-1
—
“DRPRDSF”
Defendant’s Response to Plaintiffs Reply to Defendant’s
Statement of
Material Undisputed Facts, ECF No. 172-2
—
“DRPCDSF”
Defendant’s Response to Plaintiffs Counter-Statement of
Facts to
Plaintiffs Statement of Material Undisputed Facts, ECF No. 172-2
—
2
Mechin also added defendants TMC Enterprises, Inc. (“TMC
”) and Tasco Industries,
Inc., and alleged the same. (Id.) Tasco imported the Trouble Light
into the United States. (DSF’
¶ 3, PRDSF ¶ 3)
3
Voltec is a distribution and supply company which purchased
the
Trouble Light from the product’s Chinese manufacturers. Voltec is
insured by
Hartford under two policies: (1) a General Commercial Liability Policy
with a
limit of $2,000,000 and (2) an Umbrella Policy with a limit of
$2,000,000. (DSF
¶ 4; PRDSF ¶ 4)
CPI, a national distributor of “Carquest” brand products,
purchased the Trouble Light from Voltec. CPI is owned by four
“member”
companies, which include Carquest and BWP. (Def. Ex. II, 13:1215:10; Coyne
Cert Ex. RH; P1. Ex. 22, p. 1). CPI is insured by Universal Underw
riters
Insurance Company (“UUIC”).
BWP, a regional distributor of “Carquest” brand products,
purchased the Trouble Light from CPI and allegedly sold it to the
auto repair
shop where Mechin worked. (Def. Ex. B, 59:19-21; P1. Ex. 22, p.1)
As noted
above, BWP is an owner-member of CPI. (Def. Ex. II, 13:12-15:10;
P1. Ex. 22,
p.1) BWP is insured by Zurich American Insurance Company (“Zuric
h”).
Carquest, the owner of the trademark “Carquest”, is also owned
by
“member” companies, one of which is BWP. (Def. Ex. B, 18:9-1
7; Def. Ex. D,
16:15-19:4) Carquest licenses its trademark to its member compa
nies, who in
turn use it to sell “Carquest” brand products. (See id.) Carquest
is insured by
Peerless. Whether Carquest played any role in the marketing or
advertising of
the Trouble Light is hotly contested. (DSF ¶j24-31, PRDSF
¶{ 24-3 1)
3.
The Voltec-CPI Agreement
In a March 2002 agreement (the “Voltec Agreement”), Voltec
added
CPI, BWP, and Carquest to its insurance and agreed to provid
e indemnity for
“any claim, demand, legal actions or judgment based upon or arising
out of.
any alleged or actual defects of any kind of design, manufacture,
preparation,
or handling of the products; provided that [Voltec] shall not be
liable for gross
negligence or willful misconduct.” (PSF
¶
4
8, DRPSF
¶
8) The Agreement does
.
not state whether Voltec’s Hartford insurance is primary or non-contributory.
(P1. Ex. 9,
§
2.1, 2.4).
4.
The Carquest Entities Request Defense
Shortly after Mechin filed his complaint, Carquest requested that
Hartford defend and indemnify it against Mechin’s claims. (PSF
¶J
9-10;
DRPSF ¶j 9-10) On April 3, 2009, Hartford accepted tender of Carquest and
CPI’s defense subject to a reservation of rights which would have allowed
Hartford to disclaim coverage if it emerged that the Trouble Light was not
imported or distributed by Voltec. (Def. Ex. N) In a second letter, dated April
17, 2009, Hartford agreed to accept the tenders of Carquest, BWP, and CPI as
additional insureds, subject to the existing terms and conditions contained in
Voltec’s insurance policies. (Def. Ex. 0)
When Hartford accepted the defense of the Carquest Entities in
April 2009, it was already providing for the defense of Voltec. (Def. Ex. U, p.2)
Hartford then believed that Voltec and the Carquest Entities’ interests were
aligned because they all were “innocent sellers” under New Jersey products
liability law (i.e., each defendant was a mere seller who did not exercise some
significant control over the design, manufacture, packaging or labeling of the
Trouble Light). Hartford therefore assigned Voltec’s lawyer, Thomas Mulcahy,
to represent all four of these defendants jointly. (Def. Ex. U, p. 2, 5; P1. Ex. 24,
p. 214:1-215:22) The hope was that each of these defendants could pass
liability up the chain of distribution to the Trouble Light’s foreign manufacturer
and domestic importer. (Def. Ex. U, p.5)
In the spring of 2010, the joint representation of Voltec and the
Carquest Entities hit a snag: discovery revealed that the Trouble Light was
approved only for “general use” even though it had been branded “Professional
Duty” and marketed to commercial auto garages. (P1. Ex. 25, p.9; Def. Ex. P,
113:12-116:20). Allegedly concerned by a potential conflict of interest between
Voltec and the Carquest Entities, Hartford severed the joint representation and
appointed new attorneys for Voltec and the Carquest Entities. (PSF
5
¶f
37-38,
DRSF
37-38). John Maucher, Esq., was appointed to handle the Carquest
Entities’ defense. (Id.)
¶J
5.
Settlement and Indemnification
By September 2010, Mechin’s theory of the case had crystalized:
the fire occurred because the Trouble Light was improperly labeled as
“Professional-Duty” and marketed to commercial auto garages. (P1. Ex. 12,
p. 34; P1. Ex. 13, p. 6; P1. Ex. 14). Maucher advised Hartford, Peerless, Zurich, and
UUIC in November 2010 that Mechin’s settlement demand was $9 million, and
that he believed it would take between $4 million and $5 million to settle the
case. (Def. Ex. 1, p. 3)
On March 15, 2011, the Carquest Entities (as well as Voltec)
moved for summary judgment on their innocent seller defense. Mechin moved
for summary judgement on the issues of design defect, failure to warn, and
proximate cause. (P1. Ex. 16-17)3 While the summary judgment motions were
pending, Voltec settled with Mechin for $900,000, paid entirely by Hartford.
(DSF ¶ 22; PRDSF ¶ 22; DRPRDSF ¶ 22; PCDSF ¶ 51, DRPCDSF 51) The
¶
Carquest Entities settled for $2,050,000, of which $1,100,000 was paid by
Hartford. (DSF
¶
22; PRDSF
¶
22; DRPRDSF
¶
22) Zurich, Peerless, and UUIC
each contributed $316,667. (Id.)
4
On July 15, 2011, Maucher moved on behalf of Carquest, BWP,
and CPI for summary judgment on their claims for indemnity based on the
Voltec Agreement. (P1. Ex. 34). Judge Wigenton, who presided over Mechin’s
action, denied that motion in February 2012. (P1. Ex. 35) Because the
In April 2010, Mechin sought sanctions on the ground that the Carquest Entities’
innocent seller defenses were frivolous and asserted in bad faith. He argued that the foreign
manufacturer of the Trouble Light had neither a presence nor attachable assets in the United
States—the only circumstance in which a defendant can avail itself of the defense—and
counsel’s suggestions otherwise were contrary to earlier representations to the court. (P1.
Ex.
18) The court never ruled on that motion.
In total, the Mechin action settled for $4,700,000. Tasco settled for $1,750,000. (P1.
Br. 7; DSF ¶ 17).
6
Agreement failed to state in clear and unequivocal terms that Voltec would
indemnify the Carquest Entities for their own negligence, Judge Wigenton ruled
that the Agreement was invalid and unenforceable. (P1. Ex. 35, P. 9-12)5
B.
This Action
In November 2010—shortly after Maucher advised the insurers
that it would cost $4—5 million to settle the Mechin case—Hartford informed
Peerless, Zurich, and UUIC that they might be obligated to provide co-excess, if
not primary, coverage to their insureds. Hartford’s position was based on the
“other insurance” clause in Voltec’s Hartford policy. That clause states:
This insurance is excess over any of the other
insurance whether primary, excess, contingent or on
any other basis:
****
(7) When You Add Others As An Additional Insured
To This Insurance
That is other insurance available to an additional
insured.
However, the following provisions apply to other
insurance available to any person or organization who
is an additional insured under this Coverage part.
(a) Primary Insurance When Required By Contract
This insurance is primary if you have agreed in a
written contract, written agreement or permit that this
insurance will be primary
.
(b) Primary and Non-Contributory to Other
Insurance When Required By Contract
If you have agreed in a written contract, written
agreement or permit that this insurance is primary
and non-contributory with the additional insured’s
own insurance, this insurance is primary and we will
not seek contribution from that other insurance.
(P1. Ex. 7-8, P1. Ex. 4, HARTVOLT100079-80)
Judge Wigenton also found that Hartford was not part of the Agreement and could not
have legally bound Voltec to indemnify Carquest’s negligence. (P1. Ex. 35, p. 8)
7
Hartford, as the Carquest Entities’ insurer, filed the present action
in December 2010. This action seeks contribution for defense costs and
indemnity ($1,100,000) from Peerless, Zurich, and UUIC. (ECF No. 1) In
August
2011, Peerless, Zurich, and UUIC filed counterclaims against Hartford for
breach of contract, breach of fiduciary duty, and negligence. (ECF Nos. 27-28)
Fact discovery closed in 2012; the deadline for expert discovery lapsed in 2014.
No party produced an expert report.
The parties cross-moved for summary judgment on their claims
and counterclaims in October 2014. (ECF No. 155-173). Zurich and UUIC
were
dismissed in December 2014 after reaching a settlement with Hartford. (ECF
No. 175) Only Hartford and Peerless’s motions for summary judgment remain
.
IL
STANDARD OF REVIEW
Federal Rule of Civil Procedure 56(a) provides that summary
judgment should be granted “if the movant shows that there is no genuin
e
dispute as to any material fact and the movant is entitled to judgment
as a
matter of law.” FED. R. CIV. P. 56(a); see also Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986); Kreschollek v. S. Stevedoring Co., 223 F.3d 202,
204
(3d Cir. 2000). In deciding a motion for summary judgment, a court must
construe all facts and inferences in the light most favorable to the nonmo
ving
party. See Boyle v. County of Allegheny Pennsylvania, 139 F.3d 386, 393
(3d
Cir. 1998) (citing Peters v. Delaware River Port Auth. of Pa. & N.J., 16 F.3d
1346, 1349 (3d Cir. 1994)). The moving party bears the burden of establi
shing
that no genuine issue of material fact remains. See Celotex Corp. v. Catrett
, 477
U.S. 317, 322—23 (1986). “[W]ith respect to an issue on which the nonmo
ving
party bears the burden of proof
...
the burden on the moving party may be
discharged by ‘showing’—that is, pointing out to the district court—that
there
is an absence of evidence to support the nonmoving party’s case.” Celote
x, 477
U.S. at 325.
8
Once the moving party has met that threshold burden, the nonmoving party “must do more than simply show that there is some metaphysical
doubt as to material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986). The opposing party must present actual
evidence that creates a genuine issue as to a material fact for trial. Anderson,
477 U.S. at 248; see also FED. R. Civ. P. 56(c) (setting forth types of evidence on
which nonmoving party must rely to support its assertion that genuine issues
of material fact exist). “[Ulnsupported allegations
...
and pleadings are
insufficient to repel summary judgment.” Schoch v. First Fid. Bancorporation,
912 F.2d 654, 657 (3d Cir. 1990); see also Gleason v. Norwest Mortg., Inc., 243
F.3d 130, 138 (3d Cir. 2001) (“A nonmoving party has created a genuine issue
of material fact if it has provided sufficient evidence to allow a jury to find in its
favor at trial.”). If the nonmoving party has failed “to make a showing sufficient
to establish the existence of an element essential to that party’s case, and on
which that party will bear the burden of proof at trial
there can be ‘no
...
genuine issue of material fact,’ since a complete failure of proof concerning an
essential element of the nonmoving party’s case necessarily renders all other
facts immaterial.” Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992)
(quoting Celotex, 477 U.S. at 322—23).
When the parties file cross-motions for summary judgment, the
governing standard “does not change.” Clevenger v. First Option Health Plan of
N.J., 208 F. Supp. 2d 463, 468-69 (D.N.J. 2002) (citing Weissman v. U.S.P.S.,
19 F. Supp. 2d 254 (D.N.J. 1998)). The court must consider the motions
independently, in accordance with the principles outlined above. Goidwell of
N.J., Inc. v. KPSS, Inc., 622 F. Supp. 2d 168, 184 (D.N.J. 2009); Williams v.
Philadelphia Housing Auth., 834 F. Supp. 794, 797 (E.D. Pa. 1993), affd, 27
F.3d 560 (3d Cir. 1994). That one of the cross-motions is denied does not imply
that the other must be granted. For each motion, “the court construes facts
and draws inferences in favor of the party against whom the motion under
consideration is made” but does not ccweigh the evidence or make credibility
9
determinations” because “these tasks are left for the fact-finder.” Pichier v.
UNITE, 542 F.3d 380, 386 (3d Cir. 2008) (internal quotation and citations
omitted).
III.
ANALYSIS
The claims as to which summary judgment is sought break down
into four major categories:
(A) Hartford’s claim that its policy is excess and
Peerless is liable for contribution;
(B) Peerless’s counterclaim that Hartford breached
insurance contracts under which Carquest was an
additional insured;
(C) Peerless’s counterclaim that Hartford breached its
duty to defend Carquest;
(D) Peerless’s counterclaim that Hartford was negligent
in its control and management of the defense.
6
The following discussion is organized accordingly.
A.
Hartford’s Contribution Claim
1.
The Other-Insurance Clause
Hartford requests that this Court declare its policy with Voltec to
be excess, and allow it to recoup from Peerless the money paid to defend and
settle the Mechin action on behalf of Peerless’s insured, Carquest. (P1. Br. 2, 32)
There is no genuine dispute that Hartford is excess, and Peerless primary: (1)
the Voltec Agreement does not require that the insurance coverage to be
procured by Voltec be primary or non-contributory and (2) the Hartford and
Peerless policies both provide in straightforward terms that Peerless has a
primary obligation to insure Carquest. Peerless raises no genuine issue of
6
In the briefs, it is not always clear which theory Peerless is invoking. For the sake of
completeness, I have considered all the theories Peerless asserts in its counterclaim.
10
material fact as to either of those propositions; indeed, it essentially concedes
that, in this regard, the policies mean what they say. (PSF
10-13; DRPSF
¶
7
¶J10-13) I therefore find that Hartford’s policy is excess to Peerless’s policy.
2.
Estoppel
Peerless instead argues that Hartford should be estopped from
enforcing the other insurance clause and asserting a contribution claim against
it. Peerless contends that Hartford should have reserved its rights to dispute its
insurance obligations when it accepted the defense of Carquest, but failed to do
so. As a result, says Peerless, Harford is now estopped from denying that it was
Carquest’s primary insurer, and cannot be permitted to recover defense and
settlement costs from Peerless. See Merchants md. Corp. v. Eggleston, 37 N.J.
114 (1962). Peerless’s argument suffers from three defects.
First, Peerless cites to no New Jersey case—and the Court has
found none—which holds that an insurer must reserve the right to seek
contribution from another insurer when it accepts the defense of an insured,
on pain of estoppel. To the contrary, it is well-settled that an insurer may
8
Hartford’s policy states that its insurance is excess if Voltec adds an additional insured
and fails to agree, in a written contract, that the insurance is primary and/or noncontributory. (P1. Ex. 4, HARTVOLT100079-80). Voltec added Carquest as an additional
insured, but the Agreement does not require the insurance to be primary and/or noncontributory. (P1. Ex. 9, § 2.1, 2.4)
On the other hand, the Peerless policy states that it is primary except when “other
primary insurance is available for which the insured has been added by attachment of
an
endorsement.” (P1. Ex. 10, P. 0221) But there is no “other primary insurance” available—th
e
Hartford policy coverage is excess by its terms. See Jeffery Brown Assoc., u. Interstate Fire
&
Cas. Co., 44 N.J. Super. 160, 167-68 (App. Div. 2010) (enforcing an “excess-other insurance
clause” against an additional insured where the additional insured coverage a subcontracto
r
provided a general contractor was “excess” to any other coverage available to the general
contractor under the terms of the subcontractor’s policy, and the general contractor’s
coverage
was “primary” under the terms of its policy, unless it had “other primary insurance available”,
which it did not have under the “excess-other insurance” clause of the subcontractor’s
policy).
Peerless was not added as an additional insured by attachment of an endorsement,
and does
not claim that it was. (P1. Br. 21)
8
At the end of a string cite and without explanation, Peerless vaguely refers to Hartford
v.
Accident & Indemnity Co. v. Ambassador Ins. Co., which ruled, inter alia, that a defending
insurer was entitled to reimbursement for settlement and defense costs from a non-paying
insurer because the non-paying insurer knew that the insured was an additional insured
11
routinely seek contribution for reasonable settlement and defense costs from a
co-insurer. See Potomac Ins. Co. v. Pa. Mfg. Assoc. Ins. Co., 215 N.J. 409, 42229 (2013); (“[Tjhe allocation of defense costs among all insurers that cover the
risk, enforced by a right of contribution between the co-insurers of the common
insured, serves the principle of fairness
.
.
.
As this case illustrates, an insurer
that refuses to share the burden of a policyholder’s defense is rewarded for its
recalcitrance, at its co-insurer’s expense, unless the insurer who pays more
than its share of the costs has an effective remedy.”) (internal citations
omitted); Jefferson Ins. Co. v. Health Care Ins. Exch., 247 N.J. Super. 241. 24648 (App. Div. 1991) (“[T}he equitable principle of contribution should be
available to an insurer paying a debt which is equally owed by.
other
insurers
.“) (internal citations omitted); Cosmopolitan Mut. Ins. Co. v. Cont’l
Cas. Co., 28 N.J. 554, 557-558 (1959). An insurer may do so even after the
.
.
.
.
other insurer has been released by the insured. Potomac, 215 N.J. at 430.
Second, this is a dispute between insurers, not a case in which an
insurer has withdrawn from the defense and left the insured to fend for itself.
There is no evidence that Hartford ever disclaimed or denied a defense to
9
Carquest.
Third, the central rationale of the Eggleston rule (i.e., that it is
unfair to allow an insurer to disclaim coverage based on a limitation to which
the insured never consented) does not apply here. Here, a non-defending
primary insurer seeks to estop a defending insurer’s claim for contribution. It
is true that there are at least two unpublished New Jersey cases in which an
insurer was permitted to estop an another insurer from denying coverage and
under its policy. 163 N.J. Super. 250, 255-57 (App. Div. 1978). Ambassador does not hold
generally that an insurer is required to reserve rights and provide notice of its intent to seek
contribution against another insurer.
See, e.g., P1. Ex. 46 (“The Hartford has not and will not in any way retreat from its
obligation to defend and indemnify the Carquest entities as additional insureds.”); P1. Ex. 47
(“As a preliminary matter, please note that Hartford is not “reneging” or withdrawing from the
defense of the Carquest entities.”); DeE Br. 27 (“There is no dispute that from April 2009
onward, Hartford controlled the defense of the Carquest Corporation, CPT, and BWP.”).
12
withdrawing from the defense of a mutual insured.’ See Nazario v. Lobster
0
House, No. L-159-05, L-304-05, L-171-06, 2009 WL 1181620 at *45 (N.J.
Super. Ct. App. Div. May 5, 2009); Selective Ins. Co. v. Allstate Ins. Co., L-2 15901, 2005 WL 3839975 at *78 (N.J. Super. Ct. App. Div. Mar. 10, 2006).” But
even assuming, as Peerless suggests, that Hartford violated the Eggleston rule
by notifying Peerless that it, in fact, was Carquest’s primary insurer, it does not
10
In a third case cited by Peerless, Judge Irenas ruled that an insurer had standing to
assert another insurer’s failure to reserve its rights to disclaim and withdraw. Mazzoli v. Marina
Dist. Dev. Co., No. 08-649, 2011 WL 1362128, at*35 (D.N.J. Apr. 11,2011) But because the
disclaiming insurer was permitted to withdraw coverage, the court did not pass upon the
question presented here. Id.
To be sure, the court noted, “[i]t is clear in certain instances, an insurer will have
exerted so much control over a case that allowing it to disclaim coverage would be prejudicial
to both the insured and other insurers of the insured.” But Judge Irenas also ruled that a
presumption of prejudice is inappropriate in a case involving co-insurers, because “there is no
reason to presume that control of claim by a co-insurer is a ‘material encroachment upon the
rights’ of an insurer, nor must we presume that there is a resultant inequity’. Id. at 4.
I agree, and this case illustrates the reason: “Often, the interests of co-insurers will be
aligned.” Id. As detailed below, there are genuine issues of material fact as to whether Hartford
and Peerless’s interests were ever in conflict, and if so, whether Peerless suffered actual
prejudice as a result. Hartford and Peerless, for example, shared an interest in escaping from
all liability as “innocent sellers.” In other words, the adversity of interests between co-insurers
is not as obviously acute as when an insurer strips an insured of its right to make an informed
decision to accept the insurer’s defense or go it alone.
11
Other courts that have considered the issue have ruled that the benefit of consent-or
estoppel rules inure to the insured, not the insurer. See, e.g., St. Paul Mercury Iris. Co. u.
Lexington Ins. Co., 78 F.3d 202, 207-208 (5th Cir. 1996) (Texas law) (“Landmark and Lexington
cite no authority for the proposition that an insurer must reserve its rights vis a vis another
insurer when it assumed the defense of an insured.
[T]his exception is specifically intended
to protect the insured for reasons that simply do not apply to other insurers
A number of
cases indicate or suggest that the rule is also justified by the fact that insured is deprived of
the right to completely control his defense; some of these cases further suggest that this
situation is inherently prejudicial to in insured in the absence of a reservation of rights.”)
(emphasis in original); Alliance General Ins. Co. v. The Ins. Co. of the State of Pa., 134 F.3d 362
(Table) (4th Cir. 1998) (Minnesota law) (“The estoppel rule is to protect the insured once she has
given up all control of her defense in the lawsuit, and as such does not apply between
insurers.”); Kitchnefsky v. Nat’l Rent-A-Fence of Am., Inc., 88 F. Supp.2d 360, 364-65
(D.N.J. 2000) (New Jersey law) (“[T]he party seeking to invoke estoppel in the instant case is not
the insured, but rather the primary insurer. Extending [Griggs v. Bertram, 88 N.J. 347 (1982)]
protection to a primary insurer would ignore the rationale of the supreme court’s decision,
which focused on the insured’s need for protection.”) Am. Gen. Fire arid Cas. Co. v. Progressive
Cas. Co., 799 P.2d 1113, (N.M. 1990) (“The [estoppel] rule does not operate to preclude a suit
such as this whereby one insurer attempts to assert that another insurer provided primary
coverage.”); Western Cas. and Surety Co. v. Am. Nat’l Fire Ins. Co., 318 N.W.2d 126 (S.D. 1982)
(“Only the parties to the contract of insurance, or their privies, can claim the benefit of a waiver
or estoppel”)).
.
.
.
13
.
.
follow from either Nazario or Selective that Hartford should be estopped from
seeking contribution from Peerless.’ If that were the rule, any insurer that
2
steps up to defend its insured, only to later discover that its co-insurers owed
the insured a primary or co-extensive coverage obligation, “might alone bear a
burden that should be shared.” Potomac, 215 N.J. at 425-46.
In sum, Eggleston is not relevant in a case where, as here, each
insurer claims that the other owes it money, but the non-defending insurer
admits it owed a primary coverage obligation to the insured, and the defending
insurer picked up the tab and never withdrew its defense.
Peerless also argues that Hartford should be estopped from
recovering contribution because Hartford “impliedly conceded” that Voltec
would indemnify the Carquest Entities under the indemnity provision
contained in Voltec Agreement. (Def. Br. 30) In essence, Peerless seeks to re
litigate the motion for summary judgment for indemnification that it lost before
Judge Wigenton. (See Def. Ex. 34) But here, as there, Peerless’s argument
suffers from an intractable problem: as a matter of law, the indemnity provision
of the Voltec Agreement is invalid because it fails to state in “clear and
unequivocal” terms that Voltec must indemnify the Carquest Entities for their
own negligence. See, e.g., Norkus v. Gen. Motors Coip., 218 F. Supp. 398, 399
(S.D. md. 1963); Mantilla v. NC Mall Assocs., 167 N.J. 262, 269-273 (2001).
Simply put, any “implied concession” concerning the Voltec Agreement is
irrelevant because Carquest could not (and cannot) enforce the indemnity
provision against Voltec.’ I therefore find Hartford is not estopped from
3
seeking contribution from Peerless.
12
Indeed, the Selective court permitted the estopped insurer to recover contribution from
the non-defending insurer. Selective, 2005 WL 3839975 at *59
13
Peerless has two chief arguments to the contrary.
First, Peerless contends that the Voltec agreement did need not to expressly state that it
covered negligence because the New Jersey Products Liability Act (PLA) imposes strict liability.
See N.J. Stat. Ann. § 2A:58C-2 (West 2016). In support, Peerless points to a single case
involving violations of the Comprehensive Environmental Response, Compensation, and
Liability Act (better known as “CERCLA”). Setting aside the remote context, that court expressly
14
3.
Reasonableness of the Mechin Settlement
Hartford is entitled to contribution for defense costs and indemnity
from Peerless if the settlement it reached on Carquest’s behalf was reasonable
and entered into in good faith. See Griggs, 88 N.J. at 368; Jefferson, N.J.
Super. at 248; ; Fireman’s Fund Ins. Co. v. Imbesi, 361 N.J. Super. 359, 586
(App. Div. 2003). “The initial burden of going forward with proofs of these
elements rests upon the insured and the ultimate burden of persuasion as to
these elements is the responsibility of the insurer.” Griggs at 368.14 “The
insurer bears the ultimate burden of persuasion by a preponderance of the
evidence.”
Hartford argues that the $2,050,000 the Carquest Entities paid to
settle the Mechin action was reasonable, given Mechin’s serious injuries,
declined to decide whether ambiguity in an indemnity agreement should be construed against
the indemnitee where the indemnitee faces strict liability. 404 N.J. Super. 514, 529 (App. Div.
2009).
Second, Peerless argues that although the indemnification clause is ambiguous, there is
a “reasonable likelihood” that parol evidence it might have obtained from Voltec witnesses
would have resolved the ambiguity in its favor. (Def. Br. 30) But this is beside the point: an
ambiguous indemnity agreement is an invalid indemnity agreement. See, e.g., Englert v. Home
Depot, 389 N.J. Super 44, 58 (App. Div. 2006) (“Under prevailing law, an ambiguous
contractual indemnification provision must be construed against the indemnitee.”); Henthome
v. Legacy Healthcare, Inc., 764 N.E.2d 751, 758 (md. Ct. App. 200) (“Such clauses indemnifying
the indemnitee for the indemnitees own negligence are strictly construed and will not be held
to provide indemnification unless stated in clear and unequivocal terms terms.
The
indemnity clause here did in unambiguously express that [indemnitor] would defended and
indemnify [indemnitee] for [indemnitee]’s own negligence. Without such an explicit provision,
[indemnitor] is not responsible for costs and defenses and indemnification resulting from
[indemnitee]’s own negligence.”) (internal citations omitted)
.
14
.
.
Hartford cites Luria Bros. & Co v. Alliance Assurance Co., 780 F.2d 1082 (2d Cir. 1986),
a Second Circuit case applying New York law, for the proposition that “Hartford’s initial burden
of production is a light one: it need only show that the settlement was reasonable and in good
faith”. (P1. Reply Br. 7) This is not, as Hartford claims, a Third Circuit case, though the error is
somewhat understandable; Fireman’s Fund, 361 N.J. Super. at 586, which Hartford also cites
in its opening brief, miscites Luria as a Third Circuit case. (P1. Br. 23). At any rate, the case law
is mixed on this point. See Fireman’s Fund (ruling that settlement was unreasonable where
insured offered two affidavits from practicing attorneys and insurer offered expert testimony of
former the Chief Judge of the Third Circuit Court of Appeals); Pasha v. Rosemount Memorial
Park, Inc., 344 N.J. Super 350, (App. Div. 2001) (finding that insured failed to satisfy their
initial burden of production even though insured offered expert testimony).
15
Mechin’s focus on the Carquest Entities’ culpability, and defense counsel’s
estimation that a jury verdict could exceed $15,000,000. (P1. Ex. 1, 17 43, 45).
By contrast, Peerless argues that the settlement was unreasonable
because Carquest had an “ironclad defense” unique to itself: that Carquest was
not in the chain of distribution and should have been dismissed from the
Mechin action. (Def. Br. 5, 3738).15 The $316,667 Peerless paid on behalf of
Carquest was not reasonable, so it says, because competent counsel would not
have whiffed on securing Carquest’s dismissal scot-free. Peerless argues that
the evidence is so overwhelming and Carquest’s entitlement to dismissal so
clear that expert testimony on Mulcahy and Maucher’s defense strategy and
the reasonableness of the settlement negotiated is not required. (Def. Opp. Br.
3; P1. Opp. Br. 27)
The truth is, however, that the record is muddled as to the precise
relationship between Carquest, BPW, and CPI, and their respective roles in the
marketing and labeling of the Trouble Light. Neither party has submitted an
expert report addressing the likelihood that Carquest would have obtained a
stipulated dismissal or prevailed on a dispositive motion had counsel asserted
the arguments that Peerless now claims were obvious. To the contrary, there is
significant evidence in the record that Hartford’s claims adjusters and
Carquest’s defense counsel repeatedly and consistently expressed confusion
concerning the relationship between Carquest, BWP and CPI, and what exactly
each company did or did not do with respect to the distribution of the Trouble
16
Light. To the extent the record of the underlying action is sloppy, however, I
15
Peerless primarily points to a trio of witnesses—two lawyers and corporate officer of a
subsidiary of BWP—who testified that Carquest played no role in the labeling, marketing,
or
advertising of the trouble light. (See, e.g., Def. Ex. D, 263:25-264:17) None of the three
is a
Carquest employee or officer.
See e.g., Def. Ex. P, 29:20-30:5 (“1 am still not 100% sure what their role was with
respect to the distribution of the drop light. In the beginning we had no idea.
.“); Def. Ex. FF,
65: 10-24 (“This claim was in litigation for well over a year by the time I got it. .
I kept
endeavoring to find out the roles of the various parties; Nobody seemed to want
to tell me that
I don’t know what the roles are today.”); P1. Ex. 22 (“Testimony was that certain functions
like catalog production or advertising moved CPA to Carquest or vice versa and employees
like
Jay King and Dick Egan were Carquest or CPI employees at one time and then transferred
to
.
16
agree that Hartford, who controlled Carquest’s defense, should not benefit from
the confusion. So, construing all facts and inferences in favor of Peerless, I find
there is a genuine dispute of material fact as to whether the Mechin settlement
as applied to Carquest was reasonable.
B.
Peerless’s Breach of Contract Counterclaim
At times, Peerless seems to suggest that Hartford bound Voltec to a
contractual obligation to indemnify Carquest under the Voltec Agreement and
then breached the Agreement when it failed to accept the defense of Carquest
as an insured under the indemnity provision of the Agreement. (Def. Br. 6, 30
(“The proverbial elephant in the room remains the contractual indemnity claim.
In its words and through its actions, Hartford unquestionably manifested its
conclusion that the contractual indemnity clause was appropriate.
.
.
If
Hartford is forced to stand by its prior position, the additional insurance
coverage dispute would be moot.”) For reasons similar to those noted above, I
will deny Hartford’s motion for summary judgment (to the extent it has asked
for it) on breach of contract.
There are two legal issues with this counterclaim. First, as noted
above, the indemnity provision contained in the Voltec Agreement, as Judge
Wigenton held, was unenforceable as a matter of law. Second, even assuming
that Hartford did manifest an intent to defend and indemnify Carquest under
the Agreement’s indemnity clause, Hartford was not a party to the Voltec
the other. It seems like these corporations were interconnected and interchangeable in many
respects. A jury will view all three of my clients as one entity I believe.”); P1. Ex. 22
(“Undisputed that ‘Professional Duty’ was coined by a Carquest person but unknown who,
when, why that phrase was first coined. As stated previously, the 2000 catalog (which pre—
dates Voltec and TMC’s involvement with the product line) contains the phrase ‘Professional
Duty’ and my clients all testified that they actively sought the commercial garage market for
such products as the trouble light reel.”); P1. Ex. 23 (“IMlost witnesses refer simply to ‘Carquest’
as the manufacturer (yes, believe it or not), advertising, marketing, etc., Plus, some witnesses
worked interchangeably for Carquest Corp. and CPI and used those companies
interchangeably.”) The Carquest Entities themselves recognized the confusion. In an email
thread concerning who would sign the final release on behalf of Carquest, BWP, and CPI after
the Mechin action settled, a BWP representative noted: “I think that we would be better off
having three different signatures. No one ever believes that were separate companies and
having one person sign for all three will only serve to further confuse matters in the future.” (P1.
Ex. 84).
—
17
Agreement and therefore could not have bound Voltec to do the same. (P1. Ex.
35, p. 8) These issues aside, there is a third problem with the premise of
Peerless’s legal arguments: there is a genuine issue of material fact as to
whether Hartford expressed an intention or willingness to indemnify and
defend Carquest pursuant to the Voltec Agreement’s indemnity clause. (DSF
¶
11-17; PRDSF ¶j 11-17). Peerless’s motion for summary judgment on breach of
contract is therefore denied.
C.
Peerless’s Breach of Duty to Defend Counterclaim
Citing Wolpaw v. General Acc. Ins. Co., 272 N.J. Super. 41
(App. Div. 1994), Peerless argues that Hartford breached its duty to defend
Carquest by assigning a single lawyer to represent Carquest, BWP, and CPI.
(Def. Br. 33) Specifically, Peerless contends that Hartford failed to honor its
duty to defend Carquest because “a zealous defense of Carquest Corporation
would have involved advising the Court that (a) Carquest Corporation, unlike
CPI and BWP, was not in the chain of distribution of the product and (b)
Carquest Corporation, unlike CPI and BWP, did not participate in any
marketing of the product.” (Id.) Since it was in Carquest’s interest to limit its
share of liability, and one way to do that was to throw BWP and CPI under the
bus, Peerless claims that Hartford should have appointed Carquest separate
counsel. (Def. Br. 33-36) As noted above, however, there is a bevy of genuine
issues of material fact concerning whether Carquest was actually in the chain
of distribution of the Trouble Light, or had interests that conflicted with those
of BWP or CPI. In sum, whether Carquest’s interests were “clearly in conflict”
with BWP and CPI’s interests cannot be determined on this record on summary
judgment. Wolpaw, 272 N.J. Super at 45. Peerless’s motion for summary
judgment on the breach of the duty to defend is therefore denied.
D.
Peerless’s Negligence Counterclaim
In its counterclaim, Peerless alleges that “Hartford was negligent in
its control and management of the defense of the claims against Carquest.”
18
This claim depends on the resolution
of the genuine issues of material fact
concerning Carquest’s location in the
chain of distribution and the
reasonableness of the settlement of
the Mechin action as applied to Car
quest.
(ECF. No. 5). Peerless motion for
summary judgment on its negligence
counterclaim is therefore denied.
IV.
CONCLUSION
For the foregoing reasons, the Hartfor
d’s motion for summary judgment
(ECF no. 155) is GRANTED in part
and DENIED in part, and Peerless’s
motion
for summary judgment (ECF No. 158
) is DENIED.
Dated: September 30, 2016
/M]
KEVIN MCNULTY
United States District Judge
19
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