HARTFORD CASUALTY INSURANCE COMPANY v. PEERLESS INSURANCE COMPANY et al
Filing
279
OPINION. Signed by Judge Kevin McNulty on 4/3/2020. (nic, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
HARTFORD CASUALTY INSURANCE
COMPANY,
Plaintiff,
Civ. No. 10-6235 (KM) (JBC)
OPINION
v.
PEERLESS INSURANCE COMPANY et
al.,
Defendants.
KEVIN MCNULTY, U.S.D.J.:
Familiarity with this matter is assumed. Following a bench trial, on
September 30, 2019 I entered judgment (DE 265; DE 266) in favor of the
plaintiff Hartford Casualty Insurance Company (“Hartford”) against Peerless
Insurance Company and The Netherlands Insurance Company (together,
“Peerless”). The subject of that bench trial was a settlement reached on behalf
of Carquest Corporation in a 2007 action presided over by District Judge
Wigenton and Magistrate Judge (now District Judge) Salas in this Court.
Mechin v. Carquest Corp., 07-cv-5824 (D.N.J.) (the “Mechin action”). This
satellite litigation concerned the allocation of financial responsibility for that
settlement among the insurers. Hartford claimed the right to one-third of the
defense costs and one-third of the indemnity cost paid on behalf of the
Carquest entities in settling the Mechin action. Peerless opposed that relief
and, in response, asserted estoppel, breach of fiduciary duty, breach of
contract, and negligence.
Ultimately, I was not persuaded that Hartford acted negligently or in
breach of any duty to Carquest Corporation or Peerless in litigating the Mechin
action. I therefore found that Peerless must provide Hartford with one-third of
1
the defense costs and one-third of the settlement owed from the Mechin action.
I also dismissed Peerless’s claim for contribution.
Now pending before the Court is Hartford’s motion for an award of fees
and costs. (DE 270). Hartford moves under New Jersey Court Rule 4:42–9(a)(6),
which gives courts the discretion to award fees to the prevailing party “in an
action upon a liability or indemnity policy of insurance.” Peerless responds that
Hartford’s own defense strategy substantially contributed to this protracted
litigation and that Hartford should equitably be required to bear its own fees
and costs.
Following briefing, the parties further submitted letters regarding a
prejudgment interest. (DE 277; DE 278) Hartford further moves for an award of
prejudgment interest, which Peerless also opposes. (Id.)
For the reasons outlined herein, I will deny Hartford’s motion for an
award of fees and costs. For similar reasons, I will deny Hartford’s motion for
prejudgment interest.
I.
DISCUSSION 1
A. Defense Costs
According to Hartford, it was clear early on in the Mechin action that
Peerless was the primary insurer and that Hartford was excess; this case
merely litigated Peerless’s “yes but” arguments—that is, Peerless’s efforts to
escape its coverage obligations. All of those arguments, says Hartford, were
factually and legally flawed, and fees and costs in the amount of $481,838.78
should be awarded to deter such behavior. Peerless counters that Hartford’s
own defense strategy in the Mechin action and its actions in this litigation
substantially contributed to the prolongation of this dispute. Therefore,
Hartford should bear its own costs.
1
Citations to the record will be abbreviated as follows. Citations to page numbers
refer to the page numbers assigned through the Electronic Court Filing system, unless
otherwise indicated:
“DE” = Docket entry number in this case.
2
Under New Jersey Court Rule (“NJCR”) 4:42-9(a)(6), a party may recover
attorney fees “[i]n an action upon a liability or indemnity policy of insurance, in
favor of a successful claimant.” The rule seeks “to discourage groundless
disclaimers and to provide more equitably to an insured the benefits of the
insurance contract without the necessity of obtaining a judicial determination
that the insured is, in fact, entitled to such protection.” Burlington Ins. Co. v.
Northland Ins. Co., 766 F. Supp. 2d 515, 532 (2011) (quoting Guarantee Ins. Co.
v. Saltman, 217 N.J. Super. 604, 610 (App. Div. 1987)). In short, it attaches a
potential cost to an insurer’s wrongful refusal to indemnify.
The Rule as promulgated awarded defense costs only where an insurer
refused to indemnify or defend its insured’s third-party liability to another. It is
not limited to actions by an insured against its carrier, however. “New Jersey
courts have also awarded attorney fees incurred by an insured in a declaratory
judgment action to determine the existence of coverage of liability to third
parties.” Guarantee Ins. Co., 217 N.J. Super. at 612. In short, all successful
claimants—not just policy holders—are eligible to recover attorney fees under
this rule. Such eligible claimants “include excess or secondary carrier[s] which
successfully prosecute a coverage action against the primary carrier when the
latter has wrongfully refused to defend its insured.” Tooker v. Hartford Accident
& Indem., Co., 136 N.J. Super. 572 (App. Div. 1975)).
Ultimately, however, the award of defense costs is “not mandatory in
every action on an indemnity or liability policy,” but rather is committed to the
trial judge’s “broad discretion.” Enright v. Lubow, 215 N.J. Super. 306, 313
(App. Div. 1987). In deciding whether to award fees, the court may consider
several factors, including: (1) the insurer’s good faith, or lack thereof; (2)
excessiveness of the plaintiff’s demands; (3) bona fides of one or both of the
parties; (4) the insurer’s justification in litigating the issue; (5) the insured’s
conduct in contributing to the necessity of litigation; (6) the general conduct of
the parties; and (7) the totality of the circumstances. Id.; Burlington Ins. Co.,
766 F. Supp. 2d at 532.
3
Here, I decline to exercise my discretion to award Hartford’s motion for
an award of fees and costs.
First, as both parties concede, and I found in my September 30, 2019
opinion, when it came to the underlying Mechin action and providing coverage
to compensate the individual who was severely burned, both sides behaved
honorably. Hartford and Peerless proceeded in good faith, never disclaimed
coverage of their insureds, and participated in the defense of their insureds.
(See DE 265 at 5–6) It was only in April 2009 that Hartford accepted the tender
of the Carquest Entities and took over the defense of the Mechin action from
Peerless. (Id. at 7) I do not say that Hartford is not eligible under the Rule, see
supra. The most potent policy reasons for awarding fees and costs—
discouraging groundless disclaimers and providing insureds the benefits of
their insurance contracts, see Burlington Ins. Co., 766 F. Supp. 2d at 532—do
not require an award of costs here. The insureds received the benefits of their
insurance contracts.
Second, it is true that Hartford prevailed here. Still, these protracted
proceedings might never have been necessary but for the confusion sown in the
Mechin action regarding the respective roles and responsibilities of the
Carquest entities, and the proper apportionment of coverage as a result. The
parties point the finger at each other, but neither side is blameless.
Peerless, says Hartford, tried to wriggle out of its defense and indemnity
obligations, chiming in very late in the litigation in the role of spoiler. Hartford,
says Peerless, failed to make clear the basis upon which it undertook the
defense of the Carquest Entities and then failed to confirm the appropriateness
of a joint representation of the three Carquest entities.
There is some truth to these arguments, which I discussed in more detail
in my earlier rulings. Witnesses failed to distinguish among the Carquest
companies and used “Carquest” indiscriminately in a way that could have
meant any or all of the entities. (DE 265 at 11–12) The Carquest entities
themselves (as opposed to their carriers) agreed to the joint defense strategy.
Peerless did not make any meaningful efforts through most of the Mechin
4
action to correct the muddled record as it related to the “Carquest” entities, but
sought to second-guess decisions at a late stage. (Id. at 48–49) In light of this
conflicted record, neither side had a clear obligation to abandon its position.
Third, the fees sought by Hartford exceed the amount meaningfully in
dispute. Hartford now seeks $481,838.78 in fees and costs incurred in
enforcing an obligation of $419,743.33, representing Peerless’s one-third share.
Without criticizing any party’s conduct, I note that at some point it became
economically irrational to pursue the matter, and that the prospect of an award
of fees perhaps contributed to a perverse incentive.
Fourth, I note that the parties here are all sophisticated insurers who
were represented by able counsel both in this action and the Mechin action. As
a result, the parties were able to agree to a settlement in the Mechin action,
reserving the apportionment of liability among themselves for later. This
litigation is now one step removed from issues of coverage; it is more in the
nature of a contract dispute, rather than the more common coverage action in
which courts award fees and costs.
Taking these factors into account, even in light of the discretion granted
by NJCR 4:42-9(a)(6), I see no sufficient basis to disturb the default American
Rule that parties should bear their own costs. Hardt v. Reliance Standard Life
Ins. Co., 560 U.S. 242, 252–253, 130 S. Ct. 2149 (2010); see also In re Niles,
176 N.J. 282, 293–94, 823 A.2d 1 (N.J. 2003) (“New Jersey has a strong public
policy against the shifting of costs” and that “[t]his Court has embraced that
policy by adopting the ‘American Rule,’ which prohibits recovery of counsel fees
by the prevailing party against the losing party.”). Hartford’s motion for an
award of fees is therefore denied.
B. Prejudgment Interest
As noted above, I previously ruled that Peerless must pay one-third of the
defense costs and one-third of the settlement owed from the Mechin action.
Hartford now requests an award of prejudgment interest on that amount. (DE
277) “Federal courts sitting in diversity must apply state law with respect to
prejudgment interest.” Gleason v. Northwest Mortg. Inc., 253 Fed. App’x 198,
5
203 (3d Cir. 2007). Under New Jersey law, an award of pre-judgment interest
in a contract case is within the sound discretion of the trial court. Litton
Industries, Inc. v. IMO Industries, Inc., 2000 N.J. 372, 391 (2009).
Peerless opposes such an award on the same basis it challenged the
award of defense costs―Hartford’s at least shared responsibility for
prolongation of the litigation. For the same reasons stated in the preceding
section, I agree. Hartford’s motion for prejudgment interest is denied.
II.
CONCLUSION
For the reasons stated above, Hartford’s request for attorney fees and
costs is DENIED. Hartford’s request for prejudgment interest is DENIED.
An appropriate order follows.
Dated: April 3, 2020
/s/ Kevin McNulty
____________________________________
Kevin McNulty
United States District Judge
6
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?