CITY OF ASBURY PARK v. STAR INSURANCE COMPANY et al
Filing
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OPINION filed. Signed by Judge Brian R. Martinotti on 10/1/2018. (mps)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
____________________________________
:
CITY OF ASBURY PARK,
:
:
Plaintiff,
:
:
Civ. A. No. 17-5059-BRM-LHG
v.
:
:
STAR INSURANCE COMPANY and
:
JOHN DOES CORPORATION (1-10),
:
OPINION
:
Defendants.
:
____________________________________:
MARTINOTTI, DISTRICT JUDGE
Before this Court is: (1) Plaintiff City of Asbury Park’s (“Asbury Park” or the “City”)
Motion for Summary Judgment for Declaratory Judgment and (2) Defendant Star Insurance
Company’s (“Star”) Motion for Summary Judgment on the Priority of Recovery of Lien
Proceeds pursuant to Federal Rule of Civil Procedure 56. (ECF Nos. 17, 18.) Both motions are
opposed. Having reviewed the submissions filed in connection with the motions and having
heard oral argument on July 17, 2018, pursuant to Federal Rule of Civil Procedure 78(a), for
the reasons set forth below and for good cause shown, Asbury Park’s motion is DENIED and
Star’s motion is GRANTED.
I.
BACKGROUND
For the purposes of competing motions for summary judgment, “the court construes
facts and draws inferences in favor of the party against whom the motion under consideration
is made.” Pichler v. UNITE, 542 F.3d 380, 386 (3d Cir. 2008) (quotations omitted). This Court
will not weigh the evidence or make credibility determinations as “these tasks are left for the
fact-finder.” Petruzzi’s IGA Supermarkets v. Darling-Delaware Co., 998 F.2d 1224, 1230 (3d
Cir. 1993).
This case arises from the public entity excess liability insurance policy, number CP
0513638 (“Star Policy”) for the period February 15, 2010, to February 15, 2011, issued by Star
to Asbury Park. (ECF No. 18-1 at ¶¶ 1, 3.) 1 In the Star Policy, Star agreed to indemnify the City
in the event the City is liable, under the Workers’ Compensation Act, for damages on account
of bodily injury suffered by an employee of the City in excess of the City’s self-insured
retention of $400,000.00. (Id. at ¶ 3.) 2 The policy provides the City will retain, as a self-insured
retention:
1. that amount stated in the Policy Declarations [$400,000.00],
and
2. all interest costs, which interest shall not reduce the selfinsured retention, and
3. all costs and expenses of any and all investigation, defense,
negotiation and settlement, and
4. all Intermediate Reinsurance.
(Id. at ¶ 4.) The Star Policy also states, in the event of any payment by Star, “Star will be
subrogated to all of the City’s rights of recovery for that loss, and the City will execute and
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“The Insurer agrees to indemnify the Insured for Loss in Excess of the Self-Insured Retention,
which Loss is sustained by the Insured, because of liability imposed upon the Insured . . . by
the Workers’ Compensation Act . . . for damages on account of Bodily Injury . . . , which Bodily
Injury . . . is . . . a result of an Occurrence . . . suffered by an Employee of the Insured.” (ECF
No. 18-1 at ¶ 3.)
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“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 . . . $400,000 for Workers’
Compensation. . . . The company’s limit of liability, . . . shall apply solely in excess of the
Named Insured’s self-insured retention.” (ECF No. 18-1 at ¶ 3.)
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deliver instruments and papers and do whatever else is necessary to secure those rights.” (Id. at
¶ 7.) 3
On January 20, 2011, John Fazio (“Fazio”), an employee of the Asbury Park Fire
Department, “suffered life-threatening injuries while fighting a fire.” (ECF No. 1-2 at ¶ 8.)
Following a workmen’s compensation action by Fazio, and pursuant to the policy, the City paid
$400,000.00 self-insured retention limit, and Star paid $2,607,227.50 in workmen’s
compensation benefits, which, pursuant to N.J.S.A. § 34:15-40, created a lien totaling
$3,007,227.50. (Id. at ¶¶ 9-11 (citing N.J.S.A. § 34:15-40(b) (entitling employers to be
reimbursed for workmen’s compensation payments by placing liens against any third-party
recovery paid to the employee)).)
On December 28, 2012, Fazio filed suit against a third party related to the injuries
suffered on January 10, 2011, and the City and Star asserted a workmen’s compensation lien in
order to preserve their reimbursement rights. (ECF No. 1-2 at ¶¶ 12-13 (citing Fazio v. Jackson
Land-Kovitz, LLC, et al., Dkt. No. Mon-L-37-13).) Fazio settled for $2,700,000.00 and agreed
to set aside $935,968.25 in partial satisfaction of all liens held by the City and Star. (ECF No.
1-2 at ¶¶ 14-15.) The $935,968.25 is being held in escrow by workmen’s compensation defense
counsel until otherwise “directed by the City or Star or ordered by the Court.” (Id. at ¶ 18.)
Star seeks to recover the entire amount being held in escrow, but the City argues it “has
subrogation rights arising out of its payment of its self-insured retention of $400,000.00 and is
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“In the event of any payment under this Insurance contract, the Insurer shall be subrogated to
all of the Insured’s rights of recovery therefor against any person or organization, and the
Insured and the Service Company shall execute and deliver instruments and papers and do
whatever else is necessary to secure such rights. No person or organization shall do anything to
prejudice such a right.” (ECF No. 18-1 at ¶ 7.)
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entitled to be reimbursed out of the” amount in escrow. (Id. at ¶¶ 16-17.) Accordingly, on May
11, 2017, Asbury Park filed a Complaint in the Superior Court of New Jersey, Dkt. No. MonL-1820-17, seeking, pursuant to the Uniform Declaratory Judgment Act, N.J.S.A. § 2A:16-50,
et seq., “a declaration that it is entitled to recovery of its $400,000.00 self-insured retention paid
to [Fazio] in satisfaction of Worker’s Compensation claim.” (Id. at “Preliminary Statement.”)
On July 11, 2017, Star filed a Notice of Removal with this Court pursuant to 28 U.S.C.
§§ 1441 and 1446. (ECF No. 1.) On August 11, 2017, the City filed a Motion for Remand, and
on March 26, 2018, this Court denied the City’s Motion to Remand. (ECF No. 6; ECF No. 6-2.)
On August 1, 2017, Star filed its Answer with counterclaims, seeking declaratory
judgment, alleging the City is not entitled to subrogation until Star has been paid in full, because
the policy only agreed to indemnify the City for a covered workmen’s compensation loss in
excess of the City’s self-insured retention and asserted a breach of contract claim. (ECF No. 5
at ¶¶ 5, 17, 18, 21.) Both parties moved for summary judgment on June 22, 2018 (ECF Nos. 17,
18), and the motions were both opposed on July 2, 2018 (ECF Nos. 19, 20) and fully briefed by
July 9, 2018. The court heard oral argument on July 17, 2018. The issue appears to be one of
first impression.
II.
LEGAL STANDARD
Summary judgment is appropriate “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” Fed. R. Civ. P. 56(c). A factual dispute is genuine only if there is “a sufficient
evidentiary basis on which a reasonable jury could find for the non-moving party,” and it is
material only if it has the ability to “affect the outcome of the suit under governing law.”
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Kaucher v. Cty. of Bucks, 455 F.3d 418, 423 (3d Cir. 2006); see also Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). Disputes over irrelevant or unnecessary facts will not preclude
a grant of summary judgment. Anderson, 477 U.S. at 248. “In considering a motion for
summary judgment, a district court may not make credibility determinations or engage in any
weighing of the evidence; instead, the non-moving party’s evidence is to be believed and all
justifiable inferences are to be drawn in his favor.” Marino v. Indus. Crating Co., 358 F.3d 241,
247 (3d Cir. 2004); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587-88 (1986); Curley v. Klem, 298 F.3d 271, 276-77 (3d Cir. 2002).
The party moving for summary judgment has the initial burden of showing the basis for
its motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant adequately
supports its motion pursuant to Rule 56(c), the burden shifts to the nonmoving party to “go
beyond the pleadings and by her own affidavits, or by the depositions, answers to
interrogatories, and admissions on file, designate specific facts showing that there is a genuine
issue for trial.” Id. at 324; see also Ridgewood Bd. of Ed. v. Stokley, 172 F.3d 238, 252 (3d Cir.
1999). In deciding the merits of a party’s motion for summary judgment, the court’s role is not
to evaluate the evidence and decide the truth of the matter, but to determine whether there is a
genuine issue for trial. Anderson, 477 U.S. at 248-49. Credibility determinations are the
province of the factfinder. Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363
(3d Cir. 1992). Both parties agree there are no facts in dispute and this is a question of law ripe
for adjudication by summary judgment.
III.
DECISION
The City contends the make-whole doctrine applies, and therefore, the City should be
compensated for its loss, namely the $400,000 payment of the self-insured retention, before
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Star can recover any of the lien proceeds. (ECF No. 17 at 14.) Star argues it should be granted
the entirety of the $935,968.25 settlement because the plain language of the contract states the
City agreed to absorb the first $400,000.00 of any workers’ compensation loss. (ECF. No. 19
at 7.)
Courts cannot make contracts for parties. Kampf v. Franklin Life Ins. Co., 161 A.2d 717,
720 (N.J. 1960). They can only enforce the contracts which the parties themselves have made.
Id. “When the terms of an insurance contract are clear, it is the function of a court to enforce it
as written and not to make a better contract for either of the parties.” Id. Pursuing equity does
not justify departing from the terms of an insurance contract that parties voluntarily entered.
Pennbarr Corp. v. Ins. Co. of N. Am., 976 F.2d 145, 151 (3d Cir. 1992) (citing In re Community
Medical Ctr., 623 F.2d 864, 866 (3d Cir. 1980) (“[W]e may not make a different or better
contract than the parties themselves saw fit to enter into.”). When interpreting the language of
an insurance policy, it is the court’s “responsibility ‘to give effect to the whole policy, not just
one part of it.’” Id. (quoting Arrow Indus. Carriers, Inc. v. Continental Ins. Co., 556 A.2d 1310,
1315 (N.J. Super. Ct. Law Div. 1989)).
In Providence Washington Ins. Co. v. Hogges, the Superior Court of New Jersey,
Appellate Division, found that, without clear, express terms to the contrary, the insured must
be “made whole” before the insurer can recover anything from a third-party tortfeasor. 171
A.2d 120, 124 (N.J. Super. Ct. App. Div. 1961). However, the court acknowledged this right
may be altered by a contract. Culver v. Ins. Co. of N. Am., 559 A.2d 400, 404 (N.J. 1989) (citing
Hogges, 171 A.2d 120). The make-whole doctrine is a rule of interpretation and a gap filler.
Walker v. Rose, 22 F. Supp. 2d 343, 350 (D.N.J. 1998). Additionally, parties have the ability to
sign away their make-whole rights when entering into an insurance contract. Hogges, 171 A.2d
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at 124; see also Cagle v. Bruner, 112 F.3d 1510, 1520 (11th Cir. 1997) (stating “because the
make whole doctrine is a default rule, the parties can contract out of the doctrine”). Therefore,
if a plan’s reimbursement language is unambiguous, the terms within the plan override the
make-whole doctrine. Walker, 22 F. Supp. 2d at 352. “The make whole rule is an equitable
principle which, absent an agreement to the contrary, prohibits an insurer from enforcing a right
to subrogation until the insured has been fully compensated for his injuries--i.e., made whole.”
Walker, 22 F. Supp. 2d at 350; see also National Unions, 621 F.3d at 714; Fireman’s Fund Ins.
Co. v. TD Banknorth Ins. Agency, Inc., 72 A.3d 36, 40 (Conn. 2013).
However, the doctrine of subrogation allows an insurance company, which has made an
agreement with the insured, to substitute itself for the insured, allowing the insurance company
to proceed against a third party. Fireman’s Fund, 72 A.3d at 39; see also Travelers’ Ins. Co. v.
Brass Goods Mfg. Co., 146 N.E. 377 (1925) (stating “subrogation is substitution . . . of one
person in the place of another so that he who is substituted succeeds to the rights of that other
in relation to . . . its rights”). Subrogation rights are created by an agreement between the insurer
and the insured. Culver, 559 A.2d at 402. Subrogation promotes equity by preventing an insured
from recovering “more than full indemnification as a result of recovering from both the
wrongdoer and the insurer for the same loss.” Fireman’s Fund, 72 A.3d at 40.
In Fireman’s Fund, the court decided the make-whole doctrine does not apply to
insurance policy deductibles. Id. at 38. The insured asserted before the insurer gained any right
of equitable subrogation from a responsible third party, the insured was entitled to recover the
deductible. Id. at 39. The insurer contended the make-whole doctrine does not apply to
deductibles because the deductible is not a part of the loss which the make-whole doctrine
applies. Id. Furthermore, the insurer stated applying the make-whole doctrine to deductibles
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would convert an insurance policy with a deductible to an insurance policy without a deductible.
This would allow the insured to gain an unbargained-for windfall at the expense of the insurer.
Id. The court stated:
A deductible is a thin layer of first dollar liability retained by the
consumer (and specifically not transferred to the insurer) to
ensure risk-sharing and loss avoidance. Under the policy, the
insured agreed to pay the deductible as a first dollar obligation
prior to implicating the insurer's obligation to cover the damages.
Therefore, the loss of the deductible is not a shortfall in the
insurance coverage.
Id. at 43. As such, the court determined applying the make-whole doctrine would force the
insurer to accept the risk of first dollar liability. Id. The court concluded the equitable
considerations supporting the make-whole doctrine are inapplicable to deductibles to estop the
insured from receiving an unbargained-for windfall. Id. at 47.
According to the plain language of the Star Policy, the City agreed to retain the first
$400,000 as a self-insured retention with Star’s coverage beginning “solely in excess of the
[City’s] self-insured retention.” (ECF. No 18-2.) The Star Policy requires Star to indemnify the
City for a loss, in excess of the City’s self-insured retention, sustained by the City because of
liability imposed on the City by the Worker’s Compensation Act. (ECF No. 18-3.) Further, the
Star Policy states, “[Star’s] limit of liability, . . . shall apply solely in excess of the Named
Insured’s self-insured retention.” (ECF No. 18-3 (emphasis added).)
The excess workers’ compensation endorsement in the Star Policy also provides:
In the event of any payment under this Insurance contract, the
Insurer shall be subrogated to all of the Insured’s rights of recovery
. . . and the Insured . . . shall executive and deliver instruments and
papers and do whatever else is necessary to secure such rights.
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(Id.) This Court does not have the liberty to rewrite the Star Policy. See National Unions, 621
F.3d at 717; Kampf, 161 A.2d at 720; (ECF No. 18-3). When interpreting the language in
insurance policies, this Court reads the relevant provisions, “each in the context of its
corresponding insurance policy as a whole, giving meaning to each provision.” National
Unions, 621 F.3d at 717; (ECF No. 18-3). Read together, the Star Policy unambiguously states
the City has no insurance coverage for the first $400,000.00 and, therefore, is not entitled to
acquire the lien funds before Star has been fully reimbursed.
To this point, the court’s decision in Hogges is instructive. The insured must be made
whole before the insurer, unless there exist clear express terms to the contrary. Here, there exist
clear terms to the contrary, see Hogges, 171 A.2d at 124; (ECF No. 18-3), and therefore,
applying the make-whole doctrine would be inappropriate and would lead to an unintended and
unbargained-for windfall for the City. (See id.) The make-whole doctrine is a gap filler in
contract interpretation, and because the relevant provisions of the Star Policy are unambiguous,
there is no need to apply such a doctrine. See Walker, 22 F. Supp. 2d at 350; (ECF No. 18-3).
Furthermore, according to the doctrine of subrogation, because the City and Star made
an express agreement, Star has the right to substitute itself for the City and is subrogated to all
of the City’s rights of recovery. See Hogges, 171 A.2d at 124; Fireman’s Fund, 72 A.3d at 39;
(ECF No. 18-3). Applying this doctrine of subrogation promotes equity because it prevents the
City from recovering “more than full indemnification as a result of recovering from both the
wrongdoer and the insurer for the same loss” because the City did not purchase the first
$400,000.00 of a workers’ compensation loss. Fireman’s Fund, 72 A.3d at 40; (ECF No. 19 at
10).
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Asbury Park claims the cases cited above and relied on by this Court are inapplicable
because they refer to deductibles rather than self-insured retentions. (ECF No. 19 at 9.)
However, for the purposes of this case, whether the payment was a deductible or a self-insured
retention is immaterial. (Id.) “Both a deductible and a self-insured retention are the amounts of
a loss for which the insured is responsible; they are risks of loss that are not transferred to an
insurer.” (Id.) Regarding an insurance policy, deductibles and self-insured retentions only differ
in timing. (Id.) With a deductible, the insurer pays the loss initially and is reimbursed after; with
a self-insured retention, the insured is responsible for the loss itself. (Id.) For the purposes of
allocating subrogation recovery, the timing of the payment of the loss is immaterial and will not
be considered by this Court. (Id.)
Regarding both a deductible and a self-insured retention, the insured agreed to be
responsible for a certain, pre-determined loss. (Id.) In this case, the loss was $400,000.00. (Id.)
If the City wanted first dollar coverage, it could have negotiated this with Star when the
insurance policy was drafted. See Fireman’s Fund, 72 A.3d at 38; (ECF No. 19 at 10).
Therefore, like in Fireman’s Fund, applying the make-whole doctrine to self-insured retentions
would convert the Star Policy to an insurance policy without a self-insured retention, allowing
the City to gain an unbargained-for windfall at the expense of Star. See 72 A.3d at 38.
Accordingly, because the plain language of the Star Policy states Star has the priority over the
recovery of the lien proceeds, the make-whole doctrine does not apply.
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IV.
CONCLUSION
For the reasons set forth above, Asbury Park’s Motion for Summary Judgment is
DENIED, and Star’s Motion for Summary Judgment is GRANTED. An appropriate order will
follow.
Date: October 1, 2018
/s/ Brian R. Martinotti___________
HON. BRIAN R. MARTINOTTI
UNITED STATES DISTRICT JUDGE
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