the injury becomes discoverable or recognizable as a specific disease. Like all other insurers, the insurer on the risk at manifestation will be liable if bodily injury occurred during its policy period.
For the foregoing reasons, the court rejects the manifestation theory. The court adopts the exposure theory to the extent that it is consistent with this opinion; liability is triggered not by exposure, but by bodily injury occurring during the policy period. It may be a misnomer to label this approach the "exposure" theory. A more accurate label would be the "injury theory."
Extent of Liability
Liability under the policies is contractual. Each company should be fully liable for the risk it has undertaken irrespective of the existence of prior or subsequent coverage by other carriers. In determining the extent of liability the existence of other coverage should be treated no differently than if there were no other coverage and the plaintiff were self-insured for those later or earlier periods of time.
Sandoz urges the court to adopt the approach taken in Keene, which makes each insurer whose policy is triggered liable for the whole of the injury. Each insurer was there made jointly and severally liable to the insured, and the insurers were left to determine amounts of contribution among themselves. Hartford urges the court to follow the approach of Forty-Eight Insulations, which apportioned liability on a pro rata basis. Each insurer was there liable for its pro rata share of the damages, based on the amount of time that insurer was on the risk in relation to the total period of exposure to the harmful substance.
Based upon the language of the policy, each carrier is liable for the entire injury sustained during the policy period. It is only where the evidence cannot specifically identify and quantify the injury actually sustained during the policy period that some fair and appropriate means of allocation must be developed. A carrier would not normally be held liable for injuries sustained before its coverage commenced or after it terminated.
Therefore, in this respect and as to this issue a factual record must be developed. If the medical evidence cannot differentiate between the various periods of coverage, then and only then is it appropriate to consider an alternate means of allocation. In such circumstances the court agrees with the approach adopted in Keene. The contract of insurance contemplated coverage for the injuries sustained. If injuries were sustained during the policy period and there is no way of distinguishing those injuries from ones sustained prior or subsequent thereto, then the insurer would be liable for the full amount. In those circumstances the liability of each such insurer would be joint and several.
The court rejects the automatic pro rata allocation adopted in Forty-Eight Insulations in a claim by the insured. It may be an appropriate standard in considering claims among the insurers, but not in considering a claim by the insured. The pro rata method is an arbitrary one that assumes that the occurrence of bodily injury mirrors exposure to the harmful substance.
The court adopts an approach that makes each insurer liable to indemnify for the damages resulting from the bodily injury that occurred during its policy periods. This will require evidence of the progress of the disease to determine when tissue damage occurred. If medical evidence is able to establish this, each insurer will be liable only for the damage that occurred during its policy periods from ingestion of the drug. The liability of any insurer should not be affected by the existence or non-existence of any prior or subsequent coverage, except to the extent that such other coverage might provide for contribution or credits in accordance with the terms of the policy.
Some hypothetical examples may help to illustrate: Hypothesize a two-year period of drug ingestion by a claimant; insurer A's policy covers the first year and insurer B's policy covers the second year. If the entire injury was incurred in the first year and the medical evidence indicates that there was no increase or aggravation in the second year, then only insurer A should be obligated to indemnify the manufacturer. If the injury was aggravated during the second year, then insurer B should be liable to indemnify to the extent of the aggravation and insurer A would be liable for the damages sustained in the first year. If there was no way of allocating the damages caused in the first and second years, then insurers A and B would each be liable for the total damages sustained. Their liability would be joint and several as to the insured. Under such circumstances, where medical evidence cannot establish the progress of the disease, as between the companies a pro rata allocation and contribution would be appropriate. However, the right to such contribution does not reduce their respective obligations to their insured.
Duty to Defend
The policies all contained provisions stating a broad duty to defend suits:
. . . the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, . . .
The insurer's duty to defend is directly related to the coverage afforded by the policy. Deodata, 143 N.J. Super. at 400. The duty to defend arises when the complaint states a claim constituting a risk insured against. Id. The test is to examine the complaint and determine whether, if the allegations are sustained, the insurer will be required to pay the resulting judgment. Id. at 401. If the cause of action plead is one which, if sustained, will impose a liability under the policy, the insurer must defend. Danek v. Hommer, 28 N.J. Super. 68, 77, 100 A.2d 198 (App. Div. 1953), aff'd, 15 N.J. 573, 105 A.2d 677 (1954).
If the complaint alleges a progressive, gradual, or cumulative disease resulting from long periods of ingestion of a drug, liability could result from all policies in effect during the entire progress of the disease. The complaint should be read to allege that bodily injury occurred during this entire period. Thus, each insurer that had a policy in effect for any part of this time period has a duty to defend the suit, and is liable for the entire costs of defense. When more than one insurer was on the risk during this period, they are jointly and severally liable to the manufacturer for costs of defending the suit.
Hartford has also moved for summary judgment on the fourth count of the complaint, which seeks punitive damages against the defendants for their conduct vis-a-vis Sandoz. Sandoz alleges that the conduct "has been outrageous and has been wanton, willful, malicious, and against public policy." Complaint at para. 36. As with the other issues in this case, the court is bound to apply New Jersey law to this matter.
"In the absence of exceptional circumstances dictated by the nature of the relationship between the parties or the duty imposed upon the wrongdoer, the concept of punitive damages has not been permitted in litigation involving breach of a commercial contract." Sandler v. Lawn-A-Mat Chemical & Equipment Corp., 141 N.J. Super. 437, 449, 358 A.2d 805 (App. Div.), cert. denied, 71 N.J. 503, 366 A.2d 658 (1976). See also First National State Bank v. Commonwealth Federal Savings and Loan Association, 455 F. Supp. 464, 471 (D.N.J. 1978), aff'd, 610 F.2d 164 (3d Cir. 1980). However, one of the exceptions noted in Sandler was an action involving a fiduciary relationship, and Sandoz contends that such a relationship exists here between it and its erstwhile insurers.
The relationship between an insurer and its insured has been held to be fiduciary, but only in limited circumstances. "The relationship of the company to its insured regarding settlement is one of inherent fiduciary obligation." Rova Farms Resort v. Investors Insurance Co., 65 N.J. 474, 492, 323 A.2d 495 (1974) (emphasis added). This is because as regards settlement, the company has made itself its insured's agent, proscribing the insured from settling in its own behalf. See also Lieberman v. Employers Insurance of Wausau, 84 N.J. 325, 419 A.2d 417 (1980).
It should be noted that this motion is made solely on behalf of Hartford. Plaintiff has shown the court no reason why Hartford's actions should be regarded as outrageous, or even how those actions involved a fiduciary responsibility. "The mere presence of a fiduciary duty regarding one aspect of the insurance contract does not necessarily require that such a duty govern all aspects of the agreement." Kocse v. Liberty Mutual Insurance Co., 152 N.J. Super. 371, 378-79, 377 A.2d 1234 (Law Div. 1977). Hartford actually defended the suits against Sandoz, and there is no complaint with the handling of those defenses. What is left is merely a dispute as to the amount of money owed to Sandoz. This is a common question of contract interpretation, and not a situation where the insured's rights will be damaged or ignored because of some action of the insurer.
For these reasons, the court concludes that no fiduciary relationship was involved in the actions complained of by Sandoz, and certainly Hartford violated no fiduciary responsibilities by its actions. As the court in Kocse noted, "despite this absence of a fiduciary duty on the part of the insurer, there is still the possibility that punitive damages might be awardable under certain circumstances." 152 N.J. Super. at 379. No such aggravated situation has been shown in this case, and therefore the court will grant Hartford's motion. Punitive damages will not be allowed as to Hartford, and count four is dismissed as to that defendant only.
In essence, the court concludes that the obligation of an insurer to its insured is contractual. The contracts in issue provide for coverage during periods of injury and not manifestation. The matter shall be scheduled for trial to determine the factual issues as they apply to the foregoing legal conclusions, unless the parties can stipulate to such facts.
Counsel for Sandoz is directed to submit an appropriate form of order to the court.