The opinion of the court was delivered by: STERN
Defendant First Jersey National Bank, acted as depository for plaintiff Dome Petroleum, Ltd., in Dome's 1981 tender offer for the stock of Conoco, Inc. First Jersey erroneously distributed to other tenderors money owing to a group of tenderors known as the "State Street Group." First Jersey paid the State Street Group $3.5 million dollars in compensation. It obtained a loan in that amount from its insurer, defendant Employers Mutual Liability Insurance Co. of Wisconsin, on the understanding that First Jersey would attempt to recover the money elsewhere. First Jersey then sued Dome for indemnification under its depository agreement. This Court granted First Jersey summary judgment, and was affirmed, First Jersey National Bank v. Dome Petroleum, Ltd., 723 F.2d 335 3d Cir. 1983) (" Dome I ").
The Court of Appeals was unable to determine whether Dome could recover under the subrogation clause because it could not say whether Employers' insurance policy with First Jersey placed the ultimate risk of loss on Employers. That issue had not been raised in the motion for summary judgment. The case was therefore remanded for the construction of the insurance policy and, if necessary, the application of suppletive rules of law to allocate the risk of loss. Id.
Defendants now move for dismissal or for summary judgment on the remaining counts of Dome's complaint. In support of their motion, they argue a number of separate points. All rest on one of two premises: that First Jersey suffered no "loss" for which Employers is required to compensate; and that Dome, by agreeing to indemnify First Jersey, became an "insurer" of the risk. As both these premises are incorrect, defendants' motion must be denied.
I. The Argument that First Jersey Suffered no "Loss."
First Jersey's insurance policy specifies that Employers will "indemnify the insured . . . against loss . . . incurred . . . by reason of liability imposed by law . . . or . . . settlement." Employers is not obligated to pay until "the insured has paid such amount" out of its own pocket.
Defendants make much of a distinction between insuring for loss and insuring for liability. They argue that if Dome had lived up to its indemnity agreement, it would have paid the State Street Group immediately and First Jersey would have never suffered a compensable loss. The fact that First Jersey actually did pay, say defendants, should not alter the analysis, because Dome should not be allowed to profit from its initial refusal to indemnify First Jersey.
Unfortunately for defendants, this argument misconstrues the legal nature of indemnification and subrogation. Having indemnified First Jersey, Dome itself has suffered a loss. Under its subrogation agreement, it can bring a claim based on First Jersey's policy in the same way that First Jersey could have in the absence of the indemnification. Whether First Jersey can be said to have suffered a loss is of no moment. 16 Couch on Insurance 2d § 61:61 at 143 (rev'd ed. 1983).
II. The Argument that the Dome-First Jersey and Employers-First Jersey Subrogation Clauses Cancel Each Other Out.
Both the Dome-First Jersey depository agreement and the Employers-First Jersey insurance policy contain subrogation clauses. Defendants claim that the clauses are "equally comprehensive," and therefore "are mutually repugnant and become inoperative." The argument leads to the unappealing conclusion that the risk of loss should remain where First Jersey chose to place it -- on Dome, by enforcing the indemnification clause, instead of on Employers, by invoking its insurance coverage. This is an anomalous outcome for a transaction involving contracts containing such explicit risk-of-loss provisions. The Court of Appeals, moreover, implicitly disapproved of such a result when it said that, in the event that "both Employers and Dome intended to shift ultimate responsibility to each other," this Court "should look to suppletive rules of law to determine who the ultimate risk-bearer should be." Dome II, 767 F.2d at 47.
If the mutual subrogation clauses are indeed "mutually repugnant," the suppletive rules applicable in New Jersey seem to indicate that "each company is obligated to share" the loss. Cosmopolitan Mutual Insurance Co. v. Continental Casualty Co., 28 N.J. 554, 562, 147 A.2d 529 (1959); accord, American Nurses Ass'n v. Passaic General Hospital, 98 N.J. 83, 91, 484 A.2d 670 (1984). There is certainly no reason to grant summary judgment for defendants on this theory.
Employers' contract with First Jersey contains a clause providing that it will pay only the difference between any loss and the coverage provided by "other policies of insurance." Defendants make two arguments based on this clause. First, they say that Dome's indemnification clause is, as a simple matter of contract interpretation, "other insurance," so that Employers is not liable. This is incorrect. In American Nurses ...