On certification to the Superior Court, Appellate Division, whose opinion is reported at 217 N.J. Super. 436 (1987).
For reversal and remand -- Chief Justice Wilentz and Justices Clifford, Pollock, O'Hern, Garibaldi and Stein. For affirmance -- Justice Handler. Handler, J., dissenting.
The question in this case is whether the coverage under an excess "umbrella" liability insurance policy must "drop down" to become the first line of coverage for risks covered by the primary liability insurance carrier in the event of the primary carrier's insolvency. We hold that the language of the excess policy here does not call for that result, and reverse the contrary ruling of the court below.
The facts of this case are quite simple. Werner Industries, Inc. (Werner) bought products liability insurance from two sources through the Rice Agency, an insurance broker. Werner purchased the first line of products liability coverage of $500,000 for bodily injury and $250,000 for property damage from Ambassador Insurance Company (Ambassador). Werner also bought an excess policy from First State Insurance Company (First State) to cover liability in excess of the amount set forth on the Ambassador policies. Under normal circumstances, Werner's personal injury insurance coverage from both its
primary policy, with Ambassador, and its "umbrella" policy,*fn1 with First State, could be represented schematically by this diagram:
Unfortunately, Ambassador has become insolvent. Under the New Jersey Surplus Lines Insurance Guaranty Fund Act (Guaranty Fund), N.J.S.A. 17:22-6.70 to -6.83, Werner Industries is provided with coverage in the amount of $300,000. (At the time of this decision, the Guaranty Fund has insufficient funding and is only paying 40% of all claims, with a promise to pay the balance in the future if funding permits.) Several personal injury suits have been brought against Werner Industries, with a potential liability well in excess of the Guaranty Fund. Before us, Werner argues that under the umbrella or excess policy First State is obligated to provide the coverage
between what the Guaranty Fund will pay, $300,000, and what would have been provided under the primary policy if Ambassador had not become insolvent, i.e., an additional $200,000 of coverage. (Under the Guaranty Fund as currently funded, Werner would receive only 40% of $300,000, or $120,000, thus requiring an additional $380,000 of coverage.) First State contends that it is obligated to pay only sums in excess of the amount shown on the underlying policy -- in this case, sums in excess of $500,000 for a personal injury claim up to an aggregate maximum of $3 million.
In an action for declaratory judgment, plaintiff asserted that the policy "language requires First State to assume the risk of the primary insurer's insolvency and it should be required to pay, starting with the first dollar, any judgment entered against Werner." On cross-motions for summary judgment, the Law Division found that the insuring agreement as written provided coverage for the ultimate net loss only in excess of the amount of underlying insurance listed on the schedule of the First State policy. The policy itself, the Law Division observed, "is not ambiguous merely because two words, read without reference to any other provisions in the policy, suggest an ambiguity." The policy states that the company shall be liable for the ultimate net loss only in excess of the greater of (a) an amount equal to the limits of liability indicated on the schedule of other coverage (here the $500,000 policy of Ambassador) or (b) $10,000 for other risks that are not covered by the Ambassador policy. (The risks in dispute are clearly covered by the Ambassador policy.) The Law Division thus concluded that "it is plain that the parties contemplated that First State would not be obligated to make any payment until the first $500,000.00 for personal injury or $250,000.00 for property damage was paid out from some other source."
The Appellate Division reversed the trial court and remanded for entry of judgment in favor of Werner. 217 N.J. Super. 436 (1987). It found that the language in the policy describing First State's umbrella ...