On appeal from the Superior Court of New Jersey, Law Division, Bergen County.
Approved for Publication January 15, 1997.
Before Judges King, Keefe and Loftus. The opinion of the court was delivered by Keefe, J.A.D.
The opinion of the court was delivered by: Keefe
The opinion of the court was delivered by
KEEFE, J.A.D. On an issue of first impression in New Jersey, Law Division Judge Peter E. Doyne held: "once the insurer [under a retrospective premium policy] has shown or there is no dispute that it in fact has paid settlements, the burden shifts to the insured to make some showing of the carrier's negligence in its claim handling." Because Judge Doyne found that "defendant has failed in discovery and at trial to identify any instance of unreasonableness with which to cast sufficient doubt upon Liberty's claim handling," he awarded plaintiff Liberty Mutual Ins. Co. (Liberty) judgment in the amount of the retrospective premiums sought from defendant President Container, Inc. (President). On appeal, President primarily contends that the Judge erred in placing any burden upon it to come forward with evidence, and also erred when he found that Liberty had not breached a 1983 agreement between the parties.
Liberty filed a complaint alleging that it had provided President with workers' compensation insurance coverage from November 1, 1985, to November 1, 1988, and asserted that President owed $131,072 in retrospective premiums. Unlike a standard insurance policy, a retrospective premium policy provides for the insurer's retrospective determination of the insured's premium obligations based, in part, on the insured's past claims and loss experience. In other words, the insured's premiums are basically calculated after the fact, rather than before. See generally Alexander & Alexander Inc. v. Rose, 671 F.2d 771, 773 (3d Cir. 1982).
As the trial Judge noted, the factual circumstances surrounding this action were largely undisputed. President did not dispute Liberty's calculations of the retrospective premiums allegedly due for the three policy years in question. However, President asserted that "Liberty Mutual failed to perform a condition precedent to the contract as set forth by the October 1983 agreement," thereby relieving President from performing under the contract. President relied on the following language in the 1983 agreement:
(e) Loss runs shall be mailed to Marvin Grossbard, President, President Container, on a monthly basis. Any billing or notice shall be forwarded to that same party.
(f) The insured shall have the opportunity of loss reserve review, it being the intention that Liberty Mutual shall maintain loss reserves at proper levels and subject to fair and reasonable standards.
(g) Liberty Mutual shall review the loss reserves with the Workmen's Compensation Bureau as to the current makeup of experience modification. The insured shall supply such information as indicates a flagrant disregard of loss reserves. In the event that the experience modification is adjusted, the premium shall be adjusted accordingly.
The 1983 agreement ends with this sentence: "The agreement of the insured to place its insurance lines in the hands of Liberty Mutual is based upon the representations made herein and in consideration thereof."
While defendant asserted that the 1983 agreement was "breached because it was not kept informed of loss reserves and claims on an on-going basis" so it could "review the same for compliance with fair and reasonable standards," Judge Doyne concluded that "there is no competent evidence before this court that the reserves were set unreasonably or unfairly high," and found that "defendant has failed in discovery and at trial to identify any instance of unreasonableness with which to cast sufficient doubt upon Liberty's claim handling." While the Judge found no evidence of a "material breach" of the 1983 agreement by Liberty, most significant with regard to his ruling was his rejection of President's assertion that anything in the 1983 agreement constituted a "condition precedent" to defendant's obligation to pay retrospective premiums to plaintiff:
Nothing in the 1983 agreement, the binder for the Worker's Compensation policy, nor the evidence at trial suggests that Liberty Mutual agreed that compliance with all terms of the 1983 agreement [was] a condition precedent to defendant's payment of premiums after Liberty Mutual had managed and settled its claims.
President contends that the Judge's "placement of the burden on the insured to make a showing of the carrier's negligence in its claims handling was a mistake of law, manifestly unjust, and reversible error." President urges that we adopt the rule announced by the Minnesota Supreme Court in Transport Indemnity Co. v. Dahlen Transport, Inc., 281 Minn. 253, 161 N.W.2d 546 (Minn. 1968), where an insurer sued its insured for additional premiums allegedly due under a retrospective premium policy. The Minnesota Supreme Court held as follows:
We believe, in the absence of any directly controlling precedent of which we are aware, that the right of the insurer to collect from the insured in the form of a retrospective premium amounts paid out by it as losses should be contingent upon proof by the insurer that the settlements so made were in good faith and reasonable. The insurer, having been charged with the responsibility for investigating and adjusting the loss, is in possession of the relevant information upon which a determination of reasonableness and good faith must be based. The insured, having delegated the right and duty of investigation and settlement to the insurer, and having agreed to pay the expense in carrying out their assignment, has, by the terms of the insurance contract, put the information critical to the issue of reasonableness and good faith in the exclusive possession of the insurer. If the insured is to pay out as a retrospective premium the amounts paid by the insurer in settlement of liability claims under circumstances where, theoretically at least, the settlement of the claim has been beneficial to both . . ., the insured should be entitled, it seems to us, to have the insurer produce the information pertinent to the reasonableness and good faith of the settlement and assume the burden of proof on the issue.
The Louisiana Court of Appeals rejected the Transport Indemnity rule in Insurance Co. of North America v. Binnings Construction Co., Inc., 288 So. 2d 359 (La. Ct. App. 1974) (hereafter "Binnings "). While the Binnings court agreed with the observations in Transport Indemnity "that the insurer is the party in possession of the evidence upon which the propriety of the settlements must be Judged," and "that the ...