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Sayre v. Insurance Co. of North America

November 06, 1997

F. STUART SAYRE, AUSTIN B. SAYRE AND AMERICAN SAFETY TECHNOLOGIES, INC., PLAINTIFFS-RESPONDENTS,
v.
INSURANCE COMPANY OF NORTH AMERICA, INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA AND WESTPORT INSURANCE COMPANY, DEFENDANTS, AND NEW JERSEY SURPLUS LINES INSURANCE GUARANTY FUND, DEFENDANT-APPELLANT.



On appeal from Superior Court of New Jersey, Law Division, Essex County.

Before Judges Havey, Landau and Newman.

The opinion of the court was delivered by: Landau, J.A.D.

Argued September 22, 1997

On leave granted, defendant New Jersey Surplus Lines Guaranty Fund (Fund) appeals from a denial of its motion for summary judgment which had been based on recent amendments, effective January 8, 1997, to the New Jersey Surplus Lines Insurance Guaranty Fund Act (Guaranty Fund Act), N.J.S.A. 17:22-6.70 to -6.83. The motion Judge applied the liability analysis set out in Owens-Illinois*fn1 for cases in which there is a progressive indivisible injury, and determined that the exhaustion and "set-off" provisions of the amendments did not apply in this case in which a surplus lines insurance company, one of a number of successive insurers, became insolvent. We affirm, substantially for the reasons stated by Judge Stein in his oral opinion of May 13, 1997.

Plaintiffs F. Stuart Sayre, Austin B. Sayre and American Safety Technologies, Inc. are the successors-in-interest to American Abrasive Metals Company (American Abrasive). They sought recovery under insurance policies issued to American Abrasive from 1974 through 1985 for claims arising by reason of environmental contamination and cleanup at its former manufacturing site in Irvington.

During the period between January 1, 1977 and October 28, 1977, American Abrasive was insured under a $300,000 liability policy with State Security Insurance Company (State Security), a surplus lines insurance company. As the result of State Security's insolvency in June 1993, the New Jersey Commissioner of Insurance required the Guaranty Fund to respond to claimants of State Security.

Here, as in Owens-Illinois, it is not disputed that there was a progressive environmental injury, lasting a period of years, about which current scientific inquiry is unable to provide precise time determinations as to exposure, damage or progression. As in Owens-Illinois, there were successive insurers on the risk during this period.

Owens-Illinois involved a suit between the manufacturer of an asbestos product and various successive insurers requesting a declaration of coverage for progressive personal injury and property damage liability. The Court there held that in cases where "progressive indivisible injury or damage results from exposure to injurious conditions for which civil liability may be imposed, courts may reasonably treat the progressive injury or damage as an occurrence within each of the years of a [comprehensive general liability] policy. That is the continuous-trigger theory for activating the insurers' obligation to respond under the policies." Owens-Illinois, supra, 138 N.J. at 478-79.

The amendments to the Guaranty Fund Act apply to all pending unpaid claims, as well as claims filed after the effective date. (L. 1996, c. 156, § 5). Before making a claim against the Fund, "person[s]" must exhaust their "right[s]" under any other solvent insurance policy against which they have a claim, and any amount payable by the Fund on a "covered claim" shall be reduced by the amount of recovery from other insurance policies. N.J.S.A. 17:22-6.79b.

The Fund asserts that, by reason of this statute, the allocation method used in Owens-Illinois should be employed first to exhaust all other insurance coverage provided by the solvent carriers on the risk between 1974 and 1985 before seeking recovery from the Fund, and that any recovery from the Fund must be reduced or "set-off" by the amount recovered from the other insurance carriers. In effect, the Fund says that the Owens-Illinois calculations and allocations should be made on a joint and several basis among the remaining solvent insurers when a surplus lines insurer that covered a given calendar period becomes insolvent.

In his oral opinion of May 13, 1997, Judge Stein recognized that the injury involved in this case was of the progressive indivisible type, and subject to application of the "continuoustrigger" theory which treats the progressive injury as an "occurrence within each of the years of a [comprehensive general liability] policy." Owens-Illinois, supra, 138 N.J. at 478. Once a policy is triggered it precipitates an insurer's duty to act. Id. at 478-479.

Judge Stein applied the Owens-Illinois method of allocation, taking the time on the risk and the degree of risk assumed into account to determine the extent of damages attributable to each insurance policy, and noted that a fair allocation required application of several, but not joint and several, liability. Id. at 473, 479. Thus, the Judge concluded that "[a] portion of the indivisible loss occasioned by the plaintiff should be allocated to State Security and now to the Guarantee Fund, again, by the Owens-Illinois allocation of the risk on the basis of the time on the risk and the degree of the risk assumed." We note that, under the Owens-Illinois approach, an allocation of loss is also made against the property owner for periods in which no insurance is in effect. Owens-Illinois, supra, 138 N.J. at 479. Insurers are not required to contribute with respect to periods in which no policy is in effect.

The thrust of Owens-Illinois was to devise a fair method of allocation of the share of loss to be covered in continuous-trigger situations, not to make insurers guarantors of their predecessors or successors on the risk, nor to require them to pay for periods of non-insurance. Thus, Judge Stein correctly held that no other insurer may be assigned liability for the policy period, January 1, 1977 to October 28, 1977, in which State Security's policy was in effect.

As no other coverage duplicates or overlaps State Security's coverage, the Fund is required to pay the share which would have been allocated to the State Security policy, not exceeding the ...


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