On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-12043-97.
Before Judges Petrella, Newman and Braithwaite.
The opinion of the court was delivered by: Newman, J.A.D.
Argued: February 20, 2001
This appeal involves a dispute as to primacy and apportionment of coverage between two umbrella carriers, U.S. Fire Insurance Company ("U.S. Fire") and Lexington Insurance Company ("Lexington"). The insurance coverage dispute arises out of an accident that occurred on November 15, 1993 at Ball-In-Con Glass Packaging Corp. in Carteret, New Jersey, in which Ramon Perez ("Perez"), an employee of Ball-In-Con, sustained a paralyzing injury while driving a forklift in the process of unloading pallets from a tractor trailer. The tractor trailer was owned and operated by Blue Diamond Company ("Blue Diamond"). Sonoco Products Company, Inc. ("Sonoco") loaded the pallets onto the tractor trailer.
At the time of the accident, Blue Diamond was insured by two policies: a primary motor vehicle liability policy with limits of $1,000,000 per accident issued by the Fire and Casualty Insurance Company of Connecticut ("FCICC"), and an excess policy with limits of $4,000,000 per occurrence issued by U.S. Fire. The absolute minimum annual premium for the FCICC primary policy was $708,599; the minimum annual premium for the U.S. Fire excess policy was $160,000.
At this time, Sonoco was also insured by two policies: a primary commercial automobile insurance policy with limits of $2,000,000 per occurrence issued by Home Insurance Company ("Home"), and an umbrella liability coverage policy issued by Lexington with applicable limits of $25,000,000 per occurrence. The minimum annual premium for the Home primary policy was indecipherable; the minimum annual premium for the Lexington excess policy was $198,000.
Sonoco instituted this declaratory judgment action during the pendency of the underlying Perez suit, seeking a declaration that it was an additional insured under the FCICC and U.S. Fire policies issued to Blue Diamond, and that the FCICC policy was required to provide primary coverage to Sonoco and defend it in the Perez suit, since Sonoco's liability arose out of the use of the Blue Diamond vehicle. Both FCICC and U.S. Fire denied any obligation to defend or indemnify Sonoco regarding the Perez suit.
The Perez suit ultimately settled for $4.25 million. FCICC paid its limit of $1,000,000; Home paid its limit of $2,000,000; and Lexington contributed $1.25 million. U.S. Fire did not contribute to the settlement. Following the settlement, Lexington intervened as a co-plaintiff in the declaratory judgment action against FCICC and U.S. Fire, seeking recovery of its $1.25 million contribution to the settlement. U.S. Fire then filed a third-party complaint to join Home.
In granting summary judgment to U.S. Fire, the trial judge declared that U.S. Fire need not contribute to the Perez settlement until the FCICC, Home, and Lexington polices were first exhausted. In so ruling, the court found that U.S. Fire's "other insurance provision" did not violate public policy, and that it was a valid excess clause.
On appeal, Lexington argues that U.S. Fire is obligated to contribute to the Perez settlement. U.S. Fire responds that its "Automobile Limitation," which confined excess coverage "to the coverage provided ... in the 'Underlying Insurance,'" relieved it of any obligation to provide coverage for the Perez settlement, since the underlying FCICC insurance policy contained a provision that purported to bar coverage for "'Bodily Injury' or 'Property Damage' resulting from the movement of property by a mechanical device." U.S. Fire contends that this exclusion in the FCICC underlying policy "squarely precludes coverage for the Perez claim which beyond question involved the movement of property (pallets) by a mechanical device (a forklift)." Therefore, argues U.S. Fire, "since the FCICC policy by its terms excludes coverage for claims such as the Perez claim, the U.S. Fire policy likewise excludes coverage for such claims."
Judge Stroumtsos held that the FCICC policy was required by statute to provide coverage for the Perez claim, thereby invalidating the aforementioned exclusionary language contained in the FCICC policy. See N.J.S.A. 39:6B-1. However, U.S. Fire points out that Judge Stroumtsos made no ruling as to whether this invalidation would also affect the scope of coverage contained in the U.S. Fire umbrella policy. Thus, argues U.S. Fire, the exclusion contained in the FCICC policy, although invalidated by Judge Stroumtsos, "must be given effect and enforced as written, as respects U.S. Fire."
It is well established in this state that "[w]henever an insurance policy and a governing statute are in conflict, the statute controls, and the policy is automatically amended by operation of law to conform to the statutory standard." Allstate Ins. Co. v. Malec, 104 N.J. 1, 6 (1986); see Selected Risks Ins. Co. v. Zullo, 48 N.J. 362, 373 (1966) (amending the insurance policies at issue to contain coverage "no less broad than that of the statute"); Fiscor v. Atlantic County Board of Chosen Freeholders, 293 N.J. Super. 19, 30 (App. Div.), certif. denied, 147 N.J. 263 (1996) (explaining that "even if the County had obtained an insurance policy at odds with the statutory standards, the court would, by operation of law, amend the policy to conform to the statutory requirements"); Kattoura v. Patel, 262 N.J. Super. 34, 42, n.4 (App. Div. 1993) (explaining that "even if the AMI policy failed to include the coverage required by N.J.S.A. 45:21-1 et seq., we would deem the policy amended to provide the minimum coverage required by the statute and to conform to the parties' agreement that the coverage provided by Excelsior would be primary"); American Home Assurance Co. v. Hartford Ins. Co., 190 N.J. Super. 477, 485-86 (App. Div. 1983); accord Appleman, 12 Insurance Law and Practice § 7041, at 166 (1981) ("The statutory law in force and effect at the time of the issuance of a policy becomes a part of the contract as though expressly written therein, and a policy must be considered to contain those requirements").
The underlying FCICC policy was "automatically amended by operation of law to conform to the statutory standard," which obligated it to provide coverage for the precise type of 'bodily injury' it purported to exclude. Allstate, supra, 104 N.J. at 6. The "Automobile Limitation" contained in the U.S. Fire excess policy clearly stated that the scope of excess coverage was "limited to the coverage provided ... in the 'Underlying Insurance," and that "[i]f coverage is not provided by such [underlying insurance] policies, coverage is excluded from this policy." By tying its coverage to that provided by the underlying FCICC policy, U.S. Fire became obligated to provide coverage. Because coverage was in fact provided by the underlying FCICC policy, which was automatically amended to conform to New Jersey law, U.S. Fire became ...