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Chubb Custom Insurance Co. v. Prudential Insurance Company of America

June 26, 2008

CHUBB CUSTOM INSURANCE COMPANY, FEDERAL INSURANCE COMPANY AND EXECUTIVE RISK INDEMNITY, INC., PLAINTIFFS-RESPONDENTS,
v.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, PRUDENTIAL FINANCIAL, INC. AND PRUDENTIAL EQUITY GROUP, LLC, DEFENDANTS-APPELLANTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 394 N.J. Super. 71 (2007).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

The Court considers whether a service of suit clause in an insurance policy operates effectively as a forum selection clause, affording the insured absolute control over the question of the jurisdiction in which a coverage dispute will be litigated.

Chubb Custom Insurance Company (Chubb) issued a professional liability insurance policy to Prudential Insurance Company of America (Prudential) with a policy limit of $50 million. Pursuant to the policy, Chubb agreed to indemnify Prudential and its subsidiaries and their directors, officers and employees. The policy included Endorsement 1, a "Service of Suit Clause," which stated that in the event Chubb failed to pay any amount claimed to be due under the policy, it would submit, "at the request of the insured," to the "jurisdiction of any court of competent jurisdiction within the United States of America and [would] comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder [would] be determined in accordance with the law and practice of such Court." To cover the $50 million policy limit, Chubb participated in a quota share program with other insurers, who agreed to provide the coverage in nearly equal parts. Three additional tiers of excess coverage existed involving a number of other insurers. All excess policies generally followed the form of Chubb's policy.

After a trial in Ohio in 2002, Prudential Securities was found guilty of the unauthorized reallocation of assets in numerous retirement accounts. The award included compensatory damages and punitive damages. Prudential sought coverage from the insurers. Citing one of the policy's exclusions, the insurers denied coverage because the jury found that Prudential Securities had engaged in fraud.

In September 2004, the insurers filed a declaratory judgment action in New Jersey against Prudential seeking resolution of the coverage dispute. In August 2005, Prudential filed a declaratory relief action in the Delaware Chancery Court naming all primary and excess insurers. The insurers moved to dismiss the Delaware action or, in the alternative, to stay the Delaware proceeding in favor of its first-filed New Jersey action. The Delaware Chancery Court granted the motion for lack of subject matter jurisdiction, granted the motion to stay the Delaware proceeding while the action was pending in New Jersey, and invited Prudential to re-file in the Delaware Superior Court. After Prudential filed an amended complaint in the Delaware Superior Court, it moved to dismiss the New Jersey action based on the service of suit clause in the policy. The trial judge granted Prudential's motion, declaring Endorsement 1 to be a forum selection clause that gave Prudential the choice of forum in all instances.

The Appellate Division reversed after finding no reason to depart from the majority rule that service of suit clauses do not limit the insurer's forum selection when it files first in the jurisdiction of its residence. 394 N.J. Super. 71 (2007). The Supreme Court granted certification limited solely to the issue of whether the service of suit clause operates as a forum selection clause. 192 N.J. 482 (2007).

HELD: Although a service of suit clause in an insurance policy is an agreement by the insurer to submit to personal jurisdiction in the court in which the insured has filed a coverage dispute, the clause does not preclude the insurer from instituting its own suit in the first instance, nor does it allow the insured to trump the insurer's first filing with a later filing of its own. Both parties remain free to seek relief from inappropriate filings under doctrines of judicial economy, including the doctrine of forum non conveniens.

1. In attempting to determine the meaning of a provision in an insurance contract, the plain language is ordinarily the most direct route. If the language is clear, the inquiry ends. If the terms are susceptible to at least two reasonable alternative interpretations, an ambiguity exists and a court may look to extrinsic evidence as an aid to interpretation. Although not a canon of construction, courts frequently look to how other courts have interpreted the same or similar language in standardized contracts to determine what the parties intended, especially where rules in aid of interpretation fail to offer a clear result. (Pp. 6-8).

2. Here, with regard to Endorsement 1, the language "at the request of the insured" is a reference to the filing of a law suit. Pursuant to this clause, if an insured is denied coverage, the insurer agrees to comply with all requirements necessary to submit itself to a court of competent jurisdiction in the United States in which the insured has chosen to file suit. The question presented is whether Endorsement 1 reposes an absolute choice of forum in the insured in all circumstances, including in this situation in which the insurer sued first. (Pp. 8-9).

3. Finding the language of the endorsement ambiguous, the Court examines the history of the service of suit clause. The clause originally was used by Lloyd's of London to assure customers that any dispute would be resolved in the courts of the United States and under its law. As such, to the extent that an insurer submits to a court of competent jurisdiction in the United States by filing its own lawsuit, the primary purpose of the service of suit clause appears to be satisfied. The Court notes further that where the insured first institutes suit, courts of other jurisdictions have uniformly held that the clause precludes any effort by the insurer to remove the action. Therefore, the clause has the modest but real benefit of streamlining the litigation process for domestic insurers by eliminating, in advance, all challenges regarding jurisdiction, and by interdicting time-consuming removal proceedings where the insured sues first. (Pp. 9--12).

4. Where stock language has been uniformly interpreted by courts in a particular way, sophisticated commercial entities are aware of that interpretation and it informs their understanding of the contract provision at issue. Here, the case law has overwhelmingly rejected the notion that an insured has the right to choose the forum in all instances and to avoid participation in a first-filed action by the insurer. The Court reads the service of suit clause at issue in this matter in the same way that it has been read by nearly every court that has considered it-as a consent to jurisdiction by the insurer and a prohibition against an insurer interfering with a forum initially chosen by the insured. It does not inhibit the insurer from filing first, nor does it allow the insured to trump a first-filed action by the insurer. Given the clear, long-standing judicial interpretation, it is up to the parties to renegotiate the service of suit clause if they wish it to be interpreted otherwise. (Pp. 12-15).

5. Fears that the Court's interpretation may lead to inappropriate forum choices by the insurer are unfounded. Forum non conveniens, comity, and notions of judicial economy remain viable alternatives for any party who is hauled into what that party or the court considers an objectionable forum. (P. 15).

6. The Court rejects Prudential's claim that other provisions of the policy, read in combination with Endorsement 1, lead to a contrary result. There is nothing about the policy as a whole that requires an interpretation of Endorsement 1 that permits the insured to interfere with the insurer's first filing. (Pp. 15-17).

7. In summary, a service of suit clause is an agreement by the insurer to submit to personal jurisdiction in the court in which the insured has filed a coverage dispute. The clause permits the insurer to institute its own suit in the first instance. Both parties, however, remain free to seek relief from inappropriate filings under doctrines of judicial economy. (P. 18).

The judgment of the Appellate Division is AFFIRMED.

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, WALLACE, and RIVERA-SOTO join in JUSTICE LONG's opinion. JUSTICE HOENS did not participate.

The opinion of the court was delivered by: Justice Long

Argued April 7, 2008

At issue in this appeal is the meaning of a service of suit clause in an insurance policy. In particular, an insured argues that such a provision operates effectively as a forum selection clause, affording it absolute hegemony over the question of the jurisdiction in which any coverage dispute is to be litigated. The trial judge agreed and ruled that the service of suit clause entitled the insured to its choice regarding forum. Thus, he dismissed the insurers' first-filed action in New Jersey in favor of the insured's later-filed Delaware suit. The Appellate Division rejected that reading of the service of suit clause, held it inapplicable where the insurer is the first to file and reversed the dismissal, decisions with which we are in concert.

We hold that a service of suit clause is an agreement by the insurer to do what is necessary to submit to personal jurisdiction in the court in which the insured has chosen to file a coverage dispute. The clause, however, does not preclude the insurer from instituting its own suit in the first instance, nor does it allow the insured to trump the insurer's first filing with a later filing of its own. Both parties remain free to seek relief ...


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