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Scottsdale Insurance Co. v. Woolsulate Corp.


December 17, 2008


On appeal from the Superior Court of New Jersey, Law Division, Essex County, L-12568-99.

Per curiam.


Argued October 20, 2008

Before Judges Reisner, Sapp-Peterson and Alvarez.

In this insurance coverage case, plaintiff Scottsdale Insurance Company appeals from trial court orders dated December 16, 2005, and March 19, 2007. We affirm.


A. Background

Defendant Woolsulate Corporation (Woolsulate), is a commercial insulation contractor that previously utilized asbestos in its work. In 1984-86, Woolsulate had primary insurance coverage through the Chubb Group of Insurance Companies (Chubb), and sought excess or umbrella liability coverage above that primary coverage. Subsequently, Woolsulate applied for and received an excess insurance policy from plaintiff Scottsdale Insurance Company (Scottsdale), for a term of four months from January 1 through May 1, 1986.

In June 1986, about six weeks after Scottsdale's policy expired, Woolsulate's agent notified Scottsdale about personal injury claims involving asbestos that had been filed against Woolsulate. Scottsdale acknowledged that claims had been filed and opened a claim file. In October 1990, Chubb informed Scottsdale that Chubb's primary insurance coverage would soon be exhausted, thereby implying that Scottsdale's excess policy could be thereafter tapped for Woolsulate's indemnity and defense. Scottsdale acknowledged Chubb's notification, but did nothing more.

In April and September 1998, Woolsulate informed Scottsdale that its primary insurers had exhausted their policy limits, and it demanded indemnification from and defense by Scottsdale against numerous lawsuits involving asbestos. Scottsdale responded in September 1998 with a letter, seeking information while reserving its right to deny coverage.

In September 1999, at least thirteen years after Scottsdale knew that asbestos claims had been filed against Woolsulate, Scottsdale filed a declaratory judgment action, seeking to rescind the excess-insurance policy on the ground that Woolsulate had filed a misleading application that misrepresented both its involvement with asbestos and its awareness of asbestos actions that had been filed against it. Woolsulate counterclaimed, seeking a declaration that Scottsdale had a contractual duty to indemnify and defend against those claims.

After a bench trial on the coverage issue, Judge Schott rejected Scottsdale's rescission claim and instead granted judgment for Woolsulate, determining that Scottsdale had a contractual duty to indemnify and defend Woolsulate. The judge rejected Scottsdale's reliance upon the known-loss and loss-in-progress defenses and awarded counsel fees and costs to Woolsulate for the expenses associated with the coverage litigation.

B. Trial Evidence

The following evidence was introduced at the trial before Judge Schott. Established in 1968, Woolsulate is an insulation subcontractor that installs various noncombustible types of insulation in new and existing industrial and commercial settings. Some evidence adduced at trial suggested that, in the past, Woolsulate may have performed asbestos removal at some of its job sites. However, the trial judge found credible the testimony of Woolsulate's owner, John Mazur,*fn1 that Woolsulate had not engaged in asbestos removal, although the company had installed asbestos insulation as part of its work as a heating and air conditioning contractor.

Woolsulate's alleged asbestos-related activities led to its inclusion as a defendant in claims involving asbestos exposure. On May 3, 1984, the first such asbestos-injury legal action, which involved eighteen plaintiffs, was filed against Woolsulate and numerous other defendants.*fn2 By January 1, 1986, at least four and possibly as many as twenty-two other actions involving at least thirty-four other plaintiffs had been filed against Woolsulate. By the time of the trial in June 2005, asbestos claims against Woolsulate were being filed at the rate of "15 claims per month," and the number of pending claims at that time totaled more than 1300.

During 1984-1986, Chubb had issued three, one-year policies of primary level insurance covering Woolsulate's liability for asbestos-related damages. These policies had liability limits of $500,000 per year, and they spanned the period from May 1, 1984 to August 1, 1986, the third one-year policy term having been cut short when Woolsulate placed its insurance with another insurer.

To obtain insurance coverage, Woolsulate used the services of an insurance broker/agent, Amicon, Inc. (Amicon), and two of Amicon's employees: George Gray and Jean Waliky. Amicon, in turn, would contact insurers and other insurance broker/agents in order to procure from specific insurers the insurance that Woolsulate wanted.

Scottsdale is an "[e]xcess and surplus lines" insurer, which means that it specializes in issuing excess or umbrella insurance coverage that rests over and above any primary insurance coverage purchased by an insured. Significantly, at trial, a Scottsdale employee testified that, during the 1984- 1986 period, if Scottsdale had been informed about an insurance applicant's involvement in any way with asbestos, Scottsdale would have declined to issue the applicant a policy insuring against any risk of asbestos exposure. However, other evidence suggested a contrary conclusion.

Consistent with the practice of other surplus-lines insurers, Scottsdale issued insurance through agents and brokers, one of which was Montgomery General Agency, Inc. (Montgomery). At trial, a Scottsdale employee testified that Scottsdale had granted Montgomery "underwriting authority" and "binding authority" to issue insurance policies on Scottsdale's behalf. Montgomery did so pursuant to "a specific set of guidelines on the types of coverages that we [Scottsdale] were interested in writing and those that we were not;" Scottsdale expected Montgomery to know about Scottsdale's underwriting requirements, including Scottsdale's refusal to deal with asbestos risks.

Thus, Scottsdale expected Montgomery to receive applications for insurance, to investigate and analyze the risks associated with those applications, and thereafter to issue insurance policies binding Scottsdale to insure against those risks. Consistent with that practice, Scottsdale would not see an application for insurance before Montgomery had issued a policy of insurance to the applicant. Significantly, Marie Valle was the Montgomery employee who dealt with Woolsulate's disputed application for excess insurance in 1985.

In 1985, Woolsulate was seeking excess or umbrella insurance coverage to sit atop its primary coverage by Chubb and to replace an excess-insurance policy that was due to expire on January 1, 1986. Woolsulate only wanted the coverage for a period of four months, from January 1, 1986, through May 1, 1986, at which time a number of Woolsulate's insurance policies were set to expire and to be replaced.

Accordingly, on January 14, 1985, about a year before the anticipated coverage period, Jean Waliky at Amicon sent a memorandum and an application to Valle at Montgomery, asking whether such excess coverage was available for Woolsulate from any of the numerous insurers that Montgomery represented. In her memorandum, Waliky noted that Woolsulate "does fibreglass [sic] insulation on boilers and steam pipes. He [Woolsulate] has not done any asbestosis [sic] removal in about 20 years. However, there are a couple of open asbestosis claims made against the insured, but no payments have been made to date."

On February 15, 1985, Valle answered Waliky's inquiry with a memorandum stating, "[s]orry, [I] can find no one interested in this line." Montgomery's inability to place Woolsulate's insurance coverage on that occasion was not unique. Over the months before January 1, 1986, Amicon had received many declinations to place such coverage. According to a former Montgomery employee, the problem was that there was "[n]o market at all" at that time to insure against asbestos risks, whether those risks involved the present or past possibility of exposure to asbestos.

Months passed, during which Amicon was unable to obtain excess-insurance coverage for Woolsulate. On October 14, 1985, Amicon again submitted an application for such insurance to Montgomery on behalf of Woolsulate.

Significantly, Amicon's application on behalf of Woolsulate indicated that Woolsulate had been in business as an insulator for seventeen years, thus clearly revealing that Woolsulate had begun operating in 1968.*fn3 The application also indicated that insurance coverage for Woolsulate had not been "declined, cancelled or non-renewed during the prior 3 years." Additionally, the application indicated that Woolsulate had not incurred any "product liability losses" in the past three years. Also, the application indicated "No such claims" in response to the request for "Previous experience: (Give details of all liability claims exceeding $10,000 during the past five years, whether insured or not. Specify date, coverage, description, amount paid, amount outstanding)." However, in a section of the application that requested Woolsulate to "enter all [insurance] losses for the prior 5 years," Amicon responded on behalf of Woolsulate by checking a box that stated "See Attached Loss Summary."

At trial, neither party could produce this summary of insurance losses incurred by Woolsulate. However, Leonard Bostwick, a Montgomery employee, testified that Montgomery would not have issued an insurance policy to Woolsulate on Scottsdale's behalf unless the loss summary was included as part of the application. Additionally, a later memorandum from Scottsdale to Montgomery asked for more documentation to support Woolsulate's application, but did not contain a check in the box that would have indicated that the loss summary was missing from Woolsulate's application. Thus, the insurance loss summary was evidently part of the application submitted by Amicon to Montgomery on behalf of Woolsulate.

According to Bostwick, the insurance loss summary that was included with Woolsulate's application would have been prepared by Woolsulate's primary insurers, Chubb and Fireman's, and would have included a report of all of the asbestos claims that had been filed against Woolsulate at that time. At trial, Bostwick conceded that, by providing the loss summary, Amicon's application on behalf of Woolsulate had provided all of the disclosure needed for underwriting purposes concerning the existence of asbestos suits against Woolsulate.

More than two months later, on December 20, 1985, Montgomery (Valle) issued a quotation of premium and basic policy terms to Amicon for the provision of excess general liability insurance from Scottsdale to Woolsulate. The quotation included alternative levels of excess coverage: $500,000 and $1,000,000. On December 30, 1985, Amicon (Waliky) sent Montgomery (Bostwick) a memorandum confirming an earlier telephone exchange, indicating that Woolsulate wanted excess insurance coverage of $1,000,000. On December 31, 1985, Amicon (Waliky) sent Montgomery (Bostwick) a memorandum, requesting that Montgomery issue a binder for the Scottsdale policy insuring Woolsulate.

Also, on December 31, 1985, Amicon (Gray) sent a letter to Woolsulate, reporting that a binder for the sought-after excess insurance coverage would soon be forthcoming. Amicon's letter also noted that the pollution-exclusion provision of the Scottsdale policy was "quite vague and it is very difficult to determine whether or not some of our [Woolsulate's] operations may be excluded from coverage."*fn4

On January 2, 1986, Montgomery (Valle) sent to Amicon and Woolsulate a binder of insurance, indicating that Montgomery would issue on behalf of Scottsdale a $1,000,000 umbrella or excess liability policy covering Woolsulate's business operations for the period from January 1 through May 1, 1986, for a premium of $23,000. Shortly thereafter, Montgomery (Valle) issued a conforming insurance policy on behalf of Scottsdale and in favor of Woolsulate. Thus, for the period from January 1 through May 1, 1986, Scottsdale's $1,000,000 policy of excess insurance rested on top of Chubb's $500,000 policy of primary insurance for the same period.

At some point in late December 1985 or early January 1986, Woolsulate through Amicon sought insurance coverage for a sister corporation, Hi-Tech Corporation (Hi-Tech), which had considered engaging in asbestos removal but abandoned that plan. Scottsdale would later add Hi-Tech to Woolsulate's policy.

Significantly, as part of its effort to obtain insurance for Hi-Tech, Woolsulate wrote to Amicon (Gray) on January 20, 1986, that "Woolsulate Corporation or their [sic] employees will not at the present or in the future, be involved in any asbestos application or asbestos removal work." Woolsulate's letter did not mention any past activities by Woolsulate involving asbestos.

On January 27 or 28, 1986, Montgomery (Valle) forwarded a copy of the issued policy to Scottsdale. This was the first time that employees of Scottsdale became directly involved with the policy that had been issued to Woolsulate. On January 27, 1986, Scottsdale underwriter Jim Halbig sent a memorandum to Montgomery concerning the Woolsulate policy, inquiring whether there was "[a]ny work with asbestos? (removal, etc.) Please advise since this is prohibited." On February 3, 1986, Montgomery (Bostwick) responded with a memorandum indicating that "[t]here is no work of any kind with asbestos. Letter from insured to follow shortly." On February 20, 1986, Montgomery (Bostwick) sent a memorandum to Amicon (Waliky), indicating that Scottsdale was again requesting a letter from Woolsulate disavowing "work of any kind with asbestos."

On March 3, 1986, Amicon (Waliky) responded to Montgomery (Bostwick), sending a letter dated January 22, 1986, from Woolsulate to Amicon (Gray), in which Woolsulate declared that it "will not be involved in any asbestos application or removal work."*fn5 In turn, on March 6, 1986,*fn6 Montgomery (Bostwick) forwarded Woolsulate's letter of January 22, 1986, to Scottsdale (Halbig), along with a memorandum indicating that "attached is a letter from the insured [Woolsulate] advising that no asbestos work is [being] or will be done." Bostwick's memorandum, like Woolsulate's letter, did not address any past asbestos-related activities by Woolsulate, but Scottsdale made no further inquiries on the subject.

On April 25, 1986, less than a week before the Scottsdale policy was set to expire, Montgomery (Bostwick) sent a memorandum to Amicon (Waliky) offering to renew Scottsdale's policy of excess insurance for Woolsulate. Woolsulate, however, declined to renew the Scottsdale policy because it was transferring all of its insurance coverage to another carrier.

On June 10, 1986, about six weeks after Scottsdale's insurance policy expired, Amicon sent Scottsdale a letter placing Scottsdale "on notice of claims against Woolsulate Corporation because of alleged exposure to asbestos materials resulting in bodily injury for numbers [sic] plaintiffs." Amicon identified Chubb as the primary insurance carrier, and asked Scottsdale to open a claim file. In response to Amicon's clear notification that Woolsulate was being sued for asbestos-related injuries, Scottsdale did not respond with apparent alarm or surprise that it had insured a business that presented an asbestos-based risk. Instead, Scottsdale sent a letter to Amicon on June 25, 1986, requesting information from defense counsel and advising that it had opened a claim file to address any losses.

Time passed. Amicon sent notices to Scottsdale of additional asbestos-related claims against Woolsulate on September 10 and October 21, 1987. Scottsdale apparently did not respond to these notices.

Three years later, on October 23, 1990, the underlying primary insurance carrier, Chubb, sent a letter to Scottsdale, informing it that Chubb had settled "over 300 claims" against Woolsulate and that only about $60,000 remained of the $1,500,000 in primary insurance coverage ($500,000 per year multiplied by the three one-year policies). Chubb's letter advised that the $60,000 in primary coverage would probably be exhausted by the end of 1990 and that other carriers could expect to be called upon to provide a defense and excess liability coverage when Chubb paid its policy limits.

Scottsdale responded to Chubb's letter on November 6, 1990, pertinently noting that: our company [Scottsdale] has an umbrella policy incepting on January 1, 1986. The exposures [alleged in the asbestos claims against Woolsulate] are alleged to have occurred between 1937 and 1961 and I have no information in my file that would indicate that our policy would be involved in any of these losses. Do you [Chubb] have any information that would suggest an occurrence within our policy period of January 1, 1986 to May 1, 1986 and if so, would you provide me any and all information you have in that regard. Also I would like to get from you as much detailed coverage information as you can provide me and of course I specifically want to know what [primary-insurance] coverage you have and what your policy period is.

On November 21, 1990, Chubb responded by telephone to Scottsdale's inquiry, providing the requested information. Scottsdale apparently did not pursue the matter further at that time, and gave no indication that it believed Woolsulate had submitted a fraudulent application for insurance. Significantly, the above-quoted portion of Scottsdale's letter of November 6, 1990, suggests that Scottsdale believed its coverage could only be triggered if an asbestos-claim plaintiff's exposure to asbestos "occurred" during the four- month period when Scottsdale's insurance policy was in effect. If that was Scottsdale's understanding, subsequent case law made its position untenable.*fn7

In 1991, Chubb paid its policy limits and terminated its defense of Woolsulate against the numerous pending asbestos claims. At that point, Fireman's became the lead insurance carrier defending Woolsulate. Seven years later, on April 16, 1998, Woolsulate's counsel sent a letter to Scottsdale, indicating that certain of Woolsulate's primary carriers had given notice "that they are on the verge of exhausting their primary limits. Accordingly, Woolsulate hereby tenders these claims to Scottsdale for defense and indemnity in accordance with its obligations under the above-captioned policy." Scottsdale did not respond, and Woolsulate's counsel sent a second demand letter on September 8, 1998.

On September 24, 1998, Scottsdale responded with a letter, setting out what it deemed the significant portions of its policy, asking for proof that Chubb had exhausted its primary-insurance limits, and asserting for the first time that the disputed claim involved asbestos, which "type of business was prohibited by Scottsdale Underwriting Guidelines." Thus, Scottsdale reserved "the right to assert all defenses to coverage under the policy."

Woolsulate's counsel responded with letters on October 7 and 21, 1998, providing information to Scottsdale and asking Scottsdale for indemnification in an impending "block settlement" involving 273 asbestos claims. Scottsdale responded with a memorandum on October 27, 1998, asserting that the information provided by Woolsulate's counsel was "incomplete" and arguing that "[o]ur policy has exclusions which may preclude coverage." The record does not include the response, if any, of Woolsulate's counsel to Scottsdale's memorandum.

More than a year later, on December 13, 1999, Scottsdale began this litigation by filing its complaint against Woolsulate, seeking rescission of its policy of excess insurance, as well as a declaration that it had no obligation to indemnify or defend Woolsulate.

On July 13, 2005, following a bench trial, Judge Schott placed on the record an oral opinion explaining in detail her reasons for rejecting the rescission claim. She based her decision on the testimony of Woolsulate's president John Mazur, whom she found credible, admissions made by Scottsdale's trial witnesses, as well as inferences she drew from Scottsdale's failure to present apparently available witnesses who might have been expected to have greater personal knowledge of relevant events than the few witnesses Scottsdale did present.

She also relied on Scottsdale's failure to object as soon as Woolsulate submitted its first asbestos-related coverage claim, as evidence that Scottsdale understood from the beginning that Woolsulate had been involved in asbestos-related activity before Scottsdale issued its policy. The judge reasoned that if Scottsdale genuinely believed that Woolsulate had submitted a fraudulent application, Scottsdale would have asserted that claim immediately rather than waiting more than a decade to raise the claim.

The judge concluded that Valle, who was acting as Scottsdale's agent through Montgomery, with authority to issue the Woolsulate policy, had actual knowledge when she issued the policy that: Woolsulate had been involved in asbestos activity; Woolsulate had previously been denied coverage due to that involvement; and Woolsulate had been sued for its asbestos-related activity. The judge specifically concluded, based on testimony from Scottsdale's witness Bostwick, that Woolsulate's application for insurance had attached to it a "loss run" summary disclosing all of the outstanding asbestos claims against Woolsulate. She also relied on Bostwick's admission that Woolsulate's disclosure, that it had been involved in insulation installation since 1968, was a clear "red flag" that it had prior involvement with asbestos.*fn8

The judge also concluded it was more likely than not that Valle believed that the policy's general pollution-exclusion clause would preclude coverage for Woolsulate's past asbestos-related activity and that Valle therefore did not view that past activity as precluding her from writing coverage for Woolsulate. This conclusion was supported by testimony from Scottsdale's witnesses concerning their understanding of the pollution-exclusion clause.*fn9

In summary, Judge Schott concluded that Scottsdale had failed to carry what it admitted was its burden of proof to establish its rescission claim.


On this appeal, Scottdale presents the following points for our consideration:






A. The Insurer's Good Faith In Refusing To Pay The Demands.

B. Excessiveness Of Insured's Demands.

C. Bona Fides Of One Or Both Of The Parties.

D. The Insurer's Justification In Litigating The Issue.

E. The Insured's Conduct In Contributing Substantially To The Necessity For The Litigation On The Policy.

F. The General Conduct Of The Parties.

G. The Totality Of The Circumstances.


Having reviewed the record, we conclude that the majority of these contentions are without merit and warrant little discussion. R. 2:11-3(e)(1)(E). Our review of Judge Schott's factual findings is limited to determining whether they are supported by substantial credible evidence in the record. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974). Based on our review of the record, we find no reason to disturb her findings that Woolsulate disclosed the pending asbestos claims in an attachment to its policy application, and that when Scottsdale's agent, Marie Valle of the Montgomery agency, issued the policy, she was well aware of those pending claims. The record amply supports the judge's findings.

Scottsdale failed either to produce Valle as a witness or to produce legally competent evidence of a diligent search for her. Moreover, Judge Schott concluded, as Scottsdale's counsel suggested to her during the trial, that Valle may have been under the impression that the pollution-exclusion clause in the Scottsdale policy would preclude coverage for any of Woolsulate's past asbestos-related activity. Scottsdale's' own employees may also have been under that impression, as they limited their inquiries about asbestos work to the present rather than the past. Scottsdale failed to produce its employees who had, or could be expected to have, personal knowledge of the events surrounding the Woolsulate application. Scottsdale claimed that some of these employees had left the company and could not be located due to the passage of time.

In June 1986, shortly after the Scottsdale policy expired, Woolsulate forwarded to Scottsdale for coverage purposes a complaint naming Woolsulate as a defendant in a case involving asbestos-related disease. Yet Scottsdale made no claim at that point that it had been defrauded or that it had not known that Woolsulate was involved with asbestos. In fact, Scottsdale did not commence its rescission action until 1999. We agree with the trial judge that Scottsdale's silence, for more than a decade after receiving the 1986 asbestos-related complaint, spoke volumes about what Scottsdale knew at the time the policy was issued.

In fact, the evidence suggests either that Valle, who was acting as Scottsdale's agent through Montgomery, overlooked what she knew about Woolsulate's asbestos activity in order to write more business, or that based on the pollution-exclusion clause in its standard policy, Scottsdale was willing to undertake the risk of covering an insured with some past asbestos-related activity as long as that insured had no current or planned future asbestos activity. See American Nat'l Fire Ins. Co. v. Rose Acre Farms, 911 F. Supp. 366, 372 (S.D. Ind. 1995), aff'd, 107 F.3d 451 (7th Cir. 1997)(The insured's alleged misrepresentation concerning its ownership of an airplane did not justify rescission where the carrier's conduct at the time it learned about the airplane indicated that the information was not material to the coverage decision; the insurer's mistaken reliance on an ambiguous policy exclusion likewise did not justify rescission).

Moreover, although the judge made no finding that Scottsdale was estopped from seeking rescission, we agree with her observation that plaintiff's proof problems were self-inflicted, as witnesses and documents became unavailable during the thirteen years that Scottsdale delayed in asserting its rescission claim.*fn10

Even if there were some arguably inaccurate statements in the policy application, they were not material, because Woolsulate disclosed the pending asbestos claims in the loss-run attachment to the application, and Scottsdale did not prove that Valle was misled by or relied on any inaccurate information in the application. See Ledley v. William Penn Life Ins. Co., 138 N.J. 627, 637-38 (1995); Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624-25 (1981)(equitable fraud requires proof of detrimental reliance on the allegedly false statement).

Scottsdale's further arguments on this issue are without sufficient merit to warrant discussion here. R. 2:11-3(e)(1)(E). For the reasons stated in Judge Schott's thorough oral opinion placed on the record on July 13, 2005, we affirm her determination that Scottsdale failed to carry its burden of proof on the issue of rescission.

Scottsdale's claims concerning the "known loss" and "loss in progress" doctrines are equally unpersuasive. "Under the known loss doctrine, an insurer is protected from risks known to the insured prior to obtaining insurance." CPC Int'l, Inc. v. Hartford Accident & Indem. Co., 316 N.J. Super. 351, 377 (App. Div. 1998), certif. denied, 158 N.J. 73 (1999). Stated somewhat differently, the known-loss doctrine is "the insurance law principle that an insured may not obtain insurance to cover a loss that is known before the policy takes effect." Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178, 1214 (2nd Cir. 1995).

We described the theory underlying these doctrines as follows:

If the prevention of fraud is at the heart of these rules, the "loss" must relate to a known occurrence that would trigger indemnification by the insurer. Only if plaintiff knew that its acts had already subjected it to potential liability because of leakage into the surrounding land, water or air, would the insurers have a claim to a defense. Insurance companies "'do not cover economic detriment that is not fortuitous from the point of view . . . of the insurer's liability.'"

[Astro Pak Corp. v. Fireman's Fund Ins. Co., 284 N.J. Super. 491, 498-99 (App. Div.), certif. denied, 143 N.J. 323 (1995).]

In Astro Pak, the insured knew that it had dumped its waste in a landfill, but did not know at the time it procured coverage that the landfill liner had begun to leak. In that context we indicated that the doctrine would not apply because "[t]he loss was still fortuitous here in that Astro Pak had not been aware of its own potential liability when The Hartford's policies were written." Id. at 499. Scottsdale relies on this language, arguing that Woolsulate knew it had potential liability when it applied for coverage.

However, in a later decision, we clarified that knowledge of potential liability alone will not necessarily preclude coverage under the known loss doctrine:

The insurers read Astro Pak as requiring knowledge of potential liability only. We disagree with that interpretation of our opinion. In Astro Pak, we explicitly rejected the view that knowledge of possible contamination equates with knowledge of an insured claim. We think that the better rule is that where there is uncertainty about the imposition of liability and no legal obligation to pay yet established, there is an insurable risk for which coverage may be sought under a third party policy. As long as there remains uncertainty about damage or injury that may occur during the policy period and the imposition of liability upon the insured, and no legal obligation to pay third party claims has been established, we hold that there is a potentially insurable risk for which coverage may be sought in the context of continuous or progressively deteriorating property damage insurable under a third party comprehensive liability policy. We are satisfied that this rule, coupled with the more "narrow" doctrine regarding concealment and misrepresentation, and damages that are "expected or intended" by the insured, sufficiently protect the insurer's interests in combating fraud without diminishing the reasonable expectations of the insured.

[CPC Int'l, supra, 316 N.J. Super. at 378-79 (citations omitted).]

We conclude that CPC International is on point here. When Woolsulate made its application for coverage, it had received a limited number of claims, which Judge Schott found that it disclosed in the application and for which it did not seek coverage under the Scottsdale policy. Woolsulate did not know at that time that, at some future point, it would receive hundreds of claims. Nor did it know that it would necessarily be held liable for those claims. We agree with Judge Schott's reasoning that, while Woolsulate knew about the pending asbestos cases and settlements when it obtained the Scottsdale policy, Woolsulate could not then have known about the number of future claims against it, its liability for those future claims, or the extent of losses that such future claims might entail.

Moreover, Scottsdale is bound by Judge Schott's factual conclusion that Valle knew about the existing, pending claims at the time she issued the policy. In that situation, we conclude that Scottsdale chose to insure the risk despite being in possession of the same essential information known to Woolsulate.

We find this situation somewhat analogous to that in General Insurance Company v. Lapidus, 325 F.2d 287 (9th Cir. 1963), a case Scottsdale cites in its brief. In Lapidus, a physician bought insurance coverage on a house that was built on unstable ground. When he applied, he disclosed that the ground had begun to slip, yet the insurer wrote coverage. In rejecting the insurer's later claim for rescission based on the known loss doctrine, the court observed: "When the application came in, the warning flag was up. The application said the ground had already slipped. Yet on the day the policy was issued, 'selling' prevailed. We see no deserving public policy in letting [the insurer] off in such circumstances. " Id. at 290.

As one court observed, in rejecting application of the known loss doctrine to an asbestos claims case:

Though [the insured company] was aware, prior to the inception of many of the policies, that its products risked asbestosis and cancer diseases and had received a large number of claims, it was highly uncertain, as Judge Martin found, as to the prospective number of injuries, the number of claims, the likelihood of successful claims, and the amount of ultimate losses it would be called upon to pay. [The insured] was fully entitled to replace the uncertainty of its exposure with the precision of insurance premiums and leave it to the insurers' underwriters to determine the appropriate premiums.

[Stonewall, supra, 73 F.3d at 1215.]

While Woolsulate was undoubtedly more familiar with its risk than the unsophisticated insured in Lapidus, we find no basis to reach a different result here than in Lapidus and Stonewall. If Scottsdale accepted the risk believing, however mistakenly, that the pollution-exclusion clause would preclude coverage for Woolsulate's past asbestos work, and knowing, as any reasonable insurer must have, that past asbestos claims may well be prologue to future claims (albeit claims based on past asbestos work), we see no public policy basis to excuse Scottsdale, under the known loss doctrine, from covering the risk it undertook.*fn11 In a sense, to rule otherwise would give the insurer an unfair "heads I win, tails you lose" advantage over the insured.

We likewise find no merit in Scottsdale's argument that Chubb did not exhaust the limits of its primary coverage, contentions Judge Schott properly rejected in her oral opinions of July 13, 2005 and December 12, 2005. The record is abundantly clear that by 1991, Chubb had paid out at least $1.5 million, thus exhausting its three years of coverage at $500,000 per year.

Scottsdale premises its exhaustion argument on Owens-Illinois, supra, a 1994 case which was decided years after Chubb paid out its policy limits. In Owens-Illinois, supra, 138 N.J. at 478-79, the Court adopted the continuous trigger approach to determining the relative liabilities of insurers for asbestos-related injuries that developed over a long period of time. However, recognizing that it was breaking new ground, the Court declined to apply its new formulation to an insurer that had paid out its policy limits years before the Court rendered its decision:

In addition, we are informed that Aetna has paid its policy limits for the years 1963 to 1977, so that Aetna's policy proceeds will not be called on for future contribution. If that be so, rather than go back to revisit Aetna's contributions, we shall start forward and treat pending matters from the perspective of one having a long view of the entire occurrence . . . .

[Id. at 477.]

As Judge Schott observed in her well-reasoned oral opinion of December 12, 2005, it would "wreak havoc" in the insurance industry if courts applied Owens-Illinois retroactively by requiring primary insurers like Chubb, which paid out their policy limits years before Owens-Illinois was decided, to recalculate their liability for each policy year for which they made payments. Such a process would punish responsible insurers like Chubb, which promptly paid apparently meritorious claims, and favor less diligent insurers like Scottsdale, which sat on its rights for over a decade before challenging its insured's right to recovery.

When Chubb informed Scottsdale in 1990 that it had exhausted all but $60,000 of its policy limits and would have totally exhausted its limits by the end of the year, Scottsdale did not suggest that Chubb should use the not-yet-extant Owens-Illinois formula to calculate its payment obligations. Nor did Scottsdale foresee the Court's later holding applying the continuous trigger approach to excess coverage. Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 323 (1998). We see no reason why Chubb should have shown greater prescience about the law's future development than Scottsdale exhibited. We affirm Judge Schott's determination that Chubb exhausted its policy limits, thereby triggering coverage under the Scottsdale policy.*fn12

We next turn to Scottsdale's argument that it has no duty to defend Woolsulate, based on an "other insurance" clause in the Scottsdale policy. We understand Owens-Illinois to preclude this argument.*fn13 In discussing the application of the continuous-trigger mechanism, the Court both rejected the application of "other insurance" clauses and indicated that defense costs as well as indemnity costs were subject to the continuous trigger approach:

Because multiple policies of insurance are triggered under the continuous-trigger theory, it becomes necessary to determine the extent to which each triggered policy shall provide indemnity. "Other insurance" clauses in standard CGL policies were not intended to resolve that question. A fair method of allocation appears to be one that is related to both the time on the risk and the degree of risk assumed. When periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable. Estimating the degree of risk assumed is difficult but not impossible. Insurers whose policies are triggered by an injury during a policy period must respond to any claims presented to them and, if they deny full coverage, must initiate proceedings to determine the portion allocable for defense and indemnity costs.

[Owens-Illinois, supra, 138 N.J. at 479 (emphasis added).]

The Court likewise rejected an "other insurance" approach in holding that the continuous trigger method applied to excess insurers. Carter-Wallace, supra, 154 N.J. at 322, 325. See also Spaulding Composites Co. v. Aetna Cas. & Sur. Co., 176 N.J. 25, 37, 44-45 (2003).

Unlike Chubb, which made prompt payment, Scottsdale waited until after Owens-Illinois was decided to even raise the issue of its policy coverage and has not yet paid a cent of its financial obligations. Hence, we perceive no unfairness in subjecting Scottsdale to the Owens-Illinois methodology, under which Scottsdale cannot rely on an "other insurance" clause to escape its obligation to contribute to the cost of Woolsulate's defense.

Further, even if the other insurance exclusion in its policy could be applied here, Scottsdale did not demonstrate that the Chubb policy was not exhausted or that Chubb had a continuing duty to defend Woolsulate. Apparently, due to Scottsdale's long delay in asserting its claims, a complete copy of the Chubb policy was not even available at the time of trial. We affirm Judge Schott's determination on the issue of Scottsdale's duty to defend.

Finally, we turn briefly to Scottsdale's contention that the trial judge should have recused herself. The argument is based on the following facts. On the final day of this lengthy trial, defense counsel asked the judge whether she had a social relationship with the wife of one of Woolsulate's attorneys. The judge explained in some detail that she did not.

Judge Schott also explained that the attorney's wife, who herself was a lawyer, had appeared before her during a long trial, and that was why, when this attorney appeared in the courtroom to watch her husband's trial, Judge Schott greeted her. The judge also explained that she had exchanged polite, passing conversation with the attorney at a Bar function. After hearing the judge's explanation, Woolsulate's counsel did not file a recusal motion or give any other indication that he sought the judge's recusal. In light of this background, we confess to some puzzlement at the inclusion of the recusal argument in Scottsdale's appellate brief, and we find the contention to be totally without merit.

Moreover, having read the entire trial transcript, we note that Judge Schott conducted this trial in exemplary fashion, with scrupulous fairness to both sides and unwavering courtesy toward all counsel. She also displayed an in-depth grasp of the facts and the law. To address what we suspect is the genesis of the recusal argument, the fact that Judge Schott found in Woolsulate's favor after a plenary trial, when she had previously rejected Woolsulate's summary judgment motion, is not evidence of bias. That a non-moving party such as Scottsdale prevails on a summary judgment motion, where all facts must be construed in its favor, does not in any way predict that it will win after the judge hears all the evidence during a plenary trial.


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