On appeal from the Superior Court of New Jersey, Law Division, Essex County, L-12568-99.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
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.
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.
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, ...