On certification to the Superior Court, Appellate Division.
The opinion of the court was delivered by: Judge Carchman
SYLLABUS (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).
Passaic Valley Sewerage Commissioners v. St. Paul Fire & Marine Ins.Co.
JUDGE CARCHMAN (temporarily assigned), writing for a unanimous Court.
In this appeal, the Court address whether an insurance policy's definition of "money damages" encompasses the value of services and assets provided in lieu of cash payments by the insured in settlement of claims against it.
Plaintiff Passaic Valley Sewerage Commission (PVSC) is a public agency that regulates the collection and disposal of wastewater. Spectraserv, Inc. (Spectraserv) is a private hauling and treatment business that discharges wastewater into the PVSC system. It must maintain a permit and comply with PVSC's regulations. Spectraserv and PVSC were involved in years of litigation. PVSC filed an action to compel Spectraserv to change its plant equipment and issued more than 180 violation notices relating to Spectraserv's monitoring station. Spectraserv responded that PVSC had wrongfully withheld renewal of its permit and misused PVSC's regulatory authority. Spectraserv alleged numerous claims, including an antitrust violation, breach of duty of good faith and fair dealing, and abuse of process.
In light of Spectraserv's claims against it, PVSC sought a defense and indemnification from its current insurer, St. Paul Fire and Marine Insurance Company (St. Paul), which disclaimed coverage; and from defendant Coregis Insurance Company (Coregis), which had previously insured PVSC under a "claims made" liability policy ("Coregis Policy" or "Policy"). The Policy provides that Coregis will pay "Loss as a result of civil claims made against [PVSC] by reason of a Wrongful Act." The Policy defines "Loss" as "Money Damages," and it defines "Money Damages" as "monetary compensation for past harms or injuries." The Policy excludes indemnification for relief "in any form other than Money Damages, including any form of . . . equitable relief." In a reservation of rights letter to PVSC, Coregis stated that based on Spectraserv's allegations, the Policy "may only cover part of this Loss."
PVSC filed a declaratory judgment action against St. Paul, which has since settled. In 2003, PVSC added Coregis as a defendant, seeking a declaratory judgment that Coregis was required to provide a defense and indemnification against Spectraserv's claims. In 2004, while PVSC and Spectraserv were in settlement negotiations, Coregis confirmed that it would provide a defense subject to a full reservation of rights. Coregis proposed payment of PVSC's past defense costs, but warned: "We understand that PVSC has made one or more settlement proposals to Spectraserv that would entail future cooperation between PVSC and Spectraserv . . . . Please note that although Coregis does not necessarily object to a settlement agreement of that type, it is extremely unlikely that Coregis would have any obligation to make payment to PVSC to make up any asserted loss in revenue on PVSC's part."
In 2005, PVSC and Spectraserv reached a settlement. Rather than pay money, PVSC agreed to: (1) resolve the violation notices and accept $100,000 in lieu of all civil penalties that it could have assessed; (2) treat and dispose of sludge for five years from Westchester County, New York, a Spectraserv customer; and (3) assign to Spectraserv the right that PVSC had to dispose of sludge from another entity. According to PVSC's expert, the total cost of the settlement agreement to PVSC was between $5,963,661 and $17,180,728.
Then, in the PVSC/Coregis coverage dispute, the court determined that Coregis owed PVSC a defense on only three of Spectraserv's counterclaims. PVSC and Coregis then settled the issue of reimbursement of counsel fees and costs incurred in the Spectraserv litigation, leaving two issues: indemnification for the Spectraserv settlement, and indemnification for the fees and costs that PVSC incurred in its declaratory judgment action against Coregis. Coregis argued that, under the Policy, it had no obligation to indemnify absent the payment of "money damages." The Chancery Division and Appellate Division agreed. The Court granted certification. 202 N.J. 346 (2010).
HELD: Under the terms of a policy that defines "loss" as "money damages," an insurer has no obligation to indemnify its insured for the value of a settlement consisting of services and transferred assets.
1. The terms of an insurance contract are enforced as written if the language is clear. Ambiguity arises only where the phrasing is so confusing that the average policyholder cannot make out the bounds of coverage. The Policy is not ambiguous in defining "loss" as "money damages" and defining "money damages" as "monetary compensation for past harms." "Monetary" means "of or relating to money." This is plain language. The Policy also excludes indemnification for relief "in any form other than Money Damages," including "equitable relief." By defining "loss" narrowly, Coregis sought to avoid litigating the value of non-monetary losses. Although PVSC purported to value the Spectraserv settlement, the terms of the settlement are "in kind," involving the performance of services. Also, PVSC's agreement to forgo civil penalties, which compromises its responsibility in enforcing its regulations, implicates "equitable" principles and hardly equates to a compensable loss. The exclusions generally demonstrate the intent to preclude indemnification of anything other than precisely calculated money damages. (pp. 12-18)
2. Authority in other jurisdictions supports the Court's conclusion. For example, in International Insurance Co. v. Metropolitan St. Louis Sewer District, 938 F. Supp. 568 (E.D. Mo. 1996), the court explained that in the insurance context, the term "damages" is unambiguous "and does not include equitable monetary relief." The Coregis Policy is more specific, defining "money damages" as "monetary compensation." In 116 Commonwealth Condominium Trust v. Aetna Casualty & Surety Co., 742 N.E.2d 76 (Mass. 2001), the court explained that "damages" means "the word which expresses in dollars and cents the injury sustained," and it was not reasonable to expect the policy to cover an action for injunctive relief. Although some jurisdictions have seemingly adopted a different view, their decisions are distinguishable. The Court adheres to the principle that the Policy's plain language provides the best indicia of its intent. PVSC is not entitled to indemnification. (pp. 18-23)
3. The Court next considers whether Coregis breached its duty to defend, which would trigger indemnification of the Spectraserv settlement without limitation by the Policy's definition of "loss." When PVSC sought a defense, Coregis issued reservation of rights letters. After the trial court found that Coregis owed a defense on three claims, Coregis entered into a settlement to reimburse PVSC for attorneys' fees and costs incurred in defending those claims. By reserving rights and providing defense costs on covered claims, an insurer fulfills its defense obligations. When a complaint includes both covered and uncovered counts, the carrier may refuse defense on the uncovered counts and dispute coverage. A good-faith coverage challenge is not a breach of the duty to defend. (pp. 24-29)
4. The Court also rejects PVSC's assertion that it is entitled to fees and costs related to its declaratory judgment action against Coregis. Rule 4:42-9(a)(6) permits the award of fees "[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant." The trial court did not abuse its broad discretion in its determination to deny counsel fees and costs. (pp. 29-31)
The judgment of the Appellate Division is AFFIRMED.
JUSTICES LaVECCHIA, RIVERA-SOTO, and HOENS and JUDGE PARRILLO (temporarily assigned) join in JUDGE CARCHMAN's opinion. CHIEF JUSTICE RABNER and JUSTICES LONG and ALBIN did not participate.
JUDGE CARCHMAN (temporarily assigned) delivered the opinion of the Court.
Following years of contentious litigation and after months of mediator-assisted negotiations, plaintiff Passaic Valley Sewerage Commission (PVSC)*fn1 and Spectraserv, Inc. (Spectraserv), without a concession of fault by either party, entered into a settlement agreement providing for the transfer of assets and other consideration from PVSC to Spectraserv. Rather than advance monies to Spectraserv, PVSC agreed, among other things, to provide in-kind services and forbear from pursuing alleged regulatory violations by Spectraserv. PVSC sought indemnification for its "loss" -- the value of the settlement -- from its insurer, defendant Coregis Insurance Company (Coregis). Coregis declined to indemnify PVSC, asserting that Coregis had no obligation to do so under the terms of its Policy, which defined a "loss" as "money damages." The issue that we address is whether the definition of "money damages" under the terms of PVSC's policy encompasses the value of services rendered and assets surrendered in lieu of cash payments. Both the Chancery Division and Appellate Division concluded that Coregis correctly interpreted its Policy and was not obligated to indemnify PVSC for the value of the settlement. We granted certification, 202 N.J. 346 (2010), and affirm.
I. We adduce the following facts from the record.
PVSC is a regulatory body created by the State of New Jersey, which regulates the collection and disposal of wastewater generated in a four-county area along the Passaic Valley River Basin. N.J.S.A. 58:14-1 to -37. Pursuant to its statutory authority, PVSC requires its large industrial users to obtain permits to utilize the PVSC system. PVSC issues, reviews and modifies the permits on an as-needed basis, particularly when conditions change with regard to the user.
Spectraserv is a private business entity in the wastewater hauling and treatment business. It owns and operates a facility within PVSC's district and discharges wastewater into the PVSC system. It is required to maintain a permit with PVSC as well as comply with PVSC's rules and regulations regarding the discharge into PVSC's systems.
A. On August 14, 1997, Spectraserv filed a complaint in the United States District Court for the District of New Jersey (Passaic I) against PVSC and certain officers, employees and PVSC Commissioners, alleging that defendants wrongfully withheld renewal of Spectraserv's permit and misused PVSC's regulatory authority over Spectraserv.
At the time of action, PVSC was insured by Coregis under a "claims made" Public Entity Management Liability (PEML) policy, which was effective from March 20, 1997 through January 1, 1998 (the "Coregis Policy" or "Policy"). The Coregis Policy provided:
The Company will pay on behalf of the Insureds Loss as a result of civil Claims made against the Insureds by reason of a Wrongful Act, provided that Claim is first made during the Policy Period . . . .
The Policy contained the following definitions:
F. "Wrongful Act" means any act, error or omission of an Insured constituting a breach of a duty imposed by law or a breach of an Employment Contract.
H. "Claim" means a demand for Money Damages as of right.
I. "Money Damages" means monetary compensation for past harms or injuries.
L. "Loss" means Money Damages which the Insured becomes legally obligated to pay by reason of a Wrongful Act. . . . Loss does not include:
1. Punitive damages, exemplary damages or the multiplied portions ...