March 13, 2012
EMILY MARSHALL, AN INFANT, JOHN MARSHALL, INDIVIDUALLY AND AS EXECUTOR OF THE ESTATE OF GRETA SCHMIDT, AND AS GUARDIAN AD LITEM FOR EMILY MARSHALL, PLAINTIFFS,
RARITAN VALLEY DISPOSAL, EDWARD HAWLEY, DEFENDANTS, AND TOWNSHIP OF WEST AMWELL, DEFENDANT-THIRD PARTY PLAINTIFF, AND PUBLIC ALLIANCE INSURANCE COVERAGE FUND, DEFENDANT/THIRD PARTY PLAINTIFF-RESPONDENT/CROSS-APPELLANT,
ILLINOIS NATIONAL INSURANCE COMPANY, THIRD PARTY DEFENDANT-APPELLANT/CROSS-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Warren County, Docket No. L-478-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 25, 2012 -
Before Judges Graves, Harris, and Koblitz.
This appeal presents a dispute between two insurers concerning their respective monetary contributions, if any, towards the settlement of a personal injury lawsuit. It has its genesis in a fatal accident that occurred at the West Amwell waste transfer station in May 2001. The factual backdrop for our review is found in Marshall v. Raritan Valley Disposal, 398 N.J. Super. 168 (App. Div. 2008), which we need not repeat at length.
In Marshall, we held that an insurer -- not the insured -- has standing to pursue an insurance coverage allocation action against a second insurer to determine contributory responsibilities, if any, under liability insurance policies that are alleged to provide concurrent coverage. Id. at 181. As a result of our remand in Marshall, the Public Alliance Insurance Coverage Fund (the PAIC) was substituted for third-party plaintiff Township of West Amwell and thereafter pursued third-party defendant Illinois National Insurance Company (Illinois National) for a share of the $1.85 million settlement amount (plus defense costs) paid in the tort segment of the litigation. As a result of cross-motions for summary judgment, the Law Division found that both insurers' policies covered the same risk and required an apportionment of expenses pro rata, rather than in equal shares. The court also awarded the PAIC prejudgment interest. Both insurers filed appeals. We affirm the final judgment, except for the calculation of prejudgment interest. We remand for the recalculation of such prejudgment interest and the entry of an amended judgment in accordance with this opinion.
In 2000, West Amwell solicited bids and awarded a contract for municipal solid waste collection (the waste collection contract) to defendant Raritan Valley Disposal. Pursuant thereto, Raritan Valley Disposal delivered a garbage truck to the municipality's waste transfer station every Saturday to aid township residents with their trash deposits. The garbage truck was parked at a location dictated by a municipal employee.
Raritan Valley Disposal was not responsible for assisting residents load trash onto the garbage truck, or for directing traffic, but was required at the end of the day to remove the garbage truck and dispose of its contents.
Section 7.4 of the waste collection contract required Raritan Valley Disposal to maintain "[c]omprehensive automobile liability insurance coverage with bodily injury liability limits of $500,000 for injury to or death of one person and $1,000,000 each occurrence." Furthermore, West Amwell was entitled to receive an insurance certificate from Raritan Valley Disposal listing the municipality as an "additional insured on the . . . automobile liability [policy]." This obligation was similarly expressed in Section 5.16 of West Amwell's predicate "Uniform Bid Specifications, Solid Waste Collection Service" (the bid specifications) as the following:
The Contractor shall take out and maintain in full force and effect at all times during the life of this Contract insurance in conformance with the requirements of N.J.A.C. 7:26H-6.19. The insurance policy shall name the Township of West Amwell as an Additional Named Insured indemnifying the Township of West Amwell with respect to the Contractor's actions pursuant to the Contract.
In furtherance of its obligation to provide West Amwell with insurance protection, Raritan Valley Disposal obtained a Certificate of Liability Insurance from its insurer, Illinois National, listing West Amwell as an additional insured with respect to an already existing "Business Automobile Insurance" policy that provided a limit of $1,000,000 in liability coverage.
Under the Business Automobile Insurance policy, Illinois National agreed, subject to its stated limit of liability, to pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of a covered "auto[.]"
Under Endorsement #010, the policy defined an "insured" as follows:
1. WHO IS AN INSURED
A. The "Named Insured" for any covered "Auto" and
B. At the option of the Named Insured, any entity or individual prior to or after an "Accident" for any covered "Auto[.]"
Separately, Section 5.18 of the bid specifications provided further protection to West Amwell by means of contractual indemnification, requiring the successful bidder to indemnify and hold harmless the Township of West Amwell from and against all claims, damages, losses, and expenses including all reasonable expenses incurred by the Township of West Amwell on any of the aforesaid claims that may result or arise directly or indirectly, from or by reason of the performance of the contract or form any act or omission by the Contractor, its agents, servants, employees or subcontractors and that results in any loss of life or property or in any injury or damage to persons or property.
On May 12, 2001, Raritan Valley Disposal's garbage truck was involved in a fatal accident when a township resident backed his Ford pick-up truck into plaintiff's decedent (who at the time was unloading trash at the waste transfer station), pinning her against the stationary garbage truck. Initially, survivorship and wrongful death claims were brought against West Amwell on behalf of the decedent and her family. An amended complaint asserted an emotional distress claim based upon the decedent's child witnessing her mother's death. As stated in the amended complaint, the municipality's alleged negligence consisted of its failure to "maintain the premises in a safe condition" and "warn . . . of the unsafe, dangerous and palpably unreasonable condition" at the facility.
Following the accident and the filing of the complaint, West Amwell notified the PAIC, its general liability insurer, which undertook to defend the municipality. West Amwell's insurance policy with the PAIC had a $5 million limit of liability.
Several years after the lawsuit had been pending, West Amwell filed a third-party complaint against Illinois National seeking coverage under the Business Automobile Insurance policy that had been issued to Raritan Valley Disposal. Prior to a resolution of the third-party complaint, the PAIC settled with plaintiff's decedent for $1.85 million.*fn1
The PAIC then continued to prosecute the third-party complaint against Illinois National on the municipality's behalf, and obtained a judgment for it on the issue of coverage. We vacated that judgment in Marshall because the insured lacked standing to pursue the coverage action against Illinois National after the PAIC settled the underlying claims. Id. at 175. However, we remanded the matter to enable the PAIC to be substituted as a party if it wished to pursue the coverage claim. Id. at 181.
After our remand, the Law Division held that West Amwell was an insured pursuant to the terms of Illinois National's Business Automobile Insurance policy. The court held that the policy was "not ambiguous," but even if it were ambiguous, Raritan Valley Disposal was required by the waste collection contract and N.J.A.C. 7:26H-6.17 to obtain primary coverage for the municipality. The court added that West Amwell was specifically insured for the decedent's injuries and death because they resulted from the use of the garbage truck.
The court dismissed the PAIC's claim against Raritan Valley Disposal for breach of contract, finding that, although the contract with West Amwell had required Raritan Valley Disposal to obtain primary insurance coverage, the PAIC was not the intended beneficiary of the contract. The court also rejected Illinois National's claim that the underlying settlement was either unreasonable or not made in good faith, citing a lack of competent evidence to sustain the insurer's position.
Lastly, after reviewing both insurance policies in detail, the court concluded that each insurer had provided primary insurance coverage with an excess other-insurance clause that limited liability where another policy covered the risk for the claim. It further found that each policy "addressed what was to occur" when the excess other-insurance provisions applied, which was to share the economic consequences on a pro-rata basis. Thus, relying on W9/PHC Real Estate LP v. Farm Family Casualty Insurance Company, 407 N.J. Super. 177, 199 (App. Div. 2009), the court held that Illinois National and the PAIC must each contribute a proportionate share of the claimed losses up to their respective policy limits. In its opinion, it explained that any allocation of the settlement and defense costs must be shared pro[-]rata between [Illinois National] and [the] PAIC. As the PAIC policy has a limit of $5,000,000 and the [Illinois National] policy limit is $1,000,000, the allocation of the $1,850,000 settlement would be that PAIC would pay $1,541,050 and [Illinois National] would pay $308,950 ($1,850,000 x .167 = 308,950). It is unknown what the defense costs are, but [Illinois National] has to pay one-sixth (1/6) of same and the PAIC the balance. Although the court's arithmetic was imperfect, it corrected that mistake in its January 6, 2011 final judgment, which provided that Illinois National was liable for $308,333.33 of the $1.85 million settlement cost, and one-sixth of the allocable $13,578.30 defense costs, or $2,263.05.
The court also awarded prejudgment interest to the PAIC in the amount of $79,313.47. It determined that that the PAIC's entitlement thereto was based upon equitable grounds pursuant to Litton Industries, Inc. v. IMO Industries, Inc., 200 N.J. 372, 390 (2009), largely because Illinois National had the use of money to which the PAIC was found to have been earlier entitled. The court applied Rule 4:42-11(b), and held that the date of accrual of interest was April 30, 2006, six months from October 31, 2005, the settlement date, and when Illinois National knew that the PAIC was the real party in interest. The appeal and cross-appeal followed.
"An appellate court reviews a grant of summary judgment de novo, applying the same standard governing the trial court under Rule 4:46." Chance v. McCann, 405 N.J. Super. 547, 563 (App. Div. 2009) (citing Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007)). In such review, "'[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.'" Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 382 (2010) (quoting Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).
Similarly, as a general principle, "'[i]nterpretation and construction of a contract is a matter of law for the court.'" Kaur v. Assured Lending Corp., 405 N.J. Super. 468, 474 (App. Div. 2009) (quoting Spring Creek Holding Co. v. Shinnihon U.S.A. Co., 399 N.J. Super. 158, 190 (App. Div.), certif. denied, 196 N.J. 85 (2008)). More particularly, our interpretation of an insurance contract is a determination of law. Sealed Air Corp. v. Royal Indemn. Co., 404 N.J. Super. 363, 375 (App. Div.), certif. denied, 196 N.J. 601 (2008). We therefore owe no special deference to the motion court's interpretation of the insurance policies in this case or "the legal consequences that flow from the established facts." Zabilowicz v. Kelsey, 200 N.J. 507, 513 (2009). Accordingly, we review the Law Division's analysis of the insurance policies de novo and "look at the contract[s] with fresh eyes." Kieffer v. Best Buy, 205 N.J. 213, 223 (2011); see also Homesite Ins. Co. v. Hindman, 413 N.J. Super. 41, 46 (App. Div. 2010).
We begin with Illinois National's Business Automobile Insurance policy. Illinois National resists any contribution for the settlement because it claims that its policy did not cover the events of May 12, 2001. Specifically, it asserts that (1) West Amwell was not an "insured" under the policy and (2) the decedent's injuries and death did not result from the use of the garbage truck. We disagree with both contentions.
Although Illinois National concedes that West Amwell was listed as an additional insured as a result of the promulgation of the Certificate of Liability Insurance, it contends that West Amwell and Raritan Valley Disposal intended -- under the terms of the waste collection contract and the bid specifications -- to limit the scope of West Amwell's status by excluding liability coverage for West Amwell's own negligence. Thus, it urges us to find that the when Raritan Valley Disposal exercised its option pursuant to Endorsement #010 to confer insured status on West Amwell, it could not have done so in a way inconsistent with the limited scope of coverage expressed in the waste collection contract and bid specifications. Accordingly, it claims that West Amwell cannot be insured for its own negligence.
Our law permits an underlying contract to be used to resolve an ambiguous term in an insurance policy's additional insured endorsement. Jeffrey M. Brown Assocs., Inc. v. Interstate Fire & Cas. Co., 414 N.J. Super. 160, 170 (App. Div.), certif. denied, 204 N.J. 41 (2010). An ambiguity exists only if the terms are reasonably susceptible to at least two interpretations. Schor v. FMS Fin. Corp., 357 N.J. Super. 185, 191 (App. Div. 2002). However, the ambiguity itself must arise out of the four corners of the contract. See Rena, Inc. v. Brien, 310 N.J. Super. 304, 321 (App. Div. 1998) (coverage is determined by the terms of the insurance contract).
Here, Endorsement #010's language, "[a]t the option," denoted that the "Named Insured" -- Raritan Valley Disposal -- could designate an additional insured under the Business Automobile Insurance policy for "any entity" without regard to a reason. The endorsement does not refer to the bid specifications, the waste collection contract, or to any other objective standard or reference. there is nothing to indicate that the municipality was not intended to be fully insured even when a covered accident resulted from its own negligence. Endorsement #010 is not susceptible to two interpretations, and thus, it is unambiguous. Illinois National's effort to obtain a stealth reformation of the endorsement (and the underlying Business Automobile Insurance policy) to comport with its interpretation of either the bid specifications or waste collection contract is out of place.
The scope of coverage in an unambiguous insurance policy is defined by its terms, not by the terms of any underlying contract that required an insured to purchase coverage. Jeffrey M. Brown Assocs., supra, 414 N.J. Super. at 171-72; see also W9/PHC Real Estate, supra, 407 N.J. Super. at 193 (insurer's duty arises from the policy terms, not the insured's promise in a separate indemnification agreement). This is because "'[a]n insurer's duties are defined by what it contracted to do, not by what the insured contracted to do.'" Jeffrey M. Brown Assocs., supra, 414 N.J. Super. at 172 (quoting 2 Allan D. Windt, Insurance Claims & Disputes: Interpretation of Important Policy Provisions § 11.30 at 11-469 (5th ed. 2007)).
Illinois National's reliance on Pennsville Shopping Center Corporation v. American Motorists Insurance Company, 315 N.J. Super. 519 (App. Div. 1998), certif. denied, 157 N.J. 647 (1999) is unpersuasive. In Pennsville, we found that the additional insured endorsement in a shopping center tenant's insurance policy, when viewed together with the lease agreement, excluded the shopping center's owner from coverage for slip-and-fall claims in the parking lot. Id. at 523. In so finding, the panel in Pennsville did not expressly conclude that the policy was ambiguous, but it did state that the lease had "clarif[ied] the intendments of the parties in apportioning responsibility" for such claims. Ibid.; see also Jeffrey M. Brown Assocs., supra, 414 N.J. Super. at 171 (describing the policy in Pennsville as "presumably ambiguous" because "the court resorted to the terms of the lease to resolve the ambiguity"). Here, by contrast, the additional insured endorsement is unambiguous, and imposing any restrictions on it would be contrary to its plain language. As a result, extrinsic evidence -- the waste collection contract and bid specifications -- may not be relied upon to restrict West Amwell's scope of coverage.
Additionally, direct resort to the bid specifications does not constrain Illinois National's coverage. Raritan Valley Disposal had a duty, if awarded the waste collection contract, to take out and maintain in full force and effect at all times during the life of this Contract insurance in conformance with the requirements of N.J.A.C. 7:26H-6.19. The insurance policy shall name the Township of West Amwell as an Additional Named insured indemnifying the Township of West Amwell with respect to the Contractor's actions pursuant to the Contract.
N.J.A.C. 7:26H-6.19, now N.J.A.C. 7:26H-6.17, provides in relevant part:
(a) If a contract is awarded, the contractor shall be required to purchase and maintain during the life of the contract . . . comprehensive automobile liability insurance . . . with limits of not less than the following:
3. For comprehensive automobile liability insurance coverage[:] bodily injury liability limits of $500,000 each person and $1,000,000 each occurrence, and property damage liability limits of $1,000,000 each occurrence.
(b) The insurance certificate shall list the governing body as additional insured on the comprehensive general contractual liability, automobile liability, and umbrella policies.
(d) Each insurance policy shall provide that neither the contractor, nor its insurer, shall have any right to subrogation against the governing body. Each insurance policy shall provide primary coverage for any and all losses and shall be drafted so as to protect all of the parties. [Emphasis added.]
Clearly, neither the bid specifications nor the language of N.J.A.C. 7:26H-6.17 conveys the notion of limiting responsibility for any specific claims of negligence. Although the last sentence in the quoted bid specifications provided that Raritan Valley Disposal must name the municipality as an additional insured indemnifying it "with respect to the Contractor's actions pursuant to the Contract," we do not interpret that sentence as signifying an arrangement by which West Amwell allowed the contractor's insurance carrier to be exonerated from providing liability insurance coverage if harm arose out of West Amwell's own negligence. Moreover, the obligations imposed by N.J.A.C. 7:26H-6.17 broadly require that the insurance policy must "provide primary coverage for any and all losses." Accordingly, the language of the extrinsic documents does not support Illinois National's argument that the public entity should be stripped of Raritan Valley Disposal's liability insurance protection even where the municipality's own negligence was determined to cause harm.
Likewise, the terms of the waste collection contract do not support Illinois National's position. Section 7.4 incorporated the requirements of N.J.A.C. 7:26H-6.17 by mirroring its language. Therefore, Raritan Valley Disposal was contractually obliged to obtain additional insured status for West Amwell, without limitations or restrictions. We do not view the waste collection contract's indemnification language as hindering the broad expectation of liability insurance protection through the additional insured endorsement.
Next, we turn to Illinois National's arguments that the decedent's injuries and death did not result from the use of the garbage truck, and therefore the Business Automobile Insurance policy did not cover West Amwell's liability. The policy does not define the term "use." However, that word has been construed by courts to include "a wide variety of activity other than operating a vehicle on a public roadway." Verriest v. INA Underwriters Ins. Co., 142 N.J. 401, 412 (1995). Our Supreme Court observed that, as a general matter, the "'use of an automobile denotes its employment for some purpose of the user.'" Jaquez v. Nat'l Cont'l Ins. Co., 178 N.J. 88, 96 (2003) (quoting Indem. Ins. Co. of N. Am. v. Metro. Cas. Ins. Co., 33 N.J. 507, 513 (1960)). Likewise, we have stated that use is "a broad catch-all designed to include all proper uses of the vehicle" that do not fall within "ownership" or "maintenance." Westchester Fire Ins. Co. v. Cont'l Ins. Cos., 126 N.J. Super. 29, 36 (App. Div. 1973), aff'd o.b., 65 N.J. 152 (1974); see also Bellafronte v. Gen. Motors Corp., 151 N.J. Super. 377, 382 (App. Div.) (the "use" of a vehicle is "more comprehensive than either maintenance or operation"), certif. denied, 75 N.J. 533 (1977).
We have no hesitation in concluding that the activities conducted at West Amwell's waste transfer station on May 12, 2001, involved the proper use of the garbage truck within the reasonable intendment of all concerned. Plaintiff's decedent was using the garbage truck for the disposal of trash; Raritan Valley Disposal was using the garbage truck to fulfill its contractual obligations; and West Amwell was using the garbage truck as a means of providing an important and effective public service to its residents. The vehicle was not fortuitously on the site, and the sequelae of the accident would not likely have unfolded but for its stationary placement there. To argue that West Amwell's liability is founded upon nothing more than the mere fact or coincidence of the vehicle's presence is to ignore the fundamental reason why the victim and the tortfeasor's paths crossed: they were both using public resources -- all of the facilities, including the garbage truck, at the waste transfer station -- provided by their hometown. The suggestion that West Amwell was not similarly using the garbage truck is to ignore reality and elevate linguistics over logic.
Notwithstanding the common sense of the foregoing, Illinois National argues that although the accident may have involved the garbage truck, West Amwell's culpability was based upon a breach of its duty to make the premises safe. As a result, it contends that this is a premises liability case involving negligence unrelated to the "use" of the garbage truck.
In Forsythe v. Teledyne Turner Tube, 209 N.J. Super. 608 (App. Div. 1986), we distinguished between cases where there is negligence in the actual loading and unloading operation, such as by an employee of a warehouse in loading a truck, and those cases where the negligence is not directly related to the loading and unloading process, such as where there is a dangerous condition on the premises of the warehouse. [Id. at 616.]
The Court explained this distinction in Kennedy v. Jefferson Smurfit Company, 147 N.J. 394, 401-02 (1997), holding that automobile insurance coverage will not apply when "the accident arose not from the loading or unloading activities, but from the negligent acts of the owner of the premises where the accident occurred, prior to the loading or unloading of the vehicle."
See e.g., Neuman v. Wakefern Foods, 205 N.J. Super. 263, 266 (App. Div. 1985) (coverage denied because alleged defect in design or maintenance of a hand truck unrelated to "loading or unloading," and "more analogous to the independent negligence of the owner of the premises regarding maintenance of the loading platform"); Wakefern Food Corp. v. Gen. Accident Grp., 188 N.J. Super. 77, 84 (App. Div. 1983) (hazardous debris was unnecessary to "act of unloading nor had it any reasonable connection to that work").
Illinois National's argument essentially equates the garbage truck to a waste receptacle that was mislocated by the municipality. The fundamental difference, however, between that hypothetical and what happened in this case is the contracted-for mobility of the garbage truck to haul the trash away at the end of each Saturday. The liability of the municipality is not based upon the geometry of the waste transfer station or a failure to properly maintain the area. It is the garbage truck's mobility and its placement at the direction of a municipal agent that brings the instrumentality under the mantle of the Business Automobile Insurance policy, even though at the time of the accident the vehicle was not moving. We are satisfied that the Business Automobile Insurance policy's employment of the word "use" fully embraced the circumstances of this tragic accident.
Next, we turn to Illinois National's argument that even if use were established, the decedent's injuries and death did not "result from" such use. Coverage under the Business Automobile Insurance policy applies only if an injury "result[ed] from" the use, which language is arguably distinguishable from the "arising out of" language found in N.J.S.A. 39:6B-1(a).
Illinois National urges us to adopt a narrow interpretation of the language "resulting from." We decline the invitation because we have construed this language as affording the coverage required under N.J.S.A. 39:6B-1(a) for property damage and personal injury "arising out of the ownership, maintenance, operation or use of" the covered vehicle. See Bogey's Trucking & Paving, Inc. v. Indian Harbor Ins. Co., 395 N.J. Super. 59, 63 (App. Div. 2007) (construing "resulting from" in a business automobile policy as "arising out of" consistent with the language used in N.J.S.A. 39:6B-1(a)); Home State, supra, 313 N.J. Super. at 587 (same).
In Home State, a business automobile policy covered claims caused by an accident and "resulting from ownership, maintenance or use" of the covered automobile. Home State, supra, 313 N.J. Super. at 587. We determined that the "resulting from" language afforded the same coverage as N.J.S.A. 39:6B-1(a), and therefore conformed the policy to the "arising out of" standard:
The statute requires liability coverage for all claims resulting from an accident "arising out of the ownership, maintenance or use" of a motor vehicle. It is axiomatic that an insurer may not afford less coverage than that mandated by the Legislature.
Where a policy provision conflicts with the coverage required by a statute, it is inapplicable and is deemed amended to conform to the statutory standard. While it is arguable that the Home State policy language, more particularly the phrase "resulting from," requires a strict causal relationship between the "ownership, maintenance or use" of the automobile and the claim made against the insured, we are obliged to apply the statutory language. [Ibid. (citations omitted).]
Likewise, in Bogey's Trucking, a business automobile policy insured a garbage truck under the same terms as the Business Automobile Insurance policy:
We will pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of a covered "auto." [Supra, 395 N.J. Super. at 63.]
In construing the scope of coverage provided by these terms, we followed Home State, and held that the language "resulting from" could provide no lesser coverage than required by N.J.S.A. 39:6B-1(a). Ibid. Accordingly, we reformed the "resulting from" language in the policy to state "arising out of." Id. at 63-64.
Illinois National relies on Connecticut Indemnity Company v. Podeszwa, 392 N.J. Super. 480, 486-87 (App. Div. 2007), to distinguish the instant circumstances. In Podeszwa we held that an exclusionary clause did not violate N.J.S.A. 39:6B-1, even though it excluded from coverage those losses sustained by innocent third parties in an accident with a truck while it was being used for business purposes because the truck was covered by an additional policy providing coverage for business use. Ibid. Thus, N.J.S.A. 39:6B-1(a), requiring that every motor vehicle maintain liability insurance to compensate those injured by negligence, was not offended by the exclusion.
Here, unlike Podeszwa, the issue is not whether applying an exclusion will result in no coverage to a third party, but whether Illinois National has afforded to its insured the statutorily mandated coverage in the first instance. The scope of coverage provided by the phrase "arising out of" is mandated by N.J.S.A. 39:6B-1(a). As held by the Court, "[a] policy provision that conflicts with statutorily mandated coverage will not be enforced." Proformance Ins. Co. v. Jones, 185 N.J. 406, 415 (2005). Thus, if the language "resulting from" limits required coverage, it is unenforceable and cannot afford protection less than the phrase "arising out of."
The phrase "arising out of" is not subject to any significant divergent interpretations in this state. We have held that an injury need not be the direct and proximate result of the "use" of a vehicle to satisfy the "arising out of" element. Conduit & Found. Corp. v. Hartford Cas. Ins. Co., 329 N.J. Super. 91, 101 (App. Div.), certif. denied, 165 N.J. 135 (2000). Rather, "to determine whether an injury arises out of the . . . use of a motor vehicle thereby triggering automobile insurance coverage, there must be a substantial nexus between the injury suffered and the asserted negligent . . . use of the motor vehicle." Penn Nat'l, supra, 198 N.J. at 240. In Westchester, the substantial nexus test was described as follows:
The inquiry should be whether the negligent act which caused the injury, although not foreseen or expected, was in the contemplation of the parties to the insurance contract a natural and reasonable incident or consequence of the use of the automobile, and thus a risk against which they might reasonably expect those insured under the policy would be protected. [Supra, 126 N.J. Super. at 38.]
The substantial nexus test is not satisfied by an attendant circumstance in which a vehicle happens to be present:
[W]hen an accident . . . is occasioned by negligent maintenance of the premises and the only connection to that event is the fact that the motor vehicle [is] present . . ., no realistic social or public policy is served by straining to shift coverage. [Penn Nat'l, supra, 198 N.J. at 241 (quoting Wakefern, supra, 188 N.J. Super. at 87).]
In other words, the phrase "arising out of" does not mean that the injury has to be connected, however remotely, to the negligent act, but that it must "originate from" or "grow out of," i.e., have a "substantial nexus" to, the negligent act. Flomerfelt v. Cardiello, 202 N.J. 432, 456 (2010); Westchester, supra, 126 N.J. Super. at 38.
When plaintiff's decedent suffered injury while transferring her trash, that injury was caused by a multitude of factors that included the placement of the garbage truck and another resident's access to the truck. The victim would not have been at the municipal facility if not for the garbage truck, and her injuries and death were the result of being pinned against it. Her tragic demise is not capable of being separated from West Amwell's use of the garbage truck. The vehicle "provided more than a 'mere setting'" for her injuries. Home State, supra, 313 N.J. Super. at 587, 593. The accident "'originate[d] from,' 'gr[ew] out of' [and] ha[d] a 'substantial nexus' with" the use of the truck for which the Business Automobile Insurance policy afforded the liability coverage.
Id. at 593-94. Furthermore, giving residents access to the garbage truck at the waste transfer station was an entirely expected and foreseeable activity that the waste collection contract contemplated.
Illinois National challenges the reasonableness of West Amwell's settlement with plaintiffs and contends that it was not entered into in good faith. It relies on Griggs v. Bertram, 88 N.J. 347 (1982), which holds that an insurer that wrongfully refuses to defend its insured is liable only if the settlement is reasonable and entered into in good faith. Id. at 364-68. To establish the reasonableness of a settlement, Griggs imposes the initial burden of production on the insured, and the ultimate burden of persuasion on an insurer. Id. at 368. Here, Illinois National argues that PAIC did not meet its burden of production.
To the contrary, the Law Division found Illinois National's evidence insufficient to ultimately persuade it of the supposed shortcomings in the settlement. Indeed, Illinois National failed to allege material facts on this issue in support of or in opposition to summary judgment. See Brae Asset Fund, L.P. v. Newman, 327 N.J. Super. 129, 134 (App. Div. 1999) (bare conclusions in pleadings absent factual support will not defeat a summary judgment motion). Likewise, in its appellate brief, Illinois National has not alleged facts to support this challenge.
The motion court, in granting summary judgment before our remand, rendered a finding that the $1.85 million settlement was not deficient:
The Court finds that if the Township had gone to trial that the verdict could well have exceeded the $1,850,000 settlement, given the potential liability for a wrongful death claim coupled with an emotional distress claim by a young daughter, who witnessed the death of her mother. The Court finds that the settlement was fair, reasonable and entered into in good faith.
Furthermore, the motion court noted, [s]o basically what they did was they -- think what the plaintiff's proofs were as far as the economist was concerned. They didn't think they were out of line. I don't think they were out of line. I don't think that they're obligated then when they go to settle a case to run out and hire an economist. I don't think so.
I think a million-850 for the death of a mother in the presence of that little girl, and I saw that little girl, okay, and I could just have some idea what a jury would have done having that little girl.
You saw her when she testified, very, very pleasant. Your heart just went out to that little girl, very articulate, very pretty little girl. So you can -- you can -- I find that settlement to be reasonable, to be a fair settlement.
Despite the lack of contrary evidence, Illinois National nonetheless urges us to reverse the grant of summary judgment on the basis that the "Township was immune from liability under the New Jersey Tort Claims Act [the TCA], N.J.S.A. 59:1-1 to 12-3[,] and therefore should not have settled at all." This is an oversimplification and ignores the many bases for imposing liability upon a public entity. See e.g., N.J.S.A. 59:2-2; cf. N.J.S.A. 59:4-2. Although the TCA provides a broad spectrum of immunities and defenses, it does not render the settlement of plaintiffs' claims unreasonable as a matter of law.
Illinois National claims that the motion court erred by awarding prejudgment interest to the PAIC, or alternatively, that it erred in finding that the prejudgment interest accrued from April 30, 2006, rather than from April 10, 2008.*fn2
Whether to award prejudgment interest on contract claims is determined by considering equitable principles. Cnty. of EsseX v. First Union Nat'l Bank, 186 N.J. 46, 61 (2006). Thus, it is within the motion court's sound discretion to award prejudgment interest, the exercise of which will be upheld on appeal unless considered to be "a manifest denial of justice." Litton Indus., supra, 200 N.J. at 390. In exercising that discretion, the trial court must consider the basis of the award, which is that the defendant has had the use, and the plaintiff has not, of the amount in question; and the interest factor simply covers the value of the sum awarded for the prejudgment period during which the defendant had the benefit of monies to which the plaintiff is found to have been earlier entitled. [Ibid. (quoting Rova Farms Resort, Inc. v. Invest. Ins. Co., 65 N.J. 474, 506 (1974).]
Our review of the record satisfies us that the Law Division's consideration of the applicable circumstances did result in a partial misuse of discretion. We agree that awarding prejudgment interest was appropriate, but differ with the court in the amount of that award. The Law Division found, which Illinois National does not dispute, that the cause of action against Illinois National arose on October 31, 2005, when the PAIC settled plaintiffs' claims against West Amwell. By applying the six-month directive of Rule 4:42-11(b), the court started the accrual of prejudgment interest on April 30, 2006, which was later in time than the institution of the action on July 22, 2005, when the municipality filed its ill-fated third-party complaint against Illinois National.
The court rejected Illinois National's argument that the date of the "institution of the action" against Illinois National was April 11, 2008, the date the PAIC was substituted as the proper party to pursue the coverage claim. We conclude that it is this latter date that must control the start of prejudgment interest. We believe that the motion court's application of Rule 4:9-3's relation-back principles erodes our holding in Marshall "that West Amwell lost standing to pursue its coverage action against Illinois National once [the] PAIC settled [plaintiffs'] claim on its behalf." Id. at 178. Accordingly, given the long passage of time between plaintiffs' initial filing of the underlying complaint and the time that the PAIC actually participated as a party on its own behalf, we select April 11, 2008 as the appropriate date to commence prejudgment interest.
On cross-appeal, the PAIC argues that the court improperly held that it and Illinois National must contribute to the settlement expenses based upon a pro rata formula. Instead, it urges that equal sharing is required by the insurers' "mutually repugnant" other-insurance clauses. We disagree.
To determine the contribution of two insurers for an overlapping covered claim, a court must examine the other-insurance provisions of both policies. See generally, Cosmopolitan Mut. Ins. Co. v. Cont. Cas. Co., 28 N.J. 554 (1959); see also, W9/PHC Real Estate, supra, 407 N.J. Super. at 199. This analysis discloses first, the status of an insurer's obligation to provide primary or excess coverage when another policy covers the same risk, and second, whether the insurer must contribute to a claim on a pro rata or equal basis, or not until the limits of the other policy have been exhausted. Id. at 197. The first inquiry, therefore, is to identify the nature of the other-insurance clause in each policy. If each policy contains excess other-insurance clauses, the following generally prevails:
In New Jersey, where the two policies in question each have an other-insurance clause stating that it is excess over any other policy, the provisions are "mutually repugnant," and are disregarded. In such instance, the carriers stand on equal footing, with each sharing payment of liability equally until the limit of the smaller policy is exhausted. [Id. at 199.]
On the other hand, if each policy has a pro rata other-insurance clause, we apply the following:
Where the other insurance clause of each policy contains a pro rata provision stipulating that each shall bear a proportion of the loss to the extent of the applicable insurance, then the policies are not mutually repugnant and each carrier must bear its respective proportionate share of the loss. [Ibid.]
Here, the PAIC's other-insurance clause provides, in pertinent part, as follows:
If other valid and collectible insurance is available to any insured for a loss we cover under this coverage, our obligations are limited as follows:
(1) Primary Insurance
This insurance is primary insurance except when (2) below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then we will share with all said insurance by the method described in (3) below.
(2) Excess Insurance
This insurance is excess over any other insurance coverage (noted below), whether primary, excess, contingent or on any other basis:
(b) Loss arising from the maintenance; or
(c) use of autos . . . .
When this insurance is excess over other insurance, we will pay only our share of the amount of the loss, if any, that exceeds the sum of:
(a) the total amount that all such other insurance would pay for the loss in the absence of this insurance; and
(b) the total of all deductible and self-insurance amounts under all such other insurance.
(3) Method of Sharing
If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this method, each insurer contributes equal amounts until:
(a) it has paid its applicable limit of liability; or
(b) none of the loss remains, whichever comes first.
If any of the other insurance does not permit contribution by equal share, we will contribute by limits. Under this method, each insurer's share is based on the ratio of its applicable limit of liability to the total applicable limits of liability of all insurers.
Illinois National's other-insurance clause, amended by Endorsement #19, states:
a. For any covered "auto" you own, this Coverage Form provides primary insurance; however, if there is other collectible insurance the insurance provided by this Coverage Form is excess over such other collectible insurance. For any covered "auto" you don't own, the insurance provided by this Coverage Form is excess over any other collectible insurance. [Emphasis added.]
The remainder of the other-insurance clause is contained in the policy's unamended coverage form:
d. When this Coverage Form and any other Coverage Form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis.
Thus, each insurer's other-insurance clause renders the policies excess. The provisions are "mutually repugnant," and are disregarded. W9/PHC Real Estate, supra, 407 N.J. Super. at 199 (relying on Cosmopolitan Mut. Ins., supra, 28 N.J. at 562). Although each policy negates the other's attempt to transform from primary coverage to excess coverage under the Cosmopolitan rule -- requiring "the general coverage of each policy" to apply -- we must still give voice to their respective contractual promises, which are congruent in providing for pro rata, not equal, contribution in this situation.*fn3
The Illinois National primary insurance contract provides that when any other policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis. [Emphasis added.]
When the PAIC contract is similarly treated as providing primary coverage, it triggers Paragraphs (1) and (3) of its other-- insurance provisions. Under Paragraph (3), pro-rata contribution is applicable because [i]f any of the other insurance does not permit contribution by equal share, we will contribute by limits. Under this method, each insurer's share is based on the ratio of its applicable limit of liability to the total applicable limits of liability of all insurers.
Because the PAIC makes its contribution methodology beholden to the other insurance contract's contributory design in this circumstance, and Illinois National chose to contribute on a pro rata basis, both insurers harmonize. The Law Division properly allocated the settlement and attendant expenses on a pro rata basis.
The PAIC's contention that the Law Division erred by dismissing its breach of contract claim against Raritan Valley Disposal for failure to obtain primary coverage -- arguing that it was an intended beneficiary of the waste collection contract with the right to enforce it -- is without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
In summary, we affirm all aspects of the judgment entered by the Law Division, except for its calculation of prejudgment interest. We reverse and remand that single issue to enable the court to recalculate prejudgment interest in accordance with this opinion and to thereafter enter an amended final judgment. We do not retain jurisdiction.