On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-10529-98.
The opinion of the court was delivered by: Fasciale, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Sabatino, Ashrafi and Fasciale.
The opinion of the court was delivered by FASCIALE, J.A.D.
In this insurance coverage dispute, plaintiff Building Materials Corporation of America d/b/a GAF Materials Corporation (GAF) appeals from a judgment of no cause of action entered after a lengthy jury trial; and defendant National Union Fire Insurance Company of Pittsburgh, PA (National Union) cross-appeals from an order denying its motion for a new trial on its counterclaim. We affirm on the appeal and cross-appeal.
After settling a class action lawsuit in which claimants alleged potential third-party property damage, GAF sought indemnification under a National Union insurance policy that excluded coverage for property damage to GAF's own products. Consistent with recognized principles of insurance law, the parties do not dispute that if GAF offered sufficient evidence to establish a prima facie loss within the coverage of the policy, then the burden of proving that the loss fell within the exclusionary provisions of the policy would shift to National Union.
The primary issue on appeal is whether GAF may establish a covered loss under the policy by showing either that the class action claimants alleged potential damage to third-party property, or that the class action settlement included payment for third-party property damage. We hold that on its claim for indemnification under National Union's insurance policy, GAF cannot establish a prima facie case of covered loss simply by demonstrating that the class action claimants alleged potential third-party property damage; rather, it must show that the underlying settlement actually included payment for such claimed damages. The burden then shifts to National Union to show that the policy excludes the loss. Because GAF's proofs at trial failed to satisfy these requirements, the jury verdict rejecting GAF's claims was legally sound. Additionally, we affirm the judgment dismissing the counterclaim.
GAF is a manufacturer of organic and fiberglass roofing shingles. Its shingles are sold with limited warranties that require GAF to replace its defective products at a reduced cost. A customer may invoke the warranty provisions by reporting a premature deterioration or other irregularity of the shingles. GAF received thousands of complaints that its shingles aged and cracked prematurely.
On March 20, 1996, a class action lawsuit was filed in the Alabama state courts on behalf of various homeowners against GAF (underlying lawsuit or Coleman claimants).*fn1 The Coleman claimants alleged that their GAF roofing shingles were defective because they began to deteriorate "only a few years after installation." They also alleged that GAF committed fraud by concealing the defects from the public, violated the consumer protection statutes of various states, breached express and implied warranties, and acted negligently.*fn2
In addition to obtaining coverage at various times from other insurers, GAF purchased a claims-made, excess general liability insurance policy (the policy) from National Union with a policy period of March 28, 1996 to March 28, 1997. The policy provided a liability limit of $25 million, excess of a $2 million self-insured retention. The policy excluded coverage for property damage to GAF's own products.
In 1996, GAF notified National Union that it had been served with the complaint in the underlying lawsuit. GAF advised National Union that it believed that the allegations were without merit, selected defense counsel, and promised to keep National Union informed. GAF then retained defense counsel "to protect [GAF's] interests."
In 1997, National Union advised GAF that it reserved its rights to disclaim coverage for the Coleman claimants and requested more information to evaluate the lawsuit. National Union explained that Coleman involved allegations that the roof shingles were rigid and inflexible and inherently weak to the extent that they could not adequately contract or expand with changes in temperature. This alleged rigidity and weakness in the product caused the shingles to become prone to cracking and/or splitting after only a few seasons or years of use.
National Union warned GAF that "[s]hould these claims not involve 'property damage,' as defined by the policy, there is no coverage."
On September 24, 1998, GAF settled the underlying lawsuit for approximately $63 million dollars.*fn3 In its settlement notice, GAF explained that "[t]he Settlement allows Eligible Claimants . . . to recover certain costs of repair or replacement of Damaged GAF Shingles." The settlement also established a compensation formula. Coleman claimants generally had the option of receiving compensation in the form of (1) cash for labor plus a coupon for replacement roofing shingles; (2) all cash for both labor and materials; or (3) a coupon for upgraded replacement materials at a reduced cost.
The settlement agreement defined "damage" to GAF shingles as any defects adversely affecting the performance of the shingle during its warranty term. The agreement defined "consequential damages" as damage to the structure or contents of a Property resulting from Damage to GAF Shingles. Consequential Damages do not include any labor or material costs associated with the repair or replacement of the GAF Shingles or any other roofing materials (e.g., flashing, underlayment, gutters, drip edge, and ice and water barrier).
The agreement further stated that [c]laims for Consequential Damages are not released by the terms of this Agreement, and by filing a Claim in the Claims Program, a Settlement Class Member does not release or prejudice his/her right to seek recovery for any Consequential Damages outside the context of this Settlement and the Claims Program. Where Consequential Damages are sought, the Parties agree that Settlement Class Members shall be limited to compensatory damages only. . . . [GAF] retains all legal and factual defenses to any claim for Consequential Damages.
GAF created a call center to answer general questions from claimants about compensation under the settlement agreement. A worksheet used at the call center provided the following anticipated question and answer:
Question: Will compensation for damages include the removal and replacement of roofing felt, flashing, caulking, etc. and disposal of old shingles?
Answer: As spelled out in the Settlement Agreement, compensation is based on (among other things) the type of shingle, the number of Damaged squares, and the age of the shingles. Labor costs, for those Claimants entitled to them, are related to the cost to install new shingles only and do not include removal costs or costs associated with the repair or replacement of other roofing components (e.g., flashing, roofing felt, etc.). This is explained in more detail in the notice package.
In a letter to a Coleman claimant, GAF stated: "The warranty settlement is not based on the current cost to replace your roof. The costs of labor, tear-off, flashing, materials other than the shingles themselves, and other damages are not covered by the limited warranty."
On October 23, 1998, after National Union denied GAF's claims under the policy, GAF filed its complaint against National Union and other insurance companies.*fn4 Pursuant to the Uniform Declaratory Judgment Act, N.J.S.A. 2A:16-50 to -62, GAF sought a declaration that National Union wrongfully refused or disputed its obligation to pay GAF's defense costs and indemnify GAF in the underlying lawsuit. GAF also alleged that National Union breached its contract by refusing to defend and indemnify GAF, and acted in bad faith by failing to conduct an adequate investigation of the underlying lawsuit.*fn5
National Union filed a counterclaim against GAF and alleged that GAF (1) negligently and intentionally failed to disclose certain material facts when GAF submitted an application to National Union for excess insurance; (2) committed equitable fraud justifying rescission of the policy or reformation to exclude the Coleman claimants; and (3) violated the New Jersey Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30.
Pretrial discovery proceeded for several years with the assistance of a special discovery master. Jury selection commenced more than twelve years after GAF filed its complaint.*fn6
Judge Vincent LeBlon tried the case on twenty-three days from January to March 2010. At the close of all evidence the judge dismissed GAF's bad faith claim that National Union failed to adequately investigate the underlying lawsuit. The jury returned a verdict of no cause of action on the remaining claims and the judge entered a judgment dismissing the complaint and counterclaim.
National Union filed a motion for a new trial on its counterclaim, or alternatively, a judgment notwithstanding the verdict, and GAF filed a cross-motion for a new trial. The trial judge conducted oral argument and issued a written opinion denying both motions. After finding GAF's motion untimely, he noted that GAF's evidence had "serious credibility issues" and found that the jury's verdict did not constitute a miscarriage of justice under the law. He further stated:
Plaintiff argues that the jury's conclusion that GAF made no payment to the Coleman claimants other than for the costs of defective shingles was unsupported by the evidence. However, throughout the trial, Defendant repeatedly attacked the credibility of Plaintiff's evidence. In many cases, Plaintiff's own claim files demonstrated that the Coleman claimants did not receive enough to compensate for the replacement of all the shingles, let alone the damage to the other parts of the roof.
On appeal, GAF argues that the court erred by (1) imposing on GAF the burden of proving that the Coleman settlement encompassed damages to property other than GAF's own shingles; (2) issuing a spoliation charge regarding markings that were made on some of the claim files by GAF's reviewers; (3) allowing National Union to designate an expert witness shortly before trial, thereby truncating GAF's opportunity to rebut that defense expert; (4) partially dismissing GAF's bad faith claims at the close of the evidence; and (5) denying GAF's pretrial motion to amend the pleadings to include a separate "occurrence" policy issued by National Union. In support of its cross-appeal, National Union contends that the judge erred by denying its motion for a new trial because GAF violated the IFPA.
We begin by addressing GAF's contention that the judge wrongfully required it to establish, as a prerequisite to coverage, that some of the money GAF paid to settle the underlying Coleman lawsuit compensated claimants for damage to property other than defective shingles. GAF asserts that the jury charge and verdict sheet misapplied the law and maintains that by requiring it to prove payment for third-party property damage, the trial judge departed from the law of the case established in various pretrial rulings.
We reject GAF's argument that, in the context of underlying mass tort claims and the applicable policy language, it does not have the burden to prove it paid for damage to third-party property. GAF asserts that it established a prima facie case of a covered loss under the policy by showing that it settled claims alleging potential damage to property other than GAF's shingles. We disagree.
"An insurance policy is a contract that will be enforced as written when its terms are clear in order that the expectations of the parties will be fulfilled." Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010). Pursuant to its policy here, National Union agreed to pay on behalf of the Insured that portion of the ultimate net loss in excess of the Retained Amounts . . . which the Insured shall become legally obliged to pay as . . . damages . . . because of . . . Property Damage . . . caused by an occurrence to which this insurance applies[.]
The policy defined "property damage" as "physical injury to or destruction of tangible property," and defined "occurrence" as "an event, including continuous or repeated exposure to conditions, which result[s] in Personal Injury and Property Damage neither expected [n]or intended from the standpoint of the Insured." Pursuant to the own-product exclusion, the policy does not apply to
a. the Insured's products arising out of such products or any part of such products;
b. work performed by the Insured or on the Insured's behalf arising out of the work or any portion thereof, or out of material, parts or equipment furnished in connection therewith[.]
The parties agree that under the terms of the policy, unintended damage to third-party property, rather than damage to GAF's shingles, constitutes a covered loss.
When an insured seeks indemnification under a general comprehensive liability policy that contains an own-product exclusion, the insured must first establish that its claim is covered under the policy's insuring clause. Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 249 (1979) (emphasis added) (stating that a claim must be "cognizable under the general grant of coverage in the first instance in order to constitute a claim 'to which this insurance applies'"); Firemen's Ins. Co. of Newark v. Nat'l Union Fire Ins. Co., 387 N.J. Super. 434, 441 (App. Div. 2006) (stating that "if there was no coverage under the insuring clauses, there is no need to consider whether coverage is negated by the exclusions"); Newark Ins. Co. v. Acupac Packaging, Inc., 328 N.J. Super. 385, 400 (App. Div. 2000) (requiring insured to prove third-party property damage to the jury before coverage would be afforded); Heldor Indus., Inc. v. Atl. Mut. Ins. Co., 229 N.J. Super. 390, 397 (App. Div. 1988) (holding that "there must first be a finding of physical damage to tangible property from which the consequential damages flow").
If the insured offers sufficient credible evidence to establish a prima facie loss within the coverage of the policy, the burden of proving that the loss falls within the exclusionary provisions of the policy shifts to the insurer. Kopp v. Newark Ins. Co., 204 N.J. Super. 415, 421 (App. Div. 1985); see also Wakefern Food Corp. v. Liberty Mut. Fire Ins. Co., 406 N.J. Super. 524, 538 (App. Div.) (quoting S.T. Hudson Eng'rs, Inc. v. Pa. Nat'l Mut. Cas. Co., 388 N.J. Super. 592, 603-04 (App. Div. 2006), certif. denied, 189 N.J. 647 (2007)), certif. denied, 200 N.J. 209 (2009); Cobra Prods., Inc. v. Fed. Ins. Co., 317 N.J. Super. 392, 401 (App. Div. 1998), certif. denied, 160 N.J. 89 (1999) (citing Hartford Accident & Indem. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. 18, 26 (1984)).
GAF argues that it did not have the burden to establish that it compensated the Coleman claimants for damage to their personal property. However, the cases on which GAF relies do not constitute reliable or persuasive authority. Moreover, "[n]o unpublished opinion shall constitute precedent or be binding on any court," and with limited exceptions, inapplicable here, "no unpublished opinion shall be cited by any court." R. 1:36-3; see Guido v. Duane Morris LLP, 202 N.J. 79, 91 n.4 (2010); Acupac, supra, 328 N.J. Super. at 394 n.4. Therefore, we reject GAF's unsupported argument in light of the established authority set forth above.
GAF further argues that National Union is obligated to indemnify it for the costs of the settlement because the Coleman claimants raised claims that the policy might have covered. We rejected this contention in Heldor, supra, 229 N.J. Super. at 398, where the plaintiff argued that defendants "owed a duty to defend because [the claimant in the underlying case] stated a cause of action 'which may potentially' come within the coverage provided by the policies." There, we held:
It is true that the general approach is that the carrier has a duty to defend whenever the underlying complaint alleges a basis for liability within the covenant to pay.
However, the dut[ies] to defend and indemnify are "closely related and . . . neither duty exists except with respect to occurrences for which the policy provides coverage." [Id. at 398-99 (second alteration in original) (citations omitted) (quoting Hartford Accident & Indem. Co., supra, 98 N.J. at 22).]
In Heldor, we concluded that the insured was required to present proof of coverage before it could invoke the duty to indemnify. Id. at 399. Here, GAF cannot establish a prima facie case of covered loss for purposes of indemnity*fn7 simply by demonstrating that the Coleman claimants alleged third-party property damage; rather, it must show that the underlying settlement actually included payment for such damages.
We envision that our holding today will affect how other class action lawsuits may be resolved. We note therefore that when deterioration of an insured's product is increasing and causing collateral damage to third-party property which would otherwise constitute a covered loss under its insurance policy, the insured need not wait for augmented damage before negotiating a settlement with class plaintiffs. In other words, under a policy that includes an own-product exclusion, the insured should not have to assume and calculate, against itself, damages that its own product may cause to third-party property to preserve the ability to seek coverage later in a declaratory judgment lawsuit. Nor should the insured have to forego settlement and wait for additional deterioration. Such a state of affairs encourages neither a swift nor an economic resolution. When an insured knows, as GAF claims to have known here, that there is a likelihood of continuing third-party damage flowing from its own product that would constitute a covered loss under its insurance policy, it is incumbent upon the insured to articulate to a reasonable degree of certainty what portion of its overall damages constitute a covered loss. Acupac, supra, 328 N.J. Super. at 400. This can be accomplished either by direct evidence of payment for third-party damages or by competent testimony demonstrating that third-party losses were a reasonably likely consequence of damages to the insured's product.
Here, there is no reason to believe that the jury returned a verdict of no cause because it rejected GAF's evidence of payment for third-party damages. Nothing in the record indicates that GAF introduced such evidence. In fact, GAF's damages expert, Peter Vollmar, testified that there would have been no business reason for the claim files to detail non-shingle damage even where such damage actually occurred. He testified that payments for such third-party damage ...