On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-63-03.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Payne, Reisner and Accurso.
John Crane, Inc. (JCI), a Delaware corporation with its principal place of business in Illinois, was, until approximately twenty-five years ago, engaged in the business of manufacturing industrial packings and gaskets containing asbestos. As a result, commencing in 1979, it was named as a defendant in multiple lawsuits resulting in the payment of $350,000,000 for defense and indemnification as of June 30, 2009.
JCI was covered by policies of excess liability insurance from January 1, 1958 to December 31, 1985. During the policy period of November 30, 1982 to November 30, 1983, JCI was insured by Integrity Insurance Company under a third-level excess liability insurance policy number XL 206904 in the amount of $3,000,000. Underlying that coverage was primary insurance issued by Lumbermens Mutual Insurance Company with occurrence limits of $250,000; umbrella/first-level excess coverage issued by Integrity with limits of $2,000,000; and second-level excess coverage issued by Twin City Fire Insurance Company with limits of $5,000,000. In total, Integrity issued nine policies of liability insurance to JCI covering various policy periods at differing levels.
In 1987, Integrity, a New Jersey insurer, was declared insolvent and placed in liquidation. During the course of the liquidation proceedings, JCI filed proofs of claim in connection with four Integrity policies, seeking recovery pursuant to the "pro rata" coverage allocation principles established by the New Jersey Supreme Court in Carter-Wallace, Inc. v. Admiral Insurance Co., 154 N.J. 312 (1998). The Liquidator allowed claims in connection with three of those policies in the total amount of $7,558,696.30. The Liquidator denied JCI's claim on policy XL 206904, seeking $1,086,408 in defense costs, filed on June 29, 2009, one day before the claim bar date, on the ground that JCI had failed to demonstrate exhaustion of the underlying coverage issued by Twin City.*fn1 In that connection, JCI took the position that the Twin City policy covered defense costs within its policy limits thereby exhausting the $5,000,000 in coverage provided by the policy, whereas the Liquidator claimed that coverage of defense costs was in addition to policy limits, and thus untapped coverage in the amount of $2,364,471 remained.
Following issuance by the Liquidator of the Notice of Decision denying JCI's claim, JCI requested a hearing before the Special Master appointed to resolve disputes arising from the Integrity liquidation proceedings. In briefing submitted to the Special Master, JCI argued that the Liquidator's construction of the terms of the Twin City policy was incorrect. Additionally, JCI argued for the first time that the Liquidator should have applied Illinois law and thus evaluated its claim under the "all sums" approach recognized by the Illinois Supreme Court in Zurich Insurance Co. v. Raymark Industries, Inc., 514 N.E.2d 150 (Ill. 1987).
Under the "pro rata" approach adopted in Carter-Wallace, allocation of insurance coverage among carriers whose coverage is triggered takes into consideration both the insurer's time on the risk and the degree of risk that it has assumed. Thus, allocation occurs "'in proportion to the degree of the risks transferred or retained during the years of exposure'" to the toxic substance at issue. Carter-Wallace, supra, 154 N.J. at 327 (quoting Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 475 (1994)).
In contrast, Raymark Industries rejects a "pro rata" allocation as inconsistent with policy language requiring the insurer to pay "all sums which [the insured] shall become legally obligated to pay as damages because of . . . bodily injury . . . caused by an occurrence." Raymark Indus., supra, 514 N.E.2d at 165. Under the "all sums" or "joint-and-several" approach adopted by the Raymark Industries Court, "each carrier whose policy is triggered is jointly and severally liable for the total indemnity and defense costs of a claim without proration." Ibid. We have observed:
The principal differences between the two approaches are (1) under a pro rata approach, the insured bears the risk of loss in periods in which no insurance was in force, whereas under the joint-and-several approach, the insured bears no risk until coverage is wholly exhausted, and (2) under a pro rata approach, the coverage obligations of triggered carriers are determined at the outset, whereas under a joint-and-several approach, a designated triggered carrier can spread the risk only by paying the claim and then seeking contribution from other triggered carriers. [Century Indem. Co. v. Mine Safety Appliances Co., 398 N.J. Super. 422, 429 (App. Div. 2008).]
The Special Master rejected JCI's arguments in a written opinion in which he upheld the Liquidator's construction of the Twin City policy to provide for defense costs in addition to occurrence limits, and he rejected the application of Illinois law to the allocation issue, determining that New Jersey had a greater interest in the allocation issue that JCI raised. Upon further appeal, the decision of the Special Master was affirmed in the Law Division.*fn2
In the present appeal, JCI presents the same arguments that it offered previously, again contending that the Liquidator misconstrued the terms of the coverage offered by Twin City, recognizing that the policy at issue affords coverage for defense costs but arguing that such costs are included in "ultimate net loss" as defined in the policy. It argues additionally that, as the result of the applicability of Illinois law, the matter should be recommitted to the Special Master pursuant to Rule 4:41-5(b) with instructions that he reevaluate JCI's ...