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New Jersey Manufacturers Insurance Company v. National Casualty Company

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 10, 2012

NEW JERSEY MANUFACTURERS INSURANCE COMPANY, PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
v.
NATIONAL CASUALTY COMPANY, DEFENDANT-APPELLANT/ CROSS-RESPONDENT.

On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-3119-02.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 23, 2012

Before Judges Parrillo and Skillman.

The question presented by this appeal is whether a primary or excess insurer is liable for prejudgment interest awarded to the plaintiff in an underlying tort action.

The insured, Grinnell Haulers, had a primary insurance policy with plaintiff New Jersey Manufacturers Insurance Company (NJM), with a coverage limit of $1 million, and an excess policy with defendant National Casualty Company (NCC), which provided an additional $4 million in coverage.

In the early morning hours of February 16, 1998, a Grinnell employee sideswiped a vehicle occupied by Bernard and Gloria Brodsky, causing it to come to a rest on a shoulder of the highway facing oncoming traffic. Brodsky v. Grinnell Haulers, Inc., 181 N.J. 102, 106 (2004). The Brodskys exited their car and stood on the shoulder. Minutes later, a vehicle driven by William Horsman hit Mr. Brodsky and then the disabled car, which struck Mrs. Brodsky. Id. at 106-07. Mr. Brodsky died soon after, and Mrs. Brodsky suffered severe permanent injuries. Id. at 107.

The Brodskys filed a personal injury and wrongful death action against Grinnell and Horsman. Ibid. Horsman, who was not insured, filed for bankruptcy, and the bankruptcy court discharged Horsman from any debt arising from the accident. Ibid.

At the first trial of the case, conducted in December 2001, the only issues were the apportionment of fault between Grinnell and Horsman and the extent of the Brodskys' damages. Brodsky, supra, 181 N.J. at 107. The jury found Grinnell sixty percent negligent and Horsman forty percent negligent, and awarded the Brodskys $1,640,000 in damages, plus prejudgment interest, for a total judgment of $1,945,533.17. Ibid.

On appeal, we concluded that the trial court erred in giving an ultimate outcome instruction. Brodsky v. Grinnell Haulers, Inc., 362 N.J. Super. 256, 266-74 (App. Div. 2003). However, we concluded that the jury's damages award had not been excessive and thus there was no need for a retrial on the issue of damages. Id. at 278-84. Therefore, we reversed and remanded for a new trial solely on the apportionment of liability between Grinnell and Horsman. The Supreme Court affirmed this decision. Brodsky, supra, 181 N.J. at 128.

In December 2004, the trial on remand took place, which resulted in the same apportionment of liability as the first trial: Grinnell was again found sixty percent negligent and Horsman was again found forty percent negligent. Thus, a judgment in the amount of $1,640,000 was entered against Grinnell, plus $580,322.07 of prejudgment interest.

NJM paid its $1 million policy limit and NCC paid the remaining $640,000 of the damages award. In addition, the carriers entered into an agreement in December 2004, which is discussed later in this opinion, to equally divide responsibility for payment of the $580,322.07 in prejudgment interest on a temporary basis, reserving the right to litigate their obligation for payment of that interest.

NJM brought this action seeking a determination that NCC was obligated to pay the full amount of the interest awarded to the Brodskys. NCC filed a counterclaim seeking a determination that NJM was responsible for payment of the interest.

The trial court initially decided the case on NJM's motion for summary judgment, determining that NJM was only responsible for its $1 million policy limit and that NCC was responsible for the entire judgment above this amount, including the $580,322.07 in prejudgment interest.

On appeal, we reversed this summary judgment. N.J. Mfrs. Ins. Co. v. Nat'l Cas. Co., 393 N.J. Super. 340 (App. Div.), certif. denied, 192 N.J. 481 (2007). We concluded that a primary carrier such as NJM may be held "liable for the payment of prejudgment interest, even if such payment exceeds its policy's coverage limit, [if the] trial court . . . find[s] . . . that the carrier did not engage in good faith negotiations to settle the claim within the policy's coverage limit." Id. at 344. We also concluded that it could not be determined based on the evidentiary material presented to the trial court on NJM's motion for summary judgment "whether NJM violated its fiduciary duty to engage in meaningful, timely, good faith efforts to settle the claims asserted by the party suing its insured within the policy's coverage limit." Id. at 344. Accordingly, we reversed the summary judgment and remanded for an evidentiary hearing.

On the remand, NJM undertook to obtain discovery regarding NCC's own course of conduct in the negotiations for settlement of the Brodsky claims. NCC resisted such discovery on the ground that only NJM's conduct was relevant to NJM's obligation to pay the entire amount of prejudgment interest. The trial court granted NJM's motion to conduct discovery on its claim that NCC had denied the coverage it owed to Grinnell in bad faith and breached its fiduciary duties to Grinnell and NJM, and denied NCC's motion to strike that claim.

NCC filed a motion for leave to appeal from the orders memorializing this ruling, which we denied. NCC then filed a motion for leave to appeal with the Supreme Court, which granted the motion and summarily remanded to us to consider the appeal on the merits.

We concluded in a published opinion that NCC's conduct relating to the negotiations for settlement of the Brodsky claims was relevant to NCC's claim against NJM for the entire amount of prejudgment interest awarded to the Brodskys. N.J. Mfrs. Ins. Co. v. Nat'l Cas. Co., 413 N.J. Super. 94, 101-04 (App. Div. 2010). Accordingly, we affirmed the trial court orders from which the interlocutory appeal had been taken. Id. at 106.

Following our remand to the trial court, NCC abandoned its claim that NJM should be responsible for the prejudgment interest because NJM had failed to negotiate in good faith to settle the Brodsky action within the limits of its policy. Instead, NCC elected to rely solely upon an argument that NJM was responsible for payment of the prejudgment interest based on the "Supplementary Payments" provision of its policy, which provides in pertinent part that NJM "will pay for the insured . . .[a]ll interest on the full amount of any judgment that accrues after entry of the judgment in any suit we defend."

Because this argument was based solely on the interpretation of a provision of NJM's policy, and did not require factual findings regarding NCC's and NJM's claims of bad faith in negotiation of the settlement with the Brodskys that they had been litigating for more than five years, the issue was brought before the trial court by cross-motions for summary judgment. The trial court concluded in an oral opinion that the Supplementary Payments provision of the NJM policy only obligated it to pay "post-judgment," and not "prejudgment," interest, and that the judgment ultimately entered in the Brodskys' favor was the judgment entered after the second trial. Consequently, the court ruled that NJM was not liable for prejudgment interest for the period before that second trial. Accordingly, the court entered summary judgment in NJM's favor determining that NCC was responsible for the full amount of prejudgment interest for the entire period up to the entry of judgment after the second trial. However, the court denied NJM's application for an award of the attorneys fees it incurred in litigating the dispute as to the obligation for the payment of prejudgment interest.

NCC appeals from the part of the judgment denying its motion to impose the obligation for the prejudgment interest that accrued before the second trial upon NJM, and NJM cross-appeals from the denial of its application for attorneys fees.

I.

Initially, we consider NJM's argument that the terms of our remand in New Jersey Manufacturers, supra, 393 N.J. Super. 340, precluded NCC from pursuing its claim that the Supplementary Payments provision of the NJM policy obligated NJM to pay the interest that accrued during the period between the jury verdict in the first trial and the deposit of its policy limits into court. In that appeal, we reversed a summary judgment in NJM's favor on the issue of whether it was liable for prejudgment interest and remanded for an evidentiary hearing on the question whether "NJM's failure to timely offer its policy limit amounted to bad faith, rendering it liable for the payment of all prejudgment interest." Id. at 345. However, we also recognized that NCC had presented other arguments in support of the reversal of the summary judgment in NJM's favor that we were not deciding: our opinion expressly stated that, "[i]n this light" -- that is, the reversal of the summary judgment on the issue of bad faith -- "we need not, and specifically do not reach any of the other arguments advanced by NCC in support of this appeal." Ibid. Although it could be argued, in retrospect, that we should have addressed any of NCC's other arguments that could potentially have obviated the need for the remand on the issue of bad faith, it is clear we did not pass upon those arguments, thus preserving NCC's right to pursue them in the event it was unsuccessful in its claim that NJM's alleged bad faith in settlement negotiations obligated NJM to pay prejudgment interest.

It is also clear that an argument based on the Supplementary Payments provision of the NJM policy was one of the "other arguments" presented by NCC in the prior appeal that we declined to reach. After quoting the Supplementary Payments provision of the NJM policy, NCC argued in that prior appeal:

The Coverage Extension paragraph dealing with interest [i.e., the Supplementary Payments provision] supports NCC's position that interest on the entire amount of the judgment is the responsibility of NJM. There is no definition of the word "accrues" in the policy. The provision does not state that it only applies to post-judgment interest. It talks about "all interest." Interest on a judgment does not accrue until the judgment has been entered, and then the prejudgment interest is calculated. The cases are equally clear that one can deposit the policy proceeds with the court in order to stop the interest from continuing to run. Under these circumstances, since the NJM policy provides for payment of interest up to its depositing money in court, it would appear that the coverage extension provides for all interest payments, no matter how denominated, to be paid by NJM.

Although the argument based on the Supplementary Payments provision that NCC presented in the prior appeal was not as elaborate as the one it presents in this appeal, we conclude that it was sufficient to preserve this point.

The Supplementary Payments provision states in pertinent part:

In addition to the Limit of Insurance, we will pay for the insured:

(6) all interest on the full amount of any judgment that accrues after entry of the judgment in any suit we defend; but our duty to pay interest ends when we have paid, offer to pay or deposited in court the part of the judgment that is within our Limit of Insurance. [Emphasis added.]

By its plain terms, the provision only requires NJM to make a supplementary payment to its insured for "interest . . . that accrues after the entry of the judgment." Thus, this obligation only extends to post-judgment, and not to prejudgment, interest. Moreover, this is the interpretation the Court gave the same language of a Supplementary Payments provision in Kotzian v.

Barr, 81 N.J. 360, 364 (1979).

This case is complicated by the fact that two judgments were entered in favor of the Brodskys against Grinnell: one after the first trial and the other after the second trial following the reversal of the judgment entered after the first trial. If the judgment entered after the first trial had been affirmed on appeal, there is no doubt the interest accruing after entry of that judgment up to the date NJM deposited the $1 million limit of its coverage into court would have been post-judgment interest that NJM would have been obligated to pay under the Supplementary Payments provision. However, we reversed that judgment and remanded for a new trial on liability, and following that trial, a new judgment was entered. That judgment included a substantial award of prejudgment interest, including for the period from the entry of judgment after the first trial and NJM's deposit of the limits of its coverage into court.

NCC seizes upon the fact that the reversal of the first judgment was based solely on the jury's determination of liability and that we, and subsequently the Supreme Court, ordered a new trial on liability only. Brodsky, supra, 362 N.J. Super. at 283-84, aff'd, 181 N.J. at 128. NCC characterizes this disposition as an "affirmance" of the "judgment of damages" and a "reversal" of the "judgment on liability." However, there is one, and only one, judgment in a case such as this, which memorializes the jury's verdict on both liability and damages. If an appellate court reverses either the liability or damages verdict, the judgment is reversed, even if the retrial of the case is limited to either liability or damages. In this case, the trial court recognized this basic principle of civil practice by the entry of an order on September 16, 2004, following the remand for a new trial, that "vacated" the judgment entered after the first trial, while noting that "the verdict on damages [returned in the first trial] will stand[.]" Thus, the only extant judgment in this case is the one entered after the second trial, and all interest awarded for the period before entry of that judgment is prejudgment interest for which NJM has no obligation under the Supplementary Payments provision of its policy.

NCC argues that if the Supplementary Payments provision is construed to be inapplicable in the circumstances presented by this case, it will fail to effectuate its purpose of protecting the insured against the accrual of interest while the insurer pursues an appeal that will serve only the insured's interests if it succeeds. However, we are satisfied for the reasons previously stated that the Supplementary Payments provision cannot reasonably be construed to impose an obligation upon NJM for the payment of prejudgment interest, regardless of the circumstances. Moreover, if NJM were to pursue an appeal in a circumstance that was inconsistent with the interests of its insured, it could be held liable for prejudgment interest based on a breach of its duty of good faith in its defense of the claim against its insured. See Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 489-90 (1974). In fact, NCC's primary claim from May 6, 2005, when it filed its amended counterclaim, until 2011, was that NJM should be liable for prejudgment interest based on such bad faith, see New Jersey Manufacturers, supra, 393 N.J. Super. 340, but NCC abandoned that claim after we held in New Jersey Manufacturers, supra, 413 N.J. Super. at 101-02, that NCC's conduct relating to the settlement of the Brodsky claims was also relevant in determining NJM's liability for the disputed prejudgment interest.

II.

We turn to NJM's cross-appeal from the denial of its application for an award of the attorneys fees it incurred in this action. NJM's application for attorneys fees was based on an agreement NJM and NCC entered into in December 2004 for payment of the prejudgment interest awarded to the Brodskys on a 50/50 basis and the continuation of litigation of their claims against each other over ultimate responsibility for that interest. The applicable paragraph of this agreement states:

NJM and National Casualty reserve their right to seek to recover . . . reasonable attorneys fees, costs and expenses incurred in litigating the issue as permitted by New Jersey caselaw and R. 4:42.

Neither party proffered any extrinsic evidence regarding the intent of this paragraph of their agreement.

The trial court denied NJM's motion on the ground that it was not a "successful claimant" within the intent of Rule 4:42-9(a)(6) because its dispute with NCC over the obligation for the payment of prejudgment interest involved solely the interpretation of the NJM policy rather than a claim under the NCC policy. However, the parties' December 2004 agreement did not refer to Rule 4:42-9(a)(6); it only referred generally to Rule 4:42, which, as indicated by its title, "Judgment; Order; Damages; Costs," deals with a variety of subjects, including under Rule 4:42-9, "Counsel Fees." Although Rule 4:42-9(a) sets forth various categories of cases in which counsel fees may be awarded, including under Rule 4:42-9(a)(6), "[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant[,]" this list is not exhaustive. Parties may also contract to pay counsel fees or be subject to a claim for counsel fees in circumstances that do not fall within any of the category of cases listed in Rule 4:42-9(a). See North Bergen Rex Transp., Inc. v. Trailer Leasing Co., 158 N.J. 561, 570 (1979).

When the parties entered into their agreement regarding prejudgment interest, the underlying Brodsky action had been concluded and a final judgment had been entered. Although the time for appeal has not expired, it is evident from the agreement that no appeal was contemplated. The agreement recited that NJM had tendered its $1 million policy limit in partial payment of the judgment and that NCC had tendered $640,000 in payment of the balance of the principal part of the judgment. Only interest remained unpaid. The agreement provided that NJM and NCC would each pay one-half of that $580,322.07 in interest, thus discharging Grinnell's obligation for the Brodsky judgment, while "reserv[ing]" the two insurance companies' rights to contest between themselves their liability for that interest. Thus, it is evident on the face of this agreement that the only continuing litigation in which NJM and NCC "reserved their right to seek to recover . . . reasonable attorney fees" was the litigation between the two insurance companies, which could have no effect upon their common insured, Grinnell. Therefore, if NCC's contention that NJM's entitlement to attorneys fees under the agreement was dependent upon showing that NCC had improperly denied coverage to Grinnell, there would have been no circumstance under which NCC could be held liable for NJM's attorneys fees because Grinnell's entitlement to discharge of the judgment was conclusively determined by the agreement. A contract "should not be interpreted to render one of its terms meaningless." Cumberland Cnty. Improvement Auth. v. GSP Recycling Co., 358 N.J. Super. 484, 497 (App. Div.), certif. denied, 177 N.J. 222 (2003). Consequently, we reject NCC's interpretation of the attorneys fees provision of the December 2004 agreement and conclude that NJM's success in defeating NCC's claim under the Supplementary Payment provision of the policy was a sufficient predicate for it to seek reasonable attorneys fees.

Accordingly, we reverse paragraph four of the judgment denying NJM's application for attorneys fees and remand that part of the case to the trial court for further proceedings in conformity with this opinion. We affirm the judgment in all other respects.

20120710

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