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The Travelers Indemnity Co. v. Thomas & Betts Corporation

United States District Court, D. New Jersey

July 26, 2017

THE TRAVELERS INDEMNITY COMPANY, et al., Plaintiffs,
v.
THOMAS & BETTS CORPORATION, Defendant.

          MEMORANDUM OPINION

          MICHAEL A. SHIPP UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on Defendant Thomas & Betts Corporation's ("Defendant") objections[1] to Special Master Joel Rosen's ("Special Master Rosen") Report and Recommendation ("R&R"), granting Plaintiffs The Travelers Indemnity Company, The Travelers Indemnity Company of Connecticut, and Travelers Casualty and Surety Company's (collectively, "Plaintiffs") Motion for Partial Summary Judgment concerning the methodology for allocating defense and indemnity costs incurred by Defendant, [2] and denying Defendant's Cross-Motion for Partial Summary Judgment concerning a different allocation methodology. (ECF No. 75.) Plaintiffs opposed the Motion (ECF No. 78), and Defendant replied (ECF No. 79). The Court has carefully considered the parties' submissions and decides the matter without oral argument pursuant to Local Civil Rule 78.1. For the reasons stated below, the Court adopts Special Master Rosen's R&R and grants Plaintiffs' Partial Motion for Summary Judgment.

         I-Introduction

         Special Master Rosen concluded that Plaintiffs' Motion for Partial Summary Judgment should be granted because, under Owens-Illinois, Inc. v. United Insurance Co., "any allocation should be in proportion to the degree of the risks transferred or retained during the years of exposure, " where the degree of risk transferred is measured by the amount of coverage purchased. (R&R 9-10, ECF No. 74 (quoting Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974, 993 (N.J. 1994)).) In assessing the risk transferred, Special Master Rosen found that there was no precedent in New Jersey excluding excess or umbrella coverage based on the probability that the policy would be called upon to pay a claim. (Id. at 10-11.) Relying on Owens-Illinois, Special Master Rosen found that under New Jersey law, coverage purchases reflect the degree of risks transferred. (Id. at 12.) To that end, because excess and umbrella coverage purchases are a type of risk transfer and the parties agreed that New Jersey law applies, Special Master Rosen concluded that such coverage should be included in the allocation methodology. (Id. at 3 n.2 (citing July 9, 2015 Stip. Ex. E, ECF No. 59-32).)

         Before Special Master Rosen, Plaintiffs argued "for an allocation methodology spreading the costs of a given claim over all of the policy years triggered by the claim in proportion to [the] total[3] amount of insurance purchased by [Defendant] (or the amount of risk retained by [Defendant]) for each of the triggered policy periods." (R&R 4-5.) In support of their position, Plaintiffs argued that the New Jersey Supreme Court has "adopted the 'continuous trigger theory' for long-tail asbestos injury, which holds that such injury shall be treated as 'an occurrence within each of the years of a [Commercial General Liability] policy, ' thereby 'triggering' the policies for each year from the date of first exposure through manifestation." (Id. (citing Aug. 8, 2016 Submission 8).) Thus, relying on Owens-Illinois and Carter-Wallace, Inc. v. Admiral Insurance Co., 712 A.2d 1116 (NJ. 1998), Plaintiffs argued that '"the percentage share of risk assumed in each triggered policy period' should be calculated by applying" a formula that accounts for triggered umbrella and excess policies. (R&R 5-6.)

         Defendant, on the contrary, argued "for a different allocation formula-one that only takes into account the primary level of coverage and not the excess or umbrella policies." (R&R 6.) In support of its position, Defendant made an equitable argument, asserting that "a special master has substantial discretion in developing an allocation 'that fairly reflects the risks assumed or transferred.'" (Id. (citing Sept. 6, 2016 Submission 15).) Defendant, therefore, argued that "justice is best served by only including the primary policies in the allocation calculation because the underlying claims are so small . . . that there is no reasonable probability that the umbrella or excess policies will ever be reached or 'triggered.'" (Id. at 6-7 (citing Sept. 9, 2016 Submission).) Under Defendant's proposed methodology allocation, the excess and umbrella policies should not be taken into account because "the primary policies have an unlimited defense obligation, [and, consequently, ] the excess and umbrella policies will never be reached in connection with the defense costs." (Id. at 7 (citing Sept. 9, 2016 Submission 16).)

         Special Master Rosen found that "[t]he insurance purchasing patterns of [Defendant] demonstrate that when [Defendant] wanted to transfer more risk, they did so by purchasing increasing levels of excess and/or umbrella coverage." (R&R 12.) Special Master Rosen, therefore, concluded that Plaintiffs' Motion should "be granted to the extent it agrees with the analysis and allocation methodology set forth [in the R&R] and denied to the extent it does not." (R&R 15.)

         II. Parties' Positions

         The parties disagree on the appropriate allocation methodology for indemnity and defense costs, and on whether excess and umbrella policy limits are included in the allocation methodology when it is unlikely that such coverage will be utilized to pay a claim.[4] (See Def.'s Moving Br. 8; Pis.' Opp'n Br. 9, ECF No. 78.) Defendant contends that the relevant primary polices in this case will never be exhausted, and that including the excess and umbrella policies in the allocation methodology violates the equitable principles set forth in Owens-Illinois and its progeny. (Def.'s Moving Br. 8-9.) Defendant, therefore, argues that based on the specific facts of this case, the Court should consider the probability that the excess and umbrella coverage would be triggered due to exhaustion of primary coverage when determining whether to include excess and umbrella coverage in the allocation methodology.[5] (Id. at 8-9, 14-15; Def.'s Reply Br. 1-2, ECF No. 79.) Plaintiffs argue that, because New Jersey law applies to Defendant's purchase of excess and umbrella coverage, the coverage should be included in the calculation of risk transferred under the controlling standard set forth in Owens-Illinois and its progeny. (Pis.' Opp'n Br. 3, 9-16.)

         III. Discussion

         Special Master Rosen relied on Owens-Illinois in determining whether excess and umbrella coverage should be considered in the allocation methodology. (R&R 11.) According to Owens-Illinois, "any allocation should be in proportion to the degree of the risks transferred or retained during the years of exposure [to injurious conditions], . . . i.e., proration on the basis of policy limits, multiplied by years of coverage." 650 A.2d at 993. "The Owens-Illinois method intentionally assigns a greater portion of indemnity costs to years in which greater amounts of insurance were purchased[.]" Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 978 F.Supp. 589, 605 (D.N.J. 1997).

         Although Owens-Illinois only considered co-insurers' indemnity cost obligations, defense costs are allocated in the same manner. Potomac Ins. Co. of III. ex rel. OneBeacon Ins. Co. v. Pa. Mfrs. • Assn Ins. Co., 73 A.3d 465, 474-75 (N.J. 2013) (holding that the "allocation of defense costs comports with Owens-Illinois and its progeny"). Rather than require "each layer of insurance [to] be exhausted across all of the triggered policy years before the next layer would be allocated[.] . . . apportionment of damages among policy years [is done] without reference to the layering of policies in the triggered years." Carter-Wallace, 712 A.2d at 1123. The allocation for both defense and indemnity costs, therefore, are based on the degree of risk transferred as reflected by the purchase of insurance, regardless of the likelihood that the policy will answer a claim.

         In their briefs, the parties cite to Ward Sand & Materials Co. v. Transamerica Insurance Co., No. L-4130-09, 2016 WL 237781, at *1 ( N.J.Super.Ct.App.Div. Jan 12, 2016), an unpublished decision by the New Jersey Appellate Division that discusses Owen-Illinois and its progeny with respect to insurance cost allocation for long-tail environmental contamination. (See Def's Moving Br. 12-13; Pis.' Opp'n Br. 13-14.) The Ward Sand court addressed the allocation of coverage among primary and excess insurers, some of which were insolvent, by applying the Owens-Illinois methodology. Ward Sand & Materials Co., 2016 WL 237781 at *4. In Ward Sand, the plaintiff argued that, because insolvent insurers would never answer its claims, the "sums allocated to insolvent insurers should be reallocated among solvent primary and excess insurers." Id. at *1. The appellate court rejected this argument, holding that "the allocation . . . include[ed] the full policy limits as contained in the written policies for all policies[, including those that will never answer a claim, ] issued to [the plaintiff] and in effect during the triggered policy coverage years." Id. at *2.

         Defendant argues that Ward Sand is distinguishable because it involved allocation to insolvent policies. (Def's Moving Br. 12.) The Court finds Ward Sand and its application of the Owens-Illinois allocation methodology persuasive with respect to cost allocation to purchased excess policies, regardless of the likelihood that such coverage will answer a claim. The Owens-Illinois court, which did not address the allocation of excess and umbrella coverage, further noted that one prospective encumbrance to its proposed solution was determining "how primary and excess coverage [would] be taken into account" in assessing the degree of risk assumed. 650 A.2d at 994. The court held that it must endow "a substantial measure of discretion in a master who must develop the formula that fairly reflects the risks assumed or transferred [J" finding that "[a]bove all, the master should develop a workable system for efficient assignment and ...


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