United States District Court, D. New Jersey
MICHAEL A. SHIPP UNITED STATES DISTRICT JUDGE
matter comes before the Court on Defendant Thomas & Betts
objections 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,
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.
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
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 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.)
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).)
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.)
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. (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. (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.)
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).
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.
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.
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 ...