New Jersey Supreme Court Confirms that Insurers Can Bring Contribution Claims Between Insurers in Lo

There is a never ending saga of insurers seeking to redistribute costs, often after having stiffed their insured for many years. Another chapter in the story was written this month as the New Jersey Supreme Court ruled in Potomac Ins. Co. of Ill. v. Pa. Mfrs. Ass’n Ins. Co. (Sept. 16, 2013), which considered issues arising from principles stated in Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437 (1994). The Court held that one insurer could claim against another, regardless of a release signed by the insured.

The ruling is summarized in an article by Michael Savett. The opinion – and a syllabus – are online here at no cost. The syllabus includes the following summary of the ruling:

"HELD: OneBeacon’s contribution claim was valid because an insurer may assert, against a co-insurer, a claim for defense costs incurred in litigation arising from property damage manifested over a period of several years, during which the policyholder is insured by successive carriers. The release negotiated between Aristone and PMA had no bearing on OneBeacon’s contribution claim against PMA because OneBeacon was not a party to the release.

1. In answering the question of whether an insurer can seek contribution for defense costs from a co-insurer in the context of property damage litigation, the Court derives its analysis from the principles it expressed in OwensIllinois. There, the Court adopted the “continuous trigger” theory for personal injury and property damage claims, stating that progressive indivisible injury or damage arising from exposure to injurious conditions may be treated as an occurrence within each of the years of a CGL policy. Consistent with public policy and principles of fairness, the Court used a pro rata formula to distribute responsibility among the multiple insurers, allocating losses on the basis of the extent of the risk assumed. When multiple insurance policies are implicated by the continuous trigger

analysis, the Court envisioned the litigation of direct claims between co-insurers to ensure the equitable allocation of the policyholder’s losses. The principles established in Owens-Illinois have been consistently applied to a variety of disputes between policyholders, insurers, and co-insurers. (pp. 16-21)

2. Recognizing an insurer’s cause of action for contribution against a co-insurer for allocation of defense costs comports with the principles of Owens-Illinois. Like the obligation to indemnify, the obligation of successive insurers to pay the policyholder’s defense costs can be ascertained by equitable allocation. Permitting claims for allocation of defense costs creates a strong incentive for prompt and proactive involvement by all responsible carriers, thereby promoting the efficient use of resources. Additionally, the potential for such claims promotes early settlement, which will conserve resources and promote New Jersey’s policy in favor of dispute resolution. In such cases, fairness demands that a co-insurer’s responsibility to pay for its share of defense costs ceases at the time it settles. Allocation of defense costs also creates an incentive for individuals and businesses to purchase sufficient continuous coverage, and serves the principle of fairness recognized in Owens-Illinois. Although the California law

on which the Appellate Division relied employs a different allocation method than that used in New Jersey, a contribution claim for defense costs is compatible with New Jersey’s method as well. Thus, OneBeacon was properly permitted to assert a direct claim against PMA for contribution of a portion of the defense costs. In light of the continuous property damage spanning a period during which PMA provided coverage, PMA’s obligation to defend and indemnify the common insured, and OneBeacon’s payment in excess of its share of the defense costs, the trial court properly allocated sixteen percent of the defense costs to PMA. (pp. 21-28)

3. With respect to Aristone’s settlement with PMA, the language of the release, in which OneBeacon played no role, does not provide support for the notion that OneBeacon intended to waive its right of contribution against PMA. Although it extinguished Aristone’s claims against PMA for attorneys’ fees and costs, it did not prohibit OneBeacon from seeking contribution against PMA on its own behalf. There was no meeting of the minds between OneBeacon and PMA regarding disposition of the contribution claim. Thus, OneBeacon’s contribution claim was not barred or limited by the release between Aristone and PMA. (pp. 28-30)

The judgment of the Appellate Division is AFFIRMED."

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About Kirk

Since becoming a lawyer in 1983, Kirk’s over 30 years of practice have focused on advising a wide range of corporations, associations, and individuals (as both plaintiffs and defendants) on both tort and commercial law issues centered around “mass torts.”

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