The opinion of the court was delivered by
WAUGH, J.A.D.
Defendant Pennsylvania Manufacturers' Association Insurance Company (Pennsylvania) appeals from the Law Division's amended judgment in favor of plaintiff OneBeacon Insurance Company (OneBeacon).
We discern the following facts and procedural history from the record on appeal.
The Evesham Township Board of Education (Evesham) filed the underlying action in December 2001, alleging that several defendants were responsible for the negligent design and construction of one of its middle schools. Evesham's complaint alleged, in part, that there was continuous damage from water infiltration from the time the construction was completed in 1993 until the time its action was filed. Aristone, the general contractor for the project, was named as a defendant.
At different times between 1993 and 2003, Aristone was insured under standard commercial general liability policies issued by four carriers: Selective Way Insurance Company (Selective Way), OneBeacon, Pennsylvania, and Royal Insurance Company (Royal), each with coverage limits of $1 million. Pennsylvania insured Aristone through two one-year policies from 1993 to 1995. OneBeacon insured Aristone through a one-year policy for 1997 and for 1998.
After Evesham filed suit, Selective Way assumed Aristone's defense and appointed an attorney to defend Aristone. OneBeacon subsequently joined with Selective Way in providing Aristone's defense, and appointed the same attorney to defend Aristone on its behalf.
In October 2002, Pennsylvania disclaimed any obligation to defend or indemnify Aristone, asserting that Evesham's complaint either failed to state an occurrence under Aristone's policy or, if it did, that the claim was barred by the policy's business risk exclusion. Royal also disclaimed coverage under its policy.
The roof for the Evesham school was constructed by Ertle Roofing and Sheet Metal Works (Ertle), one of Aristone's subcontractors. The contract between Aristone and Ertle required Ertle to indemnify and hold Aristone harmless "against any claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from" Ertle's performance. Aristone filed a third-party complaint against Ertle in the underlying action, seeking indemnification under the terms of their contract.
Ertle was insured by Camden Fire Insurance Association (Camden), an affiliate of OneBeacon. In August 2003, Camden denied coverage to Aristone as an additional insured under Ertle's policy with Camden, contending that Ertle had not named Aristone as an additional insured as required by Camden's policy.
In June 2004, Aristone filed a declaratory judgment action against Pennsylvania and Royal, but not Camden. The complaint was signed by the attorney appointed by OneBeacon and Selective Way to represent Aristone. In November 2006, Aristone and Pennsylvania agreed to submit their dispute to arbitration before a
In February 2007, Aristone and Pennsylvania agreed to a $150,000 settlement. Pennsylvania's attorney drafted the release and submitted it to Aristone's appointed attorney for review. He requested changes that will be discussed in more detail below. The release was executed on March 2, 2007.
Paragraph 1.1 of the release defines Aristone as including any and all persons, including corporations, "insured or claiming, or which in the future may claim, any right[,] title or interest in or under the [Pennsylvania] Policy." The release applied to all claims, and potential claims, that Aristone might have had against Pennsylvania, and specifically the following claims:
Paragraph 5 of the release, entitled "Who is Bound," provides that in addition to Aristone, "[a]nyone who succeeds to [Aristone's] rights and responsibilities as defined by law is also bound." Paragraph 10 of the release, entitled "No Rights Conferred Upon Non-Parties," states:
Paragraph 16 and 16.1, involving indemnification, provide:
In March 2007, Evesham and Aristone settled the underlying action for $700,000. Aristone's third-party action against Ertle was not included in the settlement. However, in October 2008, in the context of an interlocutory appeal by Ertle, we held that Aristone's third-party action against Ertle was barred by the applicable statute of limitations. Evesham Twp. Bd. of Educ. v. Vitetta, No. A-4196-06, 2008 WL 4735883 (App.Div. Oct. 30, 2008).
In June 2007, OneBeacon sent a demand letter to Pennsylvania and Royal, seeking reimbursement for their respective shares
In July 2007, OneBeacon filed suit against Pennsylvania and Royal, seeking reimbursement for their respective shares of the defense costs in the underlying action, as well as attorney's fees for the action.
In February 2008, OneBeacon filed a motion for summary judgment. Pennsylvania and Royal filed cross-motions for summary judgment in March. In support of its motion, OneBeacon submitted a certification from Matthew Adler, one of its claims consultants. Adler asserted that the release Aristone gave Pennsylvania as part of their settlement was not intended to release Pennsylvania from its obligation to reimburse OneBeacon for its proportionate share of the defense costs in the underlying action. Those costs, according to Adler, were paid by OneBeacon and Selective Way, rather than Aristone, and were excluded from the release. Adler claimed that OneBeacon and Selective Way shared the entire cost of the defense of Aristone in the underlying action, which totaled $528,868.54.
The motions were argued in April 2008. On June 12, the motion judge issued a written decision and entered orders denying all of the motions.
We denied Pennsylvania's motion for leave to appeal.
At a deposition taken in October 2008, Adler testified that he did not negotiate the release and that his understanding of its intent came solely from the attorney appointed to represent Aristone. He had no personal knowledge concerning the release, and had not seen a copy at the time he signed his certification. Pennsylvania's attorney testified at his January 2009 deposition that the appointed attorney never drew a distinction between indemnity and defense costs when discussing settlement of Aristone's declaratory judgment action.
In September 2009, the motion judge denied Pennsylvania's motion to preclude testimony relating to the intent of the release from Aristone to Pennsylvania.
Another judge tried the case without a jury in October 2009. The facts that follow, which address the settlement of Aristone's action against Pennsylvania, the underlying action, and the issue of contribution from Ertle or its insurer, were developed at trial.
In November 2006, Aristone demanded $270,000 from Pennsylvania to settle the declaratory action. In January 2007, Aristone reduced its demand to approximately $200,000. In response, Pennsylvania offered to pay $100,000. It ultimately agreed to settle for $150,000.
Philip Salamone, the Pennsylvania claims manager who negotiated the settlement with the attorney appointed, testified that Pennsylvania's offer was intended to include settlement of Pennsylvania's indemnity and defense obligation to Aristone. Pennsylvania's attorney, who prepared the initial draft of the release on behalf of Pennsylvania, testified that he was seeking a release of all claims, defense and indemnity, that could be brought against Pennsylvania under Aristone's policy. According to Pennsylvania's attorney, he also drafted the definition of "Aristone"
The attorney appointed to represent Aristone, however, made changes to the language proposed by Pennsylvania's attorney. In paragraph 5, governing who was bound by the release, he eliminated a reference to "any insurance carrier" succeeding to Aristone's rights and responsibilities, and substituted "as defined by law." He did so because he did not want there to be any doubt that the release was only between Pennsylvania and Aristone. Pennsylvania's attorney testified that he did not object to the phrase "as defined by law" because he thought it was broader protection for Pennsylvania than the original language.
The attorney appointed to represent Aristone also eliminated proposed language in paragraph 16, which stated that Aristone agreed to defend and indemnify Pennsylvania against any claims "for costs of defense" arising out of the underlying action.
The attorney appointed for Aristone testified that he made it clear to Pennsylvania's representatives that no carrier, including OneBeacon, would be a party to the release. His overall objective was to limit the agreement to just Pennsylvania and Aristone.
According to the appointed attorney, the $150,000 settlement with Pennsylvania was sought to "plug" the hole between the proposed settlement of the underlying action for $700,000 and the $550,000 that had been already been raised from the other carriers. Aristone had not incurred any defense costs, which were incurred solely by its insurers.
Salamone testified to his understanding that the settlement included defense costs incurred by OneBeacon. He asserted that he would not have authorized a $150,000 settlement had those defense costs not been included. The attorney appointed to represent Aristone conceded that Salamone told him that the settlement with Aristone was a "complete walk-away" for Pennsylvania. Nevertheless, he claimed that he told either Salamone or Pennsylvania's attorney that OneBeacon was not a party to the release. Pennsylvania's attorney testified that the appointed attorney never advised him that the $150,000 was for indemnity only and that OneBeacon would then proceed against Pennsylvania for the defense costs, nor did he otherwise indicate that the settlement was only on behalf of Aristone.
Adler testified that he had directed the attorney appointed for Aristone to seek a settlement of the underlying action in which OneBeacon would pay either $91,000 for its liability share, with OneBeacon absorbing the defense costs, or $150,000 with OneBeacon reserving its right to recover
The appointed attorney testified that the issue of the recoverability of OneBeacon's defense costs was discussed throughout the course of the negotiations concerning the settlement of the underlying action, in which Pennsylvania participated. Adler testified that the appointed attorney told him that the settlement in the underlying settlement was reached with the understanding that OneBeacon would retain its right to seek defense costs from the other carriers.
The attorney appointed to represent Aristone also testified that he attempted to obtain coverage for Aristone as an additional insured from Camden under its policy, but Camden denied coverage. According to Adler, Aristone was not entitled to such coverage because Aristone had not been named as an additional insured under that policy. That point was conceded by Pennsylvania.
However, Pennsylvania's attorney testified that OneBeacon could have recovered from Ertle based on its contractual obligation to indemnify Aristone, which would have been a covered claim under another provision of Camden's policy. Adler countered that because the claims against Ertle had been dismissed on statute of limitation grounds in the third-party action, there was no viable claim against Ertle under any theory.
At the conclusion of the trial, the judge rendered an oral decision in favor of OneBeacon. In his decision, the trial judge concluded that "Aristone had no right to. . . release [Pennsylvania] from any obligation that it may have, as a matter of law." He relied, in part, on the fact that the release was drafted initially by Pennsylvania's attorney, who did not object to the changes sought by the attorney appointed by OneBeacon, which "clearly reflected" his intent to preclude release of OneBeacon's right to seek contribution.
The judge found that the attorney appointed was acting only on behalf of Aristone in the declaratory judgment action. In addition, he concluded that Adler did not intend that OneBeacon be bound by the release, and that there was no other evidence that OneBeacon intended to release its rights to seek contribution. The judge found it significant that Pennsylvania, which he characterized as a "sophisticated commercial entity," did not insist that OneBeacon sign the release, adding:
The judge noted in particular that paragraph 16 of the release specifically excluded claims by an insurance carrier from the provisions of the release.
On January 29, 2010, the judge entered an amended order awarding OneBeacon $84,618.76 as reimbursement for defense costs in the underlying action, $12,430.51 in prejudgment interest, and $74,308.97 in counsel fees for this action, for a total of $171,358.24. This appeal followed.
Pennsylvania's principal argument on appeal is that both the motion and trial judges erred because New Jersey does not permit an insurer to obtain contribution from a settling insurer under the apportionment doctrine enunciated in Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437, 650 A.2d 974 (1994), and Carter-Wallace, Inc. v. Admiral Insurance Co., 154 N.J. 312, 712 A.2d 1116 (1998). In addition, Pennsylvania claims that OneBeacon cannot recover because Pennsylvania's settlement with Aristone included the counsel fees in question and precluded any further claim by OneBeacon. Finally, Pennsylvania argues that the motion judge (1) improperly relied on Adler's certification in denying summary judgment because it was not based on personal knowledge, (2) failed adequately to support her calculation of the counsel fee award for this action, and (3) improperly awarded counsel fees to OneBeacon in this action.
It is well-established that our review of a judge's conclusions of law is plenary. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378, 658 A.2d 1230 (1995) ("A trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference."). Consequently, in the context of a motion for summary judgment, we apply the same standard governing the trial court under Rule 4:46-2(c). Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 539-40, 666 A.2d 146 (1995); Chance v. McCann, 405 N.J.Super. 547, 563, 966 A.2d 29 (App.Div. 2009) (citing Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46, 916 A.2d 440 (2007)).
When reviewing a decision resulting from a bench trial, however, "[t]he general rule is that [factual] findings by the trial court are binding on appeal when supported by adequate, substantial, credible evidence." Cesare v. Cesare, 154 N.J. 394, 411-12, 713 A.2d 390 (1998) (citing Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484, 323 A.2d 495 (1974)). We do not disturb the factual findings of the trial judge unless we are "`convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as
We turn first to Pennsylvania's argument that New Jersey law does not recognize a defending insurer's right to seek contribution directly from another carrier that had a duty to defend the common insured.
In Owens-Illinois, supra, 138 N.J. at 478-79, 650 A.2d 974, the New Jersey Supreme Court held "that when progressive indivisible injury or damage results from exposure to injurious conditions . . . courts may reasonably treat the progressive injury or damage as an occurrence," or a continuous trigger, within each year of a commercial general liability policy during which exposure occurs for purposes of activating the insurers' obligation. When multiple policies of insurance are implicated under the continuous-trigger theory, losses for indemnity and defense costs are to be allocated among the companies involved, subject to policy limits and exclusions. Id. at 479, 650 A.2d 974. The Court rejected joint and several allocation in favor of prorata allocation on the ground that collapsing the continuous injury into one year, as the former method does, was not consistent with the direction of New Jersey law. Id. at 460-70, 650 A.2d 974. This theory of liability applies to progressive environmental property damage. Carter-Wallace, supra, 154 N.J. at 321, 712 A.2d 1116.
In Marshall v. Raritan Valley Disposal, 398 N.J.Super. 168, 177, 940 A.2d 315 (App.Div.2008), we held that an insurer that has provided coverage to its insured may pursue an action against a nonparticipating co-primary insurer for contribution for the costs of defense and indemnification of their common insured.
We further held that, "[a]lthough an insured and its insurer both have standing to pursue coverage actions against another insurer that has issued a policy that allegedly provides coverage for the same occurrence, this does not mean that their claims are identical." Ibid.
However, the question of whether one insurer may pursue another insurer for contribution for defense costs when the second insurer has already settled with the common insured does not appear to have been addressed in New Jersey. The question has, however, been addressed on a number of occasions in California. The leading case is Fireman's Fund Insurance Co. v. Maryland Casualty Co., 65 Cal.App.4th 1279, 77 Cal.Rptr.2d 296, 309 (1998), where the court recognized a direct right of action between co-insurers of the same risk. It added:
In that case, the defendant insurer settled the common insured's breach of contract action against it with respect to the tender of a defense and coverage. Id. at 300. The plaintiff co-insurer then brought an action against the defendant insurer, seeking reimbursement, indemnification, and contribution for the defendant's pro rata share of the costs the plaintiff incurred in the defense and settlement of the underlying construction defect action brought by the common insured. Ibid. The court rejected the defendant's claim that an insurer could avoid contribution to other insurers by settling with the insured, holding that a settling insurer remains liable for contribution to those insurers who have already paid for the insured's defense. Id. at 304-05.
The court explained its reasoning as follows:
See also Emp'rs Ins. Co. of Wausau v. Travelers Indem. Co., 141 Cal.App.4th 398, 46 Cal.Rptr.3d 1, 5, rev. denied, 2006 Cal. LEXIS 14166 (Oct. 11, 2006); Certain Underwriters at Lloyd's London & Excess Ins. Co. v. Mass. Bonding & Ins. Co., 235 Or.App. 99, 230 P.3d 103, 113 (the defendant insurers' settlements with the common insured did not operate to extinguish the plaintiff insurers' right to equitable contribution for defense costs in the underlying action that were paid prior to the settlement), rev. denied, 349 Or. 173, 243 P.3d 468 (2010).
The equitable principles outlined in Fireman's Fund are consistent with our holding in Marshall and the Supreme Court's approach to pro-rata sharing of defense costs in Owens-Illinois. We reject Pennsylvania's assertion that California law is inconsistent with New Jersey law. Although California does take a different approach to pro-rata allocation, see Aerojet-Gen. Corp. v. Transp. Indem. Co., 17 Cal.4th 38, 70 Cal.Rptr.2d 118, 948 P.2d 909, 930 n. 22, 931 n. 23 (1997), the overall similarities in approach outweigh the differences. The California Supreme Court does not differ with New Jersey law with respect to whether defense costs may be allocated among insurers. Id., 70 Cal.Rptr.2d 118, 948 P.2d at 930 (recognizing that "insurers may be required to make an equitable contribution to defense costs among themselves").
Pennsylvania's reliance on Childs v. New Jersey Manufacturers Insurance Co., 108 N.J. 506, 515, 531 A.2d 723 (1987), in which the Supreme Court questioned whether a nonsettling uninsured motorist carrier could obtain contribution from another uninsured motorist carrier that had settled for less than its pro-rata share, is misplaced. Childs involved the application of "other insurance" clauses, which are not at issue here. In continuous-trigger cases, such as this one, successive rather than concurrent policies are generally at issue. Carter-Wallace, supra, 154 N.J. at 322, 712 A.2d 1116; Owens-Illinois, supra, 138 N.J. at 470-71, 650 A.2d 974.
Consequently, we hold that Pennsylvania's settlement with Aristone was not, in
Pennsylvania next argues that, even if OneBeacon had a legally cognizable, separate right to seek contribution, it was barred from filing the present action by the release resulting from the settlement between it and Aristone. It further argues that the motion judge should have reached that conclusion on summary judgment, without the requirement of a trial.
Because OneBeacon had an independent, rather than a derivative, right to contribution, Aristone's release of its rights, like the settlement itself, did not, by itself, extinguish OneBeacon's right to seek contribution. Pennsylvania, however, also contends that OneBeacon was bound by the release because of its very broad language and because OneBeacon funded Aristone's declaratory judgment action against Pennsylvania, which was pursued through the attorney OneBeacon appointed to represent Aristone.
We agree with the motion judge's conclusion that the import of the release was an issue not amenable to determination on summary judgment. The language of the release was sufficiently broad to allow for two interpretations, one favorable to Pennsylvania and the other favorable to OneBeacon. A contract is ambiguous if it is reasonably susceptible of two interpretations. Nester v. O'Donnell, 301 N.J.Super. 198, 210, 693 A.2d 1214 (App.Div.1997) (quoting Kaufman v. Provident Life & Cas. Ins. Co., 828 F.Supp. 275, 283 (D.N.J.1992), aff'd, 993 F.2d 877 (3d Cir.1993)). The issue of ambiguity is one of law. Ibid. (quoting Kaufman, supra, 828 F.Supp. at 282).
The trial judge found, correctly we believe, that there was no meeting of the minds of the drafters of the release with respect to its meaning. The record reflects that the attorney appointed to represent Aristone and Pennsylvania's attorney had different and conflicting agendas in that regard. The appointed attorney testified that he "explicitly wanted to eliminate any reference to any insurance carrier so that there was no confusion that th[e] release was between . . . Aristone and [Pennsylvania]." Pennsylvania's attorney testified that he wanted to have language in the release to include
The product of counsel's negotiation was a document that each attorney hoped would be interpreted to meet his goals, but without making that goal explicit in the document itself. In other words, the appointed attorney and Pennsylvania's attorney purposefully produced an ambiguous document, each for his own purposes.
What the two attorneys never did, and were apparently never directed to do by the insurers by whom they were being compensated and to which they were reporting on a regular basis, was discuss and resolve directly the issue of whether the settlement of the declaratory judgment action brought by Aristone and the terms of the release settling that action would bar or permit a future claim by OneBeacon against Pennsylvania in a subsequent action.
Counsel's actions and the inevitable result were inconsistent with the public policy behind the entire controversy doctrine, which is based on equitable principles intended to discourage fragmentation of litigation and to encourage the joinder of related claims in a single suit. K-Land Corp. No. 28 v. Landis Sewerage Auth., 173 N.J. 59, 70, 800 A.2d 861 (2002). The doctrine's guiding principle is judicial fairness, id. at 74, 800 A.2d 861; see also Cont'l Ins. Co. v. Honeywell Int'l, Inc., 406 N.J.Super. 156, 184 n. 19, 967 A.2d 315 (App.Div.2009); Jersey City Police Officers Benevolence Ass'n v. City of Jersey City, 257 N.J.Super. 6, 13, 607 A.2d 1314 (App.Div.1992), thereby imposing an obligation on litigants to bring additional claims and parties to the court's attention.
The doctrine initially applied only to claim preclusion and was at one time expanded to include mandatory joinder of parties. 700 Highway 33 LLC v. Pollio, 421 N.J.Super. 231, 235-36 (App.Div.2011) (citations omitted). However, the Supreme Court eventually returned its application to claim preclusion only and chose to address "`[t]he goals of avoiding piecemeal litigation and creating efficiency as related to parties . . . by substituting the mechanism of disclosure for the automatic requirement of joinder.'" Ibid. (alterations in original) (quoting Kent Motor Cars, Inc. v. Reynolds & Reynolds, Co., 207 N.J. 428, 444, 25 A.3d 1027 (2011)).
Rule 4:5-1(b)(2) requires a party's first pleading to include
There is "a continuing obligation during the course of the litigation" to amend the certification "if there is a change in the facts stated in the original certification." Ibid.
Rule 4:28-1(a) requires joinder of a party
Rule 4:28-1(c) requires "[a] pleading asserting a claim for relief [to] state the names, if known to the pleader, of any persons described in R. 4:28-1(a) who are not joined and the reason why they are omitted."
At the time he filed Aristone's complaint against Pennsylvania, the attorney appointed knew that OneBeacon, by which he had been retained and which was controlling that litigation, had a potential claim against Pennsylvania for contribution to the defense costs it was incurring in providing Aristone's defense in conjunction with Selective Way. He also knew that
We conclude that the appointed attorney had an obligation under Rule 4:5-1(b)(2) and Rule 4:28-1(c) to disclose OneBeacon's potential claim for defense costs to the Law Division and Pennsylvania when he filed Aristone's complaint, and certainly by the time the matter was being settled. Had he done so, the judge responsible for the case could have required that all of the issues and parties be included and resolved in that single litigation, rather than in two separate actions. However, we also conclude that the attorney for Pennsylvania had a similar obligation under Rule 4:5-1(b)(2) to disclose the potential claim against his client or to insist that the settlement specifically include that claim. Consequently, both attorneys were remiss in failing to make the disclosures required by the Rules of Court.
Nevertheless, our review of the record convinces us that there was no double recovery by OneBeacon. The $150,000 paid by Pennsylvania in settlement of the action brought in Aristone's name was used for the settlement of the underlying action. The trial judge's award for Pennsylvania's share of the defense costs has not been shown to be unreasonable and is supported by the evidence. We therefore affirm the trial judge's verdict, despite the mutual failure to comply with Rule 4:5-1(b)(2), because we conclude that the parties and their attorneys entered into an intentionally ambiguous agreement and both sides failed to comply with the rule.
We reach a different result with respect to the award of counsel fees for the present action. Rule 4:42-9(a)(6) provides for an award of counsel fees "[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant." Aristone was the policy holder in this case, and it would have been entitled to fees under the rule. Although we are not unpersuaded by the legal merits of the motion judge's theory that an insurer in OneBeacon's position might have an "equitable claim" to fees under the theory of the rule, we need not reach that issue here because we conclude that OneBeacon is barred by the doctrine of unclean hands from seeking such an equitable remedy under the facts of this case.
In Borough of Princeton v. Board of Chosen Freeholders of Mercer, 169 N.J. 135, 158, 777 A.2d 19 (2001), the Supreme Court described the doctrine of unclean hands as follows:
Despite the fact that the appointed attorney was nominally representing Aristone, we cannot, for present purposes, ignore the fact that he had been appointed by, was being paid by, and was following
Consequently, we affirm the amended judgment on all issues except for the award of counsel fees to OneBeacon in this action, which we reverse.
Affirmed in part, reversed in part.
