KEVIN MCNULTY, District Judge.
Hartford Casualty Insurance Company ("Hartford") brings this action pursuant to 28 U.S.C. § 2201, seeking a declaration that Defendant Peerless Insurance Company and The Netherlands Insurance Company (collectively, "Peerless") contribute defense costs and indemnity in connection with the defense of their mutual insured, Carquest Corporation ("Carquest"), in a personal injury lawsuit. (ECF. No. 1) Peerless brings counterclaims for breach of contract, breach of fiduciary duty, and negligence. (ECF No. 28) Hartford's claim and Peerless's counterclaims come before the Court on cross-motions for summary judgment pursuant to Fed. R. Civ. P. 56. (ECF No. 155 and 158)
Hartford contends that there is no dispute that Peerless was Carquest's primary insurer and that Hartford is entitled to contribution for reasonable defense and settlement costs. To some degree, I find that Hartford is entitled to prevail on its contentions. Peerless argues that Hartford held itself out as Carquest's primary insurer and, while it controlled Carquest's defense, botched it so completely the Court should deny Hartford's contribution claim. Indeed, Peerless says, it has been so prejudiced by Hartford's bungling that the Court should award Peerless summary judgment on its counterclaims and force Hartford to indemnify Peerless. I find that Peerless has not established that it is entitled to summary judgment. For the reasons detailed below, summary judgment is GRANTED in part and DENIED in part to Hartford, and DENIED to Peerless.
On July 3, 2007, John Michael Mechin, a 21-year-old car mechanic, suffered second and third degree burns over 42% of his body as a result of an accident that occurred while he was working at an auto repair shop.
In December 2007, Mechin filed a product liability lawsuit against Carquest, which allegedly had manufactured, designed, distributed, or marketed the Trouble Light. (Pl. Ex. 2, 11) In April 2008, Mechin amended his complaint to include defendants Carquest Products, Inc. ("CPI"), BWP Distributors, Inc. ("BWP"), and Voltec Industries, Inc. ("Voltec") (collectively, the "Carquest Entities"), and alleged that each had manufactured, designed, distributed or marketed the Trouble Light. (Pl. Ex. 3, ¶¶ 4-5)
The precise relationship between Carquest, CPI, and BPW is unclear, and the extent to which each was involved in the manufacture, design, distribution or marketing of the Trouble Light is disputed. (See, e.g., DSMF ¶ 3; PRDSMF ¶ 3; DSMF ¶¶ 24, 26-31, PRDSMF ¶¶ 24, 26-31) Nevertheless, certain essential facts concerning the Mechin defendants can be stated as follows:
In a March 2002 agreement (the "Voltec Agreement"), Voltec added CPI, BWP, and Carquest to its insurance and agreed to provide indemnity for "any claim, demand, legal actions or judgment based upon or arising out of . . . any alleged or actual defects of any kind of design, manufacture, preparation, or handling of the products;
Shortly after Mechin filed his complaint, Carquest requested that Hartford defend and indemnify it against Mechin's claims. (PSF ¶¶ 9-10; DRPSF ¶¶ 9-10) On April 3, 2009, Hartford accepted tender of Carquest and CPI's defense subject to a reservation of rights which would have allowed Hartford to disclaim coverage if it emerged that the Trouble Light was not imported or distributed by Voltec. (Def. Ex. N) In a second letter, dated April 17, 2009, Hartford agreed to accept the tenders of Carquest, BWP, and CPI as additional insureds, subject to the existing terms and conditions contained in Voltec's insurance policies. (Def. Ex. O)
When Hartford accepted the defense of the Carquest Entities in April 2009, it was already providing for the defense of Voltec. (Def. Ex. U, p.2) Hartford then believed that Voltec and the Carquest Entities' interests were aligned because they all were "innocent sellers" under New Jersey products liability law (i.e., each defendant was a mere seller who did not exercise some significant control over the design, manufacture, packaging or labeling of the Trouble Light). Hartford therefore assigned Voltec's lawyer, Thomas Mulcahy, to represent all four of these defendants jointly. (Def. Ex. U, p. 2, 5; PL Ex. 24, p. 214:1-215:22) The hope was that each of these defendants could pass liability up the chain of distribution to the Trouble Light's foreign manufacturer and domestic importer. (Def. Ex. U, p.5)
In the spring of 2010, the joint representation of Voltec and the Carquest Entities hit a snag: discovery revealed that the Trouble Light was approved only for "general use" even though it had been branded "Professional-Duty" and marketed to commercial auto garages. (Pl. Ex. 25, p.9; Def. Ex. P, 113:12-116:20). Allegedly concerned by a potential conflict of interest between Voltec and the Carquest Entities, Hartford severed the joint representation and appointed new attorneys for Voltec and the Carquest Entities. (PSF ¶¶ 37-38, DRSF ¶¶ 37-38). John Maucher, Esq., was appointed to handle the Carquest Entities' defense. (Id.)
By September 2010, Mechin's theory of the case had crystalized: the fire occurred because the Trouble Light was improperly labeled as "Professional-Duty" and marketed to commercial auto garages. (Pl. Ex. 12, p. 3-4; Pl. Ex. 13, p. 6; Pl. Ex. 14). Maucher advised Hartford, Peerless, Zurich, and UUIC in November 2010 that Mechin's settlement demand was $9 million, and that he believed it would take between $4 million and $5 million to settle the case. (Def. Ex. 1, p. 3)
On March 15, 2011, the Carquest Entities (as well as Voltec) moved for summary judgment on their innocent seller defense. Mechin moved for summary judgement on the issues of design defect, failure to warn, and proximate cause. (Pl. Ex. 16-17)
On July 15, 2011, Maucher moved on behalf of Carquest, BWP, and CPI for summary judgment on their claims for indemnity based on the Voltec Agreement. (Pl. Ex. 34). Judge Wigenton, who presided over Mechin's action, denied that motion in February 2012. (Pl. Ex. 35) Because the Agreement failed to state in clear and unequivocal terms that Voltec would indemnify the Carquest Entities for their own negligence, Judge Wigenton ruled that the Agreement was invalid and unenforceable. (Pl. Ex. 35, p. 9-12)
In November 2010—shortly after Maucher advised the insurers that it would cost $4-5 million to settle the Mechin case—Hartford informed Peerless, Zurich, and UUIC that they might be obligated to provide co-excess, if not primary, coverage to their insureds. Hartford's position was based on the "other insurance" clause in Voltec's Hartford policy. That clause states:
(Pl. Ex. 7-8, Pl. Ex. 4, HARTVOLT100079-80)
Hartford, as the Carquest Entities' insurer, filed the present action in December 2010. This action seeks contribution for defense costs and indemnity ($1,100,000) from Peerless, Zurich, and UUIC. (ECF No. 1) In August 2011, Peerless, Zurich, and UUIC filed counterclaims against Hartford for breach of contract, breach of fiduciary duty, and negligence. (ECF Nos. 27-28) Fact discovery closed in 2012; the deadline for expert discovery lapsed in 2014. No party produced an expert report.
The parties cross-moved for summary judgment on their claims and counterclaims in October 2014. (ECF No. 155-173). Zurich and UUIC were dismissed in December 2014 after reaching a settlement with Hartford. (ECF No. 175) Only Hartford and Peerless's motions for summary judgment remain.
Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Kreschollek v. S. Stevedoring Co., 223 F.3d 202, 204 (3d Cir. 2000). In deciding a motion for summary judgment, a court must construe all facts and inferences in the light most favorable to the nonmoving party. See Boyle v. County of Allegheny Pennsylvania, 139 F.3d 386, 393 (3d Cir. 1998) (citing Peters v. Delaware River Port Auth. of Pa. & N.J., 16 F.3d 1346, 1349 (3d Cir. 1994)). The moving party bears the burden of establishing that no genuine issue of material fact remains. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). "[W]ith respect to an issue on which the nonmoving party bears the burden of proof . . . the burden on the moving party may be discharged by `showing'—that is, pointing out to the district court—that there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325.
Once the moving party has met that threshold burden, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The opposing party must present actual evidence that creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; see also FED. R. CIV. P. 56(c) (setting forth types of evidence on which nonmoving party must rely to support its assertion that genuine issues of material fact exist). "[Unsupported allegations . . . and pleadings are insufficient to repel summary judgment." Schoch v. First Fid. Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990); see also Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138 (3d Cir. 2001) ("A nonmoving party has created a genuine issue of material fact if it has provided sufficient evidence to allow a jury to find in its favor at trial."). If the nonmoving party has failed "to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial . . . there can be `no genuine issue of material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex, 477 U.S. at 322-23).
When the parties file cross-motions for summary judgment, the governing standard "does not change." Clevenger v. First Option Health Plan of N.J., 208 F.Supp.2d 463, 468-69 (D.N.J. 2002) (citing Weissman v. U.S.P.S., 19 F.Supp.2d 254 (D.N.J. 1998)). The court must consider the motions independently, in accordance with the principles outlined above. Goldwell of N.J., Inc. v. KPSS, Inc., 622 F.Supp.2d 168, 184 (D.N.J. 2009); Williams v. Philadelphia Housing Auth., 834 F.Supp. 794, 797 (E.D. Pa. 1993), aff'd, 27 F.3d 560 (3d Cir. 1994). That one of the cross-motions is denied does not imply that the other must be granted. For each motion, "the court construes facts and draws inferences in favor of the party against whom the motion under consideration is made" but does not "weigh the evidence or make credibility determinations" because "these tasks are left for the fact-finder." Pichler v. UNITE, 542 F.3d 380, 386 (3d Cir. 2008) (internal quotation and citations omitted).
The claims as to which summary judgment is sought break down into four major categories:
The following discussion is organized accordingly.
Hartford requests that this Court declare its policy with Voltec to be excess, and allow it to recoup from Peerless the money paid to defend and settle the Mechin action on behalf of Peerless's insured, Carquest. (Pl. Br. 2, 32) There is no genuine dispute that Hartford is excess, and Peerless primary: (1) the Voltec Agreement does not require that the insurance coverage to be procured by Voltec be primary or non-contributory and (2) the Hartford and Peerless policies both provide in straightforward terms that Peerless has a primary obligation to insure Carquest. Peerless raises no genuine issue of material fact as to either of those propositions; indeed, it essentially concedes that, in this regard, the policies mean what they say. (PSF ¶¶ 10-13; DRPSF ¶¶ 10-13)
Peerless instead argues that Hartford should be estopped from enforcing the other insurance clause and asserting a contribution claim against it. Peerless contends that Hartford should have reserved its rights to dispute its insurance obligations when it accepted the defense of Carquest, but failed to do so. As a result, says Peerless, Harford is now estopped from denying that it was Carquest's primary insurer, and cannot be permitted to recover defense and settlement costs from Peerless. See Merchants Ind. Corp. v. Eggleston, 37 N.J. 114 (1962). Peerless's argument suffers from three defects.
First, Peerless cites to no New Jersey case—and the Court has found none—which holds that an insurer must reserve the right to seek contribution from another insurer when it accepts the defense of an insured, on pain of estoppel.
Second, this is a dispute between insurers, not a case in which an insurer has withdrawn from the defense and left the insured to fend for itself. There is no evidence that Hartford ever disclaimed or denied a defense to Carquest.
Third, the central rationale of the Eggleston rule (i.e., that it is unfair to allow an insurer to disclaim coverage based on a limitation to which the insured never consented) does not apply here. Here, a non-defending primary insurer seeks to estop a defending insurer's claim for contribution. It is true that there are at least two unpublished New Jersey cases in which an insurer was permitted to estop an another insurer from denying coverage and withdrawing from the defense of a mutual insured.
In sum, Eggleston is not relevant in a case where, as here, each insurer claims that the other owes it money, but the non-defending insurer admits it owed a primary coverage obligation to the insured, and the defending insurer picked up the tab and never withdrew its defense.
Peerless also argues that Hartford should be estopped from recovering contribution because Hartford "impliedly conceded" that Voltec would indemnify the Carquest Entities under the indemnity provision contained in Voltec Agreement. (Def. Br. 30) In essence, Peerless seeks to relitigate the motion for summary judgment for indemnification that it lost before Judge Wigenton. (See Def. Ex. 34) But here, as there, Peerless's argument suffers from an intractable problem: as a matter of law, the indemnity provision of the Voltec Agreement is invalid because it fails to state in "clear and unequivocal" terms that Voltec must indemnify the Carquest Entities for their own negligence. See, e.g., Norkus v. Gen. Motors Corp., 218 F.Supp. 398, 399 (S.D. Ind. 1963); Mantilla v. NCMallAssocs., 167 N.J. 262, 269-273 (2001). Simply put, any "implied concession" concerning the Voltec Agreement is irrelevant because Carquest could not (and cannot) enforce the indemnity provision against Voltec.
Hartford is entitled to contribution for defense costs and indemnity from Peerless if the settlement it reached on Carquest's behalf was reasonable and entered into in good faith. See Griggs, 88 N.J. at 368; Jefferson, N.J. Super, at 248;; Fireman's Fund Ins. Co. v. Imbesi, 361 N.J.Super. 359, 586 (App. Div. 2003). "The initial burden of going forward with proofs of these elements rests upon the insured and the ultimate burden of persuasion as to these elements is the responsibility of the insurer." Griggs at 368.
Hartford argues that the $2,050,000 the Carquest Entities paid to settle the Mechin action was reasonable, given Mechin's serious injuries, Mechin's focus on the Carquest Entities' culpability, and defense counsel's estimation that a jury verdict could exceed $15,000,000. (Pl. Ex. 1, 1743, 45).
By contrast, Peerless argues that the settlement was unreasonable because Carquest had an "ironclad defense" unique to itself: that Carquest was not in the chain of distribution and should have been dismissed from the Mechin action. (Def. Br. 5, 37-38).
The truth is, however, that the record is muddled as to the precise relationship between Carquest, BPW, and CPI, and their respective roles in the marketing and labeling of the Trouble Light. Neither party has submitted an expert report addressing the likelihood that Carquest would have obtained a stipulated dismissal or prevailed on a dispositive motion had counsel asserted the arguments that Peerless now claims were obvious. To the contrary, there is significant evidence in the record that Hartford's claims adjusters and Carquest's defense counsel repeatedly and consistently expressed confusion concerning the relationship between Carquest, BWP and CPI, and what exactly each company did or did not do with respect to the distribution of the Trouble Light.
At times, Peerless seems to suggest that Hartford bound Voltec to a contractual obligation to indemnify Carquest under the Voltec Agreement and then breached the Agreement when it failed to accept the defense of Carquest as an insured under the indemnity provision of the Agreement. (Def. Br. 6, 30 ("The proverbial elephant in the room remains the contractual indemnity claim. In its words and through its actions, Hartford unquestionably manifested its conclusion that the contractual indemnity clause was appropriate . . . If Hartford is forced to stand by its prior position, the additional insurance coverage dispute would be moot.") For reasons similar to those noted above, I will deny Hartford's motion for summary judgment (to the extent it has asked for it) on breach of contract.
There are two legal issues with this counterclaim. First, as noted above, the indemnity provision contained in the Voltec Agreement, as Judge Wigenton held, was unenforceable as a matter of law. Second, even assuming that Hartford did manifest an intent to defend and indemnify Carquest under the Agreement's indemnity clause, Hartford was not a party to the Voltec Agreement and therefore could not have bound Voltec to do the same. (Pl. Ex. 35, p. 8) These issues aside, there is a third problem with the premise of Peerless's legal arguments: there is a genuine issue of material fact as to whether Hartford expressed an intention or willingness to indemnify and defend Carquest pursuant to the Voltec Agreement's indemnity clause. (DSF ¶¶ 11-17; PRDSF ¶¶ 11-17). Peerless's motion for summary judgment on breach of contract is therefore denied.
Citing Wolpaw v. General Acc. Ins. Co., 272 N.J.Super. 41 (App. Div. 1994), Peerless argues that Hartford breached its duty to defend Carquest by assigning a single lawyer to represent Carquest, BWP, and CPI. (Def. Br. 33) Specifically, Peerless contends that Hartford failed to honor its duty to defend Carquest because "a zealous defense of Carquest Corporation. would have involved advising the Court that (a) Carquest Corporation, unlike CPI and BWP, was not in the chain of distribution of the product and (b) Carquest Corporation, unlike CPI and BWP, did not participate in any marketing of the product." (Id.) Since it was in Carquest's interest to limit its share of liability, and one way to do that was to throw BWP and CPI under the bus, Peerless claims that Hartford should have appointed Carquest separate counsel. (Def. Br. 33-36) As noted above, however, there is a bevy of genuine issues of material fact concerning whether Carquest was actually in the chain of distribution of the Trouble Light, or had interests that conflicted with those of BWP or CPI. In sum, whether Carquest's interests were "clearly in conflict" with BWP and CPI's interests cannot be determined on this record on summary judgment. Wolpaw, 272 N.J. Super at 45. Peerless's motion for summary judgment on the breach of the duty to defend is therefore denied.
In its counterclaim, Peerless alleges that "Hartford was negligent in its control and management of the defense of the claims against Carquest." This claim depends on the resolution of the genuine issues of material fact concerning Carquest's location in the chain of distribution and the reasonableness of the settlement of the Mechin action as applied to Carquest. (ECF. No. 5). Peerless motion for summary judgment on its negligence counterclaim is therefore denied.
For the foregoing reasons, the Hartford's motion for summary judgment (ECF no. 155) is GRANTED in part and DENIED in part, and Peerless's motion for summary judgment (ECF No. 158) is DENIED.
"Pl. Br." — Plaintiffs Brief in Support of its Motion for Summary Judgment, ECF No. 155.
"Def. Opp. Br." — Defendant's Brief in Opposition to Plaintiffs Motion for Summary Judgment, ECF. No. 169-1.
"Pl. Reply Br." — Plaintiffs Reply Brief to Defendant's Opposition to Plaintiffs Motion for Summary Judgment, ECF No. 170.
"Def. Br." — Defendant's Brief in Support of its Motion for Summary Judgment, ECF No. 161.
"Pl. Opp. Br." — Plaintiffs Brief in Opposition to Defendant's Motion for Summary Judgment, ECF No. 164.
"Def. Reply Br." — Defendant's Reply Brief to Plaintiffs Opposition to Defendant's Motion for Summary Judgment, ECF No. 172-1.
"Pl. Ex." — Plaintiffs Exhibits to the Certifications of Gerald D. Wixted, dated October 6, 2014, November 5, 2014, and November 19, 2014, submitted in Support of Plaintiffs Motion for Summary Judgment, Plaintiffs Opposition to Defendants' Motion for Summary Judgment, and Plaintiffs Reply to Defendant's Opposition to Plaintiffs Motipn for Summary Judgment, ECF nos. 155, 156, 164, 170.
"Def. Ex." — Defendant's Exhibits, attached to the Certification and Supplemental Certification of John T. Coyne, dated October 6, 2014, November 5, 2014, submitted in support of Defendant's Motion for Summary Judgment and Defendant's Opposition to Plaintiffs Motion for Summary Judgment, ECFnos. 158, 161, 169.
"PSF" — Plaintiffs Statement of Material Undisputed Facts, ECF No. 156-1.
"DRPSF" — Defendant's Reply to Plaintiffs Statement of Material Undisputed Facts, ECF No. 169-2
"DSF" — Defendant's Statement of Material Undisputed Facts, ECF No. 161.
TRDSF" — Plaintiffs Reply to Defendant's Statement of Material Undisputed Facts, ECF No. 164-1
"PCDSF" — Plaintiffs Counter-Statement of Facts to Defendant's Statement of Material Undisputed Facts, ECF No. 164-1
"DRPRDSF" — Defendant's Response to Plaintiffs Reply to Defendant's Statement of Material Undisputed Facts, ECF No. 172-2
"DRPCDSF" — Defendant's Response to Plaintiffs Counter-Statement of Facts to Plaintiffs Statement of Material Undisputed Facts, ECF No. 172-2
On the other hand, the Peerless policy states that it is primary except when "other primary insurance is available for which the insured has been added by attachment of an endorsement." (Pl. Ex. 10, P. 0221) But there is no "other primary insurance" available—the Hartford policy coverage is excess by its terms. See Jeffery Brown Assoc., v. Interstate Fire & Cos. Co., 44 N.J.Super. 160, 167-68 (App. Div. 2010) (enforcing an "excess-other insurance clause" against an additional insured where the additional insured coverage a subcontractor provided a general contractor was "excess" to any other coverage available to the general contractor under the terms of the subcontractor's policy, and the general contractor's coverage was "primary" under the terms of its policy, unless it had "other primary insurance available", which it did not have under the "excess-other insurance" clause of the subcontractor's policy). Peerless was not added as an additional insured by attachment of an endorsement, and does not claim that it was. (Pl. Br. 21)
To be sure, the court noted, "[i]t is clear in certain instances, an insurer will have exerted so much control over a case that allowing it to disclaim coverage would be prejudicial to both the insured and other insurers of the insured." But Judge Irenas also ruled that a presumption of prejudice is inappropriate in a case involving co-insurers, because "there is no reason to presume that control of claim by a co-insurer is a `material encroachment upon the rights' of an insurer, nor must we presume that there is a resultant inequity'. Id. at 4.
I agree, and this case illustrates the reason: "Often, the interests of co-insurers will be aligned." Id. As detailed below, there are genuine issues of material fact as to whether Hartford and Peerless's interests were ever in conflict, and if so, whether Peerless suffered actual prejudice as a result. Hartford and Peerless, for example, shared an interest in escaping from all liability as "innocent sellers." In other words, the adversity of interests between co-insurers is not as obviously acute as when an insurer strips an insured of its right to make an informed decision to accept the insurer's defense or go it alone.
First, Peerless contends that the Voltec agreement did need not to expressly state that it covered negligence because the New Jersey Products Liability Act (PLA) imposes strict liability. See N.J. Stat. Ann. § 2A:58C-2 (West 2016). In support, Peerless points to a single case involving violations of the Comprehensive Environmental Response, Compensation, and Liability Act (better known as "CERCLA"). Setting aside the remote context, that court expressly declined to decide whether ambiguity in an indemnity agreement should be construed against the indemnitee where the indemnitee faces strict liability. 404 N.J.Super. 514, 529 (App. Div. 2009).
Second, Peerless argues that although the indemnification clause is ambiguous, there is a "reasonable likelihood" that parol evidence it might have obtained from Voltec witnesses would have resolved the ambiguity in its favor. (Def. Br. 30) But this is beside the point: an ambiguous indemnity agreement is an invalid indemnity agreement. See, e.g., Englert v. Home Depot, 389 N.J.Super. 44, 58 (App. Div. 2006) ("Under prevailing law, an ambiguous contractual indemnification provision must be construed against the indemnitee."); Henthorne v. Legacy Healthcare, Inc., 764 N.E.2d 751, 758 (Ind. Ct. App. 200) ("Such clauses indemnifying the indemnitee for the indemnitees own negligence are strictly construed and will not be held to provide indemnification unless stated in clear and unequivocal terms terms. . . . The indemnity clause here did in unambiguously express that [indemnitor] would defended and indemnify [indemnitee] for [indemnitee]'s own negligence. Without such an explicit provision, [indemnitor] is not responsible for costs and defenses and indemnification resulting from [indemnitee]'s own negligence.") (internal citations omitted)
