NOEL L. HILLMAN, District Judge.
This matter concerns which entity is liable to pay for a multi-million dollar state court jury verdict in favor of a plaintiff who sued the County of Camden, New Jersey for injuries he sustained when he drove off the road and into a guardrail owned and maintained by the County. Presently before the Court is the issue of which party must first produce its expert reports. The parties have agreed that the order of expert disclosure should follow the burden of proof, with the party bearing the burden on a claim to first disclose its witnesses offering opinion testimony, followed by the non-burdened party's disclosure of its opinion witnesses. The parties have also agreed as to which party has the burden of proof on all claims, except for the determination as to whether the County provided an adequate defense and investigation of the underlying Anderson litigation. This issue is a dispositive factor in whether the State National insurance policy with the County is implicated.
The State National Policy provides $10 million in coverage over a $300,000 self-insured retention. The State National Policy states:
The Self-Insured Retention Endorsement ("SIR Endorsement") states, in relevant part:
State National argues that it is the County's burden to demonstrate that as a condition precedent to coverage it met its obligation to provide an adequate defense and investigation. In contrast, the County argues that it is State National's burden to demonstrate that the County did not provide an adequate defense and investigation because that condition is a policy exclusion.
After a careful examination of what we consider a close question, the Court finds that the adequate defense and investigation provision in the SIR Endorsement is a condition precedent to coverage, and the County has the burden of proving that it fulfilled that condition.
Insurance contracts often contain two typical provisions— conditions to coverage and exclusions to coverage. In general, a condition precedent is either an act of a party that must be performed or a certain event that must happen before a contractual right accrues or contractual duty arises. 13 Williston on Contracts § 38:7 (4th ed.). An exclusion in a policy of insurance is a limitation of liability or a carving out of certain types of loss to which the coverage or protection of the policy does not apply. 13 Williston on Contracts § 49:111.
Even though insurance contracts are contracts of adhesion, and "the entire burden of proof . . . usually rests on one party, namely, the insurer,"
Thus, to determine whether an insured has complied with a condition to coverage or whether an insured's claim for coverage is excluded from the policy, the burdens of proof are assigned depending on which type of provision is at issue. Where a condition to coverage is implicated, the burden of proving that the insured complied with a condition precedent is on the insured.
Here, in order for the policy to afford coverage to the County, the County must, in relevant part: (1) pay the policy premium, and (2) retain a $300,000.00 self-insured retention. Under the SIR Endorsement, the County "shall" also "be obligated to," in the event of any occurrence that is likely to give rise to liability under the policy, (3) provide "an adequate defense and investigation of any action." Because this provision is clearly "an act of a party that must be performed . . . before a contractual right accrues," rather than a "carving out of certain types of loss to which the . . . protection of the policy does not apply," the adequate defense and investigation provision in the SIR Endorsement must be considered a condition precedent to coverage. Because it is a condition to coverage, the County bears the burden of proving its compliance with that provision.
In arguing that the adequate defense and investigation provision in the SIR Endorsement must be considered a policy exclusion, the County contends that to find otherwise would require it to prove a negative fact—that is, that the County did not fail to provide an adequate defense. The County argues that the New Jersey Supreme Court is loath to place the burden on an insured to prove a negative fact.
Although this Court understands the County's point of view— that the provision requires it to prove that it did not not provide an adequate defense and investigation—placing the burden of proof onto the County in this way is not the kind of "negative fact" disfavored by the New Jersey Supreme Court. For instance, in
In this case, the adequate defense and investigation provision does not require the County to generally opine on the adequacy of its abilities to defend and investigate all law suits against it in order to meet the condition for coverage. Instead, the policy requires that the County demonstrate that in handling the Anderson lawsuit, it took certain steps and made certain decisions, and that conduct was "adequate."
The County also suggests that the adequate defense and investigation provision in the SIR Endorsement is essentially an exclusion cloaked in a condition precedent's clothing. The County argues that because the language "In consideration of the premium charged and as a condition to the issuance and continuation of the Policy," is contained in paragraph 1 of the SIR Endorsement, but not in paragraph 4, which contains the adequate defense and investigation provision, paragraph 4 cannot be considered a condition. Viewing it in a different way, the County also argues that the placement of the adequate defense and investigation provision in the SIR Endorsement, if the entire SIR Endorsement provision were to constitute a condition precedent, cannot hide what it truly is—an exclusion.
This Court recognizes that
One final concern on this burden of proof issue is which party is in the best position to provide evidence concerning the adequacy of the County's defense and indemnification. As mentioned above, typically the insurer has the burden of proof on all issues, but particularly when enforcing a policy exclusion. But even in instances where the insurer usually has the burden of proof, courts have imposed the burden of producing evidence onto the insured instead of the insurer in instances where the insured "is far more likely to know, or have superior access to, facts relevant to" the dispositive coverage issue.
In this case, not only does the County have the burden of proof with regard to its compliance with the condition precedent, even if the adequate defense and investigation provision were considered an exclusion, the County would be in the superior position to provide evidence of its defense and investigation of the Anderson matter. It is undisputed that State National was not notified of the Anderson lawsuit until after the close of discovery and the trial was scheduled. Thus, the County possesses the bulk of information regarding its conduct in the investigation and defense of the matter. Although during discovery in this case State National presumably has received from the County all the relevant documents concerning the Anderson matter, and has taken testimony from all relevant County witnesses who have knowledge of the Anderson case, the County's exclusive control over the case for such a long period tips the burden of proof on the adequate defense and investigation provision onto the County.
Accordingly, for the foregoing reasons, the adequate defense and investigation provision in the SIR Endorsement is a condition precedent to coverage, and as such, the burden of proof is on the County to prove its fulfillment of that condition. An appropriate Order will be entered.