In addressing the allocation question, we note that Honeywell does not seek coverage in this dispute for claims that involve initial product exposure occurring after insurance was not available and while the policyholder continued to manufacture the product. Although some of the claims presented involve injury that manifested after the date of excess-insurance unavailability, the class of claims to be addressed by the coverage block of insurance all presume that product exposure predated the insurance unavailability. Thus, consistent with New Jersey's continuous-trigger doctrine, Honeywell is seeking coverage under excess insurance policies for claims only from exposure occurrences during the period of policy coverage.
Different jurisdictions approach pinpointing the occurrence of injury using varying methodologies. We, and a majority of jurisdictions, rely on medical science that teaches asbestos-related disease is progressive, as body tissue is injured when an individual inhales asbestos fibers. Owens-Illinois, Inc. v. United Ins. Co.,
The trial court and the Appellate Division both concluded that New Jersey law applied, although for different reasons. Both courts further determined that, under the circumstances, the second question must be answered in the negative.
For the reasons that follow, we also hold that New Jersey law on the allocation of liability among insurers applies in this matter, and we set forth the pertinent choice-of-law principles to resolve this dispute over insurance coverage for numerous products-liability claims.
Concerning the second question, on these facts, we also affirm the determination to follow the unavailability exception to the continuous-trigger method of allocation set forth in Owens-Illinois.
I.
The unpublished Appellate Division decision in this matter distilled the extensive
A.
By way of general background, The Bendix Corporation (Bendix)-a corporate predecessor to defendant Honeywell-for many years manufactured and sold friction products that contained asbestos. Bendix stopped using asbestos in its friction products in 2001, having continued to manufacture the items even after 1987 when insurance for asbestos-related claims for such products ceased to be available in the marketplace.
Beginning around 1975, Bendix began to receive liability claims asserting that asbestos in its friction products caused bodily injury
Certain matters are undisputed. The friction products contained asbestos. Honeywell is responsible for asbestos liabilities attributed to Bendix, although it disputes the dangerousness of its friction products. And, excess insurance coverage for asbestos-related personal injury claims became unavailable for purchase after April 1, 1987.
In 2000, Continental Insurance Company (Continental) (which wrote many primary insurance policies for Bendix during the relevant years), and related companies, commenced this action seeking declaratory relief concerning the rights and obligations associated with insurance coverage for the asbestos-related bodily injury claims filed against Honeywell as a corporate successor to Bendix. Bendix advanced cross-claims and third-party claims against various insurers, including Travelers Casualty & Surety Company (Travelers) and St. Paul Fire and Marine Insurance Company (St. Paul).
Honeywell settled with Continental and most other insurers. The ten insurance policies that remain at issue involve excess insurance issued to Bendix by Travelers and St. Paul. Eight of the policies were issued to Bendix by Travelers's predecessor, Aetna Casualty & Surety Company (Aetna). Two of the policies were issued by St. Paul. St. Paul was since acquired by Travelers but is separately identified for purposes of this appeal.
The choice-of-law issue in this matter arose from the following procedural actions. Honeywell filed a motion for partial summary judgment in 2006, asking the court to apply New Jersey insurance allocation law while opposing the application of Michigan law. Travelers opposed Honeywell's motion and filed a cross-motion, seeking the application of Michigan law to its policies. St. Paul did not oppose Honeywell's motion or make a separate motion. The
With that general background in mind, we turn to some finer details.
B.
Bendix was incorporated in 1929 under the laws of the State of Delaware. Aspects of its business took place in different states. During the course of its corporate existence, Bendix had manufacturing operations in all fifty states and twenty-two foreign countries, and sold its products
Bendix had a variety of businesses, spanning such areas as automotive products, aerospace products, industrial products, financial services, and others. Included among its products are those at the center of the claims at issue here: friction products.
Bendix and its successors manufactured asbestos products in New York from 1939 until 2001 and in Tennessee from 1965 through 2001. As noted, asbestos ceased to be used as a component of the friction products in 2001.
Honeywell is the corporate successor to Bendix as a result of the following corporate changes. The Allied Corporation (Allied) acquired Bendix in 1983 and operated it as a wholly owned subsidiary, assuming Bendix's obligations and liabilities. Allied was incorporated under the laws of the State of New York and had its
Since 1983, all insurance operations for Bendix and its successors have been located in New Jersey. In total, Honeywell has purchased more than $3.5 billion in umbrella and excess insurance for Bendix's and its successors' liabilities from insurers whose principal places of business were located in over fourteen states and countries, including New Jersey.
It appears not to be disputed that the excess insurance policies, which were not subject to settlement before the trial court, were all brokered, issued, and delivered to Bendix in Michigan. Travelers's predecessor, Aetna, issued its disputed policies to Bendix between 1977 and 1983; St. Paul issued its disputed policies between 1968 and 1970. None of the policies contain a choice-of-law provision governing the allocation issue before us.
C.
As noted, the trial court granted Honeywell's motion for partial summary judgment in 2006, holding that New Jersey insurance-allocation law would apply in this matter.
When, in 2011, the motion court addressed motions for partial summary judgment that involved the dispute over the duration of the coverage block of insurance, the parties were eleven years into the case. The parties asked the court to consider resolving six issues as a matter of law, as well as to appoint a special allocation master as Owens-Illinois suggested would be appropriate for complicated, long tail, asbestos-injury-claims cases.
The trial court determined that one law on allocation should apply and that should be New Jersey law. That approach allowed the court to use one set of rules to sensibly and coherently allocate responsibility among insurers, over decades of actions, and the many payments already made by insurers, as well as the insured, depending on the policy-imposed obligations and coverage limitations held to apply. And, the court's determination was consistent with previous decisions that recognized that Owens-Illinois could be applied retroactively, including for defense costs. See Champion Dyeing & Finishing Co. v. Centennial Ins. Co.,
Owens-Illinois utilizes that allocation approach, recognizing also a continuous-trigger doctrine to explain the basis for recognizing occurrences in the year of first exposure to asbestos and in each subsequent policy year. To avoid having its insurance triggered, an insurer has the burden of showing that exposure did not occur earlier or during the policy year for which it wrote coverage for the insured. Otherwise, manifestation of injury presenting itself thereafter resulted in allocation of that individual's claim, in accordance with mathematical formulae, to that insurer's policy year.
It was within the context of that setting and law that the motion court considered the parties arguments over the duration of the coverage block. Travelers (taking the lead in argument) and St. Paul, both excess insurers, argued that the coverage block should run until the year in which Honeywell, as the successor to Bendix, ceased manufacturing the friction products-2001. Honeywell maintained that the coverage block should end in the 1986-87 period when first primary (1986) and then excess (April 1, 1987) insurance ceased to
The unavailability rule's application in this case became a point of debate. Travelers asserted earlier in this matter that a fact question existed about whether insurance was available in the marketplace. In 2007, another motion judge ordered discovery and
As a result of the discovery that had taken place though, Travelers also argued, in connection with the partial summary judgment motion, that Honeywell was self-insured. In advancing that argument, it pointed to the company's maintenance of corporate reserves. Travelers further argued that Honeywell had assumed the risk and should be treated as responsible for the years that it continued to manufacture friction products after 1987 until 2001-another fifteen years, which would reduce the exposure of the excess carriers in the allocation methodology form that which would occur under a coverage block that ended in 1987.
With respect to the reserves, the trial court dismissed the argument that maintenance of reserves is the equivalent of self-insurance. The court also rejected the argument that somehow that business practice of maintaining reserves represented an assumption of insurance risk relevant to resolution of the coverage block dispute.
The focal point to the argument and decision by the court was the unavailability rule application, or not, to determining triggered years of insurance for purposes of allocation under the Owens-Illinois paradigm.
On that point, the court heard from Travelers the arguments that continued manufacturing by Honeywell from 1987 to 2001 increased the number of pre-1987 exposure claims, increased the potential value of pre-1987 claims by alleged enhanced injury from continued exposure, and resulted in encouraging more people to file claims based on pre-1987 exposure.
Ultimately, the trial court agreed with Honeywell that the insurance coverage period should not be extended, as Travelers requested, to include years from 1987 to 2001. Applying Owens-Illinois's approach to allocation of insurance risk to claims arising exclusively from pre-1987 initial exposure, the court determined that the unavailability of commercial insurance should end the coverage block of insurance. Hence, the decision fixed with certainty the policies, with their specific terms and amounts, that were available for the special master to consider when allocating among insurers and Honeywell for that period of time alone. That July 22, 2011 decision had the result of not requiring the court, or anyone else, to attempt to determine how policy amounts or limits or related insurance concerns for post-1987 years would be overlaid on Honeywell during the 1987-2001 period when manufacturing continued or how such corporate finances
After the parties consented to the appointment of a special allocation master (SAM), this matter proceeded before the SAM with policy years, policies, and amounts certain for the period of 1940-1987 as he addressed the already complicated issues before him. As the SAM's initial report to the trial court clearly noted before delving into the difficult issues assigned to him,
[a] Bendix asbestos claim triggers those policies issued to Bendix and/or Honeywell that were in effect during the portion of the Trigger Period that is within the coverage block. Exposure to an asbestos product shall be presumed to be exposure to a Bendix product, with the burden shifting to each insurer to prove that there was no exposure to a Bendix product before or during its policy period. There is no coverage under a policy where the claimant's first exposure to asbestos from a Bendix product takes place after the effective period of a given policy expired.
After holding hearings and hearing argument, the SAM issued a report and supplemental report containing recommendations on allocation. The trial court adopted the SAM's recommendations, with one exception not relevant to this appeal, and entered a final
D.
Travelers and St. Paul jointly appealed the trial court's two orders to the Appellate Division. They appealed the November 9, 2006 order, which granted Honeywell's partial summary judgment motion and applied New Jersey allocation law, and the July 22, 2011 order, which granted Honeywell's partial summary judgment motion and held that Honeywell had no allocation responsibility because after 1987 it was not able to obtain insurance coverage for asbestos claims. The Appellate Division affirmed the trial court but required a limited remand not pertinent to this appeal.
The appellate panel considered the trial court's choice-of-allocation-law ruling only as applied to Travelers's eight excess policies.
The appellate panel further agreed with the trial court that, under Owens-Illinois, Honeywell was not required to contribute to allocation for pre-1987 initial exposure claims even if the claimant did not manifest injury until after 1987, given that excess insurance for asbestos-related claims was not reasonably available for purchase after 1987.
St. Paul and Travelers petitioned this Court for certification, raising both the choice-of-law and allocation issues. We granted their petition.
II.
Turning first to the choice-of-law question, the parties disagree on the outcome of the first step in that inquiry: whether a true conflict exists. Travelers contends there is a difference in the methodologies of the two states. Honeywell, on the other hand, maintains that Michigan has not clearly adopted a set methodology and, so, it has no policy with which New Jersey's methodology can be said to conflict.
Assuming there is a conflict requiring a choice-of-law determination, the parties differ as to the proper analytic approach and the outcome.
Travelers asks this Court to resolve and clarify the relationship between Restatement §§ 193 and 188 and our prior decisions and focuses in particular on State Farm Mutual Automobile Insurance Co. v. Estate of Simmons,
the law of the place of the contract ordinarily governs the choice of law because [that] rule will generally comport with the reasonable expectations of the parties concerning the principal situs of the insured risk during the term of the policy and will furnish needed certainty and consistency in the selection of the applicable law.
[ (quoting Simmons,, 84 N.J. at 37).] 417 A.2d 488
Travelers maintains that we have directly addressed choice-of-contract-law questions only in the context of environmental coverage disputes and not in circumstances akin to those present here, where a products-liability case has resulted in claims across the nation. It argues that New Jersey's site-specific choice-of-law approach for environmental disputes is not well suited for products-liability cases in which insurance contract disputes arise.
Here, Travelers maintains that, because the insurance contracts at issue were brokered, negotiated, underwritten, issued, and delivered to Bendix in Michigan, the presumption under Simmons and Restatement § 193 in favor of application of the law of the place of contract should result in a presumptive application of Michigan law in this matter. Travelers asserts that no state has an interest that overcomes, in this instance, the presumption that a court should apply the laws of the site of contracting.
Honeywell disagrees that Simmons's purported presumption-that the site of the place of contract is of paramount importance -is
We reserve a more granular discussion about the § 6 factors, as they pertain in this matter, for our later analysis.
We begin with familiar terrain. Choice-of-law questions involve legal determinations, and therefore our review is de novo. McCarrell v. Hoffmann-La Roche, Inc.,
A.
The first step in a conflicts analysis is to decide whether there is an actual conflict between the laws of the states with interests in the litigation. P.V. ex rel. T.V. v. Camp Jaycee,
1.
New Jersey law employs the continuous-trigger doctrine, as initially adopted by this Court in our seminal case on insurance allocation, Owens-Illinois,
Given that the continuous-trigger theory would implicate multiple insurance policies, we also adopted a methodology for allocating liability among those policies.
Several policy rationales were at work in the Owens-Illinois approach. See
It bears repeating here, as we emphasized then, that the theory underlying insurance is risk allocation.
This Court has continued to emphasize those public interest effects when, for example, extending the allocation principles to include excess insurance in its methodology. See Carter-Wallace, Inc. v. Admiral Ins. Co.,
In sum, we have in New Jersey a longstanding allocation approach built on a continuous-trigger theory premised on the notion that asbestos and other progressive environmental injuries are multiple occurrences and must be treated as such. See Benjamin Moore & Co. v. Aetna Cas. & Sur. Co.,
2.
Michigan utilizes a different allocation method.
The time-on-the-risk method should be adopted by courts because its inherent simplicity promotes predictability, reduces incentives to litigate, and ultimately reduces premium rates.
Courts can easily administer the time-on-the-risk method. Once a court determines the scope of the progressive injury, that is, the total damage[,] ... it can readily allocate the damages among the triggered policies....
Unlike the Owens-Illinois method, the effects of deductibles, excess insurance, and self-insurance are easy to calculate by pretending that the policy's share of damages was the damage that actually occurred during that policy period.
....
The simplicity of the time-on-the-risk method removes many of the incentives to litigate the allocation of damages. Since the parties will know in advance how the court will allocate liability, there is much less of the uncertainty that encourages wasteful litigation....
In addition to decreasing the amount of litigation, this method provides a way for insurance companies to estimate more accurately total expected liability; as a result premiums should decline.... Because this method, unlike the Owens-Illinois method, does not rely on a case-by-case determination of how much coverage was purchased, it also obviates the concern about inconsistent application.
[ Arco,(first and fifth ellipses in original) (quoting Michael G. Doherty, 594 N.W.2d at 69Allocating Progressive Injury Liability Among Successive Insurance Policies, 64 U. Chi. L. Rev. 257 , 281-83 (1997) ).]
In sum, a substantive difference separates the New Jersey and Michigan legal approaches and policy considerations for the insurance allocation question at issue, and so we must engage in a choice-of-law analysis for determining which state's allocation framework applies.
To that question we now turn.
B.
1.
Turning to New Jersey's rules on conflicts of laws in the setting of insurance contracts and multiple claimants, we begin, as urged
Our Court rejected the former choice-of-law rules of lex loci contractus (for insurance contracts), see Simmons,
In explaining the proper conflict-of-law analysis when multiple parties and insurers were involved, our Court stated that the
proper approach in resolving conflict-of-law issues in liability insurance contract controversies ... in both the contract field as well as in the somewhat related tort field ... calls for recognition of the rule that the law of the place of the contract ordinarily governs the choice of law because this rule will generally comport with the reasonable expectations of the parties concerning the principal situs of the insured risk during the term of the policy and will furnish needed certainty and consistency in the selection of the applicable law.
[ Id. at 37,.] 417 A.2d 488
2.
In Simmons, we relied on § 193 of the Restatement. Id. at 35-36, 57,
[t]he validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the transaction and the parties, in which event the local law of the other state will be applied.
Since Simmons, this Court has continued to confront conflict-of-law questions concerning
Section 188 of the Restatement generally addresses conflicts-of-law determinations in contract settings where the parties have not made an effective choice of law. It provides that "[t]he rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under [the § 6 factors]." More specifically, subparagraph (2) of § 188 identifies the contacts to be considered when applying the § 6 factors. They are:
(a) The place of contracting,
(b) The place of negotiation of the contract,
(c) The place of performance,
(d) The location of the subject matter of the contract, and
(e) The domicil, residence, nationality, place of incorporation and place of business of the parties.
Section 6 of the Restatement sets forth several generic conflicts-of-law principles. In particular, it sets forth the factors that are relevant in a conflicts determination when there is no local statutory directive controlling the issue. Specifically, Section 6 provides:
[T]he factors relevant to the choice of the applicable rule of law include
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
With those additional Restatement sections in mind, we turn back to review our case law in this area.
3.
In Gilbert Spruance Co. v. Pennsylvania Manufacturers' Ass'n Insurance Co.,
In Spruance, the plaintiff company (Spruance), a Pennsylvania corporation, manufactured paint products in Philadelphia and, in the 1970s and 1980s, "consigned its waste to independent waste haulers, who transported the waste to [dump sites] in New Jersey."
In considering the conflicts-of-law question when the matter reached our Court, we restated our rejection of a "mechanical and inflexible lex loci contractus rule in resolving conflict-of-law issues in liability-insurance contracts," and referenced our "more flexible approach that focuses on the state that has the most significant connections with the parties and the transaction."
[i]f the principal location of the insured risk is in a single state for a major portion of the insurance period, that location "is the most important contact to be considered in the choice of the applicable law, at least as to most issues." However, the location of the risk has less significance when a movable risk is concerned or when "the policy covers a group of risks that are scattered throughout two or more states."
[Id. at 104 ,(quoting Restatement § 193 cmt. b).] 629 A.2d 885
In such factual settings, we recognized that a clear understanding about the principal location of the insured risk would not necessarily be present and so a different approach was warranted:
[W]hen the "subject matter of the insurance is an operation or activity" and when "that operation or activity is predictably multistate, the significance of the principal location of the insured risk diminishes" ... [and] the governing law is that of the state with the dominant significant relationship according to the principles set forth in Restatement section 6.
[Id. at 112 ,(quoting Gilbert Spruance Co. v. Pa. Mfrs.' Ass'n Ins. Co., 629 A.2d 885 , 50, 254 N.J. Super. 43 (App. Div. 1992) ).] 603 A.2d 61
Spruance broke from the prior reliance on the place of the contract in Simmons. Rather, we determined that the Restatement §§ 188 and 6 provided a more useful framework for addressing the various interests at stake. We determined those Restatement sections to be analytically more appropriate "in the context of
Spruance's reach has been the subject of debate. Even we have commented that
[c]ourts have found it "tempting" to extract from Spruance a "bright-line rule" of applying the law of the state in which the waste disposal site is located as long as it was reasonably foreseeable to the contracting parties that the insured'swaste would predictably come to rest in that state.
[ Pfizer,154 N.J. at 197 ,.] 712 A.2d 634
However, as clarified in Pfizer, "there is no way to avoid a careful site-specific determination, made upon a complete record."
In that case, the Court relied on the factors in § 6, informed by reasoning from General Ceramics, Inc. v. Firemen's Fund Insurance Cos.,
1. The competing interests of the states [, which] require courts to consider whether application of a competing state's law under the circumstances of the case "will advance the policies that the law was intended to promote[;]" ...
2. The interests of commerce among the states [, which] require courts to consider whether application of a competing state's law would frustrate the policies of other states[;] ...
3. The interests of parties [, which] require courts to focus on their justified expectations and their needs for predictability of result[;] ... [and]
4. The interests of judicial administration [, which] require a court to consider whether the fair, just and timely disposition of controversies within the available resources of courts will be fostered by the competing law chosen.
[154 N.J. at 198-99 ,(quoting Gen. Ceramics, 712 A.2d 634 66 F.3d at 656 ).]
With that background, we turn to the conflict-of-law issue before us.
C.
1.
To begin, we reject the insurers' argument that Simmons requires this analysis to begin with Restatement § 193 and its presumption that the law of the place of contracting applies. We no longer follow lex loci contractus for insurance contracts and Simmons is factually distinct from this dispute. Simmons began with a presumption in favor of the law of the contracting state in an automobile-insurance-liability dispute, which was sensible in light of that state's relationship with the "principal situs of the insured risk."
In a contract dispute over insurance allocation for nationwide products liability claims asserting bodily injury due to asbestos exposure, neither Restatement § 193 nor Simmons provides the proper starting point. The conflicts analysis here should center on Restatement §§ 188 and 6, as our later decisions in Spruance and Pfizer have taught.
2.
Section 188 sets forth the contacts to be taken into account in applying the principles of § 6. Section 6's factors, to the extent helpfully condensed in our Pfizer decision, fill out the inquiry.
With respect to the § 188 contacts with the states having an interest in the question of substantive law, not all of the contacts are of equal importance or value in this fact-specific inquiry. Having already abandoned the place of contracting (here Michigan) as the presumptive starting point, we adhere to the observation in Restatement § 188 cmt. e. on subsection (2), that "[s]tanding alone, the place of contracting is a relatively insignificant contact." That is particularly true where, as here, the insured risk is not site-specific. The place of negotiation (again Michigan) can be of importance, as recognized in the Restatement's comment to § 188.
However, two stronger considerations under § 188, applied to this matter, combine to point toward New Jersey. Here, the place of performance, § 188(c), and the domicile, residence, and places of incorporation and of business of the parties, § 188(e), all point to New Jersey. The latter takes into account enduring characteristics
With those contacts in mind, we turn to the Restatement's factors in section 6, helpfully condensed in Pfizer, for our analytical framework. The question is whether New Jersey's relationship with the case is sufficiently significant to warrant application of New Jersey law.
In examining the competing interests of the states, the first inquiry described in Pfizer consolidates several § 6 factors and asks, simply, whether application of the
Owens-Illinois is very clearly a policy-driven opinion, identifying several policies sought to be promoted through application of our allocation methodology for progressive bodily injury claims based on asbestos exposure. Honeywell contends that application of the Owens-Illinois approach in this matter will promote those policies. We generally agree. The policies of maximizing insurance resources, encouraging the spreading of risk throughout the insurance industry, promoting the purchase of insurance when available, and considerations of simple justice all are important to this
To the extent that Michigan's time-on-the-risk approach also seeks to benefit insureds and claimants, application of New Jersey's allocation law will not undermine those Michigan interests. Moreover, it is far from clear what interest Michigan has in insisting that its allocation methodology apply in this insurance dispute, which no longer involves a Michigan-based company.
Finally, although New Jersey's interest in the "efficient use of the resources available to cope with environmental disease or damage," Owens-Illinois,
In sum, we do not see a strong Michigan interest in its allocation law being applied to this coverage dispute. This matter involves nationwide products-liability claims relating to items manufactured in virtually all fifty states and internationally, sold in the national marketplace, and that now are the liability of a successor, New Jersey-based corporation.
The second Pfizer factor considers commerce between the states. That factor is analytically similar to the prior one. It too supports application of New Jersey law. The inquiry focuses on "whether application of a competing state's law would frustrate the policies of other states." Pfizer,
In addition to the competing interests of the states already discussed, the public policy goals further identified in Arco are prospective in nature. The Michigan Court of Appeals sought to promote predictability, discourage litigation, and reduce premiums.
The third factor considers the interests of the parties. Here the contacts outlined in § 188 of the Restatement come to the fore. Courts look to the parties' justified expectations and need for predictability, as well as the other contacts outlined in § 188. Travelers asserts that Michigan law should govern because Michigan was the place of contracting. However, as the Appellate Division noted, when the parties entered the now-disputed excess insurance policies, they could not have reasonably
That said, we acknowledge that, at the time of contracting, the parties could not have expected New Jersey law to control either. However, section 188 directs courts to consider, among other factors, the place of performance, Restatement § 188(c), and the place of business of the parties,
Finally, we look at the interests of judicial administration under the last Pfizer factor, which asks "what choice of law works best to
We agree with the Appellate Division that Pfizer's"special judicial framework" will best manage adjudication of this dispute. Travelers contends that procedural complexity will not serve the interests of judicial administration and argues instead for the simpler time-on-the-risk approach, which requires fewer resources. That argument fails to persuade, however, because the fourth factor focuses not only on resource use but also on "best manage[ment]" of the case. New Jersey's system is well suited to resolve a complex allocation controversy in a fair manner.
In sum, we conclude, in this contract setting where no provision of the contract or of state law compels application of a specific state's law, that conflicts-of-law principles favor application of New Jersey allocation law in the present dispute over liability among insurers. Accordingly, for the reasons expressed, we affirm the Appellate Division on the first issue and turn to the second, questioning the use of our unavailability exception in that allocation methodology.
IV.
The continuous-trigger and related unavailability exception theories for allocation of insurance liability have been recognized and applied in this state since the 1994 decision in Owens-Illinois. As previously discussed, in that matter, which involved toxic-exposure to asbestos, we addressed the use of pollution-exclusion clauses in insurance policies and their impact on the policyholder. After considering strong policy arguments presented by all parties, we settled on the continuous-trigger doctrine and its related allocation methodology as being best for purposes of
The continuous-trigger method assumes the availability of insurance and incorporates recognition of an unavailability exception. As we explained in Owens-Illinois, "[w]hen periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable."
A.
In this appeal, St. Paul and Travelers ask this Court to create an equitable exception to the unavailability rule, whereby corporations that continue to manufacture products after insurance becomes unavailable for those products would be deprived of the insurance coverage they purchased prior to that unavailability. The insurers contend that the Appellate Division misapplied this Court's precedent when it held Honeywell was entitled to coverage,
Joining with the insurers, as amicus curiae, is the Complex Insurance Claims Litigation Association (CICLA). CICLA's main argument is that this Court should abandon the unavailability doctrine altogether, an argument not raised by the insurers themselves. CICLA claims a trend in the law of other jurisdictions away from recognition of an unavailability exception. CICLA contends that the exception undermines the public policy objectives that support the allocation methodology of Owens-Illinois and encourages manufacturers to forego insurance while continuing to produce and sell potentially dangerous products. CICLA adds that the unavailability exception complicates insurance coverage litigation by creating additional issues requiring expanded discovery.
United Policyholders (UP), appearing as amicus curiae in support of Honeywell, argues that the trial court and Appellate Division appropriately applied the Owens-Illinois unavailability exception. UP notes that, in Owens-Illinois, the Court focused on the policyholder's conscious decision to forego the purchase of available insurance rather than the policyholder's decision to engage in a particular kind of business activity. In fact, UP contends, in Owens-Illinois the Court expressly contrasted a specific decision by an actor to assume or retain a risk during a period of no insurance with those periods when insurance coverage is not available. It too emphasizes that the record clearly establishes that excess-insurance coverage for asbestos risk was not available after 1987. UP further urges that we not abandon precedent because Owens-Illinois has offered certainty in its formula and has encouraged settlement of complex coverage disputes.
B.
We have affirmed that the continuous-trigger theory of liability is the law of this state multiple times since the decision in Owens-Illinois. For example, in Benjamin Moore, we reiterated our policy principles and noted that "[t]he multiple occurrence
triggers multiple policies, thus maximizing resources available for toxic tort cases. It is what encourages the purchase of insurance. It is what voids "other insurance" clauses. It is what makes "non-cumulation" clauses inapplicable. It is what requires a calculation of the loss that occurred during each policy period. It is our effort to regularize the essentially irregular progressive environmental damage case and make it amenable to disposition in accordance with the undertakings in the insurance contract.
[Id. at 104-05 ,.] 843 A.2d 1094
Most importantly, as discussed previously, the theory holds insurers responsible for the losses that actually occur on their watch, using a formula that approximates "a scientific assessment of the amount of injury," even if the actual injury manifests later.
On appeal, the policy implications of the unavailability rule has been a focus of an amici that seeks the total elimination of the unavailability exception. Travelers also maintains that assumption of tort risk should factor into the establishment of a
Clearly, the law on allocation methodology differs among the states. Other states have adopted policies different from the "continuous-trigger" and "unavailability exception" theories embraced by New Jersey. See, e.g., Arceneaux v. Amstar Corp.,
In Owens-Illinois we acknowledged that "[i]f, after experience, we are convinced that our solution is inefficient or unrealistic, we will not hesitate to revisit" the allocation paradigm with its continuous-trigger and unavailability doctrines.
The record in this appeal, carefully addressed by the trial court, indisputably demonstrates when insurance became unavailable in the marketplace. Importantly, none of the initial asbestos exposures, on which claims Honeywell is seeking insurance coverage, occurred after insurance became unavailable. The claimants initially were exposed to asbestos at times when the manufacturer was covered by the excess insurance policies at issue. Although the disputed policies involved in this appeal
This case simply does not present facts on which to consider abandoning the unavailability exception, let alone whether to create a novel equitable exception to that exception that would retroactively deprive parties of paid-for insurance coverage due to their post-coverage-period conduct. Sufficient justification for even contemplating taking steps to alter our allocation methodology, with its unavailability rule, is absent here. The continued application of the unavailability rule supports the public policy objectives originally intended by our prorated allocation methodology.
For the reasons that preceded in this opinion's discussion of the trial court's motion practice, we agree with the Appellate Division that the trial court correctly kept its focus on whether Honeywell could reasonably have purchased insurance for asbestos-related claims. The assumption-of-risk language in Owens-Illinois, in context, addressed only assumption of an insurance risk for the existing claim periods when insurance was reasonably available but the insured elected not to purchase it. That is not what has happened here. Moreover, we decline to upend this long-litigated
In light of the extended litigation and the fact that the manufacturer ceased producing these friction products seventeen years ago, we decline to disrupt the coverage block of insurance fixed by the trial court, which resulted in maximizing the insurance resources available for claimants. Indeed, the basic policy objectives of Owens-Illinois-of maximizing insurance resources, encouraging the spreading of risk throughout the insurance industry, promoting the purchase of insurance when available, and of simple justice-are all served by affirming the judgment and moving to closure this mammoth allocation dispute, going back to 1940 through to the ending of insurance availability in 1987. Further, we reject that this holding will disincentivize manufacturers from responsible behavior regarding products for which insurance becomes unavailable, for whatever reason may be discernable. This manufacturer ceased its production. Our affirmance of the insurance coverage block established in this matter is rooted in the overall record before us. To the extent that our dissenting colleague would use this case to have this matter address alterations to the continuous-trigger concept as it was originally fashioned, and to the Owens-Illinois allocation paradigm, in order to promote social policy regarding tort law, that invitation is not one that these circumstances compel us to accept.
V.
The judgment of the Appellate Division is affirmed.
CHIEF JUSTICE RABNER and JUSTICES FERNANDEZ-VINA, SOLOMON, and TIMPONE join in JUSTICE LaVECCHIA's opinion. JUSTICE ALBIN filed an opinion, dissenting in part. JUSTICE PATTERSON did not participate.
JUSTICE ALBIN, dissenting in part.
This Court is the steward of the common law, charged with the responsibility of developing legal principles that will promote fairness and good public policy in our
As applied here, the judicially created doctrine known as the "unavailability exception" gives a corporation a free pass if it continues to expose workers to extremely dangerous products after insurance coverage becomes unavailable. Under the unavailability exception, this Court compels insurance carriers that previously insured the corporation-but later refuse to do so-to remain the guarantors for claims arising during the years the corporation continues to manufacture its dangerous products. This misguided application of the doctrine does not further notions of fairness or a rational public policy, as is evident from this case.
Since 1940, The Bendix Corporation (Bendix)
Given the apparent health hazards and number of pending and expected personal-injury lawsuits relating to Bendix's brake and clutch pads, the primary insurance carriers in 1986 and then the excess insurers in 1987 declined to underwrite coverage for those products. Despite the known medical dangers of asbestos, more than a decade of lawsuits, and an insurance marketplace that refused to provide coverage for its asbestos products, Bendix opted to continue to manufacture its asbestos-containing
Now, a majority of the Court holds that Bendix, though it paid no premiums for coverage, is insured for the injuries caused to mechanics and others who worked with the products it continued to manufacture-so long as the first asbestos exposure predated the period when the company went bare of insurance. According to the majority, the insurance carriers that previously issued liability policies to Bendix must pick up this grisly tab. Of course, in the future, companies similarly situated to Bendix will have less
In my view, we have reached this point so in conflict with good public policy by not giving a common-sense reading to Owens-Illinois, a landmark case intended to further the public welfare. Owens-Illinois constructed a methodology to allocate insurance coverage among multiple policies in cases of progressive toxic diseases that run a course of years from the first exposure to the manifestation of the disease.
The Court also recognized that a company might determine to go without insurance for a period of years and, under those circumstances, the allocation scheme includes the company's pro rata contribution, depending on its time on the risk and the degree of the risk it assumed.
One logical interpretation of that clause accords with the notions of fairness and simple justice advanced in Owens-Illinois. If insurance is unavailable to a company for a product that it has stopped manufacturing, the insurance carriers that issued occurrence policies in prior years remain on the risk through the time until the disease manifests. No one would dispute the application of the allocation scheme in that manner.
It is another thing, however, to say that a company, such as Bendix, that continues to manufacture an inherently dangerous product for which no insurance carrier will provide liability coverage can avoid full financial accountability and transfer the risk to prior insurers. Such a system runs
Equity demands that a corporation that continues to manufacture a dangerous product without insurance become the ultimate insurer for its actions. Justice O'Hern-the author of Owens-Illinois-reminds us that corporate actors should "know that if they do not transfer to insurance companies the risk of their activities that cause continuous and progressive injury, they may bear that untransferred risk." See
The unavailability exception, as applied by the majority, removes Bendix's corporate accountability as a self-insurer for those workers first exposed to Bendix asbestos products before 1987 and
The majority's decision also interferes with the natural flow of market forces, which, if left untouched, would advantage the public. When insurance carriers no longer provide coverage for the continued manufacture of a product endangering the public health because of the prospect of financially ruinous lawsuits, the marketplace is making a definitive statement that whatever good the product offers is outweighed by the risk. Under such circumstances, the natural course of events might lead the company to abandon the manufacture of the dangerous product.
But, if insurance carriers that previously provided coverage for the product must-by the fiat of the Court-insure the risk against their will, then corporations can send their potentially deadly wares into the stream of commerce knowing that they will not bear the full risk in doing so. The perverse logic of this scheme is evident here.
Bendix continued to manufacture asbestos-containing brake and clutch pads for fourteen years after insurance was no longer available. For fourteen years, workers exposed to asbestos fibers before 1987 remained exposed to the potentially deadly toxin, increasing their risk of contracting various serious and lethal diseases. Yet, Bendix now gets-and future similarly situated companies will get-a windfall bailout because this Court has conscripted insurance carriers into paying the bill.
The Owens-Illinois Court had in mind an equitable allocation formula-not the twisted one that has taken root from a single
I expect that insurance carriers will adjust to this new methodology. Knowing that they will be compelled to provide coverage, whether they wish to or not, carriers may decide to offer coverage at much higher premiums-thus rendering insurance available for products that would have been uninsurable.
I do not believe that the path that the majority is taking can be justified by Owens-Illinois or sound public policy. I believe that the majority is making a critical error in allowing the unavailability exception to extend to claims of workers whose first asbestos exposure occurred before 1987 but whose diseases progressed during the fourteen years that Bendix continued to expose them to the potentially lethal fibers-despite the absence of insurance coverage. "[T]o send the correct signals to the economic system, a judge must appreciate the consequences of legal decisions on future behavior." Id. at 473,
This case is not just about Bendix or asbestos products, but about the signal this Court gives to corporate actors who must assess costs and risks-and profits-when deciding whether to unloose their uninsured dangerous products on the public or their uninsured dangerous substances into the environment.
I therefore respectfully dissent from the part of the majority opinion addressing the unavailability exception. I concur in the Court's conflict-of-law analysis and resolution.
Notes
Because St. Paul had not filed a motion before the trial court for the application of Michigan law and did not oppose Honeywell's motion asking the court to apply New Jersey law, its policies were not considered by the panel for purposes of this first issue.
We acknowledge the argument that Michigan does not have a settled policy because of a Michigan Court of Appeals decision that conflicts with Arco. To support that position, Honeywell cites to a subsequent unpublished Court of Appeals opinion that adopted an "all sums" method of allocation, mandating that the insurers must pay all of the insured's liability without temporal limitations. However, unpublished decisions in Michigan are not precedential and not binding, see Mich. Ct. R. 7.215(C)(1), and therefore such opinions cannot affect our analysis in this case.
Notably, other courts regard Michigan as applying a pro rata allocation method that employs the time-on-the-risk approach. See Decker Mfg. Corp. v. Travelers Indem. Co.,
Indeed, not all cases line up as reviewing progressing injury from asbestos or other harmful substances, but instead arise in alternate contexts, such as interpretation of traditional pollution exclusion clauses. See, e.g., Md. Cas. Co. v. W.R. Grace & Co.,
Defendant Honeywell International, Inc. is the corporate successor to Bendix and now responsible for all asbestos liabilities attributed to Bendix. Ante at 70-72,
As of 2007, approximately $504,000,000 had been paid out on over 28,000 claims related to those products. Over 80 percent of the total settlement dollars were for mesothelioma cases. Mesothelioma is a rare cancer that may not manifest until thirty to forty years after exposure. See Centers for Disease Control and Prevention, Health Effects of Asbestos, https://www.atsdr.cdc.gov/asbestos/health_effects_asbestos.html (last updated Nov. 3, 2016).