*1 INDUSTRIES, CORPORATION, INC., A NEW JERSEY WERNER PLAINTIFF-RESPONDENT, v. FIRST STATE INSURANCE COMPANY, CORPORATION, A DELAWARE DEFENDANT-AP- PELLANT. AGENCY, CORPORATION, A
THE RICE NEW JERSEY DEFEND- PLAINTIFF, ANT AND THIRD PARTY v. WEGHORN INTERNATIONAL, INC., THIRD PARTY DEFENDANT. 11, Argued February 1988 Decided October *2 Volkert, Jr., argued Donald J appellant cause for (Siff, Parker, briefs). Rosen & attorneys; Walsh, Robert F. Bray argued Peter R. respondent {Cole, the cause for Gea- ney, & Byrne, attorneys). Yamner
PER CURIAM. question The in this coverage case whether the under an excess liability “umbrella” “drop must down” coverage become the first line for risks covered primary liability insurance carrier in primary the event carrier’s insolvency. We hold that the of the excess result, here does not call for that and reverse the contrary ruling of the court below.
I quite Industries, facts of this simple. case are Werner (Werner) Inc. bought products liability insurance from two through Agency, sources the Rice an insurance broker. Wer- purchased ner products liability first line of coverage of $500,000 bodily $250,000 for injury and property damage from (Ambassador). Ambassador Insurance Company Werner bought also an excess from First Compa- State Insurance ny (First State) to cover excess the amount set forth on the policies. Ambassador Under normal circumstanc- es, personal Werner’s injury insurance coverage from both its Ambassador, policy,1 and its “umbrella” State, represented schematically by could be with First diagram: 3,000,000
$
State's risk 500,000 $ Ambassador's Under Unfortunately, has become insolvent. Ambassador Guaranty Fund Act Jersey Surplus Lines Insurance the New -6.83, Fund), Indus- (Guaranty N.J.S.A. 17:22-6.70 (At $300,000. coverage in the amount of tries is decision, Guaranty Fund has insufficient of this time claims, promise to with a funding only paying and is of all 40% permits.) funding if Several pay the balance the future *4 Indus- brought against Werner personal injury suits have been Guaranty tries, liability in excess of the potential a well or us, argues under the umbrella Before Werner Fund. coverage the obligated provide policy excess First State is $5,000 age escalating coverage. paid of In this 1Werner for this umbrella might imagine liability premiums, have that First State we can well buying potential differently policy the first had the customer been rated this pay greater premium. coverage, might expected to line of and Werner Guaranty $300,000, pay, between what the Fund will and what primary policy would have been the if under Ambassa- insolvent, i.e., $200,000 had not dor become an additional of (Under coverage. Guaranty funded, currently Fund as $300,000, only $120,000, would receive of or thus 40% $380,000 requiring coverage.) an additional of State First obligated pay only contends that it is in sums excess of the the underlying policy case, amount shown on in sums —in $500,000 of personal injury up aggre- excess for a claim to an gate maximum of $3 million. judgment,
In an action
declaratory
plaintiff
for
asserted that
policy “language requires
First State to assume
risk of
insolvency
insurer’s
required
it should be
pay, starting
dollar, any judgment
first
entered
against Werner.” On
summary judgment,
cross-motions for
agreement
the Law
found
insuring
that the
as written
provided coverage
only
for the ultimate net loss
of
excess
underlying
amount of
insurance listed on
schedule
itself,
State policy.
policy
observed,
First
The
the Law Division
ambiguous merely
words,
“is not
because two
read without
reference to any
provisions
other
suggest
an
ambiguity.”
company
The
states that the
shall be liable
for
only
greater
(a)
the ultimate net loss
in excess of the
an
equal
amount
to the limits of
indicated
the schedule
(here
$500,000
coverage
Ambassador)
of other
or
(b) $10,000for other risks
are
by
not covered
the Ambassa-
(The
policy.
clearly
dor
risks in dispute
are
covered
policy.)
Ambassador
The
Division thus
Law
concluded that “it
plain
parties contemplated
that the
First
State
payment
$500,000.00
make
until the first
personal injury
$250,000.00
for
property damage
for
was
paid out from some other source.”
Division reversed the trial court and remanded
entry
of judgment in
favor Werner.
II is to fulfill principle of insurance law The fundamental See, parties. e.g., reasonable objectively Co., 100 National Fire Ins. Zuckerman v. Union Nevertheless, policies recognition that insurance “[t]he impelled to resolve readily not has courts are understood companies.” ambiguities against the insurance in such contracts (1985)(citations Sparks v. Ins. 100 N.J. St. Paul omitted). times, unambiguous even contract has been At an provisions policy, of the to additional 2 TheLaw referred as well Division including (g), not that First State’s was which Condition INSURED, underlying INSURED’S available and until "unless LIMIT," insurer, pay amount of the UNDERLYING shall be (o) required policy, Werner to maintain the which and Condition during underlying policy dates of the First force and effect the effective so, apply "shall State if it fails to do State applied been so maintained had such same manner it would significance placed on this Condition since no force.” through It was Werner’s fault in force. Werner had maintained insolvent. that Ambassador became *6 interpreted contrary plain meaning to its so as to fulfill the expectations reasonable of the insured: of insurance contracts to accord with the reasonable interpretation regardless ambiguity of insured, of the expectations existence of in the judicial recognition constitutes nature of of unique contracts insurance. traditional standards of By contract the consent of law, both understanding based an informed of the terms and conditions of the parties, is in contract, present contracts. W.D. rarely Slawson, “Standard Lawmaking Form Contracts and Democratic Control of 84 Harv.L.Rev. Power,” (1971); (1971). R. Keeton, Insurance Law 350-52 529, 539-41 Because under- standing lacking, is the consent to sustain traditional contracts necessary cannot be to exist in most contracts of insurance. Such consent can presumed language be inferred to the extent that only conforms policy public and See su- reasonable standards. W.D. commercially Slawson, 84 Harv.L.Rev. at R. Keeton, at In pra, supra, 566; 350-52. instances which the insurance contract is inconsistent with and public expectations judicial regulation standards, of commercially accepted insurance contracts is overreaching injustice. R. essential in order to and Keeton, supra, prevent at Rights 350-52; Keeton, R. "Insurance Law at Variance with Provisions,” Policy (1970). Harv.L.Rev. 967 100 at [Sparks, supra, 961, 83 338.] agree
We with the Law Division that taken in its entire ty of policy plain meaning. its It does provide drop-down not coverage in the of primary event insolvency. that, insurer’s We also conclude on this record so interpreted, public is not expecta “inconsistent with commercially tions accepted standards.” [or] recognize We that some courts have contrary reached the (at conclusion. Massachusetts has held least in the case of personal-line coverage individual) of an that when the does not explicitly consequences confront the insolvency, policy provides drop-down coverage when the policy’s underlying “reduced,” limit is the excess carrier’s re- sponsibility drop should expecta- down to fulfill the reasonable hypothetical tions of a insured. Massachusetts Insurers Insol- vency Co., 598, v. Casualty Fund Continental 399 Mass. 506 (1987). N.E.2d 118 Georgia, having Chief Justice Marshall thoroughly varying authorities, canvassed the drop-down denied court, in the case relying before his however on a narrow distinction in policy requiring that “other insur- ance,” insurance,” “underlying but be “collectible”
37 United indemnify. carrier be before the excess Sales, Inc., 257 Ga. Capital v. Ford Truck 77, Fire Ins. Co. States reasoning, 428, 433 Using similar 355 S.E.2d page of the Declarations emphasized case our “ liability being ‘in excess of to First State’s referred (em amount recoverable underlying insurance’ under the N.J.Super. at added).” phasis courts, however, courts should emphasized Other section policy’s one ‘Conditions’ not focus “on sentence th[e] * * * the contract. Such an to the exclusion of the balance of legally inappropriate.” Wurth v. interpretation is distorted and App.3d 607, N.E.2d Ideal Mut. Ins. Ohio *7 (excess drop down to (1987) required to liability carrier not see also carrier); primary by indemnified insolvent cover losses Co., Distributors, Republic v. Ins. Pergament Inc. Old 513 N. (A.D.1987) (limits A.D.2d of that Y.S.2d by underlying of amounts “covered” referred to sum excess collectibility). insurance signify did “policy fulfills the reason analysis, last a that In the scope respect to the of expectations of the insured with able Zuckerman v. National coverage” is valid and enforceable. Co., supra, history Fire Ins. Union 324. The of at parties: expectations of the litigation illuminates this to (1) wanted be this action because it Werner initiated provide coverage to certain that First State was only can inter- primary of carrier.” We limits “above the in excess of meaning solely those losses pret language as Werner also $500,000 policy. In the action Ambassador broker, the Rice damages from commercial insurance sought its fraudulently placing primary negligently Agency, Ambassador. insurance coverage in excess (2) stipulated to its First State of Werner’s sought a discontinuance policy and Ambassador against its suit could continued against action it. Werner However, then its tactics shifted its broker. insurance liability policy required and contended that the excess $300,000 State to cover losses excess of the from available Guaranty Fund. (3) However, strategy Werner’s before the trial court was to that the Guaranty contend due to Fund’s insufficient fund- ing, “required pay, starting First State was to the first dollar, any judgment against entered pending per- Werner” in litigation, injury paid sonal less eventually amount Guaranty Fund. to
It is difficult for us see in this anything scenario of events litigation strategy other designed than make best of a any criticism, bad say merely situation. We this without but point that out on this record we cannot conclude it was within the commercial of Werner Industries that its carrier umbrella was be its in case of carrier insolvency. carrier’s circumstances,
In other insurance contracts “[b]ecause adhesion, are contracts of the terms of which are not customar for, ily bargained special responsibility prevent courts have a marketing policies provide unrealistic and inade quate coverage.” Sparks v. Ins. supra, St. Paul 100 N.J. at Were personal this a coverage, we might more to accept inclined Division’s view all, as a of public policy. matter After a line in the cover the issue. policy covering But this is a commercial risks *8 procured broker, through a and parties thus involved on both bargaining sides of the sophisticated table were who regard to insurance.
Because, view, policy our the here neither nor inadequate coverage, unrealistic and because there has showing been no policy whatsoever that this not did meet expectations, Application Werner’s we reverse. of canons of dictating interpretation against construction a drafter “should conformity expressed sensible and in with the intent of the parties.” Broadway Corp. 90 Rutgers, Maintenance v. N.J.
39 253, (1982). “should not to be used as excuse 271 Such canons there, agreement private that which is not and to read into a dealing fairly could people that which with one another not Fidelity and Tomaiuoli v. United States Guar. have intended.” 192, 207 always Co., goal is to N.J.Super. (App.Div.1962). 75 Our assured in “justly fulfill the reasonable the Burd Mut. purchase policy.” of his insurance v. Sussex Ins. (Jacobs, J., In Co., 383, (1970) dissenting). N.J. case, policy provide not present clearly of the did for “dropping by secondary for down” insurer losses by insolvency reason of the not recoverable of the by other First State insurer. evidence that some action Absent insured, understanding by unambig a created different language of the must be enforced. uous contract matter, Sparks as
We remand the we did v. therefore permit supra, at 342 n. Paul Ins. 100 N.J. St. proof policy trial court “the terms of this to consider of whether bargained In this specifically and for.” con were understood text, inquiring any background that mean into evidence insured, broker, through conveyed to the insurer a that the its contrary unambiguous language in the intent than found by enter of the and was induced to this may a insurer’s We note further conduct. broker, remedy against Agency, the Rice its commercial theory negligence policy provided by if the umbrella broker’s supply it provide undertook broker did diligence. requisite In of its failure exercise skill because insurer, may become negotiating with the the broker for the insured. principal liable his the loss sustained See Gambino, v. Bates Division reversed judgment proceedings
matter remanded to the further Law opinion. accordance *9 J.,
HANDLER, dissenting.. I Division, the judgment affirm sub- stantially expressed opinion or the reasons Judge Baime, reported N.J.Super. at 217
For reversal and remand —Chief Justice WILENTZ and CLIFFORD, POLLOCK, O’HERN, Justices GARIBALDI and STEIN—6.
For HANDLER—1. affirmance —Justice
IN THE RAGUCCI, MATTER OF CHRISTOPHER T. AN ATTORNEY AT LAW.
Decided October ORDER Disciplinary having report Review Board filed with the Supreme recommending Court that CHRISTOPHER T. RA- ISLAND, YORK, GUCCI STATEN NEW who was admitted