Tred R. Eyerly – October 28, 2013
The New Jersey Supreme Court held that one insurer could seek contribution from another insurer who settled with and secured a release from the insured. Potomac Ins. Co. v. Pennsylvania Manufacturers’ Ass’n Ins. Co., 2013 N.J. LEXIS 847 (N.J. Sept. 16, 2013)
The township of Evesham retained Roland Aristone, Inc. to be its general contractor for construction of a new middle school. After completion of the school, the roof leaked. Evesham sued Aristone for the construction defects.
Aristone tendered to its various CGL carriers. Two insurers, Selective Way Insurance Company and OneBeacon Insurance Company, defended. Two others, Pennsylvania Manufacturers’ Insurance Company (PMA) and Royal Insurance Company, denied coverage. Aristone sued PMA and Royal, and ultimately settled with PMA for $150,000 in exchange for Aristone’s release from all claims, including claims for defense fees and costs.
Shortly thereafter, Aristone settled with Evesham for $700,000. This included the $150,000 paid by PMA, $150,000 from OneBeacon, $260,000 from Selective, and $140,000 from Royal. OneBeacon then sought a portion of its defense costs from Royal and PMA. Royal settled with OneBeacon, but PMA argued its release from Aristone barred OneBeacon’s claim. OneBeacon sued.
The trial court found in OneBeacon’s favor, recognizing a direct right of action by the insurer against its co-insurers for defense costs. The $700,000 settlement represented only indemnity payments. It apportioned defense costs using a pro rata formula, allocating sixteen percent of the defense costs to PMA. PMA’s argument that its release from Aristone extinguished OneBeacon’s contribution claim was rejected by the trial court.
The Appellate Division affirmed the decision allocating defense costs among the several insurers.
The Supreme Court affirmed, as well. The court’s analysis relied upon its prior decision, Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (1994). There, the court considered alternative methods for determining what constituted an “occurrence” and deciding which insurers must provide coverage in asbestos-related personal injury and property damage cases. The court adopted the “continuous trigger theory, under which progressive indivisible injury from exposure to injurious conditions was treated as a occurrence within each of the years of a CGL policy. The court then relied upon a pro rata formula of allocation, under which losses were allocated to the carriers on the basis of the extent of the risk assumed, i.e., proration on the basis of policy limits, multiplied by years of coverage.
Following these principles, the trial court properly allocation sixteen percent of the defense costs to PMA.
Further, the trial court and Appellate Division properly rejected PMA’s contention that its release with Aristone barred OneBeacon’s contribution claim. OneBeacon was not a party to the release and did not waive its right of contribution against PMA.