Relying on its longtime methodology for claims that trigger multiple insurance policies, the New Jersey Supreme Court for the first time has allowed an insurer to pursue a settling co-insurer for defense litigation costs that arose out of progressive property damage.
In resolving that issue in Potomac Ins. Co. of Ill. v. Pa. Mfrs. Ass’n Ins. Co. (Sept. 16, 2013), the Supreme Court based its holding on the principles expressed in Owens-Illinois, Inc. v. United Insurance Co.,138 N.J. 437 (1994). There, the Court adopted the “continuous trigger” theory for personal injury and property damage claims, stating that progressive indivisible injury or damage arising from exposure to injurious conditions may be treated as an occurrence within each of the years of a CGL policy. Additionally, co-insurers on the same risk have proportional obligations to indemnify a mutual insured. The Court recognized that both defense costs and indemnity payments could be subject of equitable contribution claims between multiple insurers.
Potomac involved multiple insurers that insured over 10 years a general contractor involved in construction defect litigation. OneBeacon sought a proportionate share of defense costs from PMA, which disclaimed coverage. PMA contended that a release it entered into with the insured to settle the underlying case precluded OneBeacon’s recovery.
In establishing OneBeacon’s right to pursue contribution from PMA, the Supreme Court looked to the rationale behind the allocation scheme it established in Owens-Illinois. The Court acknowledged that permitting claims for allocation of defense costs creates a strong incentive for prompt and proactive involvement by all responsible carriers, thereby promoting the efficient use of resources. According to the Court, the potential for such claims promotes early settlement, which will conserve resources and promote New Jersey’s policy in favor of dispute resolution. The Court also cited the element of fairness, in that contribution allows for a remedy against insurers who are recalcitrant.
The Court rejected PMA’s position that OneBeacon’s recovery effort was barred by its release with the general contractor. Because OneBeacon was not involved in the negotiation of the release and was not a signatory to it, the release did not extinguish the company’s equitable contribution claim against PMA on its own behalf.
While many insurers defending continuous-trigger claims in New Jersey have utilized the Owen-Illinois allocation method in sharing defense costs among co-insurers, the Potomac decision follows the majority of other states in permitting participating carriers to pursue equitable contribution claims from insurers either not contributing its appropriate share or not participating in the insured’s defense at all.