New Jersey Insurance Blog

Over a decade ago, I wrote an article titled Off-Premises Defense Washed Up?, which appeared in the May 30, 2005 issue of the National Underwriter Property & Casualty Magazine.  The article involved two appellate court decisions, one issued by a New York court and the other one issued by a New Jersey court,  in which the courts recognized a claim for what has been referred to as take-home toxic-tort liability.  Specifically, the courts allowed the assertion of second-hand asbestos claims by the spouses of employees who had been exposed to asbestos while at work.  The spouses, who developed mesothelioma, claimed that they were exposed to asbestos fibers while washing their husbands’ work clothes.

The New York decision was later reversed by the New York Court of Appeals, New York’s highest court.  See In re New York City Asbestos Litigation, 840 N.E.2d 115 (2005).  The court found that an employer/landowner did not owe a duty to protect an employee’s spouse from exposure to hazardous substances.  The New Jersey decision, in contrast, was affirmed by the New Jersey Supreme Court.  See Olivo v. Owens-Illinois, Inc., 186 N.J. 394 (2006).  In that case, the Court held that an employer/landowner could be held liable for injuries sustained by the wife of an employee as a result of exposure to a hazardous substance through contact with her husband’s work clothes.

Ten years later, the New Jersey Supreme Court revisited take-home toxic-tort liability in  Schwartz v. Accuratus Corp.,  2016 WL 3606026 (July 6, 2016).  The plaintiffs in that case, Brenda Ann and Paul Schwartz, claimed that Brenda was exposed to beryllium that her boyfriend, and later husband, brought home from work on his clothing.  Paul worked for Accuratus Corporation, a ceramics manufacturer located in New Jersey, prior to and after marrying Brenda.   Another employee of Accuratus shared an apartment with the Schwartzes for some time.  Thus, she also was exposed to beryllium that he brought home on his clothing.

The action, which was originally filed in Pennsylvania state court, was removed by the defendants to federal court.  The trial court granted Accuratus’s motion to dismiss the complaint, concluding that Accuratus did not owe Brenda a duty of care.  That decision was later appealed to the United States Court of Appeals for the Third Circuit.  Recognizing the significance of the issue, which was to be determined under New Jersey law, the Third Circuit certified the following question to the New Jersey Supreme Court:

Does the premises liability rule set forth in Olivo extend beyond providing a duty of care to the spouse of a person exposed to toxic substances on the landowner’s premises, and, if so, what are the limits on that liability rule and the associated scope of duty?

Id. at *1.  In answer to that question, the Court stated “that the duty of care recognized in Olivo may extend, in appropriate circumstances, to a plaintiff who is not a spouse.”  Id. at *8.

The Court declined to precisely define the extent of the duty of care or adopt a bright-line rule.  The Court noted:

Although chance contact with a worker transporting home a toxic substance from another’s premises should not suffice to create a duty of care . . . we cannot create an abstract bright-line rule at this time as to “who’s in and who’s out” on a negligence-based take-home toxic-tort cause of action based on Olivo or any previous decision. The contours of the issue defy definition in such manner.

Id. at *7 (citation omitted).

As the Court observed, when expanding tort liability, it is important to make sure that the imposition of liability is not only foreseeable, but also that it is fair, just, and predictable under the circumstances.  Id. at *3, 8.      The Court identified several factors that must be weighed in order to make this determination:  (1) the relationship among the parties; (2) the opportunity for exposure to the dangerous substance and the nature of the exposure that causes the risk of injury; and (3) the employer’s knowledge of the danger of exposure to the substance at the time it occurred.  The determination as to whether liability exists in a particular case will necessitate an assessment and weighing of those factors.

In Olivo, the Court extended the duty of care owed by a landowner/employer to the spouse of an employee who is  injured as a result of a dangerous condition in the workplace.  In Schwartz, the court went a step further.  As the Court observed, “[t]ort law is built on case-by-case development based on the facts presented by individual cases.”  Id. at *5.   Based on the Court’s decision in Schwartz, it is now clear that recovery based on a take-home toxic-tort liability theory is no longer limited to the spouse of an employee.  Nor is it limited to a claim involving exposure to asbestos.  Just how far that theory extends, or the types of “toxic substances” that will give rise to such a claim, however, is not clear.

As a general rule, an insured has no right to settle a claim without the consent of its liability insurer.  If it does so, it runs the risk of losing coverage for the loss.  However, if an insurer improperly denies coverage, or improperly refuses to provide a defense to its insured, it may be bound by a settlement entered into by the insured if it later is determined that the policy provided coverage.

When an insurer has denied coverage for a loss, it is not uncommon for an insured to enter into a consent judgment with the injured party and then assign any rights it may have to seek coverage from its insurer.  As part of such a settlement, the injured party generally will agree not to seek enforcement of the judgment against the insured.  In other words, the injured party will recover, if at all, only against the insurer.  These settlements are known as a Griggs settlements after the New Jersey Supreme Court’s decision in  Griggs v. Bertram, 88 N.J. 347, 368, 443 A.2d 163 (1982).

In order for such a settlement to be binding on the insurer, it must be shown that the settlement amount was reasonable and that the settlement was entered into in good faith.  “The initial burden of going forward with proofs of these elements rests upon the insured and the ultimate burden of persuasion as to these elements is the responsibility of the insurer.”  Griggs, 88 N.J. at 368.  An insurer challenging a settlement generally will request a Griggs hearing, during which a court will determine whether the two conditions have been met.

The enforceability of Griggs settlements recently was addressed by the New Jersey Appellate Division in two decisions decided just two days apart, Comer v. Pacheco, 2015 WL 11004853 (June 13, 2016) and Vrskovy v. Curcio, 2016 WL 3263659 (June 15, 2016).

Comer arose out of a fatal automobile accident.  The decedent was killed when an automobile being driven by her employer ran a stop sign and struck a garbage truck.  The employer was insured under a policy of insurance issued by The Proformance Insurance Company.  Proformance denied coverage on the basis that the automobile in question was not covered under the policy.  The trial court ultimately determined, however, that the automobile was covered under the policy.  Thus, the insurer had wrongfully denied the claim.

Prior to the ruling by the trial court that there was coverage, the insured settled with the decedent’s estate.  The parties put Proformance on notice that they intended to enter into a settlement agreement, but Proformance did not participate in the settlement discussions.  The terms of the settlement agreement were as follows:

Defendants agreed to the entry of final judgment against them in the amount of $400,000, which constituted eighty percent of the Proformance policy limits.  Defendants also assigned any rights they had against Proformance in the instant litigation to plaintiff, who agreed to refrain from docketing or executing upon the judgment against defendants.

Id. at *3.  The agreement further provided:

[I]f a Court of competent jurisdiction determines this Griggs settlement is not reasonable in amount, or has not been entered into in good faith, or is otherwise void in part (or in whole), then at Plaintiff’s sole discretion, this entire settlement agreement shall be deemed null and void in its entirety.

Id.  Proformance moved to set aside the settlement agreement and the plaintiff cross-moved to enforce it.  The trial judge set aside the settlement agreement without addressing the reasonableness of the settlement amount or whether the agreement was entered into in good faith.

On appeal, the Appellate Division concluded that the trial court improperly set aside the settlement agreement.  The court began its analysis by noting:

In Griggs, the Court provided a means by which a tortfeasor, whose insurer has wrongfully denied coverage, may enter into a settlement to limit the tortfeasor’s personal exposure.  “When an insurer violates its contractual obligations to the insured, it forfeits its right to control settlements.”  Upon such a breach by the insurer, the insured may enter a settlement and, if the settlement is both reasonable and made in good faith, the settlement may be enforced against the insurer.

Id. at *8 (citations omitted).  The Appellate Division went on to note that the trial court was “required to conduct an ‘independent review’ to determine if the settlement was ‘reasonable and made in good faith’.”  Id.  Because it failed to do so, the Appellate Division reversed and remanded the case back to the trial court so that it could conduct a Griggs hearing.

Vrskovy also involved the enforceability of a Griggs settlement.  There, the plaintiff, a minor, attended a birthday party at the home of the insured’s daughter at which alcohol was served.  After leaving the party he was involved in a single-car crash and sustained significant injuries.  One of the two insurers that provided coverage, Palisades Property & Casualty Insurance Company, denied coverage, arguing that the loss was not covered under its policy.  Palisades provided both a primary and excess insurance policy to the insured.

The parties entered into an initial settlement agreement pursuant to which the plaintiff agreed to dismiss the claims asserted against the insured in exchanged for an assignment of “any and all rights” the insured had against Palisades.  Palisades moved to set aside the settlement agreement, arguing that it “was an unconditional release, relieving the [insured] from any liability arising from the birthday party and subsequent automobile accident, thus barring plaintiff from further relief.”  Obviously concerned that Palisades was correct, the parties agreed to revise the terms of the settlement agreement and Palisades’s motion to set it aside was denied.

The parties subsequently entered into a revised settlement agreement.  Pursuant to that agreement, the parties entered into a consent judgment in the amount of $2 million and the insured agreed to assign her rights under the policies issued by Palisades.  The plaintiff also provided the insured with a warrant of satisfaction, which could be filed at any time to show that the consent judgment had been discharged.

Both parties subsequently moved for a determination as to whether coverage existed.  In addition, the plaintiff sought to enforce the settlement agreement and Palisades moved to set it aside.  The trial court found that there was no coverage under the primary insurance policy, but that coverage existed under the excess policy.  After conducting a Griggs hearing, the judge also concluded that the amount of the settlement was reasonable and that the settlement agreement was entered into in good faith.  Shortly thereafter, the insured filed the warrant to discharge the judgment.  Palisades then moved for reconsideration, arguing that the filing of the warrant extinguished the insured’s (and therefore the insurer’s) liability to the plaintiff.  The trial court disagreed, and denied that motion.

On appeal, the Appellate Division affirmed the trial court’s conclusion that coverage existed under the excess policy.  In addition, the court rejected Palisades argument that the initial settlement agreement “effected an unconditional release of legal liability form the underlying action, extinguishing the [insured’s] right to be indemnified and, thus, barring plaintiff from recovering further relief.”  According to the court, the trial judge correctly determined that the initial agreement “was withdrawn and voided under the doctrine of mutual mistake.”  Id. at *8.

The Appellate Division also rejected Palisades’s argument that “its legal obligation to indemnify, triggered by the entry of the consent judgment against the [insured], was discharged by her filing of the warrant to satisfy.”  Id. at *7.  The court observed that “[t]he execution of a settlement, assigning subrogation rights and furnishing a warrant of satisfaction, in exchange for a release from personal liability, was precisely the mechanism upheld by the Supreme Court in Griggs.”   Id. at *8.

Finally, with respect to whether the settlement satisfied the requirements of Griggs, the court noted:

At the hearing to determine the reasonableness of the settlement, plaintiff presented documentary evidence to support his position that the settlement amount was reasonable, executed in good faith, and free from collusion. Specifically, he submitted the police report from his accident; the toxicology report establishing his [blood alcohol level] at .205%; an expert report from toxicologist Dr. Robert Pandina, opining about his state of intoxication and level of impairment; an expert report from Dr. Michele Fantasia, describing the nature and severity of his injuries; deposition testimony from several acquaintances who also attended the party; certifications from the [insured’s] attorneys; and his medical bills, including a Medicaid lien of $370,165.63.  Plaintiff also testified as to events which occurred the night of the party.  Palisades did not present any evidence.

Id. The court further noted that “the judge found that liability rested with [the insured], who knew minors were engaged in underage drinking, at minimum, had an opportunity to stop it, and yet failed to do so.”  Id.at 9.  With respect to the “good faith” requirement, the court observed:

Relying on certifications filed by counsel for plaintiff and [the insured], the judge found “the intent of the parties was to allow the plaintiff the opportunity to pursue the insurance

that [the insured] had purchased to protect others who may be harmed by her own negligence.”

Id.  Thus, the Appellate Division agreed with the trial court’s “well-supported conclusion” that the settlement agreement was enforceable and binding on the insurer.

The Griggs decision has long been a Sword of Damocles hanging over insurers that have denied coverage.  If coverage is improperly denied, an insurer runs the risk that it can be bound by a settlement entered into by the insured without its consent.  However, as the Griggs court made clear, and as reiterated in Comer and Vrskovy, not every settlement will binding on an insurer.  Only those settlement that are reasonable and entered into in good faith will be binding.  If a settlement is challenged at a Griggs hearing, both the party seeking enforcement of the agreement and the insurer must be prepare to present evidence concerning both issues.

© William D. Wilson and NJInsuranceBlog.com, 2016.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.