New Jersey Insurance Blog

Cases involving insurance coverage for multiple claims arising out of bodily injury or property damage resulting from exposure to toxic substances or long-term environmental damage can present extremely complex coverage issues.  In such cases, insureds may have insurance coverage spanning many decades under multiple policies issued by various insurers.   In Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994), and Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312 (1998), the New Jersey Supreme Court adopted a method for determining how losses should be allocated among the various insurers.

In deciding Owen-Illinois and Carter-Wallace, the New Jersey Supreme Court was trying to fashion a method for dealing with complex losses that were not contemplated by the parties to the insurance policies at the time they were issued.  The method selected by the court was less than perfect.  As new issues arise, the New Jersey courts try to mold the facts and policy language at issue to fit the Carter-Wallace/Owens-Illinois allocation methodology.  When the policy language does not fit within the methodology adopted by the court, the policy language simply is not enforced.

Despite the fact that Owens-Illinois was decided over two decades ago, and Carter-Wallace was decided eighteen years ago, issues continue to arise concerning the Carter-Wallace/Owens-Illinois allocation methodology.  In September 2014, the New Jersey Appellate Division issued a decision, IMO Indus. Inc. v. Transamerica Corp., 437 N.J. Super. 577 (App. Div. 2014), certif. denied, 222 N.J. 16 (2015), in which it addressed a number of outstanding issues.  That decision was the subject of a prior blog post.  See https://njinsuranceblog.com/owens-illinoiscarter-wallace-revisited-n-j-court-addresses-allocation-yet/

In July of this year, the Appellate Division once again had occasion to address allocation issues in Continental Ins. Co. v. Honeywell Int’l, Inc., 2016 WL 3909530 (App. Div. July 20, 2016).  That case involved coverage for bodily injury claims arising out of exposure to asbestos-containing products.  One of the issues addressed by the court was what happens if an insured is aware of the risks posed by its products, is unable to purchase insurance covering those risks, but decides to sell its products anyway.  The Owens-Illinois court previously held that an insured is required to assume a portion of the risk during those periods when coverage was available but the insured chose not to purchase it.  The situation in Continental was different, however, because insurance coverage was unavailable.

The insured was sued “in tens of thousands of [personal injury] actions” and the insured and its insurers “spent over $1 billion in defending, settling, and paying asbestos-related claims.”  Id. at *1.  After litigating with its insurers for thirteen years, all but two high-level excess insurance carriers settled with the insured.  The Continental decision concerned only the claims against those two insurers.

Surprisingly, the court held that New Jersey law applied even though the polices at issue “were brokered, underwritten, issued and delivered to [the insured] in Michigan,” its principal place of business.  Id. at *9.  When it comes to choice-of-law issues, New Jersey courts apply the “dominant significant relationship” or “most significant relationship” test.  Under that test, a court is supposed to apply the law of the state that “has the most meaningful connections with the interests in the transaction and the parties.”   NL Indus., Inc. v. Commercial Union Ins. Co., 65 F.3d 314, 316 (3d Cir. 1995).   Some of the factors to be considered by a court in making its determination include the principal place of business of the insured, the principal place of business of the insurance company, the location where the policy was negotiated, the location where the policy was issued, the location where the insurance broker is located (assuming there is one), the principal location of the risk, and the location where the injury took place.  Based on those considerations, it appears that Michigan, and not New Jersey, had the most meaningful connections.  However, the court obviously was mindful of the fact that applying New Jersey law would maximize the available insurance coverage.

The insured in Continental sold asbestos-containing brake and clutch pads over a period of several decades.  Starting in 1986, its insurance policies contained asbestos exclusions.  Yet, it continued to sell asbestos containing products until 2001.  Some of the insurers argued that the insured effectively decided to self-insure during those years.  The insurers took the position that the insured had “assumed the risk by continuing to manufacture and sell asbestos-containing products after 1987.”  Id. at *11.  The court rejected that argument:

No New Jersey case has adopted the concept of assumption of the risk as advocated for by [the excess insurers].  Instead, cases applying the Owens–Illinois rule have focused on the availability of insurance and have only found that the insured assumed the risk when insurance was available and the insured chose not to purchase coverage.

Given the facts of this case, we conclude that the correct focus was whether Honeywell could reasonably have purchased insurance for asbestos-related claims.  In the context of this case, the assumption of the risk language in Owens–Illinois did not refer to when an insurer sells or manufacturers a product that might lead to a claim of exposure to asbestos.  Instead, the assumption of the risk occurs when an insurer fails to purchase insurance that was reasonably available.

Id. (citations omitted).  Because the evidence established that insurance coverage was not available after 1987, the court concluded that the insured did not assume the risk during that period.

The Appellate Division also held that, based on the particular language of the policies at issue, the excess insurers were not required to provide coverage for the payment of defense costs and that the insured was not entitled to recover the attorneys’ fees it incurred in the coverage action.

On December 12, 2016, the New Jersey Supreme Court granted certification in the Continental case.  Interestingly, the Court declined to hear an appeal in the IMO case, which involved numerous novel and significant allocation issues.   Presumably, the choice-of-law ruling caught the Court’s attention, although the assumption of risk argument also presents a novel issue.  Regardless of why it granted certification, the Court will now have yet another opportunity to weigh in on the Owens-Illinois/Carter-Wallace allocation method.

© 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.

New Jersey passed the Insurance Fraud Prevention Act (“IFPA”) to aggressively address the problem of insurance fraud in New Jersey.  To that end, the IFPA provides for the imposition of both civil and criminal penalties in connection with the commission of insurance fraud.  In State v. Goodwin, 224 N.J.102 (2016),  the New Jersey Supreme Court addressed the requirements for a criminal conviction under the IFPA.  In that case, the defendant, Robert Goodwin, ended up with a seven-year prison term because he facilitated the filing of a false insurance claim in an attempt to hide that he was cheating on his live-in girlfriend.

Mr. Goodwin was convicted of second-degree insurance fraud, N.J.S.A. § 2C:21-4.6, for falsely reporting that his girlfriend’s SUV had been stolen.  Mr. Goodwin actually borrowed his live-in girlfriend’s SUV to visit his other girlfriend.  The SUV was vandalized and severely damaged by fire while parked overnight down the street from his second girlfriend’s apartment.  Upon discovering the damage to the SUV, Mr. Goodwin returned to the apartment he shared with his first girlfriend.  He convinced her to report the SUV as stolen to the police department and the insurance company.  During an examination under oath conducted by the insurance company, Mr. Goodwin admitted that he lied about the SUV being stolen.  Based on Mr. Goodwin’s misrepresentation about the theft, the insurer denied the claim.

Mr. Goodwin was later charged with second-degree aggravated arson, third-degree attempted theft by deception, and second-degree insurance fraud.  The jury found Mr. Goodwin guilty of second-degree insurance fraud and not guilty on the other counts.  The trial judge instructed the jury that a person is guilty of insurance fraud if he “knowingly makes or causes to be made a false … or misleading statement of material fact … in connection with a claim for payment, reimbursement, or other benefit from an insured’s company.”  Id. at 107-08.  The judge further instructed the jury that “[a]n insured’s misstatement is material if when the statement was made, a reasonable insurer would have considered the misrepresented [fact] relevant to its concerns and important in determining its course of action.”  Id. at 108.  Finally, the judge instructed the jury that “the statement of fact is material if it could have reasonably affected the decision by an insurance company … to pay a claim.”  Id.

On appeal, the Appellate Division reversed the conviction, concluding, among other things, that the jury should have been instructed that Mr. Goodwin could be found guilty only if the insurer actually relied on the his false statements.  The court held “that defendant was not guilty of insurance fraud on the theft claim because [the insurer] knew that the SUV was not stolen and did not pay the claim.”  Id.  The New Jersey Supreme Court reversed.  According to the Court:

A person violates the insurance fraud statute … even if he does not succeed in duping an insurance carrier into paying a fraudulent claim. A false statement of material fact is one that has the capacity to influence a decision-maker in determining whether to cover a claim. If the falsehood is discovered during an investigation but before payment of the claim, a defendant is not relieved of criminal responsibility.

224 N.J. at 104-05.  The Court held that because Mr. Goodwin falsely reported that the SUV was stolen, “[i]t was for the jury to determine whether the series of false statements about the theft generated by defendant had the capacity to influence the insurance carrier in deciding whether to reimburse for the damage caused by the arson.”  Id. at 105.  The Court further held that it was not necessary for the defendant to have been convicted of arson or theft to support his conviction of insurance fraud.  Id. at 115.

Thus, a person can be convicted of insurance fraud regardless of whether the insurer actually was influenced to pay the claim by the defendant’s false statements.  In other words, it is not necessary to show that the insurer actually relied on the defendant’s statements.  The State merely has to show that the defendant’s actions “had the capacity to influence the insurance carrier” to pay the claim.

In this case, the jury found Mr. Goodwin not guilty on the claims that he stole or vandalized the SUV.  It appears that his only false statement was the SUV was stolen and he made that statement because he was trying to hide his actions from his live-in girlfriend.  That deception cost him seven years in prison.

© 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.