Dome Petroleum v. EMPLOYERS MUT. LIABILITY INS.

• Decision Date: 02 December 1991
• Docket Number: Civ. A. No. 84-97.
• Citation: 776 F. Supp. 970
• Parties: DOME PETROLEUM LIMITED, a corporation of Canada, and Dome Energy Limited, a corporation of Canada, Plaintiffs, v. EMPLOYERS MUTUAL LIABILITY INSURANCE CO. OF WISCONSIN, a mutual insurance company of Wisconsin, Frank Mulvey, Anthony Rotella, Teresa Helen Ernst and the First Jersey National Bank, a national bank with its principal office in New Jersey, Defendants.
• Court: U.S. District Court — District of New Jersey

776 F. Supp. 970

DOME PETROLEUM LIMITED, a corporation of Canada, and Dome Energy Limited, a corporation of Canada, Plaintiffs, v. EMPLOYERS MUTUAL LIABILITY INSURANCE CO. OF WISCONSIN, a mutual insurance company of Wisconsin, Frank Mulvey, Anthony Rotella, Teresa Helen Ernst and the First Jersey National Bank, a national bank with its principal office in New Jersey, Defendants.

Civ. A. No. 84-97.

United States District Court, D. New Jersey.

November 7, 1991.

As Amended December 2, 1991.

Morrill J. Cole, Cole, Schotz, Bernstein, Miesel & Forman, Hackensack, N.J., for plaintiffs.

Joseph J. Fleischman, Hannoch Weisman, Roseland, N.J., for defendants.

OPINION

WOLIN, District Judge.

The parties have cross-moved for summary judgment. For the reasons set forth herein, defendants' motion is granted and plaintiffs' motion is denied.

I. BACKGROUND

The factual basis of this case is set forth in detail in First Jersey Nat'l Bank v. Dome Petroleum Ltd., 723 F.2d 335 (3d Cir.1983) ("Dome I"), and in Dome Petroleum Ltd. v. Employers Mutual Ins. Co. of Wisconsin, 767 F.2d 43 (3d Cir.1985) ("Dome II"). The Court will rely on and refer to the statements of facts in those opinions rather than repeat them here. The procedural posture of this case is, however, relevant to the legal issues that remain.

In Dome I, the Third Circuit held that the Depositary Agreement required Dome Petroleum Limited and Dome Energy Limited (collectively, "Dome") to indemnify The First Jersey National Bank ("First Jersey") for the $3.5 million loss that the State Street Group suffered and that First Jersey made good. 723 F.2d at 341-42. However, the Depositary Agreement gave Dome a right of subrogation. Id. at 343. Therefore, the court stated, "it is at least arguable that the parties intended Dome to indemnify First Jersey only against losses not covered by First Jersey's insurance policy." Id. The effect of the subrogation clause was left unresolved in Dome I. Id.

After Dome I, Dome paid the judgment with interest and then sought subrogation from First Jersey's insurer, Employers Mutual Liability Insurance Company ("Employers"), under First Jersey's errors and omissions policy. Dome II, 767 F.2d at 44. Dome also asserted a claim against First Jersey for interference with Dome's subrogation rights. Id. at 45. These claims appeared as Counts I and IV, respectively, of Dome's complaint, and are at issue in the present cross-motions. Judge Stern of this Court granted summary judgment on defendants' behalf on both of these claims on the ground that Dome assumed ultimate liability for First Jersey's loss under the terms of the Depositary Agreement. The Third Circuit reversed and remanded.¹ It held that the subrogation clause in the Depositary Agreement manifested Dome's intent to assume the ultimate risk of loss "only in the event that there is no third party that might be liable to First Jersey." Id. at 47.

The Third Circuit's Dome II opinion furnishes a measure of direction to this Court on remand. The Court of Appeals stated that either the operation of law or the agreement of the parties could allocate the ultimate responsibility for the risk of loss. 767 F.2d at 46. There is no mandatory public policy that requires the risk of loss to fall on a contractual indemnitor rather than on an insurer. Id. (citing A. & B. Auto Stores of Jones Street, Inc. v. City of Newark, 59 N.J. 5, 279 A.2d 693 (1971); Manzo v. City of Plainfield, 59 N.J. 30, 279 A.2d 706, 708 (1971)). Cases holding that responsibility falls on the contractual indemnitor depend on operation of contract and not on public policy. Id. (citing Bater v. Cleaver, 114 N.J.L. 346, 176 A. 889 (1935)). The court remanded for a construction of the Employers insurance policy to determine whether Employers assumed the ultimate risk of loss. Id. at 47. In the event that Employers and Dome intended to shift the risk to each other,

the district court should look to suppletive rules of law to determine who the ultimate risk-bearer should be. Finally, even if Dome may be subrogated to First Jersey's claim against Employers, Employers may have substantive defenses under its policy or equitable defenses against Dome. We hold only that Dome did not bear the ultimate risk of loss by virtue of mandatory public policy or solely because of its agreement to indemnify First Jersey.

Id. at 47-48. The Court of Appeals also remanded Count IV, Dome's claim that First Jersey interfered with its subrogation rights. Id. at 48.

On remand, defendants again moved for summary judgment. They raised the following arguments that Dome, instead of Employers, assumed the risk: first, that Employers promised to indemnify First Jersey for "loss," and First Jersey never would have suffered a loss had Dome honored its obligation to indemnify First Jersey; second, that the subrogation clauses in the Depositary Agreement and the Policy cancel each other out and that therefore the loss should remain with Dome; third, that the Policy's "other insurance" clause encompasses Dome's obligation to indemnify; fourth, that Dome's indemnity should be treated as primary insurance and the Policy as excess insurance; fifth, that the indemnity was unlimited in coverage, whereas the Policy was limited to $5 million; sixth, that a contractual indemnitor should bear the risk instead of an insurer; and seventh, that a different indemnification provision, ¶ 12.7 of the Depositary Agreement, covers First Jersey's error and does not contain a subrogation clause. Judge Stern briefly rejected each of these arguments in a published opinion, 635 F.Supp. 1397, 1399-1401 (D.N.J.1986). Judge Stern likewise disposed of Employers' defenses, i.e., that Dome was time-barred from bringing suit against defendants and that Dome acted inequitably by initially refusing to cover First Jersey's mistake and then by litigating the applicability of the indemnity. Id. at 1401. Finally, Judge Stern refused to dismiss plaintiffs' derivative claim of interference with subrogation rights. Id. at 1401-02. After Judge Stern issued his opinion, the parties pursued discovery, which is now complete.

II. DISCUSSION

This Court approaches the issue before it constrained by the Third Circuit's teachings in Dome II and cognizant of Judge Stern's application of those teachings on remand. Absent unusual circumstances, once an issue is decided, it is law of the case and will not be relitigated. Hayman Cash Register Co. v. Sarokin, 669 F.2d 162, 165 (3d Cir. 1982). Among the circumstances in which relitigation of an issue is permissible is when the previous decision is "clearly erroneous and would work a manifest injustice." Schultz v. Onan Corp., 737 F.2d 339, 345 (3d Cir.1984) (quoting California v. Arizona, 460 U.S. 605, 618, 103 S.Ct. 1382, 1391, 75 L.Ed.2d 318 (1983)). In his 1985 opinion, Judge Stern made a series of rulings on many of the sophisticated questions of law presented by this case. Judge Stern disposed of all of them with only the briefest of discussion. With respect to several of these rulings — they will be addressed as they arise — the Court is left with the firm conviction that they are incorrect either as a matter of substantive law or as a matter of interpretation of the scope of the remand ordered in Dome II. The Court will correct these errors but will leave undisturbed the balance of Judge Stern's rulings.

Although I am reluctant to review the rulings of the distinguished judge who preceded me on this case, the procedural posture of this case compels me to do so. Defendants have not advanced any grounds for summary judgment other than those rejected by Judge Stern. If I did not reconsider defendants' arguments, I would be constrained to rule for Dome. I do not consider the mandate of the Dome II remand to require this result. The grounds on which Dome argues it should be granted summary judgment — none of which were before Judge Stern — are appreciably weaker than defendants' arguments. Thus, the determination of this case requires a comparison of the competing theories advanced by the parties. Such a comparison requires that all the cards be on the table, which, at long last, they are. Finally, in order to attempt to avoid yet another remand, I have considered all of the arguments advanced as to liability. Because I will grant summary judgment to defendants, I have not, however, considered the issue of pre-judgment interest.

A. Dome's Proposed Mandatory Rule

Dome argues that the approach handed down by the Third Circuit leads to a holding that, as a mandatory rule, an insurer bears the ultimate risk because it charges premiums to offset that risk. Opening Brief at 27-28. In support of the premise that this Court should concern itself with mandatory rules, Dome quotes the following language from Dome II: "In this case, we examine first whether there are any mandatory rules of risk allocation, and if there are not, what the parties intended. If that intent is unclear or conflicting, then the court will apply suppletive rules to allocate the risk." 767 F.2d at 46 n. 2, quoted in Dome's Opening Brief at 27. Dome also points out that while the Third Circuit expressly ruled out mandatory allocation of risk to Dome, Dome II, 767 F.2d at 46, it did not do so as to Employers. Dome's Reply Brief at 3.

The Third Circuit, albeit implicitly, did foreclose a holding that mandatory rules of public policy allocate the risk to Employers. This holding is implicit in the passage quoted above by Dome: if a mandatory rule allocated the risk to Employers, then remand for the purpose of discerning Employers' intent would have been unnecessary; the Third Circuit would have simply applied that rule. Instead, the Third Circuit directed this Court to consider Employers' policy to analyze its intent and then, in the event that Employers sought to shift its responsibility to Dome, to apply suppletive rules. Id. at 47. Thus, the Third Circuit's statement that "we examine...