Farmers Mut. Fire Ins. Co. of Salem v. N.J. Property-Liability Ins. Guar. Ass'n

• Citation: 215 N.J. 522,74 A.3d 860
• Parties: FARMERS MUTUAL FIRE INSURANCE COMPANY OF SALEM, Plaintiff–Appellant, v. NEW JERSEY PROPERTY–LIABILITY INSURANCE GUARANTY ASSOCIATION as Administrator of Claims against Newark Insurance Company, Defendant–Respondent.
• Decision Date: 24 September 2013
• Court: New Jersey Supreme Court

215 N.J. 522

74 A.3d 860

FARMERS MUTUAL FIRE INSURANCE COMPANY OF SALEM, Plaintiff–Appellant,

v.NEW JERSEY PROPERTY–LIABILITY INSURANCE GUARANTY ASSOCIATION as Administrator of Claims against Newark Insurance Company, Defendant–Respondent.

Supreme Court of New Jersey.

Argued Jan. 2, 2013.

Decided Sept. 24, 2013.

Fredric P. Gallin argued the cause for appellant (Methfessel & Werbel, attorneys).

Mark M. Tallmadge argued the cause for respondent (Bressler, Amery & Ross, attorneys; Mr. Tallmadge and Richard J. Teer, Florham Park, on the briefs).

Paul R. Duffy, Liberty Corner, on behalf of respondent State Farm Fire & Casualty Co. as subrogee of Welz joins in the brief submitted by appellant Farmers Mutual Fire Insurance Company of Salem (Kearns & Duffy, attorneys).

Kevin T. Coughlin submitted a brief on behalf of amicus curiae Zurich American Insurance Company (Coughlin Duffy, attorneys, Mr. Coughlin, Lorraine M. Armenti, Christopher S. Franges, and Eduardo DeMarco, Morristown, of counsel and on the brief).

Wendy L. Mager and Thomas E. Hastings, Princeton, submitted a brief on behalf of amicus curiae The Complex Insurance Claims Litigation Association (Smith, Stratton, Wise, Heher & Brennan, attorneys; Laura A. Foggan, a member of the District of Columbia bar, of counsel).

Justice ALBIN delivered the opinion of the court.

This case involves the appropriate allocation of costs for the cleanup of environmental contamination of property when one of two insurance companies on the risk has become insolvent.

In Owens–Illinois, Inc. v. United Insurance Co., we recognized the difficulty of determining the degree of harm caused by contamination within any particular year from the time of toxic exposure to manifestation. 138 N.J. 437, 457–59, 650 A.2d 974 (1994). We treated the progressive damage as an occurrence triggering the insurance policies in each of the intervening years. Id. at 478–79, 650 A.2d 974. We determined that the allocation of remediation costs among the policies is based on an insurance carrier's years on the risk and the degree of risk assumed as measured by the coverage provided. Id. at 479, 650 A.2d 974.

Here, in two consolidated cases involving remediation of contaminated properties, the New Jersey Property–Liability Insurance Guaranty Association (Guaranty Association) took over the administration of the claims of an insolvent insurance carrier on the risk pursuant to the New Jersey Property–Liability Insurance Guaranty Association Act (PLIGA Act or Act), N.J.S.A. 17:30A–1 to –20. The liable solvent insurance company paid the property-damage claims in each of the two cases and then sought reimbursement from the Guaranty Association under the Owens–Illinois methodology. The Guaranty Association claims that, pursuant to N.J.S.A. 17:30A–5 and –12b, it is not responsible for making any contribution until the policies of the solvent carrier are fully exhausted. The solvent carrier contends that the Guaranty Association must pay the share of the insolvent carrier in accordance with the Owens–Illinois allocation scheme. It contends that its position is consistent with the PLIGA Act.

The trial court agreed that the Guaranty Association is subject to the Owens–Illinois allocation methodology. The Appellate Division reversed, finding that N.J.S.A. 17:30A–5 expressly carves out an exception to Owens–Illinois and requires exhaustion of the solvent carrier's policies before the Guaranty Association's reimbursement commitments are triggered.

We affirm. The Owens–Illinois methodology is a product of this Court's equitable powers to advance public policy within the realm of the common law. The purpose of the methodology is to make insurance coverage available, to the maximum extent possible, to redress such matters as toxic contamination of property. However, the Legislature has designated the Guaranty Association as an insurer of last resort when substituting for an insolvent carrier. N.J.S.A. 17:30A–5 and –12b specifically exempt the Guaranty Association from the Owens–Illinois allocation scheme until all solvent insurance companies' policy limits are exhausted. That statute also embodies an important public policy. The common law must bow when in conflict with a legislative scheme. A statute does not stand in an inferior status to the common law. Rather, a statute must be honored unless constitutionally infirm. Therefore, in accordance with the statutory scheme, the Guaranty Association is not responsible for reimbursement payments unless the solvent carrier's policy limits are first exhausted.

I.

A.

For three successive one-year periods, from August 29, 1999 to August 29, 2002, Newark Insurance Company (Newark), a subsidiary of Eagle Insurance Company, issued a homeowner's insurance policy covering the residential property of Edward and Carolyn O'Brien. Each policy provided coverage for damage to property, including damage caused by environmental contamination, to a maximum limit of $300,000. From August 29, 2002 to August 29, 2003, Farmers Mutual Fire Insurance Company of Salem (Farmers Mutual) insured the O'Brien property for damage to the maximum limit of $500,000. On March 19, 2003, soil and groundwater contamination caused by a fuel oil leak from an underground storage tank was discovered on the O'Brien property.At that point, Farmers Mutual was less than seven months on the risk. No one disputes that the environmental contamination on the property began during the periods insured by Newark and continued through the period insured by Farmers Mutual. Farmers Mutual paid all remediation costs—$112,165.13—stemming from the contamination of the O'Brien property.

B.

For four successive one-year periods, from December 13, 1998 to December 13, 2002, Newark issued insurance policies covering the property of Ramnath and Ashmin Sookoo. Each policy provided property damage coverage up to a maximum of $300,000. Farmers Mutual insured the Sookoos for property damage up to a maximum limit of $500,000 from December 13, 2002 to December 13, 2003. On August 19, 2003, soil and groundwater contamination caused by a fuel oil leak from an underground storage tank was discovered on the Sookoo property. At that point, Farmers Mutual was eight months on the risk. No one disputes that the environmental contamination on the property began during the periods insured by Newark and continued through the period insured by Farmers Mutual. Farmers Mutual paid all remediation costs—$25,958.39—stemming from the contamination of the Sookoo property.

C.

In August 2007, the Chancery Division, Mercer County, declared Newark insolvent and entered an order liquidating the company. Afterwards, the Guaranty Association took over the administration of Newark's claims, pursuant to its statutory obligations under the PLIGA Act.

In February and March 2009, Farmers Mutual filed civil complaints in the Superior Court, Law Division, seeking reimbursement from the Guaranty Association for the remediation costs expended on the O'Brien and Sookoo properties. Farmers Mutual claimed that, in accordance with the allocation scheme adopted in Owens–Illinois, the Guaranty Association was responsible for Newark's share of liability for the periods Newark insured the O'Brien and Sookoo properties. In contrast, the Guaranty Association denied that it had any responsibility to reimburse Farmers Mutual for the remediation costs.

The Guaranty Association moved for summary judgment, arguing that, pursuant to the PLIGA Act, the insureds (the O'Briens and the Sookoos) are required to exhaust their claims through solvent insurance companies before applying to the Guaranty Association for statutory benefits. Because no material facts were in dispute, the trial court determined that, as a matter of law, Farmers Mutual—not the Guaranty Association—was entitled to judgment in its favor. The court rejected the Guaranty Association's exhaustion argument and found that, under the Spill Compensation and Control Act (Spill Act), N.J.S.A. 58:10–23.11, Farmers Mutual had a right to contribution from the Guaranty Association for the remediation costs. The court also determined that the allocation of the remediation costs between Farmers Mutual and the Guaranty Association would be calculated at a future proceeding.

Based on the trial court's ruling, Farmers Mutual and the Guaranty Association agreed to the entry of a consent order allocating eighty-one percent of remediation costs ($90,854.24) for the O'Brien property to the Guaranty Association and eighty-four percent of remediation costs ($21,859.69) for the Sookoo property to the Guaranty Association. This agreement was reached with the understanding that the Guaranty Association would challenge on appeal the trial court's finding that the Guaranty Association was responsible for remediation costs in the two cases.

II.

The Appellate Division granted the Guaranty Association's motion to consolidate the O'Brien and Sookoo cases on appeal and, in an unpublished opinion, reversed the trial court. The Appellate Division concluded that a 2004 amendment to the PLIGA Act, N.J.S.A. 17:30A–5, “requires the exhaustion of all insurance benefits from solvent insurers on the risk before [the Guaranty Association], standing in the shoes of an insolvent insurer, must pay statutory benefits.” The panel noted that Farmers Mutual and the Guaranty Association both agreed that the trial court erred in finding that the Spill Act superseded the PLIGA Act.

The panel reviewed the Owens–Illinois allocation methodology, which was reaffirmed in Carter–Wallace, Inc. v. Admiral Insurance Co., 154 N.J. 312, 712 A.2d 1116 (1998). From our jurisprudence, the panel distilled the principle that all carriers on the risk bear coverage obligations for environmental contamination from the time of commencement until manifestation.

With this common-law principle in mind, the panel turned to the PLIGA Act, which created the Guaranty Association as “a...