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The New Jersey Supreme Court held recently that an insurer with an obligation to indemnify and defend has a direct claim for contribution against a co-insurer for costs associated with defending the insured in continuous property damage litigation. This is true even if the insured releases that co-insurer.
In Potomac Ins. Co. v. Pennsylvania Manufacturers’ Ass’n Ins. Co., 215 N.J. 409 (2013), several insurance companies became involved in a dispute between a municipality and a general contractor relating to construction defects at a school building, which was owned by the municipality. Each of the insurance carriers had covered the contractor during some period of the construction at the school and during the years following construction, prior to the municipality bringing suit. After considerable negotiation and legal action between the parties to determine liability, the contractor settled with an earlier insurance carrier and released that carrier of all claims, including any action for attorneys’ fees and costs. Subsequent to the release, a later insurer paid towards the settlement of the dispute between the municipality and the contractor. The later insurer then sought to recover defense costs from the earlier carrier under the “continuous trigger” methodology employed in New Jersey courts.
Under the continuous trigger theory, a progressive, indivisible injury that results from ongoing conditions that could be the basis for civil liability is considered an occurrence within each of the years of a commercial general liability insurance policy. In other words, New Jersey courts use a pro rata formula to determine the relative portion of defense and indemnity costs between successive insurance carriers when defending a continuous injury case, rather than allowing joint and several liability between carriers.
In Potomac, the Court examined two earlier cases explaining the continuous trigger theory – both involving environmental damages – and applied the theory to the successive insurers’ scenario. The Court held that employing the continuous trigger theory to recognize an insurer’s cause of action against a co-insurer for allocation of defense costs was in accord with the earlier line of cases. In reaching this decision, the Court noted that allowing such a claim found strong support based on the principles relied on in past cases, including incentivizing prompt and proactive involvement of all impacted insurance carriers in litigation, promoting early settlement, incentivizing individuals and businesses to carry sufficient coverage, and fairness between carriers. The Court also held that a release between one carrier and an insured could not bar a claim of a co-insurer against the insurer when the co-insurer was not party to the release.
This decision will likely have a significant impact in the area of environmental property damage and environmental-related insurance recovery. Going forward, when property suffers from contamination or other environmental damage over a period of time, insurers covering the property will have a claim against prior or subsequent insurers for contribution. Ideally, the principles detailed by the Court in Potomac will guide property owners and insurance carries in the future, simplifying the recovery process.
The attorneys at Lieberman & Blecher, P.C., who regularly assist clients with issues that arise in the context of environmental contamination and insurance recovery, will be closely following the developments in this area of the law. Our attorneys, who are highly experienced in environmental litigation, remediation, and insurance issues, have assisted many clients in cases involving multiple insurance carriers and property contamination. Our attorneys are poised to address the impact of this recent decision in present and future cases.
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