Title: Carpenter Technology Corporation v. Admiral Insurance Company
Citation: N/A
Docket Number: a-76-00
State: new-jersey
Issuer: new-jersey Supreme Court
Date: June 17, 2002

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). Zazzali, J., writing for a majority of the Court. Construing the New Jersey Property Liability Insurance Guarantee Association Act, N.J.S.A. 17:30A-1 to -20 (Act), the Court determines whether the New Jersey Property-Liability Insurance Guaranty Association (NJPLIGA), as secondarily-liable for insurance coverage relating to an environmental tort claim, is entitled to a credit equal to the statutory maximum payable by the primarily liable entity, the Pennsylvania Property and Casualty Insurance Guaranty Association (PPCIGA), or whether NJPLIGA is entitled merely to a credit for the amount the insured actually recovered from PPCIGA. Carpenter Technology Corporation (Carpenter), with its principal place of business in Pennsylvania, was identified as a potentially responsible party by the State of New Jersey and the United States for environmental contamination at four sites in New Jersey. Carpenter sought a declaratory judgment to determine its insurance coverage for the contamination under multiple insurance policies. However, three of the insurers became insolvent and, as a result, the NJPLIGA and the PPCIGA, New Jersey's and Pennsylvania's insurance guaranty associations, were added as defendants. Because the Act states that any entity that may recover from more than one insurance guaranty association shall seek recovery first from the association of the residence of the insured, the trial court found that PPCIGA is the primarily-liable guaranty association and that NJPLIGA is liable for secondary coverage. In 1997, Carpenter settled with PPCIGA. NJPLIGA subsequently moved for summary judgment seeking an order permitting it to set off the maximum statutory claim payable by PPCIGA against NJPLIGA's liability to Carpenter on each covered claim. The trial court concluded that NJPLIGA is entitled to a credit per covered claim of $299,900, which represents the maximum statutory amount PPCIGA could tender Carpenter under Pennsylvania law. Because New Jersey's maximum statutory amount is $300,000, the trial court found that NJPLIGA's obligation to Carpenter for each covered claim was $100. The Appellate Division rejected the trial court's conclusion and held that NJPLIGA is entitled only to a credit for the amount PPCIGA actually paid Carpenter in settlement of each covered claim. HELD: In determining the amount it will pay to a claimant pursuant to the New Jersey Property Liability Insurance Guarantee Association Act, the New Jersey Property-Liability Insurance Guaranty Association, as the secondarily-liable guaranty association in this situation, is entitled to a credit equal to the statutory maximum amount payable by the Pennsylvania Property and Casualty Insurance Guaranty Association, the primarily-liable guaranty association. 1. The Act was modeled after the Post-Assessment Property and Liability Insurance Guaranty Association Model Act. A significant majority of states, including New Jersey and Pennsylvania, has passed some version of this model statute. The principle of primary liability is set forth in Section 12a of the Act, which tracks the language of the model statute. Section 12a states, in part, that a claimant shall seek recovery first from the association of the place of residence of the insured. It states further that "any recovery under this act shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent." The language "amount of recovery from" is ambiguous, and the Court must look beyond the language to discover the Legislature's intent in this matter. (Pp. 9-13). 2. The Act was created to avoid financial loss to claimants or policyholders because of the insolvency of insurance companies. The conservation of resources, however, is a major goal of the Act. For example, the Act limits recovery at $300,000 per covered claim. (Pp. 13-16). 4. The Court's holding that NJPLIGA is entitled to a credit equal to the statutory maximum amount payable by PPCIGA comports with the Legislature's intent to enroll New Jersey in a national network of insurance guaranty associations designed to spread equitably the risk of insurer insolvency. The holding comports also with this State's public policy favoring the protection of New Jersey insurance policy holders that fund NJPLIGA, the need to prevent claimants from bypassing the system of primary liability codified in the Act, and the duty to conserve NJPLIGA's resources. If the Court were to rule otherwise, the primarily-liable guaranty association could settle for a small percentage of the claim, evade its obligation as the primarily-liable association, and shift that primary obligation to the secondarily-liable guaranty association. Neither the model statute nor New Jersey law intended that the primarily-liable guaranty association could forsake its obligation and transfer its responsibility to a secondarily-liable guaranty association. (Pp. 22 to 23). The judgment of the Appellate Division is REVERSED. JUSTICE VERNIERO, dissenting, believes that the plain language of the Act entitles NJPLIGA to a credit only for the amounts actually received by the insured from PPCIGA. Justice Verniero believes that the majority's holding is at odds with the Act's clear goal of protecting insureds from the inequities and hardships caused by insurance company insolvencies and with the need to fund an environmental clean-up plan for the New Jersey sites. CHIEF JUSTICE PORITZ and JUSTICES STEIN and COLEMAN join in JUSTICE ZAZZALI's opinion. JUSTICE VERNIERO filed a separate dissenting opinion. JUSTICES LONG and LaVECCHIA did not participate. SUPREME COURT OF NEW JERSEY A- 76 September Term 2000 CARPENTER TECHNOLOGY CORPORATION, Plaintiff-Respondent, v. ADMIRAL INSURANCE COMPANY; AETNA CASUALTY AND SURETY COMPANY; ALLSTATE INSURANCE COMPANY (as successor in interest to Northbrook Insurance Company); AMERICAN INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; INSURANCE COMPANY OF NORTH AMERICA; INTERNATIONAL INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; PACIFIC EMPLOYERS INSURANCE COMPANY; PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION; UNITED STATES FIRE INSURANCE COMPANY; EXECUTIVE RE INDEMNITY, INC.; ALLIANZ INSURANCE COMPANY; FIRST STATE INSURANCE COMPANY; ASSOCIATED INTERNATIONAL INSURANCE COMPANY; INDEMNITY INSURANCE COMPANY OF NORTH AMERICA; UNDERWRITERS AT LLOYD'S, LONDON; AND LONDON MARKET COMPANIES, INCLUDING: DOMINION INSURANCE COMPANY; EXCESS INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; LONDON &amp; EDINBURGH GENERAL INSURANCE COMPANY LIMITED; STRONGHOLD INSURANCE COMPANY LIMITED and TUREGUM INSURANCE COMPANY, Defendants, and NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTY ASSOCIATION, Defendant-Appellant. Argued September 24, 2001 -- Decided June 17, 2002 On certification to the Superior Court, Appellate Division, whose opinion is reported at 335 N.J. Super. 510 (2000). Mark M. Tallmadge argued the cause for appellant (Bressler, Amery &amp; Ross and Susan L. Moreinis, attorneys; Mr. Tallmadge and Stephanie M. Hopkins, on the briefs). Steven E. Speece, a member of the Pennsylvania bar, argued the cause for respondent (Brown &amp; Connery, attorneys; Mr. Speece and Michael J. Vassalotti, on the briefs). Paul G. Witko, Deputy Attorney General, argued the cause for amicus curiae, Commissioner of Banking and Insurance (John J. Farmer, Jr., Attorney General of New Jersey, attorney; Patrick DeAlmeida, Assistant Attorney General, on the brief). The opinion of the Court was delivered by ZAZZALI, J. The State of New Jersey and the United States identified Carpenter Technology Corporation (Carpenter), a corporation with its principal place of business in Pennsylvania, as a potentially responsible party (PRP) for environmental contamination at four sites in New Jersey. In response, Carpenter commenced a declaratory judgment action in which it sought a declaration of coverage for the claims under multiple insurance policies issued by defendant insurance companies. Three of Carpenter's insurers became insolvent and, as a result, the New Jersey Property- Liability Insurance Guaranty Association (NJPLIGA) and the Pennsylvania Property and Casualty Insurance Guaranty Association (PPCIGA) (formerly known as the Pennsylvania Insurance Guaranty Association (PIGA)) were added as defendants. PPCIGA is the primarily-liable guaranty association because any entity that may recover from more than one insurance guaranty association shall seek recovery first from the association of the residence of the insured. N.J.S.A. 17:30A-12a. The issue in this appeal is the amount of credit to which NJPLIGA is entitled because of PPCIGA's primary liability. The trial court concluded that NJPLIGA is entitled to a credit per covered claim of $299,900, which represents the maximum statutory amount PPCIGA could tender Carpenter under Pennsylvania law. The Appellate Division rejected that conclusion, holding that NJPLIGA is entitled only to a credit for the amount PPCIGA actually paid Carpenter in settlement of each covered claim. We conclude that the Appellate Division's holding contravenes the Legislature's intent in creating New Jersey's insurance guaranty association. We therefore reverse. b. Any person having a claim against an insurer, whether or not the insurer is a member insurer, under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim, shall be required to exhaust first his [or her] right under that other policy. An amount payable on a covered claim under P.L. 1974, c. 17 (C. 17:30A-1 et seq.) shall be reduced by the amount of recovery under any such insurance policy. [(Emphasis added).] As a general rule, [a] statute should be interpreted in accordance with its plain meaning if it is clear and unambiguous on its face and admits of only one interpretation. Franklin Tower One v. N.M., 157 N.J. 602, 613 (1999). A statute's meaning is not self-evident, however, where varying interpretations of the statute are plausible. Bergen Commercial Bank v. Sisler, 157 N.J. 188, 202 (1999) (citation omitted). Moreover, [w]here a literal reading will lead to a result not in accord with the essential purpose and design of the act, the spirit of the law will control its letter. Aponte-Correa v. Allstate Ins. Co., 162 N.J. 318, 323 (2000) (citation omitted). To that end, 'words may be expanded or limited according to the manifest reason and obvious purpose of the law.' State v. Ochoa, 314 N.J. Super. 168, 171-72 (App. Div. 1998) (citations omitted). Stated simply, it is not the words but the internal sense of the law that controls. Roig v. Kelsey, 135 N.J. 500, 516 (1994). See also N.J.S.A. 1:1-1 (stating that courts construe statutory words and phrases according to their generally accepted meaning unless that meaning is inconsistent with legislative intent). Accordingly, a court's ultimate goal in construing a statute is to ensure that the Legislature's plan is effectuated. Lettenmaier v. Lube Connection, Inc., 162 N.J. 134, 144 (1999) (citation omitted); see also Jimenez v. Baglieri, 152 N.J. 337, 351 (1998) ( The inquiry in the ultimate analysis is to determine the true intention of the law[.] ) Moreover, [l]egislative intent may also be inferred on grounds of policy or reasonableness. McCann v. Clerk of the City of Jersey City, 338 N.J. Super. 509, 519 (App. Div.), aff'd, 167 N.J. 311 (2001) (citation omitted). A simple reading of Section 12a demonstrates that its meaning is not plain. The first sentence states that a claimant shall seek recovery first from the association of the place of residence of the insured. N.J.S.A. 17:30A-12a. As a matter of plain language, as well as common sense, recovery implies all available recovery. The next sentence states recovery in New Jersey shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent. Ibid. That sentence blurs, but does not alter, the meaning of the first sentence, given what we perceive to be the Legislature's intent and this State's public policy, both discussed more fully below. Stated differently, the statute read as a whole, particularly the initial sentence of Section 12a, establishes a principle of primary liability whereby the guaranty association located in the state of the insured's corporate residence is primarily liable. Residence is the standard by which the statute determines the priority of liability. The language amount of recovery from is ambiguous in that context. We are persuaded therefore that varying interpretations of the statute are plausible. Sisler, supra, 157 N.J. at 202. The Supreme Court of Nevada, construing similar language in the Nevada guaranty association act, observed that the term shall be reduced by the amount of recovery is neither a model of clarity nor an exemplar of the draftsman's craft. Cimini v. Nevada Ins. Guar. Ass'n, 915 P.2d 279, 282 (Nev. 1996). The Cimini court quoted the Arizona Supreme Court in Arizona Property &amp; Casualty Insurance Guaranty Fund v. Herder, 751 P.2d 519, 523 (Ariz. 1988), wherein the Arizona court found ambiguous the phrase [a]ny amount payable on a covered claim shall be reduced by the amount of such recovery under other applicable insurance in Arizona's insurance guaranty association act. (Emphasis added). [A]n excess carrier is entitled to a credit, not from the primary carrier's settlement, but from the amount allocable to the primary under its policies. In other words, the excess carrier is entitled to a credit for the full amount of the primary carrier's coverage before it is required to pay any cleanup expense. [Id. at 69 (emphasis added).] The Third Circuit cited UMC with approval in Chemical Leaman Tank Lines, Inc. v. Aetna Casualty &amp; Surety Company, 177 F.3d 210 (3d Cir. 1999). In that case, the plaintiffs instituted an action against the defendant insurance company seeking a declaratory judgment requiring that the defendant indemnify the plaintiffs for environmental cleanup costs. Id. at 214. Specifically, the plaintiffs contended that because they had settled with their primary liability carriers for less than their policy limits, the excess liability insurer should not have been granted a credit equal to the amount of the relevant policy limits. Id. at 226. Accordingly, the plaintiffs argued that the excess liability carrier was entitled to a credit for only the amount of settlement between the plaintiffs and the primary carrier. Id. at 226-27. In holding that the excess liability carrier was entitled to a credit equal to the full amount of the policy limits, the court endorsed UMC's reasoning: [T]he UMC approach tracks 'a widely followed corollary to the doctrine that a settlement with a primary insurer exhausts the primary coverage.' Under this approach, the insured forfeits any right to coverage of any dollar difference between the settlement amount and the primary insurer's policy limits. The excess insurer cannot be made liable for any part of this difference because the excess insurer never agreed to pay for losses below a specified floor . . . . This rule prevents the insured from securing a double recovery. [Id. at 227.] See also Koppers Co. v. Aetna Cas. &amp; Sur. Co., 98 F.3d 1440 (3d Cir. 1996) (stating that settlement between insured and primary insurer will automatically permit excess insurer to credit equal to primary insurer's policy limit) (citing Barry R. Ostrager &amp; Thomas R. Newman, Handbook on Insurance Coverage Disputes 13.04, at 575-77 (7th ed. 1994)). But see McMahon v. Caravan Refrigerated Cargo, 594 A.2d 349 (Pa. Sup. Ct.), alloc. denied, 600 A.2d 538 (1991) (holding that the plaintiff-claimant was not required to obtain a final adjudication of his claim against another guaranty association before recovering from PPCIGA). McMahon, in interpreting an analogous provision of Pennsylvania's insurance guaranty act, determined that because the plaintiff's claim had been denied by the guaranty association of the insured's residence (Texas), the plaintiff had satisfied his requirement to exhaust first his right of recovery from the association of the place of residence of the insured. 40 Pa. Stat. Ann. 991-1817(a). McMahon, however, is distinguishable from the instant matter because the guaranty association of the insured, PPCIGA, has not denied Carpenter's claims, but in effect has acknowledged an obligation to Carpenter by settling with it for an undisclosed sum. CARPENTER TECHNOLOGY CORPORATION, Plaintiff-Respondent, v. ADMIRAL INSURANCE COMPANY; AETNA CASUALTY AND SURETY COMPANY; ALLSTATE INSURANCE COMPANY (as successor in interest to Northbrook Insurance Company); AMERICAN INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; INSURANCE COMPANY OF NORTH AMERICA; INTERNATIONAL INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; PACIFIC EMPLOYERS INSURANCE COMPANY; PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION; UNITED STATES FIRE INSURANCE COMPANY; EXECUTIVE RE INDEMNITY, INC.; ALLIANZ INSURANCE COMPANY; FIRST STATE INSURANCE COMPANY; ASSOCIATED INTERNATIONAL INSURANCE COMPANY; INDEMNITY INSURANCE COMPANY OF NORTH AMERICA; UNDERWRITERS AT LLOYD'S, LONDON; AND LONDON MARKET COMPANIES, INCLUDING: DOMINION INSURANCE COMPANY; EXCESS INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; LONDON &amp; EDINBURGH GENERAL INSURANCE COMPANY LIMITED; STRONGHOLD INSURANCE COMPANY LIMITED and TUREGUM INSURANCE COMPANY, and NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTY ASSOCIATION, Defendant-Appellant. VERNIERO, J., dissenting. I would affirm the judgment of the Appellate Division substantially for the reasons expressed in Judge Bilder's persuasive opinion. Carpenter Tech. Corp. v. Admiral Ins. Co., 335 N.J. Super. 510 (2000). Based on a straightforward analysis, the panel determined that when the Legislature used the phrase reduced by the amount of recovery in N.J.S.A. 17:30A-12a, it meant what it said, namely, that NJPLIGA is entitled to credit only for the amounts actually received by plaintiff from [PPCIGA]. Carpenter, supra, 335 N.J. Super. at 516. The majority has reached an opposite conclusion. The Court concludes that reduced by the amount of recovery means reduced by an amount equal to the statutory maximum amount payable by PPCIGA. Ante at __ (Slip. op. at 21-22). Our sole task is to look at the statute's words and ascribe to them their plain meaning. The Court does otherwise. It ferrets out an ambiguity that, in my view, does not exist. In so doing, the Court advances a parochial interest, and it dilutes our State's role in a national system designed to counteract the problems created by insolvent insurers. The irony is that, under the guise of protecting New Jersey's interests, the Court's disposition limits the amount of insurance monies available to remediate the environmental damage to four New Jersey sites. Our land and water, more so than Pennsylvania's, are at risk in this case. Because I do not subscribe to the Court's approach or to the statutory interpretation on which it is based, I respectfully dissent. b. Any person having a claim against an insurer, whether or not the insurer is a member insurer, under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim, shall be required to exhaust first his right under that other policy. An amount payable on a covered claim . . . shall be reduced by the amount of recovery under any such insurance policy. NO. A-76 CARPENTER TECHNOLOGY CORPORATION, Plaintiff-Respondent, v. ADMIRAL INSURANCE COMPANY, et al., Defendants, and NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTY ASSOCIATION, Defendant-Appellant. DECIDED June 17, 2002 Chief Justice Poritz