Court Opinion

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Date Created: 2015-10-13 22:53:41.694095+00
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Opinions of the United
2008 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

8-12-2008

Gloucester v. Princeton Ins Co
Precedential or Non-Precedential: Non-Precedential

Docket No. 07-1179

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Recommended Citation
"Gloucester v. Princeton Ins Co" (2008). 2008 Decisions. Paper 676.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/676

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                                                                 NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT

                                      No. 07-1179

       COUNTY OF GLOUCESTER, GLOUCESTER COUNTY SHERIFF’S
  DEPARTMENT, GLOUCESTER COUNTY DEPARTMENT OF HEALTH, JOHN
 DOES (A-Z) AGENTS AND EMPLOYEES OF GLOUCESTER COUNTY; SUMMIT
  RISK SERVICES, INC.; GENERAL STAR MANAGEMENT COMPANY/APEX,
                PUBLIC ENTITY INSURANCE PROGRAM

                                           v.

                     THE PRINCETON INSURANCE COMPANY

                                        Summit Risk Services, Inc.
                                        General Star Indemnity Company,
                                                         Appellants

           ON APPEAL FROM THE UNITED STATES DISTRICT COURT
                     FOR THE DISTRICT OF NEW JERSEY
                            (D.C. Civil No. 04-CV-2157)
                 District Judge: The Honorable Renee Marie Bumb

                               ARGUED MAY 13, 2008

                       Before: McKEE and ROTH, Circuit Judges
                               O’NEILL*, District Judge

                                (Filed: August 12, 2008 )

      *The Honorable Thomas N. O’Neill, Jr., United States District Judge for the Eastern
District of Pennsylvania, sitting by designation.
Peter J. Luizzi, Esq. (Argued)
LePore Luizzi, P.C.
489 Aurora Place
Brick, NJ 08723

              Counsel for Appellants

Scott C. Bushelli, Esq. (Argued)
Cooper Bushelli & Morrison, LLC
3000 Atrium Way, Suite 297
Mt. Laurel, NJ 08054

Brad S. Miller, Esq.
Cooper Bushelli & Morrison, LLC
3000 Atrium Way, Suite 297
Mt. Laurel, NJ 08054

              Counsel for Appellee

                                 OPINION OF THE COURT

O’NEILL, District Judge

       Appellants General Star Indemnity Company and Summit Risk Services, Inc.

appeal from an order granting summary judgment in favor of appellee Princeton

Insurance Company and denying appellants’ motion for summary judgment. We have

jurisdiction over the District Court’s final order pursuant to 28 U.S.C. § 1291, and we will

affirm for the reasons given by the District Court.

                                                 I.

       Because we write only for the parties, our factual summary is brief. Appellants

                                             2
General Star and Summit, an insurance company and an insurance administrator,

respectively, issued an insurance policy expressly covering “County of Gloucester,

Gloucester County Sheriff Department and County Prosecutors Office.” Appellee

Princeton is an insurance company that issued an insurance policy expressly covering

“Gloucester County Health Department c/o County of Gloucester.” The latter policy was

at the heart of the dispute before the District Court; appellants argued that an underlying

complaint triggered appellee’s duty to defend.

       The underlying complaint was filed on May 2, 2001 in the Law Division of the

Superior Court of New Jersey for Gloucester County by Thomas McCorkle. In his

complaint, McCorkle alleged that while he was in the custody of the Gloucester County

Sheriff Department at the Gloucester County Jail between June 29 and July 1, 1999 his

numerous requests for medications went ignored. After being released from custody,

McCorkle suffered a stroke, and his complaint alleged that his stroke and subsequent

injuries resulted from the defendants’ negligence in failing to provide him with the

requested medication. McCorkle named as defendants “County of Gloucester, Sheriff’s

Department, and John Does (A-Z), as agents, servants and employees of the County of

Gloucester.”

       Prior to filing his complaint in Superior Court, on July 26, 1999, McCorkle filed a

notice of tort claim for damages against the “County of Gloucester – Sheriff’s Office,”

claiming to be at fault “Gloucester County Sheriff’s Officers, including but not limited to

John Does A-Z; nurses and infirmary personnel[].” Pursuant to General Star’s insurance

policies, General Star and Summit assumed the legal defense of the County of Gloucester

                                             3
and the County Sheriff Department. The County filed a general liability notice of

McCorkle’s claim dated August 9, 1999 with appellee and subsequently sent a copy of

McCorkle’s civil complaint to appellee.

       In a letter dated November 11, 2003, appellee’s counsel, responding to the County

of Gloucester’s attempts to seek appellee’s monetary contribution for the defense of the

McCorkle complaint, asserted to the County of Gloucester that it had never been placed

on notice that its insured, the Gloucester County Health Department, had been sued and

that “[s]eeking monetary contribution from Princeton is wholly inappropriate under these

facts.” According to appellee’s policy with the Gloucester County Health Department,

“A claim for injury shall be considered as being first made when a written claim for injury

is first made against the insured.” Appellee was required under the terms of the policy to

pay all sums which its insured “shall become legally obligated to pay as damages because

of injury to which this insurance applies caused by a medical incident,” which was

defined as “any act or omission in the furnishing of professional medical . . . or nursing

services.”

       On November 24, 2003, the County of Gloucester and Mr. McCorkle entered into

a Release and Settlement for the sum of $150,000.00. At no time prior to settlement was

McCorkle’s complaint amended to identify the John Does.

       On March 17, 2004, the County of Gloucester filed a complaint in the Superior

Court of New Jersey for Gloucester County against appellants and appellee, and the case

subsequently was removed to the United States District Court for the District of New

Jersey. The County asserted breach of contract claims against appellants and appellee,

                                             4
seeking to recover the $100,000.00 that it contributed to the settlement in the McCorkle

matter plus legal fees. Appellants filed an answer to the County’s complaint and asserted

a cross-claim against appellee for the $50,000.00 that appellant General Star contributed

to the settlement in the McCorkle matter plus legal fees. Appellants subsequently settled

with the County. As part of the settlement, appellants obtained all claims and rights of

the County against appellee. Appellants then filed a motion to amend the County’s

complaint in the district court to substitute themselves as plaintiffs by virtue of the

assignment. The motion was granted by the Honorable Joel B. Rosen on April 7, 2006,

and appellants filed their amended complaint on April 13, 2006.

       On June 23, 2006, appellants and appellee filed motions for summary judgment in

the District Court. After considering the motions and briefs of each party and hearing

argument, the District Court on December 20, 2006 issued an order granting appellee’s

motion for summary judgment and denying appellants’ motion for summary judgment.

       Appellants timely filed a notice of appeal on January 18, 2007. Appellants raise

five issues on appeal: 1) whether the District Court properly granted summary judgment

in favor of appellee; (2) whether the District Court properly denied plaintiffs’ motion for

summary judgment; (3) whether the District Court applied the correct standard of review

to interpret the insurance contract at issue; (4) whether the District Court properly

dismissed appellants’ bad faith claims; and (5) whether the District Court abused its

discretion when it denied appellants’ request at oral argument for additional discovery.

                                                   II.

       Review of the District Court’s decision to grant summary judgment is plenary, see

                                               5
Couden v. Duffy, 446 F.3d 483, 491 n.3 (3d Cir. 2006). Summary judgment is appropriate if

“the pleadings, depositions, answers to interrogatories, and admissions on file, together

with the affidavits, if any, show that there is no genuine issue as to any material fact and

that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56; see

also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 248 (1986). An issue is “material” only if the dispute over facts “might

affect the outcome of the suit under the governing law.” Anderson, 477 U.S. at 248. If

the record taken as a whole in a light most favorable to the nonmoving party “could not

lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue for

trial.’” Matsushita Elec. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986) (citation

omitted).

       We also have plenary review over the District Court’s interpretation of state law,

Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 89 F.3d 976, 983 (3d Cir.

1996), as well as its conclusion as to the legal operation of an insurance policy, New

Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162, 1183 (3d Cir. 1991).

New Jersey law applies to this case, and we apply that state’s substantive law. See Borse

v. Piece Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir. 1992).

       Denial of discovery, however, is reviewed under an abuse of discretion standard.

See Mass. Sch. of Law at Andover, Inc. v. Am. Bar Assoc., 107 F.2d 1026, 1032 (3d Cir.

1997). An abuse of discretion exists only where the District Court’s decision rests upon a

clearly erroneous finding of fact, an errant conclusion of law, or an improper application

of law to fact. Doebler’s Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812, 819 (3d Cir. 2006).

                                              6
                                                    III.

       Under New Jersey law, determination of the proper coverage of an insurance

contract is a question of law. Atl. Mut. Ins. Co. v. Palisades Safety & Ins., Ass’n., 837

A.2d 1096, 1098 (N.J. Super. Ct. App. Div. 2003). “[T]he first step in examining an

insurance contract is determining whether ambiguity exists,” Pittston Co. Ultramar Am.

Ltd. v. Allianz Ins. Co., 124 F.3d 508, 520 (3d Cir. 1997), and this determination is a

question of law for the court, Int’l Union, United Auto. v. Mack Trucks, Inc., 917 F.2d 107, 111

(3d Cir. 1990). Ambiguity exists if “the phrasing of the policy is so confusing that the

average policyholder cannot make out the boundaries of coverage.” Weedo v.

Stone-E-Brick, Inc., 405 A.2d 788, 795 (N.J. 1979). An insurance contract is often

viewed as a contract of adhesion, and thus its terms when ambiguous are to be construed

against the drafter, i.e., the insurance company. See Voorhees v. Preferred Mut. Ins. Co.,

607 A.2d 1255, 1260 (N.J. 1992); see also Allianz Ins. Co., 124 F.3d at 520 (“Under New

Jersey law, contra proferentum requires any ambiguities in an insurance contract to be

resolved in favor of the insured.”), citing Kampf v. Franklin Life Ins. Co., 161 A.2d 717

(N.J. 1960).

       An insurance policy should be interpreted according to its plain meaning. See

Benjamin Moore & Co. v. Aetna Cas. & Sur. Co., 843 A.2d 1094, 1103 (N.J. 2004).

“When the terms of an insurance contract are clear . . . it is the function of a court to

enforce it as written and not make a better contract for either of the parties.” State v.

Signo Trading Int’l, Inc., 612 A.2d 932, 938 (N.J. 1992) (citation omitted); see also

Longobardi v. Chubb Ins. Co. of N.J., 582 A.2d 1257, 1260 (N.J. 1990) (“[T]he words of

                                                7
an insurance policy should be given their ordinary meaning, and in the absence of an

ambiguity, a court should not engage in a strained construction to support the imposition

of liability.”).

        In this case, the District Court found that the Princeton “policy, as evidence of the

parties’ objective intentions and beliefs, insures only the Health Department as a

corporate entity separate from other county departments and agencies.” The Court stated,

“The plain meaning of the policy and the consistency with which the named insured is

identified leads this Court to conclude that there is no ambiguity as to the named insured.”

        Pursuant to this conclusion of law, the District Court determined that the appellee

did not breach its duty to defend “because there was no contractual duty on the part of

Princeton to defend when the insured was not a defendant.” As the Court recognized:

        [T]hat the Health Department could, and probably should, have been named
        as a defendant do[es] not change the fact that it was not a named defendant.
        Princeton and its counsel contacted the underlying plaintiffs’ counsel on at
        least one occasion to clarify whether the Health Department was a
        defendant. The Health Department was not. Moreover, and quite
        importantly, the complaint was never amended to identify the unnamed
        nurses. Therefore, there was never a named insured on whose behalf the
        defendant, Princeton Insurance, could have answered.

        We agree with the reasoning of the District Court. It is undisputed that the

underlying McCorkle complaint did not name the Gloucester County Health Department

and also never was amended to identify the unnamed defendant nurses. It is impossible to

conceive how appellee was obligated to defend the McCorkle claim where its named

insured was not implicated. There was never a named insured on whose behalf appellee

could have answered.

                                               8
       Though appellants argue that the District Court reached its conclusion that there

was no ambiguity as to the named insured “without sufficient credible evidence as to the

parties’ objective intentions and beliefs,” appellants are wrong: the court had before it as

sufficient credible evidence the Princeton insurance policy itself. From this evidence, the

court determined, and we agree, that the plain meaning of the policy with respect to its

named insured – which includes the language, “Insured name and address: Gloucester

Health Department, care of County of Gloucester,” and consistently refers to the named

insured as “Gloucester County Health Department c/o County of Gloucester” – was

unambiguous.

       Appellants argue that the County of Gloucester and the County Health Department

are one legal entity, and thus the County is a named insured notwithstanding the fact that

the Princeton insurance policy expressly covers only the Gloucester County Health

Department. However, because the insurance policy nowhere indicates or even intimates

that the County of Gloucester is a named insured, appellants’ argument must fail.

Further, because the determination of whether ambiguity in the contract exists is a

question of law for the court, appellants’ contention that the deposition testimony of

certain County agents and employees suggesting that the Princeton policy covers the

County as well as the Health Department is without consequence.

       Appellants’ argument that the District Court applied the incorrect standard also

fails. Though under New Jersey law contra proferentum requires any ambiguities in an

insurance contract to be resolved in favor of the insured, the District Court properly found

no ambiguities to resolve. In the words of the District Court, the policy contains “no

                                              9
ambiguous terms to be construed against the drafter; the contract term in dispute is

definite.”

                                                IV.

          Under New Jersey law, every insurance contract contains an implied covenant of

good faith and fair dealing. Sears Mortgage Corp. v. Rose, 634 A.2d 74, 84 (N.J. 1993).

Appellants argue that, pursuant to the New Jersey Supreme Court decision Griggs v.

Bergram, 443 A.2d 163 (N.J. 1982), appellee breached its duty of good faith and fair

dealing by not properly investigating the McCorkle complaint. In Griggs the Court

stated:

          Upon the receipt from its insured of a claim or notification of an incident
          that may give rise to a claim, an insurer is entitled to a reasonable period of
          time in which to investigate whether the particular incident involves a risk
          covered by the terms of the policy. But once an insurer has had a
          reasonable opportunity to investigate, or has learned of grounds for
          questioning coverage, it then is under a duty promptly to inform its insured
          of its intention to disclaim coverage or of the possibility that coverage will
          be denied or questioned.

          Unreasonable delay in disclaiming coverage, or in giving notice of the
          possibility of such a disclaimer, even before assuming actual control of a
          case or a defense of an action, can estop an insurer from later repudiating
          responsibility under the insurance policy.

443 A.2d at 168 (citations and quotation marks omitted).

          We agree with the District Court that appellee’s contractual duty to defend was

never implicated by the McCorkle complaint and that since there was no duty to defend

there can be no Griggs violation. As stated above, appellee’s named insured was never a

party to the underlying McCorkle litigation because the McCorkle complaint failed to

identify either the Gloucester County Health Department or any Health Department

                                                10
employee. Again, there was never a named insured on whose behalf appellee could have

answered.

       The unnamed nurses referenced in the McCorkle complaint did not trigger

appellee’s duty to investigate. Appellants argue, “Instead of taking the minimal steps

necessary to determine if one of their named insured were [sic] implicated, Princeton

made the conscious decision to ignore the claim for four years.” The essence of

appellants’ Griggs argument is that appellee should have taken steps to inject its client

into the case. However, as the District Court stated, “[A]n insurer is under no obligation

to expose its insured to liability by intervening in litigation in which the insured is not a

party.” Like the District Court, we do not read Griggs to require an insurance company to

intervene in litigation where there is no chance that its insured will incur liability.

       Appellants argue that appellee engaged in bad faith and should be estopped from

denying coverage for two reasons: (1) appellee took affirmative steps to involve itself in

the underlying litigation and then discontinued its defense without notice to the insured;

and (2) it was unreasonable for appellee to allow four years to elapse between first

receiving notice of a claim and disclaiming coverage. Appellants’ contention that

“Princeton notified the County that it would protect the County’s interests by assigning

counsel to defend the County” is unsupported by the record. Appellee did not notify the

County of Gloucester but its insured, the Gloucester County Health Department, that it

would protect its interests pursuant to the terms and conditions of the insurance policy

and that it had assigned counsel to the matter. Also, because its insured never was a party

to the underlying litigation, appellee naturally never took affirmative steps to involve

                                              11
itself in the underlying litigation. Second, appellee’s duty promptly to inform an insured

of the intention to disclaim coverage or of the possibility that coverage will be denied or

questioned never was triggered in this case because, as stated above, the contractual duty

to defend was never implicated by the McCorkle complaint.

                                             V.

       The District Court did not abuse its discretion when it denied the requests for

additional discovery made by appellants. At oral argument, appellants’ counsel asserted,

“It is very important that you allow us to go back and ask the county what the structure of

the government is and what they think . . . . [I]f the whole case is going to turn on this one

issue, and that’s what it’s sounding to me right now, I think we need to go and ask the

county what the structure of the government is and whether or not the Health Department

is a separate legal entity or not.”

       As the District Court noted, “[P]laintiffs suggest, for example, that discovery

should be taken on what the freeholders thought, etcetera.” However, the relevant

question of whether the naming of the Gloucester County Health Department as an

insured under the Princeton policy also implied coverage for the County of Gloucester is

one of law, not fact. As stated above, we find that the District Court properly exercised

its function to enforce the contract as written when it held the contract term was definite

and there was no question of material fact regarding whether the contract covered both

the County of Gloucester and the Gloucester County Health Department. By its express

and clear terms, the Princeton policy unambiguously covered the Health Department only,

and additional discovery would not have revealed any ambiguity in the insurance contract.

                                             12
       The District Court found no reason to allow additional discovery. Because we find

no basis upon which to conclude that the District Court’s decision to disallow additional

discovery rested upon a clearly erroneous finding of fact, an errant conclusion of law, or

an improper application of law to fact, the District Court’s decision to deny appellants’

requests for additional discovery be affirmed.

                                            13