Court Opinion

ID: 9925399
Source: CourtListenerOpinion
Date Created: 2024-01-19 18:00:51.017713+00
Date Added: 2024-06-11T09:20:22.844094
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                ______________

                                       No. 22-2586
                                     ______________

                  PHARMACIA CORPORATION n/k/a PFIZER, INC.,
                                Appellant

                                             v.

  ARCH SPECIALTY INSURANCE COMPANY; TWIN CITY FIRE INSURANCE
         COMPANY; LIBERTY MUTUAL INSURANCE COMPANY

                                     ______________

                     On Appeal from the United States District Court
                             for the District of New Jersey
                                  (No. 2-18-cv-00510)
                      U.S. District Judge: Honorable Esther Salas
                                    ______________

                      Submitted Under Third Circuit L.A.R. 34.1(a)
                                  January 16, 2024
                                  ______________

               Before: SHWARTZ, MATEY, and PHIPPS, Circuit Judges.

                                 (Filed: January 19, 2024)
                                     ______________

                                        OPINION
                                     ______________

       
        This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does
not constitute binding precedent.
SHWARTZ, Circuit Judge.

       Pharmacia Corporation appeals the District Court’s order granting summary

judgment declaring that one of its excess insurers, Twin City Fire Insurance Company,

did not owe a duty to pay Pharmacia’s settlement and defense costs from a shareholder

class action. Because Pharmacia has failed to adduce evidence that satisfies a condition

precedent necessary for Twin City’s insurance policy to attach, we will affirm.

                                              I

       Pharmacia, a pharmaceutical drug manufacturer, purchased a $200 million

directors and officers insurance tower1 from thirteen companies through an insurance

broker. The first layer of the tower consisted of a $25 million primary policy issued by

National Union Fire Insurance Company of Pittsburgh, Pa (the “Primary Policy”). The

next twelve policies provided excess insurance totaling $175 million.2 Twin City sold

       1
         An insurance tower is a plan in which “a primary insurer respond[s] first to any
covered loss, and excess insurers respond[] in a predetermined order if the loss exceeds
the coverage provided by the primary policy.” John F. O’Connor, Caveat Settlor:
Insurance Coverage Settlements and the Triumph of Policy Language Over Precedent, 79
ALB. L. REV. 101, 102 (2016).
       2
         Allied World Assurance Company sold Pharmacia the sixth-layer excess policy
(the “Allied World Policy”). Clause X, entitled “Choice of Law,” provides that “[t]his
policy shall be construed and enforced in accordance with the internal laws of the State of
New York (with exception of the procedural law required by Clause IX [which requires
disputes arising under or relating to the policy be resolved under Bermuda’s arbitration
act], which shall be construed and enforced in accordance with the laws of Bermuda.)”
App. 1022-23. Twin City’s policy does not contain a choice-of-law provision, but it
provides that it “is subject to the same warranties, terms, conditions, definitions,
exclusions and endorsements . . . as are contained in . . . the policy of the Primary Insurer,
together with all the warranties, terms, conditions, exclusions and limitations contained in
or added by endorsement to any Underlying Excess Policy(ies).” App. 1044. For the
reasons set forth herein, we need not decide whether this provision incorporates Allied
World’s choice-of-law clause.
                                              2
Pharmacia the eighth-layer excess policy (the “Policy”), which provided $10 million in

coverage and specified that “liability for any loss shall attach to [Twin City] only after

the Primary and Underlying Excess Insurers shall have [(1)] duly admitted liability and

[(2)] . . . paid the full amount of their respective liability.” App. 601.

       In 2003, Pharmacia shareholders filed a putative class action against the company,

alleging that it artificially inflated its stock by misrepresenting the results of a clinical

drug study.3 Garber, et al. v. Pharmacia Corp., et al., No. 03-cv-01519 (AET) (TJB)

Compl. ECF No. 1, (D.N.J.). After ten years of litigation, the case settled,4 and

Pharmacia incurred approximately $207 million in defense and indemnity costs.

Pharmacia then provided Twin City proof that the excess carriers ahead of it in the

insurance tower paid their policy limits5 and asked Twin City to provide coverage. Twin

City declined.

       Pharmacia sued Twin City, seeking, among other things, a declaration that the

Policy obligates Twin City to indemnify Pharmacia for the losses incurred in the

shareholder action. The District Court granted Twin City’s motion for summary

judgment, denied Pharmacia’s cross-motion, and dismissed the case with prejudice. The

Court found that: (1) the plain language of the Policy required the other excess insurers to

admit liability as a condition precedent for coverage to attach; (2) six of them had

       3
          Pfizer, Inc. subsequently acquired Pharmacia.
       4
          By the time of the settlement, the Primary Policy was exhausted, and the first-
layer excess insurer had taken over defense costs.
        5
           Five of these carriers also expressly disclaimed any admission of wrongdoing or
liability in their respective indemnification agreements with Pharmacia.
                                                3
disclaimed liability, and (3) as a result, a condition for coverage was not satisfied.

Pharmacia appeals.

                                              II6

       . A federal court sitting in diversity applies the choice-of-law rules of its forum

state. See SodexoMAGIC, LLC v. Drexel Univ., 24 F.4th 183, 204 (3d Cir. 2022) (citing

Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496–97 (1941)). Absent a relevant,

actual conflict between New Jersey and New York law, we need not undertake a choice-

of-law analysis or decide whether to enforce a choice-of-law provision. See In re

Accutane Litig., 194 A.3d 503, 517 (N.J. 2018) (“If there is not ‘an actual conflict’ in the

‘substance of the potentially applicable laws’ of the two jurisdictions, then ‘there is no

choice-of-law issue to be resolved[.]’” (quoting P.V. ex rel. T.V. v. Camp Jaycee, 962

A.2d 453, 460 (N.J. 2008)).7 An actual conflict arises “when the application of one or

       6
          The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction
under 28 U.S.C. § 1291. We exercise plenary review of the District Court’s order
granting summary judgment. Resch v. Krapf’s Coaches, Inc., 785 F.3d 869, 871 n.3 (3d
Cir. 2015). We apply the same standard as the District Court, viewing facts and drawing
all reasonable inferences in the non-movant’s favor. Hugh v. Butler Cnty. Fam. YMCA,
418 F.3d 265, 266-67 (3d Cir. 2005). Summary judgment is appropriate where “there is
no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” FED. R. CIV. P. 56(a). We review the District Court’s interpretation of
the Policy de novo. Regents of Mercersburg Coll. v. Republic Franklin Ins., 458 F.3d
159, 163 (3d Cir. 2006).
        7
          See also Shannon v. B.L. England Generating Station, No. 10-cv-4524, 2013 WL
6199173, at *6 (D.N.J. Nov. 27, 2013) (“Under New Jersey law, the first step in
determining whether to enforce a contractual choice-of-law provision is determining
whether an actual conflict exists between the laws of the two states.” (citing Kramer v.
Ciba-Geigy Corp., 854 A.2d 948, 957 (N.J. App. Div. 2004)); see also ALA, Inc. v.
CCAIR, Inc., 29 F.3d 855, 858 n.5 (3d Cir. 1994) (observing that when “no conflict
appears in the relevant case law,” there is no need to perform a choice-of-law analysis)
                                              4
another state’s law may alter the outcome of the case.” Accutane, 194 A.3d at 517

(internal quotation marks and citations omitted).

       No conflict exists here. New Jersey and New York apply the same general

principles of contract interpretation to construe insurance policies. Olin Corp. v. Am.

Home Assurance Co., 704 F.3d 89, 98 (2d Cir. 2012); Pennbarr Corp. v. Ins. Co. of N.

Am., 976 F.2d 145, 151 (3d Cir. 1992). Specifically, courts (1) “give effect to the intent

of the parties as expressed in the clear language of the contract,” Ment Bros. Iron Works

Co. v. Interstate Fire & Cas. Co., 702 F.3d 118, 122 (2d Cir. 2012) (applying New York

law); see also Barila v. Bd. of Educ. of Cliffside Park, 230 A.3d 243, 255 (N.J. 2020)

(“The plain language of the contract is the cornerstone of the interpretive inquiry[.]”);159

MP Corp. v. Redbridge Bedford, LLC, 128 N.E.3d 128, 130 (N.Y. 2019) (explaining that

courts enforce “agreements negotiated at arm’s length by sophisticated, counseled

parties” “according to their plain language); (2) “may not make a different or better

contract than the parties themselves saw fit to enter into,” Pennbarr, 976 F.2d at 151; see

also N.J. Lawyers’ Fund for Client Prot. V. Stewart Title Guar. Co., 1 A.3d 632, 638

(N.J. 2010) (same); Roundabout Theatre Co. v. Cont’l Cas. Co., 302 A.D.2d 1, 6 (N.Y.

App. Div. 2002) (“[C]ourts should refrain from rewriting the agreement . . . to

accomplish [their] notions of abstract justice or moral obligation.”) (internal quotation

marks and citations omitted)); and (3) may avoid a literal construction of the words of a

contract only if that interpretation “‘defies all bounds of common sense,’” Carematrix of

(citing Lucker Mfg., A Unit of Amclyde Engineered Prods., Inc. v. Home Ins. Co., 23
F.3d 808, 813 (3d. Cir. 1994))).
                                             5
Mass., Inc. v. Kaplan, No. cv-05-3173, 2006 WL 8439674, at *2 (E.D.N.Y. June 21,

2006) (quoting Reiss v. Fin. Performance Corp., 279 A.D.2d 13, 18 (N.Y. App. Div.

2000)); see also Quinn v. Quinn, 137 A.3d 423, 429 (N.J. 2016) (“[W]hen the intent of

the parties is plain and the language is clear and unambiguous, a court must enforce the

agreement as written, unless doing so would lead to an absurd result.”). Because there is

no conflict, we need not resolve the choice of law question, see, e.g., On Air Entm’t Corp.

v. Nat’l Indem. Co., 210 F.3d 146, 149 (3d Cir. 2000, and can rely on the laws of the two

states interchangeably, Lucker Mfg., A Unit of Amclyde Engineered Prods., Inc. v. Home Ins.

Co., 23 F.3d 808, 813 (3d. Cir. 1994).

       Applying these principles, the Policy here unambiguously imposes two distinct

conditions precedent for coverage to attach. Specifically, Pharmacia must show both that

the insurers ahead of Twin City in the tower have (1) “duly admitted liability and [(2)] . .

. paid the full amount of their respective liability.” App. 601. The use of the word “and”

demonstrates that both conditions must be met. See Pine Belt Chevrolet, Inc. v. Jersey

Cent. Power & Light Co., 626 A.2d 434, 441 (N.J. 1993) (noting that “[t]he word ‘and’

carries with it natural conjunctive import while the word ‘or’ carries with it natural

disjunctive import” (quoting State v. Duva, 470 A.2d 53, 55 (N.J. Super. Ct. Law Div.

1983))); see also Progressive Ne. Ins. Co. v. State Farm Ins. Cos., 81 A.D.3d 1376, 1378

(N.Y. App. Div. 2011) (declining to replace a contract’s use of “the conjunctive ‘and’

                                              6
[with the] disjunctive ‘or’” because doing so would have a “strained, unnatural and

unreasonable” effect).8

       Here, Pharmacia has failed to show that both conditions to trigger Twin City’s

coverage were met. Regardless of whether the other insurers in the tower paid their

policy limits, the record does not demonstrate that all of those insurers admitted

liability.9, 10 Because Pharmacia has failed to establish at least one condition precedent,

the District Court correctly declined to declare that Twin City owes Pharmacia

coverage.11

       8
          Cf. John M. O’Quinn, P.C. v. Lexington Ins. Co., 906 F.3d 363, 372 (5th Cir.
2018) (construing a similar exhaustion provision crafted with the disjunctive “or” to
permit coverage to attach upon either admission of liability or issuance of payment, i.e.,
“[coverage] shall not attach unless and until the [u]nderwriters of the [u]nderlying
[p]olicy/ies shall have paid or have admitted liability or have been held liable to pay”).
        9
          Moreover, Pharmacia has identified no case that applies “functional exhaustion”
to a situation like the one here, where the insured is required to show both that the other
excess carriers admitted liability and that they paid the policy limit.
        10
           Pharmacia contends that the District Court improperly considered the other
insurers’ settlement agreements for the proposition that they disclaimed liability in
violation of FED. R. EVID. 408. See Appellant Br. at 46-49. We need not, however, rely
on the settlement agreements because, even without consideration of those agreements,
Pharmacia has failed to show that all the insurers ahead of Twin City in the insurance
tower admitted liability, as required by the Policy’s exhaustion provision. Pharmacia’s
assertion that an insurer’s payment of a policy limit alone constitutes an admission of
liability is speculative as other reasons may cause a carrier to pay its policy limit, such as
avoiding litigation. In addition, to infer that payment of the full policy is a concession of
liability would render the admission-of-liability condition superfluous. In any event, the
District Court did not err by considering the settlement agreements, as Rule 408 "allows
evidence of . . . agreements of compromise to prove a consequential, material fact in
issue other than validity of the claim or its amount," such as disclaimers of liability. 2
Weinstein's Federal Evidence § 408.08 (2015).
        11
           This conclusion is consistent with JP Morgan Chase & Co. v. Indian Harbor Ins.
Co., 98 A.D.3d 18 (N.Y. App. Div. 2012). There, a court applying Illinois law
interpreted an identical exhaustion provision contained in a Twin City policy to
unambiguously impose two conditions precedent for Twin City’s coverage to attach: (1)
                                              7
                                             III

       For the foregoing reasons, we will affirm.

admitting liability and (2) paying the full amount of their liability. Id. at 21. In holding
that coverage did not attach, the court noted that “[t]he first condition was not met
because [an excess] insurer . . . in the [] tower” expressly disclaimed “‘an admission of
liability’” in a settlement agreement. Id. at 21-22.
                                              8