N. J. Law Applies to the Question of the Allocation of Coverage Among Excess Insurance Policies

By Thomas Paschos, Esq. of Paschos & Associates, P.C.


In In re Liquidation of Integrity Ins. Co./Sepco Corp., — A.3d —-, 2012 WL 3600009 (N.J.Super.A.D. August 23, 2012), the court addressed two appeals, which raised the same issue of the application of conflict of law principles to breach of contract actions filed by claimants Sepco Corporation and Mine Safety Appliances Company (MSA) against Integrity Insurance Company in Liquidation. These appeals followed the denial of the claims of each by Integrity’s Liquidator, as based on an improper method of allocating loss, and the affirmance of the Liquidator’s decision by the Special Master and the trial court overseeing the liquidation.
Specifically, the appeals presented the question whether New Jersey’s pro-rata approach to allocation of coverage among triggered insurers should be applied to the claims, or whether, under choice of law principles, a joint and several or “all-sums” approach to allocation, adopted in Pennsylvania and California, the states in which claimants are incorporated and maintain their principal places of business, was applicable. The choice of law question was relevant to the determination whether the Liquidator breached the contracts between Integrity and the claimants when he denied payment.
The court applied choice of law principles to the insurance contracts at issue and concluded that the trial court properly held that the law of New Jersey applied to the question of the allocation of coverage among excess insurance policies potentially covering the claims for which recovery was sought. The court further affirmed the lower court’s determination that, under New Jersey’s pro rata approach to allocation, which takes account of the insurer’s time on the risk and the degree of risk that was assumed, Integrity’s excess policies were not triggered by these claims. The court rejected the insureds’ argument that an "all sums" allocation, recognized by the courts of California and Pennsylvania, which permits the insured to recover in full under any triggered policy that it chooses, was applicable, thereby triggering Integrity’s coverage. As such, the court found that conflict of law principles permitted the construction of Integrity’s contractual obligation as a contingent one that has not vested in accordance with New Jersey law and therefore, affirmed the denial of Sepco’s and MSA’s claims.
Thomas Paschos, Esq. Practices in the fields of professional liability, employment litigation, products liability, and insurance coverage. He has represented, amongst others, corporate officers, defendants in RICO actions, physicians, dentists, nursing homes, lawyers, accountants, product manufacturers, leasing companies, insurance agents and brokers, home inspectors, contractors, and insurance companies. He has been awarded an AV rating by Martindale – Hubbell, which identifies a lawyer with a very high to preeminent legal ability. In 2004, he was voted by his peers as one of Pennsylvania’s Super Lawyers. Contact Tom at (215) 636-0555 or TPaschos@paschoslaw.com.
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