New Jersey Federal District Court Sheds Light on “Use of Motor Vehicle” Standard in New Jersey Omnibus Statute

In Carolina Casualty Insurance Co. v. Travelers Property Casualty Co., Civ. No. 09-4871, 2014 U.S. Dist. LEXIS 150002 (Oct. 22, 2014), the United States District Court for the District of New Jersey interpreted the “use of a motor vehicle” standard under New Jersey’s omnibus motor vehicle insurance statute in finding coverage under a commercial auto policy.  The decision represents a liberal and broad interpretation of commercial auto policies triggering coverage – even where none arguably exists – for public policy reasons. Ho-Ro Trucking (Ho-Ro) was hired by Gardner, Masson, Bishop & Co. (“Gardner Bishop”), a general contractor for a New Jersey Turnpike construction project, to pick up and transport concrete road barriers.  In September 2007, John Kanard, a Ho-Ro employee, drove a tractor leased by Ho-Ro from Penske Truck Leasing Co., L.P. (Penske) to a construction staging area. A flatbed trailer, owned by Ho-Ro was attached to the tractor, and Gardner Bishop employees began loading barriers onto the trailer.  During the loading process, Kanard was working with loading straps along the side of the trailer when one of the barriers fell, severing Kanard’s left foot.  Kanard filed suit against, among others, Gardner Bishop.  The lawsuit settled for $5 million.  Gardner Bishop’s primary liability insurer, Travelers Property Casualty Company of America (Travelers), defended Gardner Bishop and paid its limits of $1 million.  The remaining $4,000,000 was paid by Gardner Bishop’s excess insurer, Illinois National Insurance Company (Illinois National).  Ho-Ro was insured for $1 million under a commercial transportation policy issued by Carolina Casualty Insurance Company (Carolina Casualty) and for $2 million under an umbrella policy issued by Lexington Insurance Company (Lexington).  Penske was insured under commercial auto primary and excess policies issued by Old Republic Insurance Company (Old Republic). Carolina Casualty filed a declaratory judgment action against Travelers, Illinois National, Lexington and Old Republic, seeking a declaration that Carolina Casualty did not owe any coverage for the underlying lawsuit.  All five insurers filed cross-motions for summary judgment. The district court ruled against Carolina Casualty and Lexington in finding that both insurers were obligated to reimburse Illinois National, Gardner Bishop’s excess carrier.  The district court also ruled against Travelers in concluding that it was a primary insurer for purposes of liability and allocation. In relevant part, the district court rejected Carolina Casualty’s arguments that Gardner Bishop was not an insured under its policy and that the underlying action did not arise out of the “use” of the tractor.  Despite express language in the policy excluding coverage for non-employees of Ho-Ro, i.e., Gardner Bishop, who moved “property to or from a covered tractor or trailer,” the district court found that the omnibus statute defeated any contractual attempt to exclude coverage.  Because the omnibus statute required a motor vehicle liability insurer to provide coverage arising out of the “use of a motor vehicle,” Carolina Casualty could not rely on the policy language to assert that Gardner Bishop was not an insured under the policy.  Moreover, while the tractor, a “motor vehicle,” was to be distinguished from the trailer, which did not qualify as a “motor vehicle,” the district court found that there was a substantial nexus between the injury and the use of the tractor.  The district court expressly held that a tractor falls under the omnibus statute for accidents arising from the loading of a trailer attached to the tractor.  The court otherwise rejected application of policy exclusions. With regard to allocation among the insurance policies, the district court concluded that the Carolina Casualty, Travelers, and Old Republic policies were all primary to the extent that the combined limits of liability of the three policies – totaling $3 million – were less than the total settlement of $5 million.  Notably, Travelers’ other insurance provision, which purportedly rendered it excess over any other available primary insurance, did not convert the Travelers’ policy into a pure excess policy.  The court found a dearth of evidence that Travelers intended not to provide primary coverage to Gardner Bishop or that its coverage was conditioned on the exhaustion of Carolina Casualty’s policy.  In addition, the district court found coverage under the Old Republic policies issued to Penske to be limited to $15,000, the state’s minimum statutory requirements.  This was based on Ho-Ro’s contract with Penske whereby Ho-Ro assumed Penske’s obligations to obtain liability insurance.  Lastly, Lexington was ordered to split with Illinois National the excess liability in equal parts based on Lexington and Illinois National’s other insurance provisions canceling one another out.  All told, Illinois National recovered more than $2.5 million from Carolina Casualty, Lexington, and Old Republic. Insurers providing commercial auto policies must be cognizant of this decision where coverage, otherwise excluded under the policy, was created by the court as a matter of public policy under the state’s omnibus motor vehicle insurance law.  It is expected that the ruling will be appealed.

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