Indian Harbor Insurance Co v. NL Environmental Management Se ( 2017 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
Nos. 16-3262 & 16-3292
______________
INDIAN HARBOR INSURANCE COMPANY
v.
NL ENVIRONMENTAL MANAGEMENT SERVICES, INC.;
NL INDUSTRIES, INC.; SAYREVILLE SEAPORT ASSOCIATES, L.P.;
J. BRIAN O’NEILL PROPERTIES GROUP L.P.; BANK OF AMERICA NA;
THE PROVIDENT BANK; NORTHERN TRUST CO.;
SAYREVILLE SEAPORT ASSOCIATES ACQUISITION COMPANY, LLC;
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA;
SAYREVILLE ECONOMIC AND REDEVELOPMENT AGENCY;
MIDDLESEX COUNTY;
MERION CONSTRUCTION MANAGEMENT LLC; J. BRIAN O’NEILL;
O’NEILL PROPERTIES GROUP L.P.
NL Environmental Management Services,
Inc.,
Appellant in No. 16-3262
Sayreville Seaport Associates, L.P.
Appellant in No. 16-3292
______________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. No. 3-13-cv-01889)
District Judge: Hon. Michael A. Shipp
______________
Submitted under Third Circuit L.A.R. 34.1(a)
October 2, 2017
______________
Before: SHWARTZ and ROTH, Circuit Judges, and PAPPERT, District Judge.*
(Filed: December 14, 2017)
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OPINION**
______________
SHWARTZ, Circuit Judge.
NL Environmental Management Services, Inc. appeals the District Court’s order
reforming an insurance policy between Sayreville Seaport Associates, L.P. (“SSA”) and
Indian Harbor Insurance Co. (“Indian Harbor”).1 Because Indian Harbor has shown by clear
and convincing evidence what the parties intended for the insurance policy to state and the
parties to the insurance policy agree that the policy contained a mistake, we will affirm the
order.
I
This case centers on an insurance policy that was issued in connection with a
settlement agreement between SSA, NL Environmental Management Services, Inc., NL
Industries, Inc.,2 Sayreville Economic and Redevelopment Agency (“SERA”), and the
County of Middlesex (“the County”). The agreement settled a litigation regarding SERA’s
acquisition by eminent domain of a property located along the Raritan River in Sayreville,
*
Honorable Gerald J. Pappert, United States District Judge for the Eastern District of
Pennsylvania, sitting by designation.
**
This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does
not constitute binding precedent.
1
Our resolution of the appeal renders SSA’s cross-appeal (No. 16-3292) moot.
2
NL Environmental Management Services, Inc. and NL Industries, Inc. were
collectively referred to as the “NL Companies” in the settlement agreement. We will refer to
them jointly as NL Companies as well.
2
New Jersey, and its clean-up. The settlement agreement provided that SSA would purchase
an environmental insurance policy that would cover the NL Companies, SERA, and the
County as additional insureds, but would exclude the NL Companies from coverage for
Natural Resource Damages (“NRD”) Liabilities3 and Raritan River Liabilities.4, 5
3
The settlement agreement defines NRD Liabilities as “any claims or potential claims
for natural resource damages (“NRDs”) arising from or in any way relating to any past or
current environmental harm to or Hazardous Substances currently or previously in, on,
under, at, or that have migrated from the Property, including but not limited to NRDs
relating to groundwater contamination in, at, under, or that has migrated from the Property.”
App. 95.
4
The settlement agreement defines Raritan River Liabilities as “any environmental
investigation and remediation required by EPA, NJDEP or any third-party relating to
sediment contained in the Raritan River and/or the Tidal Wetlands on the Property, together
with any NJDEP or EPA oversight costs relating thereto, and including any liability for
NRDs associated therewith.” App. 95.
5
The settlement agreement provides that SSA:
shall, at its sole cost and expense, obtain and maintain one or
more environmental insurance policies . . . to cover: (i) any and
all third-party claims for bodily injury and property damage
(excluding NRD Liabilities) relating to known environmental
conditions at the Property; and (ii) any and all claims for bodily
injury, property damage, or remediation liability associated with
unknown environmental conditions at the Property, including but
not limited to all necessary operation and maintenance related to
such unknown environmental conditions, if any. The NL
Companies, SERA and the County shall be named as additional
insureds on each such policy. . . . [E]ach such policy shall: . . .
be subject to a final review and approval by the NL Companies,
which approval shall not be unreasonably withheld, conditioned
or delayed. Notwithstanding anything to the contrary above, the
NL Companies shall not be named as an additional insured with
respect to any coverage provided for NRD Liabilities and Raritan
River Liabilities.
App. 108.
3
In accordance with the settlement agreement, SSA obtained an insurance policy
effective October 15, 2008 from Indian Harbor (“the Policy”) that named SSA as the
insured, and SERA, the County, NL Environmental Management Services, Inc., and NL
Industries, Inc., as additional named insureds.6 The Policy contains two endorsements that
are at issue in this case: (1) Endorsement 22, which excluded “NL Industries” from coverage
for “[remediation expense] and related [legal expense] based upon or arising from any
[pollution condition] related to any constituents in the Raritan River sediment and tidal
wetland sediment” (the “Raritan River Liability Exclusion”), App. 655; and (2) Endorsement
23, which excluded “NL Industries, Inc.” from coverage for natural resource damage (the
“NRD Liability Exclusion”), App. 657.
During the drafting of the Policy, the terms “NL Industries” and “NL Companies”
were used as “short-hand” to refer to both of the NL entities—NL Industries, Inc. and NL
Environmental Management Services, Inc. App. 1907. An April 8, 2008 draft of the Policy,
contained four general references to these entities, listing: (1) “NL Industries” as additional
insureds, App. 991, (2) “NL Industries” on the NRD Liability Exclusion, App. 1008, (3) “NL
Industries” on the Raritan River Liability Exclusion, App. 1006, and (4) “NL Companies” in
the “Waiver of Subrogation” endorsement, App. 1009. On April 15, 2008, SSA asked Indian
Harbor to change (1) “NL Industries” to “NL Industries, Inc.” and “NL Environmental
Management Services, Inc.,” in the additional insured endorsement of the Policy, App. 1940,
6
The Policy defines an additional named insured as “any person(s) or entity(ies)
endorsed onto this Policy as an [Additional Named Insured], but solely to the extent such
person(s) or entity(ies) is liable as a result of the ownership, occupation, development,
operation, maintenance, financing or use of any [covered location].” App. 611.
4
and (2) “NL Companies” to “NL Industries, Inc.” and “NL Environmental Management
Services, Inc.,” in the Waiver of Subrogation endorsement of the Policy, App. 1941. Indian
Harbor did so in its April 18, 2008 draft. SSA, however, made no mention of the two
references to “NL Industries” in the NRD Liability Exclusion and the Raritan River Liability
Exclusion. These “NL Industries” references remained in the NRD Liability Exclusion and
Raritan River Liability Exclusion in the final draft of the Policy.7
Indian Harbor and SSA agree that the failure to list both NL entities in these
exclusions was a mistake. In addition, NL Environmental Management Services, Inc.’s
counsel testified that he understood that NL Environmental Management Services, Inc.
would be excluded from coverage for NRD Liabilities and Raritan River Liabilities. App.
1866 (“My understanding was that SSA believed that it either would not be, it would not be
feasible, maybe that’s not the best word, they just wouldn’t be able to get [NL
Environmental Management Services, Inc. coverage for NRD Liabilities and Raritan River
Liabilities]. No insurance company would provide this or it would be cost prohibit[ive].”).
In 2009, NL Industries, Inc. and NL Environmental Management Services, Inc. were
named as defendants in an action seeking to compel both entities to remediate contaminated
sediments in the Raritan River (the “Raritan Baykeeper Action”). App. 6. Pursuant to the
Raritan River Liability Exclusion and NRD Liability Exclusion, Indian Harbor first
disclaimed coverage in the Raritan Baykeeper Action for NL Industries, Inc. Thereafter,
7
The title of the NRD Liability Exclusion endorsement in the final policy continued
to read “NL Industries” but one line on that endorsement was changed from “NL Industries”
to “NL Industries, Inc.” Compare App. 347 with App. 657.
5
realizing the Policy had a drafting error, Indian Harbor disclaimed coverage for NL
Environmental Management Services, Inc., and filed this action seeking a declaratory
judgment that neither of the NL Companies are entitled to coverage for such liabilities and
seeking reformation of the Policy to reflect the same.
After the parties conducted discovery, the parties filed cross-motions for summary
judgment. The District Court granted Indian Harbor’s motion, holding that Indian Harbor
established that the failure to exclude NL Environmental Management Services, Inc. from
NRD Liability and Raritan River Liability Coverage was a scrivener’s error and that it was
entitled to reformation of the Policy to reflect the intent of the contracting parties.8 NL
Environmental Management Services, Inc. appeals.
II9
Indian Harbor seeks to have its insurance policy with SSA reformed. Under New
York law,10 a party to a contract may seek reformation when the “writing does not set forth
the actual agreement of the parties.” Chimart Assocs. v. Paul, 489 N.E.2d 231, 234 (N.Y.
8
The District Court also denied SSA’s motion on its counterclaim for reformation
against Indian Harbor as moot. Indian Harber Ins. Co. v. NL Envtl. Mgmt. Servs., Inc., Civ.
No.13-1889, 2016 WL 3583808, at * 7 (D.N.J. June 30, 2016).
9
The District Court had jurisdiction pursuant to 28 U.S.C. § 1332. We have
jurisdiction under 28 U.S.C. § 1291. We review the District Court’s decision on summary
judgment de novo. Dee v. Borough of Dunmore, 549 F.3d 225, 229 (3d Cir. 2008).
Summary judgment is appropriate where, drawing all reasonable inferences in favor of the
non-moving party, “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); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986). “An issue is genuine only if there is a sufficient
evidentiary basis on which a reasonable jury could find for the non-mov[ant.]” Kaucher v.
County of Bucks, 455 F.3d 418, 423 (3d Cir. 2006) (citing Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986)).
10
The parties do not dispute that New York law applies.
6
1986). The burden is on the party seeking reformation to show by “clear and convincing
evidence,” Healy v. Rich Prod. Corp., 981 F.2d 68, 73 (2d Cir. 1992), both “what was really
agreed upon between the parties,” and that a mistake exists, Chimart Assocs., 489 N.E.2d at
234. Thus, in the context of an insurance policy, reformation is appropriate if one of the
parties to the insurance policy, either the insurer or the insured, shows by clear and
convincing evidence: (1) that the writing in the policy did not set forth the actual agreement
of the parties, and (2) what the insurer and the insured actually intended to memorialize in
the policy. See id.; Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Marine Ins. Co.,
38 N.Y.S.3d 1, 3-5 (App. Div. 2016) (stating that when interpreting an insurance policy, a
Court “must be guided by the rules of contract interpretation because an insurance policy is
a contract between the insurer and the insured”).
Here, Indian Harbor (the insurer) and SSA (the insured) (collectively “the contracting
parties”) both agree that the failure to include NL Environmental Management Services, Inc.
in the NRD Liability Exclusion and the Raritan River Liability Exclusion was a mistake, and
so the Policy did not accurately memorialize the contracting parties’ agreement. Indian
Harbor has set forth clear and convincing evidence demonstrating that the contracting parties
intended for the Policy to enact the settlement agreement’s provision that SSA’s insurance
policy would not provide NL Environmental Management Services, Inc. coverage for NRD
Liabilities and Raritan River Liabilities. First, the plain language of the settlement
agreement sets forth the coverage that SSA would not obtain, as it expressly stated that the
“NL Companies shall not be named as an additional insured with respect to any coverage
provided for NRD Liabilities and Raritan River Liabilities.” App. 108. Second, SSA’s
7
counsel, SSA’s insurance broker, and Indian Harbor’s underwriter all testified that the
parties intended to include NL Environmental Management Services, Inc. in the NRD
Liability Exclusion and the Raritan River Liability Exclusion.11 Accordingly, Indian Harbor
has shown by clear and convincing evidence that it is entitled to reform references to “NL
Industries” in the NRD Liability Exclusion and the Raritan River Liability Exclusion to
include both “NL Industries, Inc.” and “NL Environmental Management Services, Inc.”
NL Environmental Management Services, Inc. cannot block SSA’s and Indian
Harbor’s request for reformation since it is an additional named insured and is not a party to
the Policy. App. 624-25. An additional insured—a person or entity other than the named
insured that is covered by an insurance policy, see 70 N.Y. Jur. 2d Ins. § 1628 (“Certain
liability policies contain provisions protecting persons other than the named insured, usually
called ‘additional insureds.’”)—is not a party to the insurance policy. Endurance Am.
Specialty Ins. Co. v. Century Sur. Co., 46 F. Supp. 3d 398, 423 (S.D.N.Y. 2014) (noting that
an additional insured is not a party to an insurance policy), rev’d on other grounds, 630 F.
App’x 6 (2d Cir. 2015). Even though the settlement agreement gave NL Environmental
Management Services, Inc. the right to review the policy, App. 108, and NL Environmental
Management Services, Inc. provided comments about the policy to SSA, see App. 537-42,
there is no evidence that NL Environmental Management Services, Inc. engaged in any
negotiations with Indian Harbor or its agents. Moreover, there is no evidence that it was a
11
Notably, NL Environmental Management Services, Inc. acknowledged that it did
not expect that the Policy would provide it with coverage for Raritan River Liabilities and
NRD Liabilities prior to seeing a draft of the Policy that mistakenly omitted it from the
“Endorsement 22” and “Endorsement 23” exclusions.
8
party to the “offer, acceptance of the offer, consideration, mutual assent, and [] intent to be
bound” that occurs between the insurer and the insured. Kowalchuk v. Stroup, 873 N.Y.S.2d
43, 46 (App. Div. 2009). For these reasons, despite the fact that it received a benefit from
the Policy, NL Environmental Management Services, Inc. is not a contracting party who can
block the contracting parties from correcting the error and reforming the Policy.12
III
For the foregoing reasons, we will affirm.
12
We have considered NL Environmental Management Services, Inc.’s argument
that Indian Harbor’s negligence precludes reformation, its assertion that differences between
the settlement agreement and policy create a factual issue regarding intent, and its claim that
purported admissions in the pleadings to establish NL Environmental Management Services,
Inc. is a contracting party. Each of these arguments is without merit.
9