Continental Insurance Company et al. v. Honeywell International, Inc.

Issue Discussed: Insurance Coverage

Submitted by Michele L. Jacobson, Beth K. Clark

Date Promulgated: June 27, 2018

Continental Insurance Company et al. v. Honeywell International, Inc., No. 078152, 2018 WL 3130638 *1 (N.J. June 27, 2018)

Court: Supreme Court of New Jersey

Issues Decided
When faced with nationwide products-liability claims spanning multiple years of product exposure, rather than a single occurrence event, what are the proper factors to be applied in conducting a choice-of-law analysis regarding the allocation methodology?

Whether, under New Jersey law, an insured must contribute in the allocation of insurance liability within the insurance coverage block for the amount of time after which the insurance was not reasonably available in the marketplace.

In Continental Ins. Co. et al v. Honeywell Int’l, Inc.., the Supreme Court of New Jersey held that, (1) when faced with nationwide products-liability claims spanning multiple years of product exposure and a conflicts of law analysis, New Jersey courts no longer follow lex loci contractus (for insurance contract) and instead must apply the factors set forth in Restatement (Second) Conflicts of law (“Restatement”) §§ 188 and 6; and (2) under New Jersey law, the unavailability exception to the continuous-trigger of allocation applies and, as such, an insured is not obliged to contribute to the allocation of liability insurance for those time periods during the insurance coverage block that the insurance was not available for purchase.

The Bendix Corporation (“Bendix”) – a corporate predecessor to Honeywell International, Inc. (“Honeywell”) – manufactured and sold asbestos-containing friction products including brake and clutch pads.  During the time that it manufactured these products, Bendix purchased liability insurance from various insurers.  As of April 1, 1987, the insurance market stopped covering asbestos-related liability via the inclusion of an asbestos exclusion in commercial liability policies.  As a result, although Bendix continued using asbestos in its products until 2001, it could not purchase insurance coverage for claims arising out of those products after April 1, 1987.  Commencing in 1975, individuals began to sue Bendix alleging that exposure to its asbestos-containing friction products had caused them bodily injury.  Bendix was sued nationwide and its insurers spent more than $1 billion in indemnity payments in connection with those claims.

In 2000, Bendix’s primary and excess insurers commenced an action in New Jersey Superior Court seeking declaratory relief concerning the rights and obligations associated with the insurance coverage for the asbestos-related bodily injury claims filed against Honeywell, as corporate successor to Bendix.  Honeywell settled with the vast majority of its insurers; however, it continued to dispute certain coverage issues with its excess insurers, Travelers and St. Paul.  In 2006, Honeywell moved for partial summary judgment asking the trial court to apply New Jersey insurance allocation law while opposing the application of Michigan law, as Travelers desired.  In November 2006, the trial court ruled in Honeywell’s favor and determined that New Jersey law would apply.  Thereafter, in 2011, the trial court addressed competing motions involving the duration of the coverage block of insurance, which implicated the issue of the unavailability rule.  All parties agreed that the coverage block’s beginning point was 1940.  The end of the block was in dispute.  Travelers and St. Paul both argued that the coverage block should run until the year Honeywell (as successor to Bendix) ceased manufacturing friction products, i.e., 2001.  Honeywell, on the other hand, contended that the coverage block should terminate when the insurance ceased to be available – April 1, 1987.  Ultimately, applying New Jersey law and the Owens-Illinois approach to allocation of insurance risks, the trial court determined that the unavailability of commercial insurance date should end the coverage block of insurance.

Travelers and St. Paul jointly appealed the trial court’s decisions with respect to the application of New Jersey law and the unavailability rule.  The Appellate Division affirmed both rulings.

In so doing, the Appellate Division ruled that there was a conflict between the insurance-allocation methodologies of New Jersey and Michigan.  While New Jersey utilized a continuous trigger methodology (sometimes referred to as the Owens-Illinois methodology), Michigan utilized a time-on-the-risk methodology.  In determining which law should apply, the Appellate Division rejected the application of Restatement § 193, titled “Contracts of Fire, Surety or Casualty Insurance,”  because it required a site specific approach which was inconsistent with the nationwide insurance policies and nationwide products at issue.  The Appellate Division instead relied on Restatement §§ 188 and 6 and considered the public policy interests of both states; the interests of commerce among states; the interests of the parties, including an evaluation of where the insurance policies were brokered, negotiated, underwritten and issued; and the interest of judicial administration.  Ultimately, the appellate court determined that New Jersey law should apply.  The Appellate Division also agreed with the trial court that, because insurance for asbestos-related claims was unavailable after April 1987, Honeywell did not have to contribute to the allocation of pre-1987 initial exposure claims, even if the injuries manifested post-1987.  Following the Appellate Division’s decision, Travelers petitioned the Supreme Court of New Jersey for certification raising both the choice-of-law and allocation issues.

With respect to the first issue, the Supreme Court of New Jersey held that, where – as the case was here – nationwide products-liability claims spanning multiple years of product exposure (rather than a single occurrence event) were at issue, it no longer followed lex loci contractus (for insurance contracts) when conducting a choice of law analysis.  The Court instructed that, instead, it would apply a most-significant relationship approach by considering the factors set forth in Restatement §§ 188 and 6.  Specifically, Restatement § 188 addresses the conflicts-of-law determinations in contracts which do not provide for governing law.  Section 188 states that, “[t]he rights and duties of the parties with respect to an issue in contract are determined by the local law of the states which, with respect to that issue, has the most significant relationship to the transaction and the parties under [the section 6 factors].”  Subparagraph 2 of section 188 identifies the factors to be considered when applying the principles of Section 6:  (a) the place of contracting; (b) the place of contract negotiations; (c) the place of performance; (d) the location and subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties.  Restatement § 6 provides that the following principles are relevant in conflicts determinations when there is no local statutory directive controlling the issues:  (a) the needs of the interstate and international system; (b) the relevant forum policies; (c) the relevant policies of other interested states and the relative interest of those states in the determination of the particular issue; (d) the protection of justified expectations; (e) the basic policies underlying the particular field of law; (f) certainty, predictability and uniformity of result; and (f) the ease in the determination and application of the law to be applied.

As applied to this case, the Supreme Court of New Jersey focused on two considerations under Restatement § 188 (the place of performance; and the domicile, residence and places of incorporation and of business of the parties) and determined that they pointed to the application of New Jersey law because New Jersey is the long standing domicile of the insured and the place of performance for contractual defense and indemnification of Honeywell in this litigation.  With those factors in mind, the Court considered section 6’s factors and held that, “in this contract setting where no provision in the contract or of the state law compels application of a specific state’s law, the conflicts-of-law principles favor application of New Jersey allocation law in the present dispute over liability among insurers.”

With respect to the allocation issue, Travelers and St. Paul asked the Court to create an equitable exception to New Jersey’s unavailability rule, whereby corporations that continue to manufacture products after insurance becomes unavailable for those products would be deprived of the insurance they purchased prior to that unavailability.  Those insurers asked the Court to find an “exceptional circumstance” warranting departure from Owens-Illinois in the case.  Honeywell, on the other hand, argued that it was only seeking coverage for claims alleging first exposure to a Bendix product before 1987, even if manifestation occurred after that point in time.  Honeywell stressed that post-1987 conduct is irrelevant to the analysis because it has no bearing on the prior exposure for which it had purchased insurance.   The Court sided with Honeywell and held that the case did not present facts sufficient to support a novel equitable exception to New Jersey allocation law.


* Michele L. Jacobson is a Partner and Beth K. Clark is a Special Counsel in the Insurance Industry Practice Group of Stroock & Stroock & Lavan LLP.