Wesco Ins. Co. v. Rich

United States District Court for the Southern District of Mississippi, Southern Division

April 29, 2022, Decided; April 29, 2022, Filed

CAUSE NO. 1:20CV305-LG-RPM

Reporter

2022 U.S. Dist. LEXIS 78036 *; 2022 WL 1438609

WESCO INSURANCE COMPANY, PLAINTIFF v. EDWARD EUGENE RICH AND EDWARD SHAYNE RICH as Wrongful Death Beneficiaries of Ladonna C. Rich, Deceased; YASSER SARDINAS ARMESTO; DKY EXPRESS, LLC; SAM FREIGHT SOLUTIONS, LLC; DAIRON M. LOPEZ; DAIMI RAMOS; SAMUEL RAMOS GONZALEZ; and PRIME PROPERTY & CASUALTY INSURANCE, INC., DEFENDANTS

Subsequent History: As Amended May 3, 2022.

Appeal filed, 05/10/2022

Prior History: Wesco Ins. Co. v. Rich, 2021 U.S. Dist. LEXIS 230736, 2021 WL 5750932 (S.D. Miss., Dec. 2, 2021)

Core Terms

endorsement, insured, coverage, limitation of liability, final judgment, Reconsider

Counsel:  [*1] For Wesco Insurance Company, Plaintiff: David M. Ott, LEAD ATTORNEY, Victoria R. Jones, BRYAN NELSON, PA – Hattiesburg, Hattiesburg, MS.

For Edward Eugene Rich, as Wrongful Death Beneficiaries of Ladonna C. Rich, Deceased, Edward Shayne Rich, as Wrongful Death Beneficiaries of Ladonna C. Rich, Deceased, Defendant: S. Wayne Easterling, LEAD ATTORNEY, S. WAYNE EASTERLING, ATTORNEY, Hattiesburg, MS; Ransom P. Jones, III, RANSOM P. JONES, III, ATTORNEY, Leakesville, MS.

Judges: LOUIS GUIROLA, JR., UNITED STATES DISTRICT JUDGE.

Opinion by: LOUIS GUIROLA, JR.

Opinion

AMENDED ORDER DENYING THE MOTION TO RECONSIDER FILED BY THE BENEFICIARIES OF LADONNA RICH

BEFORE THE COURT is the [86] Motion to Reconsider or, in the Alternative, Motion for New Trial filed by Edward Eugene Rich and Edward Shayne Rich, as Wrongful Death Beneficiaries of LaDonna C. Rich, deceased (“the Beneficiaries”), in which they seek reconsideration of this Court’s [84] Memorandum Opinion and Order granting Wesco Insurance Company’s Motion for Summary Judgment and denying the Beneficiaries’ Motion for Summary Judgment. Wesco filed a response to the Motion, but the response was untimely. Therefore, the Court failed to consider it. The Beneficiaries also filed a Supplemental Memorandum and a Rebuttal. Out of an abundance of caution, the Court has reviewed the Beneficiaries’ additional pleadings and determined that these pleadings do not demonstrate that the Court has errors of fact or law in its [84] Memorandum Opinion and Order granting summary judgment in favor of Wesco. After reviewing the [*2]  Motion, the record in the matter, and the applicable law, the Court finds that the Motion to Reconsider or for New Trial should be denied.

BACKGROUND

This declaratory judgment action arose out of a July 28, 2018, automobile accident in which a Nissan Sentra driven by Ladonna C. Rich was struck by a 2010 Freightliner on Interstate 10 in Jackson County, Mississippi. Rich was killed in the accident. At the time of the accident, the Freightliner was allegedly leased to Sam Freight Solutions, LLC, which was insured by a Commercial Motor Carrier insurance policy issued by Wesco. The Freightliner was not listed as a covered automobile on the Wesco policy. The policy contained a Form MCS-90 Endorsement, which provided that the insurer would pay

any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each vehicle is specifically described in the policy . . . .

(Compl., Ex. A at 104, ECF No. 1-1).

LaDonna Rich’s husband and son, Edward Eugene Rich and Edward Shayne Rich, filed a lawsuit [*3]  against Sam Freight and others in the Circuit Court of Jackson County, Mississippi. (Compl. at 4, ECF No. 1). Sam Freight’s insurer, Wesco, filed a Complaint for Declaratory Judgment with this Court. In a [84] Memorandum Opinion and Order, this Court found that:

[T]he underlying Wesco policy did not provide coverage for the accident at issue because the 2010 Freightliner was not a “covered auto.” However, the MCS-90 endorsement to the policy extends coverage for any judgment entered against Wesco’s insured, Sam Freight, for operation of a motor carrier. The MCS-90 endorsement unambiguously provides that Wesco shall not be liable for amounts in excess of $750,000 for each accident.

(Mem. Op. & Order at 9, ECF No. 84). The Beneficiaries seek reconsideration of that decision, arguing that the Wesco policy should provide $1 million in coverage for the accident. The Beneficiaries take issue with the Court’s determination that the $750,000 limit of liability stated in the MCS-90 endorsement applies rather than the $1 million policy limits stated on the declarations page of the underlying policy.

DISCUSSION

A motion seeking reconsideration is evaluated either as a motion to “alter or amend a [*4]  judgment” under Rule 59(e) or as a motion for “relief from a final judgment, order, or proceeding” under Rule 60(b), depending on when the motion was filed. Demahy v. Schwarz Pharma, Inc., 702 F.3d 177, 182 n.2 (5th Cir. 2012). A motion to alter or amend judgment under Rule 59(e) must be filed “no later than [twenty-eight] days after the entry of the judgment.” Fed. R. Civ. P. 59(e). Since the Beneficiaries’ Motion was filed ten days after the Final Judgment was entered in this case, the Motion must be considered under Fed. R. Civ. P. 59(e).

A motion under Rule 59(e) “calls into question the correctness of a judgment.” In re Transtexas Gas Corp., 303 F.3d 571, 581 (5th Cir. 2002). A court may amend a judgment “(1) where there has been an intervening change in the controlling law; (2) where the movant presents newly discovered evidence that was previously unavailable; or (3) to correct a manifest error of law or fact.” Alexander v. Wells Fargo Bank, N.A., 867 F.3d 593, 597 (5th Cir. 2017) (quoting Demahy, 702 F.3d at 182). The Fifth Circuit has cautioned that “[r]econsideration of a judgment after its entry is an extraordinary remedy that should be used sparingly.” Templet v. HydroChem Inc., 367 F.3d 473, 479 (5th Cir. 2004). The Beneficiaries ask the Court to correct an alleged error of law in its prior Memorandum Opinion and Order.

As this Court previously explained, interstate motor carriers are required by federal statute to provide proof of financial responsibility of at least $750,000. 49 U.S.C. § 31139(b). Sam Freight chose an MCS-90 endorsement to its Wesco [*5]  policy to satisfy this federal requirement, and the MCS-90 endorsement in the Wesco policy mirrors the language of Form MCS-90, as required by 49 C.F.R. § 387.15.

The Wesco MCS-90 endorsement states, “This insurance is primary[,] and the company shall not be liable for amounts in excess of $750,000 for each accident.” (Wesco policy, Ex. A to Compl. at 104, ECF No. 1-1). The endorsement further provides:

In consideration of the premium stated in the policy to which this endorsement is attached, the insurer (the company) agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured [Sam Freight] for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy . . . . It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within [*6]  the limits of liability herein, irrespective of the financial condition, insolvency or bankruptcy of the insured. However, all terms, conditions, and limitations shall remain in full force and effect as binding between the insured and the company.

(Id. at 105) (emphasis added).

The Beneficiaries argue that the Court improperly considered the insurance policy and the endorsement “as two separate standalone documents” in its Memorandum Opinion and Order. However, it was necessary for the Court to first determine whether the underlying policy provided coverage because “an insurer’s responsibilities under the [MCS-90] endorsement is triggered when the policy to which it is attached does not provide coverage to the insured.” Minter v. Great Am. Ins. Co. of N.Y. 423 F.3d 460, 470 (5th Cir. 2005). Contrary to the Beneficiaries’ assertions, this Court did not find that the endorsement was not a part of the policy issued to Sam Freight. This Court determined that the underlying policy did not provide coverage before determining that the MCS-90 endorsement would extend coverage to include any judgment resulting from the accident at issue.

The Beneficiaries next claim that the $750,000 limit of liability included in the endorsement creates an ambiguity, because the [*7]  declarations page of the policy provides for $1 million in coverage. They argue that the Court should resolve this alleged ambiguity in favor of the insured, Sam Freight.

When interpreting an insurance policy under Mississippi law, courts “look at the policy as a whole, consider all relevant portions together and, whenever possible, give operative effect to every provision in order to reach a reasonable overall result.” J & W Foods Corp. v. State Farm Mut. Auto. Ins. Co., 723 So. 2d 550, 552 (Miss. 1998).

Generally, the purpose of a rider to an insurance policy, such as an attached endorsement, is to make additions to a policy which are actually for the purpose of modifying the general terms of the policy, and therefore, being specific, control the more general terms of the policy. An endorsement thereby controls the policy insofar as it enlarges, modifies or restricts the terms of the policy. An endorsement also can act as a predominating influence in determining the meaning and intent of the policy. Moreover, if there is any conflict between the rider and the policy, the rider controls in construing the contract expressly where the provisions of the rider are the more specific.

Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 400 (5th Cir. 2008) (emphasis added) (citing Camden Fire Ins. Ass’n v. New Buena Vista Hotel Co., 199 Miss. 585, 24 So. 2d 848, 851 (Miss. 1946); Turbo Trucking Co., Inc. v. Those Underwriters at Lloyd’s London, 776 F.2d 527, 529-30 (5th Cir. 1985) (construing Mississippi law)). Since the terms of an endorsement [*8]  control when there is a conflict between the endorsement and the remainder of the policy, the limit of liability stated in the MCS-90 endorsement does not create ambiguity. The $750,000 limit of liability must be enforced by the Court.

The Court has now considered and reconsidered all arguments. The Beneficiaries have not cited any authority that prohibits an insurer from providing a limit of liability in an MCS-90 endorsement that is different from the limit of liability for the underlying policy.¹ The only requirement is for the insurer to provide a minimum of $750,000 in coverage, and Wesco did so. See 49 U.S.C. § 31139(b). The Beneficiaries’ Motion for Reconsideration or New Trial must be denied. The policy unambiguously provides that Wesco shall not be liable for amounts in excess of $750,000 for each accident covered by the MCS-90 endorsement.

IT IS THEREFORE ORDERED AND ADJUDGED the [86] Motion to Reconsider [*9]  or, in the Alternative, Motion for New Trial filed by Edward Eugene Rich and Edward Shayne Rich, as Wrongful Death Beneficiaries of LaDonna C. Rich, deceased, is DENIED.

SO ORDERED AND ADJUDGED this the 3rd day of May, 2022.

/s/ Louis Guirola, Jr.

LOUIS GUIROLA, JR.

UNITED STATES DISTRICT JUDGE

End of Document

¹ In the cases cited by the Beneficiaries, the policy and endorsement both provided for policy limits of $1 million. See Hamm v. Canal Ins. Co., 10 F. Supp. 2d 539, 543 (M.D.N.C. 1998); Carolina Cas. Ins. Co. v. Est. of Karpov, 559 F.3d 621, 623 (7th Cir. 2009). Those cases addressed whether a per-accident limit or per-person limit applied under the Motor Carrier Act. See id. Therefore, the courts in those cases did not have the opportunity to consider the issue the Beneficiaries present here.

Knightbrook Ins. Co. v. Sanchez

Superior Court of New Jersey, Appellate Division

April 25, 2022, Argued; May 16, 2022, Decided

DOCKET NO. A-1115-20

Reporter

2022 N.J. Super. LEXIS 65 *; 2022 WL 1529637

KNIGHTBROOK INSURANCE COMPANY, Plaintiff-Respondent, v. CAROLINA TANDAZO-CALOPINA and JOSE SANCHEZ, Defendants, and LIBERTY INSURANCE CORPORATION,¹ Defendant-Appellant.

Subsequent History:  [*1] Approved for Publication May 16, 2022.

Prior History: On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-1056-20.

Core Terms

coverage, personal injury action, insurer, cooperate, appreciable, variable, declaratory judgment action, disclaim, confirmed, insurance company, substantial rights, irretrievably, deposition, driver, insurance policy, summary judgment, date of the accident, failure to cooperate, assigned counsel, coverage issue, injury claim, withdrawing, defending, assigned, defenses, notice, rights

Case Summary

Overview

HOLDINGS: [1]-Insurer was not entitled to a declaratory judgment that the insurer owed no indemnity or defense for claims presented by any party in connection with an automobile accident as a result of its insured’s breach of the insurance policy by the insured’s failure to cooperate with the investigation of the claims and the defense of the litigation because the insurer failed to demonstrate appreciable prejudice to be entitled to disclaim the insured’s coverage. There were no issues concerning the insurer’s ability to determine coverage for the insured as the insurer determined that the insured’s vehicle was insured on the date of the accident and the policy covered the claims in the personal injury action, and the insurer failed to demonstrate that it was unable to defend against personal injury claims due to the insured’s refusal to cooperate in the personal injury action.

Outcome

Judgment reversed.

LexisNexis® Headnotes

Civil Procedure > Appeals > Standards of Review > De Novo Review

Civil Procedure > … > Summary Judgment > Summary Judgment Review > Standards of Review

Civil Procedure > … > Summary Judgment > Entitlement as Matter of Law > Genuine Disputes

HN1  Standards of Review, De Novo Review

An appellate court will review a trial judge’s decision on a motion for summary judgment de novo. A motion for summary judgment must be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law. R. 4:46-2(c).

Insurance Law > … > Property Insurance > Obligations > Cooperation With Carriers

Insurance Law > Liability & Performance Standards > Notice to Insurers > Prejudice to Insurers

Insurance Law > … > Obligations of Parties > Policyholders > Duty to Cooperate

HN2  Obligations, Cooperation With Carriers

New Jersey requires a showing of prejudice before a contract of insurance may be avoided. The Supreme Court of New Jersey has held it would be unfair for an insured to lose insurance coverage when there is no likelihood the insurer was prejudiced by a policy breach. The carrier may not forfeit the bargained-for protection unless there are both a breach of the notice provision and a likelihood of appreciable prejudice. “Appreciable prejudice” has been extended to situations wherein an insured breaches a contractual duty to cooperate with an insurer. The insurer bears the burden of demonstrating appreciable prejudice.

Insurance Law > Liability & Performance Standards > Notice to Insurers > Prejudice to Insurers

HN3  Notice to Insurers, Prejudice to Insurers

To determine whether an insurer suffered appreciable prejudice based on an insured’s breach of the duties under an insurance policy, a court must consider two variables: first, whether substantial rights have been irretrievably lost as a result of the insured’s breach; and second, the likelihood of success of the insurer in defending against the accident victim’s claim had there been no breach.

Insurance Law > Liability & Performance Standards > Notice to Insurers > Prejudice to Insurers

HN4  Notice to Insurers, Prejudice to Insurers

To the extent there is any ambiguity in applying the two variables to determine whether an insurer suffered appreciable prejudice based on an insured’s breach of the duties under an insurance policy, an insurer’s satisfaction of either variable is sufficient to establish appreciable prejudice to disclaim any obligation to provide coverage to an insured.

Insurance Law > Claim, Contract & Practice Issues > Estoppel & Waiver > Burdens of Proof

Insurance Law > … > Property Insurance > Obligations > Cooperation With Carriers

Insurance Law > Liability & Performance Standards > Notice to Insurers > Prejudice to Insurers

HN5  Estoppel & Waiver, Burdens of Proof

Under the first variable to determine whether an insurer suffered appreciable prejudice based on an insured’s breach of the duties under an insurance policy, an insurer must demonstrate an irretrievable loss of substantial rights based on the insured’s breach of the insurance policy. The first variable applies to an irretrievable loss of substantial rights related to coverage determinations by an insurer. To conclude otherwise would render the second variable under the appreciable prejudice prong redundant. Clearly, the two variables are intended to address different aspects of appreciable prejudice.

Counsel: Connell Foley LLP, attorneys for appellant (William P. Krauss, of counsel and on the briefs).

Delany Law, PC, attorneys for respondent (Stephen T. Kulp, of counsel and on the brief).

Judges: Before Judges Sabatino, Rothstadt, and Mayer.

Opinion by: MAYER

Opinion

The opinion of the court was delivered by

MAYER, J.A.D.

Defendant Liberty Insurance Corporation (Liberty) appeals from a November 20, 2020 order granting summary judgment to plaintiff KnightBrook Insurance Company (KnightBrook). The motion judge concluded KnightBrook “owe[d] no indemnity or defense for claims presented by any party in connection with the instant June 27, 2013 accident as a result of [its insured]’s deliberate failure to cooperate with the investigation of the claim and the defense of the litigation resulting in breach of the KnightBrook Insurance Company [p]olicy.” We reverse.

We provide the facts from the summary judgment motion record in extensive detail to provide context for the issue on appeal. In this matter, we consider whether KnightBrook validly disclaimed coverage for its insured, defendant Carolina [*2]  Tandazo-Calopina (Calopina), arguing it suffering appreciable prejudice based on Calopina’s failure to cooperate as required under KnightBrook’s policy.

In August 2012, KnightBrook issued a commercial automobile policy providing liability coverage for Calopina’s vehicle associated with her taxi business. KnightBrook’s policy contained a provision, known as the duty of an insured to cooperate, governing the duties of an insured in the event of an accident, claim, injury, or suit. Under this provision, Calopina had a contractual obligation to notify KnightBrook of any accident, cooperate and assist KnightBrook in matters relevant to any claim or suit, submit to examination, and provide statements under oath. KnightBrook’s policy notified Calopina that “[f]ailure to comply with these (or other conditions) can alter or void our obligations under this policy.”

On June 27, 2013, Calopina’s taxi rear ended a 1993 Chevy wagon driven by defendant Jose Sanchez (Sanchez).² According to the police report, Calopina stated she “attempt[ed] to brake, but her brakes failed, causing her to rear end” Sanchez’s car. Immediately after the accident, Sanchez complained of numbness throughout his body and emergency [*3]  medical services transported him to a local hospital.

At the hospital, Sanchez reported pain in his neck, back, and right hip. He also complained of a headache. The hospital discharged Sanchez the same day, giving him pain medication and advising he follow-up with his primary care doctor.

In testimony provided under oath, Sanchez described the accident. Sanchez was stopped at a red light at the moment of impact. There were no brake sounds prior to Sanchez hearing and feeling what he described as a “pung.” Although Sanchez wore a seatbelt, his chest struck the steering wheel.³ Sanchez described being knocked out for a second or two after the impact. He remained seated in his car after the collision and Calopina came to his driver’s side window. According to Sanchez, Calopina explained she was talking to her passengers, got distracted, and lacked sufficient time to brake. After speaking with Calopina, Sanchez got out of his car and took pictures of the damage to both cars. The road where the accident occurred had a posted speed limit of twenty-five miles per hour. However, Sanchez testified people routinely exceeded the posted speed limit, travelling between thirty and forty miles per hour. [*4] 

Shortly after the collision, KnightBrook received notice of the accident.⁴ According to internal notes from KnightBrook’s claims department dated August 12, 2013, KnightBrook contacted Sanchez and obtained the name of his attorney. The notes further indicated KnightBrook reserved an amount of money for property damage to Sanchez’s car, identified as “rear end damage/possible total loss,” and Sanchez’s bodily injury claim.⁵ KnightBrook’s notes confirmed Calopina’s car was fully insured on the date of the accident.

Another KnightBrook document, dated June 28, 2014 and entitled “File Summary and Review,” confirmed Calopina’s car was insured on the date of the accident and there were no coverage issues. The File Summary and Review indicated Sanchez signed medical authorizations for KnightBrook to verify his accident-related treatment with various medical providers.

In a July 28, 2014 internal note from KnightBrook’s claims department, the insurance company received an estimate of $418.27 to repair the damage to Sanchez’s car. The same note included the name of Sanchez’s attorney and counsel’s contact information. According to this note, Sanchez’s attorney related his client suffered injuries [*5]  to his neck, low back, and right hip and received orthopedic and chiropractic treatment for those injuries. The note reiterated there were no coverage issues.

In September 2014, Sanchez filed a personal injury action against Calopina (personal injury action). On October 26, 2014, Calopina’s father accepted service of the complaint. Calopina did not notify KnightBrook she was served with the complaint. Nor did she provide a copy of the complaint to KnightBrook.

However, KnightBrook obtained a copy of the complaint in the personal injury action because it sent a letter to Calopina asking her to contact its claims adjuster.⁶ KnightBrook also assigned counsel to represent Calopina in the personal injury action. In a November 5, 2014 letter, based on the repair estimate for Sanchez’s car, KnightBrook informed Sanchez’s attorney the matter involved “a very minor impact.”

Calopina’s assigned counsel filed an answer in the personal injury action and propounded discovery. In April 2015, Calopina’s counsel responded to Sanchez’s interrogatories. Calopina’s attorney took Sanchez’s deposition on August 11, 2015.

On December 22, 2015, KnightBrook sent a letter to a person Calopina designated to receive [*6]  communications.⁷ The letter advised KnightBrook would handle Calopina’s defense in the personal injury action under a “strict [r]eservation of [r]ights” based on Calopina’s “continued refusal to cooperate with [assigned] defense counsel.” Nothing in the reservation of rights letter suggested a dispute concerning coverage for the accident.

The reservation of rights letter also informed Calopina her deposition would be conducted on December 30, 2015 pursuant to a court order and a “Spanish interpreter [would] be provided . . . .” The letter stated, “[s]hould you fail to contact [assigned defense counsel] immediately, we will be forced to consider withdrawing your defense and coverage for this claim.” Calopina did not appear for her court-ordered deposition. About one week later, based on her failure to appear at the deposition, Sanchez’s attorney filed a motion to bar Calopina’s testimony at trial.

In a January 13, 2016 letter, KnightBrook informed Calopina it was withdrawing her defense in the personal injury action and would not provide coverage for the accident. The letter confirmed Calopina rejected KnightBrook’s efforts to gain her cooperation through “[p]hone calls, letters and [KnightBrook’s] [*7]  private investigator[].” Because Calopina violated the conditions of her insurance policy by refusing to cooperate and failing to appear for her court-ordered deposition, KnightBrook declared Calopina forfeited coverage for the personal injury action. About a week later, Sanchez’s attorney obtained a court order barring Calopina’s trial testimony in the personal injury action.

Because Calopina no longer had insurance coverage, Sanchez filed an amended complaint asserting a claim for uninsured motorist (UM) benefits against his insurance carrier, Liberty. Liberty moved for summary judgment, arguing Sanchez failed to prove Calopina was uninsured and, therefore, Liberty had no obligation to provide UM coverage. The judge denied Liberty’s motion, finding Liberty’s obligation to pay UM benefits depended on whether KnightBrook validly forfeited Calopina’s insurance coverage.

As a result, all counsel in the personal injury action, including Calopina’s assigned attorney, agreed to dismiss that litigation. Upon dismissal of the personal injury action, Sanchez intended to file a declaratory judgment action against KnightBrook to resolve the coverage issues. On July 27, 2018, Sanchez’s counsel [*8]  signed and filed a voluntary stipulation of dismissal without prejudice in the personal injury action.

In June 2019, Sanchez filed a declaratory judgment action against KnightBrook, seeking a judicial determination KnightBrook had an obligation to defend and indemnify Calopina (2019 declaratory judgment action). In addition, Sanchez reasserted his personal injury claims against Calopina and his demand for UM coverage against Liberty. Liberty and Calopina filed answers in the 2019 declaratory judgment action.⁸

In February 2020, KnightBrook filed its own declaratory judgment action, requesting the court validate its disclaimer of insurance coverage based on Calopina’s failure to cooperate (2020 declaratory judgment action).⁹ In August 2020, KnightBrook moved for summary judgment in the declaratory judgment actions. Liberty and Sanchez opposed KnightBrook’s motion.

The motion judge heard the arguments of counsel on November 20, 2020. In an oral decision, the judge found KnightBrook established appreciable prejudice and was entitled to disclaim coverage based on Calopina’s failure to cooperate in the personal injury action. The judge explained KnightBrook met its burden by demonstrating it [*9]  irretrievably lost substantial rights as a result of Calopina’s breach of the conditions of the insurance policy. She also concluded Calopina’s failure to cooperate negatively affected the likelihood of success in defending Calopina in the personal injury action. In granting KnightBrook’s motion for summary judgment, the judge “declar[ed] that KnightBrook ha[d] no duty to provide coverage to [Calopina], or to indemnify [Calopina] against the claims being made against her in the underlying action in [the] Superior Court . . . .”

The judge made the following factual findings regarding Calopina’s refusal to cooperate in the personal injury action. The judge found Calopina failed to notify KnightBrook of the accident, failed to forward a copy of the complaint to KnightBrook, failed to respond to letters sent to her by KnightBrook, failed to appear for deposition on four occasions, and failed to speak with her assigned counsel. The judge explained Calopina’s testimony was barred in the personal injury action, causing KnightBrook to suffer prejudice.¹⁰ The judge also relied on the letters from KnightBrook to Calopina advising her it reserved the right to decline coverage and withdraw its representation [*10]  in the personal injury action if Calopina refused to cooperate.

The judge found Calopina’s refusal to cooperate in the personal injury action deprived KnightBrook of the following:

[the] rights to explore defenses, to call witnesses, to be able to assert whether or not they would be able to [t]ake other action, join parties if necessary. . . . They were deprived of the opportunity to obtain available facts, information, to determine what strategy, how they would proceed in the lawsuit to obtain additional discovery that perhaps they would have discovered as a result of [Calopina’s] cooperation. They were deprived of having a witness who would assist them at trial, and at any proceeding, in whatever their strategy was in defending their client. They couldn’t assert certain defenses without her cooperation. They couldn’t determine . . . the manner in which they would proceed in the lawsuit without [Calopina’s] cooperation.

The judge found nothing in the record established a language barrier preventing Calopina from cooperating with KnightBrook. Nor did the judge find any evidence that Calopina “requested an accommodation because of a language barrier . . . .”

While the judge found KnightBrook [*11]  suffered appreciable prejudice, the judge stated, “there is no issue before the [c]ourt as to whether [Calopina] was covered . . . . KnightBrook has acknowledged that . . . .” KnightBrook has not challenged this aspect of the motion judge’s ruling.

On appeal, Liberty argues the judge erred in granting summary judgment because KnightBrook failed to demonstrate appreciable prejudice to be entitled to disclaim Calopina’s coverage. We agree and reverse.

HN1[] We review a trial judge’s decision on a motion for summary judgment de novo. Branch v. Cream-O-Land Dairy, 244 N.J. 567, 582, 243 A.3d 633 (2021). A motion for summary judgment must be granted “if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law.” R. 4:46-2(c).

HN2[] New Jersey requires “a showing of prejudice before a contract of insurance may be avoided.” Pfizer, Inc. v. Emps. Ins. of Wausau, 154 N.J. 187, 206 (1998). In Cooper v. Government Employees Insurance Co., 51 N.J. 86, 94, 237 A.2d 870 (1968), our Supreme Court held it would be unfair for an insured to lose insurance coverage where there is no likelihood the insurer was prejudiced by the policy breach. In Cooper, the Court concluded “the carrier may not forfeit the bargained-for protection unless [*12]  there are both a breach of the notice provision and a likelihood of appreciable prejudice.” Ibid. We extended “appreciable prejudice” to situations where an insured breaches a contractual duty to cooperate with an insurer.¹¹ See Solvents Recovery Serv. v. Midland Ins. Co., 218 N.J. Super. 49, 55, 526 A.2d 1112 (App. Div. 1987). The insurer bears the burden of demonstrating appreciable prejudice. Ibid.

HN3[] To determine whether an insurer suffered appreciable prejudice based on the insured’s breach of the duties under an insurance policy, a court must consider two variables: “first, ‘whether substantial rights have been irretrievably lost’ as a result of the insured’s breach, and second, ‘the likelihood of success of the insurer in defending against the accident victim’s claim’ had there been no breach.” Hager v. Gonsalves, 398 N.J. Super. 529, 536, 942 A.2d 160 (App. Div. 2008) (quoting Sagendorf v. Selective Ins. Co. of Am., 293 N.J. Super. 81, 93, 679 A.2d 709 (App. Div. 1996)).

We must determine whether Calopina’s failure to cooperate in the personal injury action entitled KnightBrook to disclaim coverage and withdraw its defense and indemnification of Calopina. There appears to be uncertainty among our courts regarding application of the Hager variables to establish appreciable prejudice sufficient to disclaim coverage. HN4[] To the extent there is any ambiguity in applying the two Hager variables, we conclude an insurer’s satisfaction of either variable is sufficient [*13]  to establish appreciable prejudice to disclaim any obligation to provide coverage to an insured.

HN5[] Under the first variable, an insurer must demonstrate an irretrievable loss of substantial rights based on the insured’s breach of the insurance policy. Ibid. Although not expressly stated in Hager, or any other case addressing appreciable prejudice, we conclude the first variable applies to an irretrievable loss of substantial rights related to coverage determinations by an insurer. To conclude otherwise would render the second variable under the appreciable prejudice prong redundant. Clearly, the two variables in Hager were intended to address different aspects of appreciable prejudice. KnightBrook’s argument conflates the two variables, rendering the second Hager variable superfluous.

The facts in Hager support this distinction between the two variables. In Hager, the insurer sought information to confirm whether the driver of the insured vehicle involved in an accident was covered under the insurance policy. Id. at 537. Before assigning an attorney to defend against the injured party’s claims, the insurer needed to confirm whether the driver of the insured vehicle had the owner’s permission to drive the car on the date [*14]  of the accident. Ibid. The insurer was unable to confirm permissive use of the insured car because the car’s driver and the car’s owner completely refused to cooperate with the insurer in providing any information. Ibid.

In Hager, we rejected the insurance carrier’s appreciable prejudice argument under the second variable based on the police report and witness statement ascribing responsibility for the accident to the driver of the insured car. Id. at 536-37. However, we held the insured’s total failure to cooperate resulted in appreciable prejudice under the first variable because the insurance company was unable “to determine whether the policy issued to [the insured] provided coverage to [the driver]” as a permissive user of the insured car. Id. at 537. Thus, we concluded the insurance company “‘irretrievably lost’ the opportunity to ascertain the true facts relating to whether [the driver] had permission to use [the insured]’s truck, which entitled [the insurer] to disclaim coverage for the . . . accident.” Id. at 536-37.

Similarly, in Sagendorf, we addressed the insurance company’s irretrievable loss of substantial rights in the context of a coverage determination. 293 N.J. Super. at 95-96. In Sagendorf, the insurance company denied coverage, contending the insured [*15]  plaintiffs’ late notice of the claim rendered it unable to investigate and evaluate coverage for environmental contamination claims. Id. at 95. We held the issues raised by the insurance company, regarding groundwater pollution and cleanup, were “coverage issues that [were] not affected by [the] plaintiffs’ late notice” of the claims. Id. at 96. Because the insurance company pointed to no evidence linking the plaintiffs’ failure to give timely notice of the claims with any ensuing prejudice, we held the plaintiffs were entitled to coverage. Ibid.

KnightBrook contends it suffered appreciable prejudice because it irretrievably lost substantial rights under Hager‘s first variable. We disagree. As we previously noted, the first variable deals with the loss of a substantial right in the context of a coverage determination. Here, there are no issues concerning KnightBrook’s ability to determine coverage. During argument before the motion judge, KnightBrook admitted there were no coverage issues. Even without KnightBrook’s acknowledgement of coverage, there is sufficient evidence in the motion record confirming the availability of coverage for Sanchez’s injuries.

Here, internal notes from KnightBrook’s claims department [*16]  in 2013 and 2014, as well as KnightBrook’s 2014 File Summary and Review, confirmed coverage for Calopina’s car on the date of the accident.¹² In 2014, based on its confirmation of coverage, KnightBrook assigned counsel to represent Calopina in the personal injury action. From 2013 until December 2015, KnightBrook never indicated its defense of Calopina in the personal injury action was subject to a reservation of rights. In December 2015, after Calopina failed to cooperate, KnightBrook first indicated it was defending Calopina under a strict reservation of rights and would consider withdrawing its defense and indemnification if Calopina continued to refuse to cooperate. On this record, it is undisputed KnightBrook determined Calopina’s vehicle was insured on the date of the accident and the policy covered the claims in the personal injury action. Therefore, KnightBrook failed demonstrate appreciable prejudice under the first Hager variable to disclaim coverage.

We next consider whether KnightBrook presented evidence to support a finding of appreciable prejudice under the second Hager variable — the likelihood of KnightBrook’s success in defending against Sanchez’s personal injury claims had Calopina [*17]  not breached the cooperation clause in its insurance policy. Based on the detailed facts recited above, we are satisfied KnightBrook failed to demonstrate it is unable to defend against Sanchez’s personal injury claims due to Calopina’s refusal to cooperate in the personal injury action. Additionally, KnightBrook pointed to no facts or legal theories precluding defenses in the personal injury action.

There is ample evidence on this record to allow KnightBrook to defend against the claims in the personal injury action on the issues of liability, medical causation, and damages. KnightBrook has photographs of the damage to both vehicles taken immediately after the accident. It also has the repair estimate for Sanchez’s car, indicating the necessary work to be less than $500. Additionally, KnightBrook obtained the police report containing statements made by Sanchez and Calopina immediately after the accident. The police report further noted Sanchez went to the hospital from the accident scene in an ambulance. KnightBrook has copies of the hospital records, indicating Sanchez complained of neck, back, and hip pain but was discharged the same day, given pain medication, and told to follow [*18]  up with a primary care doctor. KnightBrook also has Sanchez’s post-accident treatment records and his medical history, including information regarding an accident ten years before the 2013 accident. KnightBrook obtained the foregoing information despite Calopina’s refusal to cooperate.

In determining KnightBrook suffered no appreciable prejudice under the second Hager variable, we emphasize there is no court order barring Calopina’s testimony in the consolidated declaratory judgment actions. According to the judiciary’s Automated Case Management System, Calopina is represented by KnightBrook’s assigned counsel in the consolidated declaratory judgment actions and the trial is presently scheduled for August 8, 2022. Thus, Calopina may testify and bolster KnightBrook’s defenses on the issue of liability. Calopina may be able to provide information at trial about the rate of speed of her car prior to the collision, the severity of the impact between the cars, and the property damage, if any, to her car. Notwithstanding Calopina’s ability to testify in the consolidated declaratory judgment actions, based on the facts gleaned from the summary judgment record, we are uncertain whether her testimony [*19]  would be useful to KnightBrook’s defenses on liability and damages.

Based on these facts, KnightBrook has not suffered appreciable prejudice to warrant disclaiming coverage. Calopina remains a named defendant in the consolidated declaratory judgment actions, is represented by counsel assigned through KnightBrook, and is permitted to testify at trial. Nothing precludes KnightBrook’s ability to obtain additional facts and information to defend against Sanchez’s personal injury claims.

Reversed. We do not retain jurisdiction.

End of Document

¹ Improperly plead as Liberty Mutual Insurance Company.

² Calopina had three passengers in her taxi at the time of the accident — a woman and two children. Because Calopina’s passengers left the scene of the accident prior to the arrival of the police, their identities are unknown.

³ Sanchez’s 1993 Chevy wagon lacked front airbags because automobile manufacturers were required to install airbags only for new cars sold after 1998.

⁴ The record lacks information explaining how KnightBrook obtained information regarding the accident.

⁵ The dollar amount KnightBrook reserved for Sanchez’s property damage and personal injury claims is redacted.

⁶ While not indicated in the record, we presume KnightBrook received a copy of the pleading from Sanchez’s attorney.

⁷ There is a suggestion in the record that Calopina did not read, speak, or understand English and may have designated someone on her behalf to respond to inquiries regarding the accident.

⁸ KnightBrook retained a different law firm to represent Calopina in the 2019 declaratory judgment action.

⁹ In a February 25, 2020 consent order, the two declaratory judgment actions were consolidated.

¹⁰The only order barring Calopina from testifying at trial related to the personal injury action filed in 2014, which was dismissed without prejudice in 2018. There is nothing in the record indicating Calopina is barred from testifying in either declaratory judgment action.

¹¹It is undisputed Calopina breached the duty to the cooperate clause in KnightBrook’s insurance policy.

¹² KnightBrook’s documents confirming insurance coverage for Calopina’s car pre-dated the filing of the Sanchez personal injury action.