NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-3150-14T3
ESMAY PARCHMENT,
Plaintiff-Appellant,
v.
CITY OF EAST ORANGE,
Defendant-Respondent,
and
INSERVCO INSURANCE SERVICES, INC. and PENN NATIONAL INSURANCE,
Defendants. ___________________________________
Argued October 25, 2016 – Decided July 17, 2017
Before Judges Ostrer and Vernoia.
On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-182-12.
Michael J. Fioretti argued the cause for appellant.
Littie E. Rau argued the cause for respondent (Ruderman, Horn & Esmerado, P.C., attorneys; Ms. Rau, of counsel and on the brief).
PER CURIAM The primary issue in this appeal is whether principles of
estoppel require a municipality to indemnify two of its police
officers for judgments against them for violating a citizen's
civil rights. The municipality abided by its obligations under
its collective negotiations agreement and N.J.S.A. 40A:4-155 to
provide a means of defense for the officers, but did not expressly
disclaim liability for indemnification. We conclude no duty to
indemnify arises. We therefore affirm the trial court's January
28, 2015 order granting summary judgment to defendant City of East
Orange, and dismissing the declaratory judgment action of
plaintiff Esmay Parchment, who obtained a judgment against the
City's officers and sought indemnification of the officers from
the City.
I.
The facts are largely undisputed. Two East Orange police
officers used excessive force when they arrested plaintiff in her
home. She filed a complaint against the two arresting officers,
William Flood and Kim Johnson, as well as the City, asserting
violations of her constitutional rights under 42 U.S.C.A. §§ 1983
and 1985.1
1 Plaintiff also named two other officers, who were later dismissed from the lawsuit.
2 A-3150-14T3 Pursuant to its collective negotiations agreement
(Agreement)2 with the East Orange Fraternal Order of Police (FOP),
the City selected separate counsel to represent and defend each
officer in the civil rights litigation. The relevant language in
the Agreement that obligated the City to provide representation
for the officers stated:
Whenever an Employee is a defendant in any action or legal proceeding arising out of and directly related to the lawful exercise of police powers in furtherance of his/her official duties, the City, pursuant to N.J.S.A. 40A:14-155, shall provide such officer with the necessary means for the defense of such action or proceeding . . . .
The City did not participate in a municipal joint insurance
fund, nor did it have applicable commercial insurance (although
it had excess coverage that was not implicated). The City paid
for the officers' representation out of its coffers and hired
separate counsel for itself. However, it did not expressly advise
the officers that it would disclaim liability for any judgment
obtained against them.
Before trial, the City obtained a dismissal with prejudice,
based on Monell v. Department of Social Services, 436 U.S. 658,
2 The City entered separate agreements with the FOP for the periods of July 1, 1999 through June 30, 2006 and July 1, 2006 through June 30, 2010; however, the provision relating to legal representation was substantively unchanged.
3 A-3150-14T3 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). About a year later, a
jury returned a verdict in plaintiff's favor, finding that Flood
and Johnson "falsely arrest[ed] and/or imprison[ed]" her and used
excessive force. The jury awarded plaintiff $300,000 in
compensatory damages.3 The court also assessed attorneys' fees
and costs in the amount of $27,190.
After obtaining the judgment, plaintiff served the City with
a demand for payment. The City refused, stating it was not legally
responsible for the officers' actions or the judgment against
them. The present litigation followed. Plaintiff sought a
declaratory judgment that the City was obligated to indemnify
Flood and Johnson (Count Two).4 She also sought relief, as a
third-party beneficiary, based on the City's alleged breach of the
Agreement (Count Three). Finally, she alleged the City violated
its duty of good faith (Count Four).
3 Although plaintiff had alleged in her complaint that the officers acted willfully, "outside the scope of [their] jurisdiction and without authorization of law," the jury was not asked to render an express verdict on this issue. 4 In Count One, plaintiff sought declaratory relief against Inservco Insurance Services, Inc. and Penn National Insurance, which plaintiff alleged provided excess liability coverage for losses over $300,000. However, Inservco was a third-party administrator, not an insurer; and the City had no pertinent insurance coverage for plaintiff's claim. Count One was dismissed and is not the subject of this appeal.
4 A-3150-14T3 Thereafter, Flood assigned to plaintiff any claim he had to
indemnification from the City; in return, plaintiff promised not
to take any further action to collect her judgment against him.
Flood certified that the City had declined to indemnify him for
the adverse judgment, "claiming that the acts were outside the
scope of [his] employment and/or malicious, criminal or amounted
to willful misconduct." Flood stated the City assigned him counsel
in the case, but "never indicated that they were defending [him]
. . . with a reservation of their rights to deny indemnification
at a later date." Plaintiff did not obtain a similar assignment
of rights from Johnson.
After a period of discovery, the City moved for summary
judgment on all counts. Plaintiff cross-moved for summary judgment
on Count Two. The parties did not dispute the facts we have set
forth above. The City did dispute plaintiff's allegation that it
offered $25,000 on the eve of trial to settle the case against the
officers. The City also disputed plaintiff's allegation that the
City made "[l]itigation decisions, such as settlement and terms"
related to the officers' defense.
In a written opinion, Judge James S. Rothschild, Jr. granted
the City's motion and denied plaintiff's cross-motion. The court
rejected plaintiff's argument, based on Griggs v. Bertram, 88 N.J.
347 (1982), that the City was estopped from disclaiming liability
5 A-3150-14T3 to indemnify the officers after it agreed to defend them. The
judge held that Griggs did not apply to the City, which was a
public entity, not an insurer. The City had not agreed to insure
its employees, nor had it obtained insurance from an outside
insurer or participated in a joint insurance fund. The court
noted there was no proof the officers' attorneys disserved the
officers' interests and favored the City.
Citing N.J.S.A. 40A:10-1, Judge Rothschild explained that the
City was permitted, but not required to carry insurance for its
employees; consequently, the City was not obligated to indemnify
the officers. The court noted that the Agreement required the
City to provide a defense, but was silent on a duty to indemnify
or pay the costs of an adverse judgment. Likewise, N.J.S.A.
40A:14-155 obligated the City to pay defense costs, but imposed
no duty to indemnify. The court noted this limitation was
recognized in City Council of Elizabeth v. Fumero, 143 N.J. Super.
275, 284 (Law Div. 1976) and Hurley v. Atlantic City Police
Department, 944 F. Supp. 371, 375 (D.N.J. 1996). The court thus
dismissed plaintiff's declaratory judgment and breach of contract
claims.
The court also found no basis to hold the City to the same
duty of good faith standard imposed on insurers. The court
highlighted that most of the alleged acts of bad faith consisted
6 A-3150-14T3 of the refusal to indemnify — which the court found the City was
not obligated to do — and the alleged breach of the Agreement —
which breach the court found did not exist. Therefore, the court
concluded the City did not act in bad faith. This appeal followed.
II.
We review the trial court's grant of summary judgment de
novo, applying the same standard as the trial court. Henry v.
N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010). We "consider
whether the competent evidential materials presented, when viewed
in the light most favorable to the non-moving party, are sufficient
to permit a rational factfinder to resolve the alleged disputed
issue in favor of the non-moving party." Brill v. Guardian Life
Ins. Co. of Am., 142 N.J. 520, 540 (1995).
On appeal, plaintiff has jettisoned her breach of contract
claim. That is not surprising. As Judge Rothschild cogently
reviewed, the Agreement plainly imposes only a duty to provide a
defense. The same is true of N.J.S.A. 40A:14-155.5
5 Likewise, we note that the Tort Claims Act imposes no duty to indemnify; rather, it grants a municipality the option to indemnify its employees. See N.J.S.A. 59:10-4 ("Local public entities are hereby empowered to indemnify local public employees consistent with the provisions of this act."). The Act also imposes special conditions upon indemnification for punitive or exemplary awards. See id. (stating that a municipality may do so only if the governing body finds "the acts committed by the employee upon which the damages are based did not constitute actual fraud, actual malice, willful misconduct or an intentional wrong.").
7 A-3150-14T3 Instead, plaintiff argues, as she did before the trial court,
that the City was equitably estopped from denying responsibility
for the judgment against the officers. Plaintiff also contends
the City breached a duty to act in good faith, which compelled it
to indemnify the officers. We reject both arguments.
A.
At the outset, we pause to address the difference between
self-insurance and no insurance — inasmuch as plaintiff refers to
the City as a self-insured entity and contends that, as such, it
was obligated to indemnify the officers. As has been observed,
the term "self-insurance" is ambiguous. 1A Couch on Insurance 3d
§ 10:1, at 10-3 (2010). In some respects, "so-called self-
insurance is not insurance at all. It is the antithesis of
insurance." Am. Nurses Ass'n v. Passaic Gen. Hosp., 192 N.J.
Super. 486, 491 (App. Div.), aff'd in part and rev'd in part, 98
N.J. 83 (1984).
The essence of an insurance contract is the shifting of the risk of loss from the insured to the insurer. The essence of self- insurance, a term of colloquial currency rather than of precise legal meaning, is the retention of the risk of loss by the one upon whom it is directly imposed by law or contract.
[Ibid.]
8 A-3150-14T3 However, under some circumstances, "self-insurance" is more
than "no insurance."
In a sense, all risks not otherwise insured are "self-insured." However, many formal procedures exist whereby an entity can become recognized as a self-insurer. This is most commonly accomplished by filing a bond or furnishing another form of proof of the ability to pay amounts for which the self- insurer may become liable. To meet the conceptual definition of self-insurance, an entity would have to engage in the same sorts of underwriting procedures that insurance companies employ. These underwriting procedures include: (1) estimating likely losses during the period; (2) setting up a mechanism to create sufficient reserves to meet those losses as they occur; and (3) arranging for commercial insurance for losses that are beyond a preset amount.
[Couch, supra, § 10:1, at 10-3 to -4.]
Under various legislative schemes, New Jersey has formally
recognized qualified entities as self-insurers. For example, an
owner or lessor of a fleet of twenty-five or more vehicles may
comply with the compulsory automobile insurance law by obtaining
a certificate of self-insurance, provided that the Commissioner
of Insurance is satisfied with the owner's or lessor's financial
standing. See N.J.S.A. 39:6-52. Under that particular scheme,
"a certificate of self-insurance is the functional equivalent of
a policy of insurance." Ryder/P.I.E. Nationwide, Inc. v. Harbor
Bay Corp., 119 N.J. 402, 411 (1990). Notably, public entities are
9 A-3150-14T3 not required to obtain insurance or self-insure, but may "go bare."
N.J. Mfrs. Ins. Co. v. Hardy, 178 N.J. 327, 336 (2004); Ross v.
Transp. of N.J., 114 N.J. 134, 139 (1989).
Employers may also self-insure mandatory workers'
compensation liability, see N.J.S.A. 34:15-77, by complying with
its "stringent self-insurance requirements." Romanny v. Stanley
Baldino Constr. Co., 142 N.J. 576, 580 (1995); see also In re
Pathmark Stores, Inc., 367 N.J. Super. 50, 54-55 (App. Div. 2004).
Furthermore, municipalities may join together to establish joint
insurance funds. N.J.S.A. 40A:10-36. Although the fund is not
an insurance company or an insurer, N.J.S.A. 40A:10-48, its
"activities are subject to like regulation by the Commissioner of
Insurance, and are designed to spread the self-insurance risks of
municipal governments." Shapiro v. Middlesex Cty. Mun. Joint Ins.
Fund, 307 N.J. Super. 453, 458 (App. Div.), certif. denied, 154
N.J. 607 (1998).
Here, the City is not a formal self-insurer in the foregoing
sense. It has not assumed the responsibility, or demonstrated to
regulators the capacity, to pay claims as do self-insurers under
the compulsory automobile insurance and workers' compensation
laws. The City has not agreed to indemnify its employees.
Instead, it has decided to "go bare" — obtaining no commercial
10 A-3150-14T3 insurance coverage — for its own potential liability, at least for
amounts below which excess coverage is triggered.
We recognize an entity's exposure to losses below the point
at which its insurer becomes liable under an excess policy is
often denominated as a "self-insured retention." However, absent
some other policy to cover those losses, it may be more accurate
to say the entity is uninsured. In American Nurses Association
v. Passaic General Hospital, 98 N.J. 83, 88-90 (1984), a hospital
had a "self-insured sum" of $100,000, before its liability
insurance, which covered its nurses, would be implicated. A nurse
was separately covered by her own policy, which made "other
insurance" primary. Id. at 86-87. Her insurer contended that the
hospital's "self-insured sum" qualified as "other insurance." Id.
at 88-89. The Court disagreed. Noting that the "tendency has
been not to regard self-insurance as 'insurance,'" the Court
concluded that nothing in the hospital's policy required it to pay
the first $100,000 of a judgment against the nurse, nor was the
hospital otherwise obligated to pay the first $100,000. Id. at
89. Furthermore, the hospital's decision to investigate the claim,
which arose out of its insurance package, did not compel it to pay
the first $100,000. Id. at 90.
Against this backdrop, we turn to plaintiff's principal
argument: that like an insurer, the City as a "self-insured entity"
11 A-3150-14T3 should be estopped from disclaiming liability for indemnifying the
officers, since it provided the officers a defense without
expressly reserving its right to disclaim liability. Plaintiff
relies heavily on Griggs, supra. Her reliance is misplaced.
In Griggs, supra, an insured teenager injured another teen
in a fight. 88 N.J. at 353. After the insured promptly notified
the insurer, it immediately investigated by interviewing the
insured, who admitted he intentionally hit the other teenager.
Ibid. Although the policy excluded intentional torts, the insurer
did not disclaim liability nor investigate further. Id. at 353-
54. Seventeen months later, the injured teen sued the insured.
Id. at 353. Upon receiving the complaint, the insurer disclaimed
coverage, relying on the intentional tort exclusion. Id. at 354.
The insured subsequently settled the case and sought
indemnification from the insurer. Ibid.
The Court held the insurer was estopped from denying coverage,
noting that it had previously found that an insurer's actual
control of an investigation or defense triggers an insured's
justifiable reliance that the insurer will be responsible for any
judgment. Id. at 356 (citing Merchs. Indem. Corp. v. Eggleston,
37 N.J. 114, 127 (1962)). "The insured's justifiable reliance
arises from the insurer's contractual right to control the defense
under the policy." Ibid.
12 A-3150-14T3 Notably, in Griggs, the insurer had "neither assumed the
actual control of a case nor undertaken the preparation of any
defense on behalf of the insured . . . ." Id. at 357. However,
the policy authorized the insurer to control an investigation and
defense. Id. at 359-60. It also required the insured to cooperate
with the insurer in any lawsuit. Id. at 359. The insured was to
"refrain from 'voluntarily . . . assum[ing] any obligation,'" and
to "avoid independent action which will contravene any of the
essential terms of the policy" or otherwise "interfere with the
insurer's paramount right to control the case . . . ." Id. at
359-60.
In view of the insurer's authority and the insured's duty not
to "act for itself under the policy," the insured justifiably
relied upon the insurer's actions to expect coverage. Id. at 362.
Absent a clear disclaimer or other conduct that clearly repudiated
coverage, "the insured [was] justified in believing the insurer
[was] vigorously exercising these rights in a manner which [would]
fully protect the insured's interest under the policy." Ibid.
Furthermore, prejudice arising from the reliance is presumed,
since the "course cannot be rerun." Ibid. (quoting Eggleston,
supra, 37 N.J. at 129 (internal quotation marks omitted)).
For several reasons, Griggs provides no grounds to estop the
City from denying indemnification. First, an insured must
13 A-3150-14T3 reasonably believe there is insurance at all, in order to
justifiably rely on an insurer's actions and to expect coverage
in a particular circumstance. However, the City is not an insurer
or even a formal self-insurer, as described above. Unlike either,
the City undertook no obligation to indemnify its officers for
judgments against them. In fact, the officers' labor
representatives did not secure an agreement to indemnify.
Therefore, it would be unjustified for the officers to expect a
duty to indemnify in their particular circumstances, when there
was no reason to expect such a duty under any circumstance.
Second, like the hospital in American Nurses Association,
supra, the fact that the City has some form of excess coverage
does not make it an insurer of the amount within the "self-insured
retention." Moreover, just as the hospital was not obligated to
indemnify the nurse in American Nurses Association, supra, the
City was not obliged to indemnify the officers here.
Finally, although the actual or potential control of the
investigation or defense may arguably justify an insured's
reliance and expectation of coverage, none was present here. The
City provided the officers a means of a defense in accord with its
contractual and statutory obligations. We reject plaintiff's
unsupported allegation that the City controlled litigation
decisions. See Ridge at Back Brook, LLC v. Klenert, 437 N.J.
14 A-3150-14T3 Super. 90, 97-98 (App. Div. 2014) ("Bald assertions are not capable
of either supporting or defeating summary judgment."). There is
no evidence suggesting that the City controlled the defense or
precluded the officers from presenting any defense that they, with
the advice of their independent attorneys, wished to pursue. Nor
were the officers obligated to defer to any "paramount" authority
of the City to control the investigation and defense of the case
against them. In short, the City took no actions that "preempt[ed]
its [officers] from defending" themselves, nor did the City leave
them "defenseless or seriously hampered in [their] ability to
protect [themselves]," so as to give rise to estoppel. Griggs,
supra, 88 N.J. at 356.
B.
We next turn to plaintiff's contention that the City violated
its duty of good faith, which required it to indemnify its
officers. We are unpersuaded. "[E]very insurance contract
contains an implied covenant of good faith and fair dealing."
Price v. N.J. Mfrs. Ins. Co., 182 N.J. 519, 526 (2005). An insurer
owes a duty of good faith in processing an insured's claim, and
an insured has a right of action for a bad faith failure to pay a
claim where no debatable reason for denying payment exists.
Pickett v. Lloyd's, 131 N.J. 457, 481 (1993). The standard also
applies to "inattention to payment of a valid, uncontested claim."
15 A-3150-14T3 Id. at 473. However, "[i]f the insured is unable to establish a
right to the coverage claimed, the bad faith claim must be
dismissed." Wacker-Ciocco v. Gov't Emps. Ins. Co., 439 N.J. Super.
603, 612 (App. Div. 2015). As discussed above, the City did not
insure the officers against the judgment plaintiff obtained
against them. Thus, it did not breach an insurer's duty of good
faith.6
Nor did plaintiff establish that the City breached its implied
duty of good faith and fair dealing found in its Agreement with
the officers and FOP. "Every party to a contract . . . is bound
by a duty of good faith and fair dealing in both the performance
and enforcement of the contract." Brunswick Hills Racquet Club,
Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 224 (2005).
Pursuant to that duty, a party must "refrain from doing anything
which will have the effect of destroying or injuring the right of
the other party to receive the benefits of the contract." Id. at
225 (internal quotation marks and citation omitted).
6 As we conclude the City was not a formal self-insurer, we need not address the extent to which one is bound by the same duty of good faith imposed on an insurer. See 14 Couch on Insurance 3d § 198.19, at 198-42 to -43 (2007) (noting a split among jurisdictions regarding whether self-insurers are held to the same standards of good faith and fair dealing toward insureds and third parties as traditional insurers).
16 A-3150-14T3 A breach may occur if a defendant "acts with ill motives and
without any legitimate purpose" to destroy a plaintiff's
"reasonable expectations," or if a plaintiff "relies to its
detriment on a defendant's intentional misleading assertions."
Id. at 226. While the covenant "cannot override an express term
in a contract, a party's performance under a contract may breach
that implied covenant even though that performance does not violate
a pertinent express term." Wilson v. Amerada Hess Corp., 168 N.J.
236, 244 (2001).
Applying these principles, plaintiff has failed to establish
a breach of the covenant implied in the Agreement. Plaintiff has
not established that indemnification was necessary to fulfill the
parties' expectations. Nor is there any showing that the City
acted with ill motive or intentionally misled the officers. The
City did not deprive the officers of the fruits of the Agreement,
because no right to indemnification was provided, expressly or
impliedly.
To the extent not addressed, plaintiff's remaining arguments
lack sufficient merit to warrant extended discussion in a written
opinion. R. 2:11-3(e)(1)(E).
Affirmed.
17 A-3150-14T3