Mist Pharmaceuticals, LLC v. Berkley Insurance Company
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Opinion
SYLLABUS
This syllabus is not part of the Court’s opinion. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Court and may not summarize all portions of the opinion.
Mist Pharmaceuticals, LLC v. Berkley Insurance Company (A-34-24) (089689)
Argued October 9, 2025 -- Decided May 11, 2026
JUSTICE PATTERSON, writing for the Court.
In this appeal, the Court considers whether an insurer properly denied coverage based on an exclusion set forth in an insurance policy it issued to a limited liability company or whether, as the insured argues, the insurer forfeited its right to rely on the exclusion and is estopped from disclaiming coverage.
In April 2014, defendant Berkley Insurance Company (Berkley) issued a Directors and Officers insurance policy to plaintiff Mist Pharmaceuticals, LLC. Mist Pharmaceuticals was an Insured Entity under the policy terms and Joseph Krivulka, Chair of the Board of Directors and a member and manager of that entity, was an Insured Person in that capacity. The policy’s capacity provision excluded from coverage “Loss in connection with a Claim made against any Insured . . . in any way involving any Wrongful Act of an Insured Person serving in their capacity as . . . member . . . of any other entity other than an Insured Entity or an Outside Entity, or by reason of their status as . . . member . . . of such other entity.”
The coverage dispute now before the Court arose from allegations in two lawsuits that Krivulka engaged in self-dealing through Mist Pharmaceuticals and other entities he controlled, which were also named as defendants. Mist Pharmaceuticals was the only defendant entity that Berkley insured.
Mist Pharmaceuticals filed a claim for coverage under its Berkley policy. Berkley acknowledged the claim, reserving “all rights under the Policy, at law, and in equity, including, but not limited to, the right to raise Policy terms and conditions as defenses to coverage as may be appropriate in light of additional information received by us.” Berkley stated that coverage was not available “for Krivulka for allegations pertaining to his roles with” entities other than Mist Pharmaceuticals. Berkley reserved its rights under the capacity exclusion, setting forth the text of that exclusion in its letter to Mist Pharmaceuticals. It reiterated that nothing in its letter “should be construed as a waiver, modification or estoppel of any rights or defenses.” Berkley agreed to reimburse Mist Pharmaceuticals for 10% of legal fees already incurred and “to pay 10% of the reasonable legal fees moving forward.” 1 In August 2017, following further correspondence, Berkley withdrew “its participation in the defense” of Mist Pharmaceuticals and Krivulka, “effective immediately,” based on its contention that the claim against Mist Pharmaceuticals arose prior to the policy period. It reiterated its prior reservation of rights.
In September 2017, Mist Pharmaceuticals filed this coverage action. It contended that Berkley had taken unjustified and inconsistent positions by paying ten percent of the defense costs for nearly a year but then denying coverage. Berkley filed a counterclaim seeking restitution of the legal fees it had paid. It claimed that Mist Pharmaceuticals’ “failure to comply with Berkley’s reporting requirements” had hampered the investigation of the claim and compelled Berkley to pay defense costs for a claim that its policy did not cover.
While the coverage matter was pending, Mist Pharmaceuticals repeatedly requested that Berkley participate in the negotiation of a global settlement. Berkley declined, reiterating that it did not believe it owed coverage. In June 2020, the parties agreed to a global settlement.
Ultimately, the trial court entered final judgment for Mist Pharmaceuticals and against Berkley, requiring that Berkley provide coverage up to what remained of the policy limit. The Appellate Division reversed. 479 N.J. Super. 126, 143 (App. Div. 2024). The Court granted certification. 260 N.J. 92 (2025).
HELD: The claims asserted in the underlying actions fall squarely within the disputed exclusion; the insurer properly reserved its rights with respect to that exclusion in its communications with the insured; and the insurer had the right to refuse to contribute to the settlement under the circumstances of this case. The Court affirms as modified the Appellate Division’s judgment as explained on pages 32 n.8 and 48-49 of the Court’s opinion.
1. There is an important distinction between an exclusionary clause that applies only if the evidence supports a causal link between the excluded act and the loss alleged -- as in Flomerfelt v. Cardiello, 202 N.J. 432 (2010) -- and an exclusionary clause that does not expressly require such a causal nexus in order to apply -- as in Norman Int’l, Inc. v. Admiral Ins. Co., 251 N.J. 538 (2022), in which the exclusion provided that the policy did not apply to several categories of injury “arising out of, related to, caused by, contributed to by, or in any way connected with . . . [a]ny operations or activities performed by or on behalf of any insured” in certain New York counties,” id. at 546. In Norman International, the Court observed that “[b]ecause the exclusion test is disjunctive, each phrase in the exclusion must be considered separately, any one of which would be sufficient to trigger the exclusion.” Id. at 555. (pp. 29-31)
2 2. The Court views the exclusionary clause here to be closely analogous to the exclusion at issue in Norman International. Here, as in Norman International, the disjunctive “or” means that each term in the exclusion is alone sufficient to bar coverage. The exclusionary clause at issue here does not turn on a causal nexus between the excluded activities and the harm alleged. To the contrary, it applies “to the extent the allegations” in the underlying actions “in any way” involved “any Wrongful Act of an Insured Person serving in their capacity as . . . member” of any entity other than “an Insured Entity or an Outside Entity,” or “by reason of their status as . . . member . . . of such other entity.” The policy, in turn, defines “Wrongful Act” to include “any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act” by an insured person in that person’s capacity as a member of an uninsured entity. Here, the factual allegations involve more than a dozen Krivulka-owned or controlled entities, but they share a common feature: Krivulka’s role as member and manager of one particular entity -- an entity other than Mist Pharmaceuticals and not insured by Berkley -- is front and center in all. There is no allegation against Mist Pharmaceuticals -- or against Krivulka as a director, member, or manager of Mist Pharmaceuticals -- that is unrelated to Krivulka’s capacity as a member of the uninsured entity. Accordingly, the allegations asserted in the underlying actions clearly fall within the scope of the capacity exclusion. The Court responds to the dissent’s argument for an alternative interpretation of the capacity exclusion. (pp. 31-39)
3. The Court next reviews the cases under which Mist Pharmaceuticals argues that Berkley is precluded from asserting its rights under the capacity exclusion: Fireman’s Fund Insurance Co. v. Security Insurance Co., 72 N.J. 63 (1976), and Griggs v. Bertram, 88 N.J. 347 (1982). In Fireman’s Fund, the insurer had clearly breached its obligations under the subject policy and acted in bad faith; the Court accordingly held that it had forfeited its right to control the settlement of the underlying claims. 72 N.J. at 68-73. In Griggs, an insured provided his insurer with notice that a claim could be brought against him after he punched someone at a baseball game. 88 N.J. at 353.
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SYLLABUS
This syllabus is not part of the Court’s opinion. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Court and may not summarize all portions of the opinion.
Mist Pharmaceuticals, LLC v. Berkley Insurance Company (A-34-24) (089689)
Argued October 9, 2025 -- Decided May 11, 2026
JUSTICE PATTERSON, writing for the Court.
In this appeal, the Court considers whether an insurer properly denied coverage based on an exclusion set forth in an insurance policy it issued to a limited liability company or whether, as the insured argues, the insurer forfeited its right to rely on the exclusion and is estopped from disclaiming coverage.
In April 2014, defendant Berkley Insurance Company (Berkley) issued a Directors and Officers insurance policy to plaintiff Mist Pharmaceuticals, LLC. Mist Pharmaceuticals was an Insured Entity under the policy terms and Joseph Krivulka, Chair of the Board of Directors and a member and manager of that entity, was an Insured Person in that capacity. The policy’s capacity provision excluded from coverage “Loss in connection with a Claim made against any Insured . . . in any way involving any Wrongful Act of an Insured Person serving in their capacity as . . . member . . . of any other entity other than an Insured Entity or an Outside Entity, or by reason of their status as . . . member . . . of such other entity.”
The coverage dispute now before the Court arose from allegations in two lawsuits that Krivulka engaged in self-dealing through Mist Pharmaceuticals and other entities he controlled, which were also named as defendants. Mist Pharmaceuticals was the only defendant entity that Berkley insured.
Mist Pharmaceuticals filed a claim for coverage under its Berkley policy. Berkley acknowledged the claim, reserving “all rights under the Policy, at law, and in equity, including, but not limited to, the right to raise Policy terms and conditions as defenses to coverage as may be appropriate in light of additional information received by us.” Berkley stated that coverage was not available “for Krivulka for allegations pertaining to his roles with” entities other than Mist Pharmaceuticals. Berkley reserved its rights under the capacity exclusion, setting forth the text of that exclusion in its letter to Mist Pharmaceuticals. It reiterated that nothing in its letter “should be construed as a waiver, modification or estoppel of any rights or defenses.” Berkley agreed to reimburse Mist Pharmaceuticals for 10% of legal fees already incurred and “to pay 10% of the reasonable legal fees moving forward.” 1 In August 2017, following further correspondence, Berkley withdrew “its participation in the defense” of Mist Pharmaceuticals and Krivulka, “effective immediately,” based on its contention that the claim against Mist Pharmaceuticals arose prior to the policy period. It reiterated its prior reservation of rights.
In September 2017, Mist Pharmaceuticals filed this coverage action. It contended that Berkley had taken unjustified and inconsistent positions by paying ten percent of the defense costs for nearly a year but then denying coverage. Berkley filed a counterclaim seeking restitution of the legal fees it had paid. It claimed that Mist Pharmaceuticals’ “failure to comply with Berkley’s reporting requirements” had hampered the investigation of the claim and compelled Berkley to pay defense costs for a claim that its policy did not cover.
While the coverage matter was pending, Mist Pharmaceuticals repeatedly requested that Berkley participate in the negotiation of a global settlement. Berkley declined, reiterating that it did not believe it owed coverage. In June 2020, the parties agreed to a global settlement.
Ultimately, the trial court entered final judgment for Mist Pharmaceuticals and against Berkley, requiring that Berkley provide coverage up to what remained of the policy limit. The Appellate Division reversed. 479 N.J. Super. 126, 143 (App. Div. 2024). The Court granted certification. 260 N.J. 92 (2025).
HELD: The claims asserted in the underlying actions fall squarely within the disputed exclusion; the insurer properly reserved its rights with respect to that exclusion in its communications with the insured; and the insurer had the right to refuse to contribute to the settlement under the circumstances of this case. The Court affirms as modified the Appellate Division’s judgment as explained on pages 32 n.8 and 48-49 of the Court’s opinion.
1. There is an important distinction between an exclusionary clause that applies only if the evidence supports a causal link between the excluded act and the loss alleged -- as in Flomerfelt v. Cardiello, 202 N.J. 432 (2010) -- and an exclusionary clause that does not expressly require such a causal nexus in order to apply -- as in Norman Int’l, Inc. v. Admiral Ins. Co., 251 N.J. 538 (2022), in which the exclusion provided that the policy did not apply to several categories of injury “arising out of, related to, caused by, contributed to by, or in any way connected with . . . [a]ny operations or activities performed by or on behalf of any insured” in certain New York counties,” id. at 546. In Norman International, the Court observed that “[b]ecause the exclusion test is disjunctive, each phrase in the exclusion must be considered separately, any one of which would be sufficient to trigger the exclusion.” Id. at 555. (pp. 29-31)
2 2. The Court views the exclusionary clause here to be closely analogous to the exclusion at issue in Norman International. Here, as in Norman International, the disjunctive “or” means that each term in the exclusion is alone sufficient to bar coverage. The exclusionary clause at issue here does not turn on a causal nexus between the excluded activities and the harm alleged. To the contrary, it applies “to the extent the allegations” in the underlying actions “in any way” involved “any Wrongful Act of an Insured Person serving in their capacity as . . . member” of any entity other than “an Insured Entity or an Outside Entity,” or “by reason of their status as . . . member . . . of such other entity.” The policy, in turn, defines “Wrongful Act” to include “any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act” by an insured person in that person’s capacity as a member of an uninsured entity. Here, the factual allegations involve more than a dozen Krivulka-owned or controlled entities, but they share a common feature: Krivulka’s role as member and manager of one particular entity -- an entity other than Mist Pharmaceuticals and not insured by Berkley -- is front and center in all. There is no allegation against Mist Pharmaceuticals -- or against Krivulka as a director, member, or manager of Mist Pharmaceuticals -- that is unrelated to Krivulka’s capacity as a member of the uninsured entity. Accordingly, the allegations asserted in the underlying actions clearly fall within the scope of the capacity exclusion. The Court responds to the dissent’s argument for an alternative interpretation of the capacity exclusion. (pp. 31-39)
3. The Court next reviews the cases under which Mist Pharmaceuticals argues that Berkley is precluded from asserting its rights under the capacity exclusion: Fireman’s Fund Insurance Co. v. Security Insurance Co., 72 N.J. 63 (1976), and Griggs v. Bertram, 88 N.J. 347 (1982). In Fireman’s Fund, the insurer had clearly breached its obligations under the subject policy and acted in bad faith; the Court accordingly held that it had forfeited its right to control the settlement of the underlying claims. 72 N.J. at 68-73. In Griggs, an insured provided his insurer with notice that a claim could be brought against him after he punched someone at a baseball game. 88 N.J. at 353. Although the defendant’s insurance policy excluded coverage for an intentional tort, the insurer “gave no indication that any potential claim or legal action arising from this incident would not be covered under the policy or that it would disclaim coverage in the event such a claim or action were brought.” Ibid. The insurer disclaimed coverage based on the intentional tort exclusion 17 months later. Id. at 354. The Court held that “where, after timely notice, adequate opportunity to investigate a claim, and the knowledge of a basis for denying or questioning insurance coverage,” an insurer “fails for an unreasonable time to inform the insured of a potential disclaimer,” that insurer “is estopped from later denying coverage under the insurance policy in the event a legal action is subsequently brought against its insured.” Id. at 363-64. (pp. 40-44)
3 4. Neither Fireman’s Fund nor Griggs stands for the proposition that an insurer is somehow barred from contesting its obligation to cover a given claim or from seeking to enforce an exclusion in its policy. Neither decision addressed a setting in which the insurer invoked an exclusion or provided a reservation of rights. Reservation of rights letters have long been regarded as proper defense mechanisms for insurance companies, and a good-faith challenge to coverage is not a breach of an obligation to defend. Here, the policy issued by Berkley does not cover Mist Pharmaceuticals for the claims asserted. There is, accordingly, no basis for a finding that Berkley acted in bad faith, and indeed no such finding was made in this case. Berkley did not forfeit any contractual right when it declined to participate in the settlement of what it determined -- correctly -- to be uncovered claims. Fireman’s Fund is inapplicable to this appeal. Nor is Mist Pharmaceuticals correct in asserting that the circumstances of this case warrant a finding of estoppel under Griggs. During the five years preceding the global settlement on June 23, 2020, Berkley repeatedly restated the full text of its capacity exclusion in correspondence with Mist Pharmaceuticals. It reserved its rights under that exclusion and other policy provisions in letters and emails no fewer than ten times. And Berkley advised Mist Pharmaceuticals at least six times that nothing in its correspondence should be construed as a waiver, modification, or estoppel of its rights, which included its right to rely on the capacity exclusion set forth in its policy. In sum, the Court does not view the doctrine of estoppel or the doctrine of forfeiture to support Mist Pharmaceuticals’ position in this appeal. (pp. 44-48)
AFFIRMED AS MODIFIED.
JUSTICE FASCIALE, dissenting, stresses that, for over five years, Berkley repeatedly represented to the Mist Insureds that partial coverage was available under the policy at issue. Justice Fasciale views case law to demand that Berkley be held to its prior assurances and estopped from relying on the capacity exclusion as an absolute defense. In Justice Fasciale’s view, the exclusion does not bar all coverage when wrongful acts are simultaneously committed in both insured and uninsured capacities -- it bars coverage only for wrongful acts committed in an uninsured capacity. At best, Justice Fasciale notes, there is more than one way to interpret the exclusion, requiring -- under longstanding insurance jurisprudence -- that the Court apply the meaning that supports coverage. Because, under that meaning, it is necessary to distinguish between Krivulka’s insured and uninsured roles to determine what the insurer is required to cover, Justice Fasciale would remand the matter for the determination of four disputed issues of material fact.
CHIEF JUSTICE RABNER and JUSTICES PIERRE-LOUIS, WAINER APTER, and NORIEGA join in JUSTICE PATTERSON’s opinion. JUSTICE FASCIALE filed a dissent in which JUSTICE HOFFMAN joins.
4 SUPREME COURT OF NEW JERSEY A-34 September Term 2024 089689
Mist Pharmaceuticals, LLC,
Plaintiff-Appellant,
v.
Berkley Insurance Company,
Defendant-Respondent.
On certification to the Superior Court, Appellate Division, whose opinion is reported at 479 N.J. Super. 126 (App. Div. 2024).
Argued Decided October 9, 2025 May 11, 2026
Lynda A. Bennett argued the cause for appellant (Lowenstein Sandler, attorneys; Lynda A. Bennett and Eric Jesse, of counsel and on the briefs).
Adam M. Smith argued the cause for respondent (Coughlin Midlige & Garland, attorneys; Adam M. Smith, Laura A. Brady, and Michael E. Hrinewski, of counsel and on the briefs).
JUSTICE PATTERSON delivered the opinion of the Court.
1 This insurance coverage dispute arises from an insurer’s denial of
coverage based on an exclusion set forth in an insurance policy it issued to a
limited liability company. The insured alleges that by virtue of its refusal to
participate in a settlement of the underlying claims, the insurer forfeited its
right to rely on the exclusion under Fireman’s Fund Insurance Co. v. Security
Insurance Co., 72 N.J. 63, 69-79 (1976), and that the insurer is estopped from
disclaiming coverage in accordance with Griggs v. Bertram, 88 N.J. 347, 355-
64 (1982). The insurer counters that because the exclusion in the policy barred
coverage for the underlying claims, it had no obligation to indemnify or defend
the insured or participate in the settlement, and that neither forfeiture nor
estoppel applies in this matter.
The trial court granted partial summary judgment to the insured and
denied the insurer’s motion for summary judgment, holding that the insurer
forfeited its right to rely on the exclusion by unreasonably withholding consent
to the settlement. The Appellate Division reversed, ruling that because the
exclusion in the policy precludes coverage for the underlying actions, the
insurer had no obligation to consent to the settlement or indemnify the insured
for any share of that settlement. Mist Pharms., LLC v. Berkley Ins. Co., 479
N.J. Super. 126, 137-43 (App. Div. 2024).
2 For the reasons that follow, we concur with the Appellate Division that
the claims asserted in the underlying actions fall squarely within the disputed
exclusion, that the insurer properly reserved its rights with respect to that
exclusion in its communications with the insured, and that the insurer had the
right to refuse to contribute to the settlement under the circumstances of this
case. We therefore affirm as modified the Appellate Division’s judgment.
I.
A.
On April 21, 2014, defendant Berkley Insurance Company (Berkley)
issued a Directors and Officers insurance policy to plaintiff Mist
Pharmaceuticals, LLC. Berkley’s policy was a claims-made policy in effect
for a period commencing on April 8, 2014, and ending on November 30, 2015.
Mist Pharmaceuticals was an Insured Entity under the policy terms.
The policy defined an “Insured Person” to denote “any past, present or
future duly elected or appointed director or officer of an Insured Entity,” or
“any past, present or future duly elected or appointed member of the board of
managers, member of the management committee, or equivalent executive of
an Insured Entity if organized as a limited liability company.” It is undisputed
that Joseph Krivulka, Chair of Mist Pharmaceuticals’ Board of Directors and a
3 member and manager of that entity, was an Insured Person in that capacity,
subject to exclusions and other policy terms.
The policy provided that Berkley
shall pay on behalf of the Insured Persons all Loss arising from any Claim first made against the Insured Persons during the Policy Period and reported to the Insurer in writing during the Policy Period or within 90 days thereafter, for any actual or alleged Wrongful Act, except and to the extent that the Insured Entity has indemnified the Insured Persons.
The policy defined a “Wrongful Act” to mean
1. with respect to the Insured Persons, any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Insured Persons in their respective capacities as such, or any matter claimed against them by reason of their status as Insured Persons, or any matter claimed against them arising out of their serving as a director, officer, trustee or governor of an Outside Entity 1 in such capacities, but only if such service is at the specific request or direction of the Insured Entity, or
2. with respect to an Insured Entity, any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Insured Entity.
1 The policy term “Outside Entity” is defined as “a nonprofit organization, or any other entity, partnership, joint venture or other organization listed by endorsement to this Policy.” Neither party to this action claims that any entity meeting that definition was insured under the policy at issue in this appeal. 4 The policy defined “Loss” to mean “Damages and Costs of Defense.” It
addressed the insurer’s right and duty to defend:
The Insurer shall have the right and the duty to defend any Claim for Damages which are covered by this Policy. The Insurer shall have the right to select defense counsel. The Insurer has no obligation to provide Costs of Defense for any Claim for Damages not covered by this Policy.
The policy contained several exclusions, one of which is the capacity
exclusion at the center of this coverage dispute. Under the capacity exclusion,
[i]n addition to the Exclusions listed in section IV. of the Common Policy Terms and Conditions Section of this Policy, the Insurer shall not be liable to make any payment for Loss in connection with a Claim made against any Insured:
....
G. based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving any Wrongful Act of an Insured Person serving in their capacity as director, officer, trustee, employee, member or governor of any other entity other than an Insured Entity or an Outside Entity, or by reason of their status as director, officer, trustee, employee, member or governor of such other entity[.]
The policy addressed the obligations of the insurer and insured with
respect to the settlement of an underlying action:
An Insured shall not admit or assume liability, enter into any settlement agreement, make any offer of settlement or compromise, . . . or incur Costs of 5 Defense without the Insurer’s prior written consent. The Insurer’s consent shall not be unreasonably withheld, provided that the Insurer shall be entitled to full information and all particulars it may request in order to reach a decision regarding such consent. Any Loss incurred or settlements agreed to prior to the Insurer giving its consent shall not be covered hereunder.
The policy limit was $2,000,000.
B.
The coverage dispute now before the Court arose from two underlying
actions: CelestialRX Investments, LLC v. Krivulka (the Delaware Action),
filed in the Court of Chancery in the State of Delaware on November 20, 2015;
and CelestialRX Investments, LLC v. Estate of Joseph J. Krivulka (the New
Jersey Action), filed in the Chancery Division on April 12, 2019, during the
pendency of this coverage litigation. 2
The plaintiffs in the Delaware Action were two LLCs formed and
managed by Sandeep Laumas: CelestialRX Investments LLC (CelestialRX)
and Krittaka Life Sciences, LLC (Krittaka). The focus of their allegations was
2 We summarize the claims asserted in the underlying actions based on the original and amended complaints filed in the Delaware Action and the second amended complaint filed in the New Jersey Action. Krivulka, Mist Pharmaceuticals, and other defendants disputed many of the allegations in those actions and denied all wrongdoing. Because the Delaware and New Jersey actions settled prior to trial, no factfinder determined the validity of the claims asserted in either matter. 6 Akrimax Pharmaceuticals, LLC, which was formed in 2007 by Krivulka and
his business associate, Leonard Mazur. CelestialRX and Krittaka alleged that
Krivulka allowed CelestialRX to become a member of Akrimax with forty-
nine percent of the voting units, in consideration for Laumas’s recruitment of a
substantial investor. They contended that Krivulka, through another entity he
owned, maintained complete control of Akrimax.
According to CelestialRX and Krittaka, Akrimax acquired the
infrastructure, resources, and expertise to promote, market, sell, distribute and
warehouse pharmaceutical products, and was able to secure pharmaceutical
licenses through a series of agreements with pharmaceutical companies with
the stated intent of maximizing the value of those licenses and “generat[ing]
gain for its members.” They alleged that Krivulka undermined that objective
by diverting income and resources from Akrimax -- partly owned by
CelestialRX -- to “paper entities” that had “no real facilities or infrastructure
themselves,” but were owned and controlled by Krivulka and/or his business
associates. 3 Mist Pharmaceuticals, one of the alleged “paper entities,” was the
only defendant entity that Berkley insured.
3 In addition to Mist Pharmaceuticals, the Krivulka-owned or operated entities named in the Delaware Action were JJK Partners, LLC; Mist Acquisition, LLC; Mist Partners, LLC; Cranford Pharmaceuticals, LLC; Cranford Therapeutics, LLC; Holmdel Therapeutics, LLC; JAK Investment Partners, LLC; and Holmdel Pharmaceuticals, LP. LMazur Associates, JV, a joint 7 CelestialRX and Krittaka contended that Krivulka developed a “scheme”
by which
(i) he would acquire rights [to pharmaceutical products] at a low price; (ii) he would use Akrimax to develop the products and appreciate their value; (iii) he would then sell high; and (iv) to maximize his own personal gain, he would make sure one way or another that Akrimax did not have or did not retain any rights to a product before it was sold.
CelestialRX and Krittaka further alleged that through a series of
transactions undisclosed at the time to Laumas, “the use of Akrimax’s
infrastructure was thus pledged in acquiring product rights irrespective of
whether Akrimax received any rights or benefit.” They contended that
Krivulka accomplished “the fourth prong of his scheme” by “diverting
opportunities to acquire product rights from Akrimax” in favor of companies
he or Mazur “controlled and owned,” thus giving Akrimax “rights that were
limited or easily terminated for additional fees” and imposing on Akrimax
liabilities it would not have incurred had it been allowed to acquire the rights
directly “free from Krivulka’s self-dealing.” According to CelestialRX and
Krittaka, Krivulka “has stood and stands on both sides of all of the improper
transfers and fees charged to Akrimax.”
venture owned and controlled by Mazur, and JAK Investments, LLC were also named as defendants in the Delaware Action. 8 In the Delaware Action, Mist Pharmaceuticals was alleged to have
played a role in an aspect of Krivulka’s diversion scheme. CelestialRX and
Krittaka claimed that Krivulka formed Mist Pharmaceuticals in October 2009,
just as Akrimax was finalizing an agreement to acquire the distribution rights
to a pharmaceutical product. Providing few details about Mist
Pharmaceuticals’ alleged conduct, they generally claimed that Krivulka caused
Akrimax and Mist Pharmaceuticals to enter into an agreement which imposed
substantial burdens on Akrimax and gave Mist Pharmaceuticals the right to
collect royalties and terminate Akrimax’s distribution license -- a right it later
exercised.
In the Delaware Action, CelestialRX and Krittaka asserted direct and
derivative claims for an accounting; breach of fiduciary duty; aiding and
abetting breach of fiduciary duty; waste; conversion, fraud, and fraudulent
inducement; civil conspiracy; unjust enrichment; breach of contract claims
related to several agreements; breach of the implied covenant of good faith and
fair dealing; majority oppression; breach of restrictive covenants; and tortious
interference with contract.
9 In the New Jersey Action, filed after Krivulka’s death on February 17,
2018, CelestialRX asserted claims individually and derivatively on behalf of
Akrimax and Laumas. 4
Like its claims in the Delaware Action, CelestialRX’s claims against
Mist Pharmaceuticals in the New Jersey Action emanated from Krivulka’s
alleged scheme to deprive Akrimax of its legitimately acquired rights to
pharmaceutical products and royalties and other compensation to which
Akrimax was entitled.
Elaborating on the allegations in the Delaware Action regarding Mist
Pharmaceuticals, CelestialRX alleged that Krivulka was Mist Pharmaceuticals’
controlling member, the Chair of its Board of Directors, and its manager; that
Mist Pharmaceuticals’ members were also officers, employees, or attorneys of
Akrimax; and that Mist Pharmaceuticals’ officers were also members,
directors, officers or employees of Akrimax. It claimed that Mist
Pharmaceuticals and other “non-Akrimax” entities controlled by Krivulka
derived “substantial, and in some cases all, revenues from related party
4 In the New Jersey Action, CelestialRX asserted claims against the entities named in the Delaware Action, except Akrimax, as well as four additional entities: JAM Investment Partners; Prenzamax, LLC; AK Air II; and KFE, LLC. CelestialRX also named as defendants Krivulka’s estate and the estate’s executors and beneficiaries, seeking to enjoin any distribution of estate assets while the litigation remained pending. 10 transactions with Akrimax.” CelestialRX alleged that Krivulka took “improper
actions” for his own personal gain and for the benefit of the “competing entity
defendants,” including Mist Pharmaceuticals, at the expense of CelestialRX
and Akrimax. It provided further details on the transaction between Akrimax
and Mist Pharmaceuticals, described in the Delaware Complaint, that allegedly
deprived Akrimax of distribution rights it had acquired.
In the New Jersey Action, CelestialRX asserted claims for waste;
conversion; unjust enrichment; civil conspiracy; civil racketeering; tortious
interference with contract; tortious interference with prospective economic
advantage; aiding and abetting breach of fiduciary duty; fraud or fraudulent
inducement; aiding and abetting fraud or fraudulent inducement; and
fraudulent transfer. It sought damages and other relief against the defendant
entities.
C.
After the filing of the Delaware Action, Krivulka, Mist Acquisition, Mist
Partners, Mist Pharmaceuticals, JAK Investment Partners, JJK Partners,
Cranford Therapeutics, LLC, and Holmdel Therapeutics, LLC, jointly retained
defense counsel to represent them.
On December 8, 2015, Mist Pharmaceuticals filed a claim under its
Berkley policy, seeking coverage for the Delaware Action. The same day,
11 Berkley acknowledged the claim, reserving “all rights under the Policy, at law,
and in equity, including, but not limited to, the right to raise Policy terms and
conditions as defenses to coverage as may be appropriate in light of additional
information received by us.”
By letter dated March 9, 2016, Berkley sent to Mist Pharmaceuticals a
preliminary coverage evaluation for the Delaware Action. After noting the
many claims in the Delaware Action against defendants it did not insure,
Berkley stated its understanding that “Krivulka is the founder and chairman of
Mist Pharma,” and that “none of the entity defendants are subsidiaries of Mist
Pharma.”
Berkley noted that Mist Pharmaceuticals and Krivulka were “the only
policy insureds named in the complaint” and stated that coverage for Krivulka
was limited under the policy terms to “any actual or alleged breach of duty,
neglect, error, misstatement, misleading statement, omission or act in his
capacity as the chairman of Mist Pharma.” Berkley stated that coverage was
not available “for Krivulka for allegations pertaining to his roles with Mist
Acquisition, Mist Partners, Akrimax, or any other entity.”
Berkley reserved its rights under the capacity exclusion, setting forth the
text of that exclusion in its letter to Mist Pharmaceuticals. It reiterated that
nothing in its letter “should be construed as a waiver, modification or estoppel
12 of any rights or defenses” under “the terms of the policy and any applicable
insurance law and each of those rights and defenses remain expressly
reserved.”
With respect to the attorneys’ fees charged by counsel jointly retained to
represent Krivulka, Mist Pharmaceuticals, and six uninsured entities that
Krivulka controlled, Berkley observed that the allegations pertained almost
exclusively to “the transfer and/or acquisition” of a pharmaceutical license
from Akrimax to Mist Acquisition, an entity that it did not insure. It
contended that the allegations against Mist Pharmaceuticals and Krivulka in
his capacity as a Mist Pharmaceuticals director “are minimal and ancillary.”
Berkley agreed to reimburse Mist Pharmaceuticals for ten percent of legal fees
already incurred and “to pay 10% of the reasonable legal fees moving
forward.”
In the months that followed, Berkley repeatedly requested that Mist
Pharmaceuticals produce a liability analysis and other information regarding
the Delaware Action. On July 6, 2017, Mist Pharmaceuticals’ insurance
broker advised Berkley that it understood “nothing substantive” had occurred
in the litigation but that the parties to the Delaware Action had agreed to a
mediation.
13 On July 21, 2017, Berkley sent a supplemental coverage evaluation to
Mist Pharmaceuticals. 5 It asserted a right to deny coverage, contending that
the underlying allegations were known to Mist Pharmaceuticals in 2013,
before the start of the policy period, and no insurance claim was submitted
during the policy period. Berkley restated its reservation of rights based on the
capacity exclusion, among other provisions, and again set forth the full text of
that exclusion in its letter. It also reiterated the reservation of rights in other
correspondence.
By letter dated August 4, 2017, Berkley withdrew “its participation in
the defense” of Mist Pharmaceuticals and Krivulka in the Delaware Action,
“effective immediately,” based on its contention that CelestialRX’s claim
against Mist Pharmaceuticals arose prior to the policy period. It reiterated its
prior reservation of rights.
Berkley advised Mist Pharmaceuticals that it would not participate in the
scheduled mediation. The mediation was unsuccessful, and the Delaware
Action remained unresolved.
5 Berkley complained in its July 21, 2017 coverage evaluation that it had not been apprised of the status of the Delaware Action since the previous November, when a motion to dismiss had been pending. It stated that it had just been advised that the Delaware court had denied in part the motion six months earlier and that the parties had then agreed to mediate the matter. Berkley renewed its request for a substantive liability analysis regarding the claims against Mist Pharmaceuticals. 14 II.
1.
On September 18, 2017, Mist Pharmaceuticals filed this coverage action.
It contended that Berkley had taken unjustified and inconsistent positions by
paying ten percent of the defense costs for nearly a year but then denying
coverage, terminating its contribution to defense costs, and declining to
participate further in the defense prior to the mediation.
Mist Pharmaceuticals asserted claims for breach of the terms of its
policy based on Berkley’s refusal to pay defense costs; a declaratory judgment
that Berkley had a duty to defend; a declaratory judgment that Berkley had a
duty to indemnify; bad faith; estoppel based on Berkley’s alleged failure to
timely deny coverage; and estoppel based on Berkley’s alleged failure to
inform the insureds of their right to accept or reject Berkley’s offer of a
defense. Mist Pharmaceuticals sought compensatory, consequential and
punitive damages, a declaratory judgment, attorneys’ fees, and costs.
In its answer to the coverage complaint dated November 27, 2017,
Berkley asserted twenty-four defenses, including a defense based on the
language of the capacity exclusion:
Coverage for CelestialRX’s claims against Mist Pharma is barred to the extent the allegations in the 15 Underlying Action are based upon, arise out of, directly or indirectly result from or in consequence of, or in any way involved a ‘Wrongful Act’ of an ‘Insured Person’ serving in their capacity as a director, officer, trustee, employee, member or governor of any other entity other than an ‘Insured Entity’ or an ‘Outside Entity,’ or by reason of their status as a director, officer, trustee, employee, member or governor of such other entity.
Berkley filed a counterclaim, seeking “reimbursement, repayment, and
restitution” of the legal fees it had paid to defend the Delaware Action. It
claimed that Mist Pharmaceuticals’ “failure to comply with Berkley’s
reporting requirements and to respond to Berkley’s reasonable information
requests” had hampered the investigation of the claim and compelled Berkley
to pay defense costs for a claim that its policy did not cover.
Pursuant to orders entered by the trial court, the parties conducted
discovery. Mist Pharmaceuticals produced more than 12,000 pages of
discovery focused on the allegations in the Delaware Action, including
transcripts of the depositions of Krivulka, Mazur, and Laumas taken in that
action.
Mist Pharmaceuticals moved for partial summary judgment, seeking an
order requiring Berkley to defend it and Krivulka in the Delaware action
subject to a reservation of rights. Berkley cross-moved for summary judgment
on the ground that the underlying claims were known to Mist Pharmaceuticals
16 prior to the policy period. In its cross-motion for summary judgment, Berkley
did not rely on the capacity exclusion.
The trial court granted Mist Pharmaceuticals’ motion, holding that
Berkley had a duty to defend Mist Pharmaceuticals in the Delaware Action.
The court denied Berkley’s cross-motion, rejecting Berkley’s argument
regarding the timing of the claim. The Appellate Division denied Berkley’s
motion for leave to appeal. The trial court stayed the coverage litigation.
2.
While the coverage matter was pending before the trial court, Mist
Pharmaceuticals repeatedly requested that Berkley participate in the
negotiation of a global settlement among the parties to the Delaware and New
Jersey Actions. By letter dated October 29, 2019, Mist Pharmaceuticals
demanded that Berkley “be prepared to contribute the entire and remaining
limit of the Policy to a settlement.”
On November 1, 2019, Berkley declined Mist Pharmaceuticals’ request,
reiterating that it did not believe it “owe[d] any coverage obligation.” Berkley
also contended that Mist Pharmaceuticals had failed to provide it “with current
information as to settlement demands, claim valuation, liability assessment,
defense counsel reports, or proposals regarding the allocation of liability on
17 behalf of the various parties,” and repeated its demand for defense counsel’s
analysis of Mist Pharmaceuticals’ exposure, among other documents.
Mist Pharmaceuticals then requested that Berkley waive its rights under
the policy’s “consent to settle” provision and agree to a mediation of the
coverage issue. Berkley reiterated its position that Mist Pharmaceuticals had
“sought the tender of the full limits of the Berkley policy on days’ notice”
without producing documents addressing “the actual issue of the share of
liability” facing Mist Pharmaceuticals and Krivulka “in his role as a director or
officer of Mist Pharmaceuticals” in the underlying actions. Berkley again
reserved its rights and confirmed that it did not waive any defenses, terms,
conditions, exclusions, endorsements, or definitions in its policy or at law.
The mediation went forward, but the coverage dispute was not resolved.
On June 23, 2020, the parties to the Delaware and New Jersey Actions
agreed to a global settlement of those matters. Berkley did not participate in
the settlement negotiations.
Under the settlement, certain defendants in the underlying actions paid a
total of $12 million to CelestialRX, twenty-five percent of which was allocated
to Berkley’s insureds, Mist Pharmaceuticals and Krivulka in his capacity as the
Chairman of Mist Pharmaceuticals’ Board of Directors.
18 In the wake of the global settlement, Mist Pharmaceuticals again
demanded that Berkley contribute its policy limits. Berkley declined, stating
that it was committed to meaningful discussions of a contribution as long as
those discussions reflected the specific exposure of Mist Pharmaceuticals and
Krivulka in his capacity as a director of that entity. Berkley again reserved its
rights and defenses.
In a risk assessment produced to Berkley, counsel for Mist
Pharmaceuticals and Krivulka provided details regarding the twenty-five
percent allocation to Mist Pharmaceuticals and Krivulka in his capacity as a
Mist Pharmaceuticals director. Asked at his deposition whether the assessment
of Krivulka’s exposure included “his exposure based upon his status with
Akrimax,” Mist Pharmaceuticals’ counsel responded, “in part, yes. Because
he’s making -- you know, these agreements are being entered into from two
ends: Akrimax, which Joe controls, and these entities, which Joe controls.”
3.
The parties cross-moved for summary judgment on the question whether
Berkley had breached a duty under its policy to indemnify Mist
Pharmaceuticals and contribute to the global settlement. Citing unresolved
issues of material fact, the trial court denied both motions.
19 Mist Pharmaceuticals served a Rule 4:14-2(c) deposition notice for a
corporate designee to testify on Berkley’s behalf regarding its analysis of its
alleged obligation to cover the underlying claims and the question of consent
to the global settlement. A claims executive designated by Berkley in
response to that notice testified that her analysis was based on the legal advice
of Berkley’s outside coverage counsel, as to which Berkley invoked the
attorney-client privilege. After the deposition, Berkley served an affidavit
signed by the corporate designee stating that Berkley refused to consent to the
settlement of the underlying matters because it had received no supporting
analysis from Mist Pharmaceuticals’ defense counsel warranting the allocation
of twenty-five percent of the settlement to Mist Pharmaceuticals. The trial
court struck the corporate designee’s affidavit on the grounds that it
contravened her deposition testimony.
Mist Pharmaceuticals also moved for an order pursuant to Rule 4:42-2
granting reconsideration of the trial court’s denial of its motion for partial
summary judgment; an order vacating the portion of the trial court’s prior
opinion denying Mist Pharmaceuticals’ motion for partial summary judgment;
and an order pursuant to Rule 4:46-2(c) granting partial summary judgment to
Mist Pharmaceuticals on the duty to indemnify. Berkley cross-moved for an
order pursuant to Rule 4:42-2 granting reconsideration of the denial of
20 Berkley’s summary judgment motion, and for an order pursuant to Rule 4:46-
2(c) granting summary judgment to Berkley.
The trial court granted Mist Pharmaceuticals’ motions and denied
Berkley’s cross-motions. The court bound Berkley to the corporate designee’s
testimony that she relied solely on coverage counsel’s privileged analysis of
the coverage claim. The trial court concluded, “in the absence of competent
evidential facts to the contrary,” that Berkley unreasonably withheld consent to
the settlement. 6 The court relied on the potential that the defendants in the
underlying claims would be subject to joint and several liability; Krivulka’s
“dominion and control” over Mist Pharmaceuticals; the royalty payments
allegedly diverted from Akrimax to the Krivulka companies including Mist
Pharmaceuticals; the impact of Akrimax’s loss of those royalty payments on its
ability to meet its obligations under other agreements; CelestialRX’s claimed
damages; defense counsel’s reasonable estimate of the exposure; the fact that
after five years of litigation in the underlying actions, no defendant had filed
an answer; and the prospect of “millions of dollars in future defense costs” in
6 The trial court declined to rely on the report of Berkley’s expert on the allocation of the underlying claims. For reasons explained in the report, the expert viewed the twenty-five percent allocation of the settlement to Mist Pharmaceuticals to be unreasonable. 21 those actions. The trial court found that Berkley breached its obligations under
the policy by unreasonably withholding consent to the settlement.
The trial court imposed “the ultimate burden of proving
unreasonableness and bad faith by the insured” on Berkley, and found that it
had failed to meet that burden. Citing Fireman’s Fund, 72 N.J. at 71-73, the
trial court reasoned that it “need not reach” the capacity exclusion because this
Court “has held that a recalcitrant insurer that breaches its policy can no longer
look to contractual defenses to avoid coverage.” It concluded that “once the
breach occurs and a reasonable, good-faith settlement is reached, the insurer
may no longer challenge its coverage obligation.”
The trial court entered final judgment for Mist Pharmaceuticals and
against Berkley in the amount of $1,751,567.35, representing the remaining
policy limit, and awarded Mist Pharmaceuticals $796,258.38 in legal fees.
Berkley appealed (1) the trial court’s grant of Mist Pharmaceuticals’ two
motions for partial summary judgment; (2) the trial court’s grant of Mist
Pharmaceuticals’ motion for counsel fees; (3) the trial court’s denial of
Berkley’s motion for reconsideration; (4) the trial court’s denial of Berkley’s
motion for summary judgment; and (5) the trial court’s final judgment. Mist
Pharms., 479 N.J. Super. at 130.
22 The Appellate Division noted that the trial court’s legal analysis “would
have been better informed if it had first addressed the application of the
policy’s capacity exclusion.” Id. at 138. Citing this Court’s decision in
Norman International, Inc. v. Admiral Insurance Co., 251 N.J. 538, 549-50
(2022), and other case law, the appellate court observed that “the loss alleged
by [CelestialRX], the plaintiff in the underlying actions against Mist
[Pharmaceuticals] and other non-insured entities, stemmed from Krivulka’s
self-dealing.” Id. at 142. It held that when Krivulka committed the alleged
acts at issue, he was “acting in his capacity as both a director of Akrimax and
majority shareholder of Mist.” Ibid. The Appellate Division viewed the
“undisputed record” to demonstrate that
Krivulka used his position as an Akrimax director to require that Akrimax guarantee to Mist certain obligations -- including over $28 million in royalties and distribution rights as well as a termination provision -- without consideration. It is undisputed that Krivulka acted in a dual capacity. The record, including the 12,000 pages of additional discovery, reveals nothing to change this fact. The loss claimed by Mist against Berkley’s D&O policy arose from and could not have occurred but for Krivulka’s conduct in his capacity as a director of Akrimax.
[Ibid.]
The court noted that its “but for” analysis did not require it “to unpack
the percentage of Krivulka’s conduct attributable to his role as a
23 director/officer at Akrimax and compare it to the percentage of Krivulka’s
conduct attributable to his role as a director/officer at Mist [Pharmaceuticals].”
Ibid. It concluded that Krivulka’s conduct in both capacities triggered the
capacity exclusion. Ibid.
The Appellate Division also addressed the trial court’s holding that
under this Court’s decision in Fireman’s Fund, 72 N.J. at 69-70, Berkley
forfeited the right to rely on the capacity exclusion in the coverage action
because it unreasonably refused to consent to the settlement. Mist Pharms.,
479 N.J. Super. at 137-38. 7 It found two “material distinctions” between this
appeal and Fireman’s Fund: first, Berkley’s assertion in this appeal that
withholding consent to the settlement was reasonable given that the settlement
“represented the separate interests of multiple entities not insured under the
policy;” and second, Berkley’s repeated reservation of its rights under the
capacity exclusion “from its earliest communications with Mist regarding the
claim.” Id. at 138.
Noting that Berkley had relied on the timing of the claim, not the
capacity exclusion, when it moved for partial summary judgment on the duty
7 The Appellate Division did not address Mist Pharmaceuticals’ argument that Berkley was estopped from invoking the capacity exclusion based on this Court’s holding in Griggs, 88 N.J. at 367. See Mist Pharms., 479 N.J. Super. at 137-43. 24 to defend, the Appellate Division upheld the trial court’s order requiring
Berkley to pay Mist Pharmaceuticals’ legal fees in the underlying actions up to
July 7, 2021, when Berkley first argued before the trial court that the capacity
exclusion barred coverage. Id. at 142-43.
The Appellate Division reversed the trial court’s judgment against
Berkley and the court’s orders denying Berkley’s motion for summary
judgment and granting summary judgment to Mist Pharmaceuticals. Id. at 143.
It dismissed Mist Pharmaceuticals’ coverage complaint and remanded the
matter to the trial court for the entry of judgment in Berkley’s favor and for a
determination of reasonable counsel fees incurred to Mist Pharmaceuticals up
to July 7, 2021. Ibid.
We granted Mist Pharmaceuticals’ petition for certification. 260 N.J. 92
(2025).
III.
Mist Pharmaceuticals argues that Berkley violated its duty under Griggs
to promptly inform its insured that it intended to disclaim coverage or of the
possibility that it would deny or question coverage, because it was aware since
2015 that the allegations against Mist Pharmaceuticals in the underlying
25 actions raised a capacity issue. It asserts that in accordance with Griggs,
Berkley should be estopped from invoking the capacity exclusion. Mist
Pharmaceuticals contends that Berkley should be held to have forfeited its
right to rely on the capacity exclusion under Fireman’s Fund. It urges the
Court not to reach the question whether the capacity exclusion applies, or, in
the alternative, to find the exclusion inapplicable on the ground that the
allegations against Mist Pharmaceuticals in the underlying actions are
disputed.
Berkley argues that because all of CelestialRX’s allegations concerned
Krivulka’s alleged self-dealing as a director of Akrimax, the capacity
exclusion plainly bars coverage for the claims asserted in the Delaware and
New Jersey Actions. It contends that Mist Pharmaceuticals failed to raise an
estoppel argument before the trial court and that it is not estopped from
invoking the exclusion because it repeatedly reserved its right to rely on the
exclusion. Berkley asserts that it reasonably withheld consent to the
settlement because its policy did not cover Mist Pharmaceuticals or Krivulka
for the underlying allegations, and adds that this Court did not hold in
Fireman’s Fund that an insurer forfeits its right to assert applicable policy
exclusions by declining to consent to a settlement.
26 IV.
An appellate court reviews a trial court’s grant or denial of summary
judgment de novo, applying the same standard that governs the trial court’s
determination. In re Est. of Jones, 259 N.J. 584, 594 (2025). “The appellate
court considers ‘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.’” Ibid. (quoting Padilla v. Young Il An, 257 N.J. 540, 547
(2024)); see also R. 4:46-2(c). “A trial court’s interpretation of an insurance
policy’s terms is a legal determination, not a factual inquiry, and is
accordingly reviewed de novo.” AC Ocean Walk, LLC v. Am. Guar. & Liab.
Ins. Co., 256 N.J. 294, 312 (2024).
We first determine whether the capacity exclusion in the policy issued
by Berkley to Mist Pharmaceuticals bars coverage for the claims asserted in
the Delaware and New Jersey Actions.
“Insurance policies are reviewed using contract principles, and the
‘agreement “will be enforced as written when its terms are clear in order that
the expectations of the parties will be fulfilled.”’” Norman Int’l, 251 N.J. at
27 552 (quoting Mem’l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512, 525
(2012)). “‘[A]n insurance policy should be interpreted according to its plain
and ordinary meaning,’ with any ambiguities ‘resolved in favor of the
insured.’” Rodriguez v. Shelbourne Spring, LLC, 259 N.J. 385, 395 (2024)
(alteration in original) (quoting Voorhees v. Preferred Mut. Ins. Co., 128 N.J.
165, 175 (1992)). Nonetheless, “a court should not . . . write a better policy
for the insured than the one purchased.” Chubb Custom Ins. Co. v. Prudential
Ins. Co. of Am., 195 N.J. 231, 238 (2008).
“Exclusionary clauses are presumed valid if they are ‘specific, plain,
clear, prominent and not contrary to public policy.’” Mem’l Props., 210 N.J.
at 528 (quoting Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997)).
“[C]ourts must be careful not to disregard the ‘clear import and intent’ of a
policy’s exclusion . . . .” Flomerfelt v. Cardiello, 202 N.J. 432, 442 (2010).
“‘[I]n general, insurance policy exclusions must be narrowly construed;
the burden is on the insurer to bring the case within the exclusion.’” Ibid.
(quoting Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 41 (1998));
accord AC Ocean Walk, LLC, 256 N.J. at 312. “If the terms used in an
exclusionary clause are ambiguous, ‘courts apply the meaning that supports
coverage rather than the one that limits it.’” Mem’l Props., 210 N.J. at 528
(quoting Flomerfelt, 202 N.J. at 442). Nonetheless, “we do not suggest that
28 ‘any far-fetched interpretation of a policy exclusion will be sufficient to create
an ambiguity requiring coverage.’” Flomerfelt, 202 N.J. at 442 (quoting
Stafford v. T.H.E. Ins. Co., 309 N.J. Super. 97, 105 (App. Div. 1998)). “If the
words used in an exclusionary clause are clear and unambiguous, ‘a court
should not engage in a strained construction to support the imposition of
liability.’” Ibid. (quoting Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537
(1990)); accord Mem’l Props., 210 N.J. at 528.
This Court has recognized an important distinction between an
exclusionary clause that applies only if the evidence supports a causal link
between the excluded act and the loss alleged and an exclusionary clause that
does not expressly require such a causal nexus in order to apply. See Norman
Int’l, 251 N.J. at 552-54; Flomerfelt, 202 N.J. at 451-53.
In Flomerfelt, the policy at issue included a clause that excluded
coverage for “bodily injury or property damage . . . [a]rising out of the use,
sale, manufacture, delivery, transfer or possession by any person of a
controlled substance(s).” 202 N.J. at 451. The plaintiff brought an action
against the insured homeowners, alleging that she was injured due to an
overdose of alcohol and drugs at a party held on their property and a delayed
call to summon first responders. Id. at 439. The plaintiff had little
recollection of the events, and the parties contested the cause of her injuries.
29 Id. at 436-41. The trial court denied the insurer’s summary judgment motion
and granted the defendant homeowners’ motion for a defense and indemnity.
Id. at 440. The Appellate Division reversed, construing the language of the
exclusionary clause to bar coverage because the experts’ opinions in the
personal injury case tied the plaintiff’s injuries to both drugs and alcohol.
Ibid. The homeowners appealed.
This Court noted that the exclusion was limited to claims “arising out
of” the “use, sale, manufacture, delivery, transfer or possession” of a
controlled substance, thereby requiring a causal nexus, and that the record did
not establish whether drugs, alcohol, or some other factor had caused the
injuries. Id. at 451, 458. It was therefore unable to “resolve the question of
the insurer’s duty to indemnify” under a summary judgment standard. Ibid.
The Court concluded, however, that there were “potentially covered claims” in
the matter giving rise to a duty to defend, and reversed the Appellate
Division’s judgment. Ibid.
This Court’s decision in Norman International presents a contrasting
setting. There, the exclusionary clause in a commercial general liability policy
stated that the policy did not apply to several categories of injury “actually or
allegedly arising out of, related to, caused by, contributed to by, or in any way
connected with . . . [a]ny operations or activities performed by or on behalf of
30 any insured” in certain New York counties enumerated on a schedule to the
policy. 251 N.J. at 546. The insured, a company that sold window covering
products to national retailers, sought a defense in a personal injury lawsuit
brought by an employee of a retailer in one of the excluded counties who
alleged that she was injured by a cutting machine supplied by the insured
company. Id. at 543-45. The trial court granted the insurer’s motion for
summary judgment, but the Appellate Division reversed, holding that the
insured’s “‘limited activities and operations ha[d] no causal relationship to the
causes of action or allegations.’” Id. at 547.
This Court reversed the Appellate Division’s judgment. Id. at 549-56. It
viewed the exclusionary clause’s “broad and unambiguous language” to
“make[] clear that a causal relationship between [the insured’s] conduct and
plaintiff’s injuries is not required in order for the exclusionary clause to
apply.” Id. at 543. The Court observed that “[b]ecause the exclusion test is
disjunctive, each phrase in the exclusion must be considered separately, any
one of which would be sufficient to trigger the exclusion.” Id. at 555. It
concluded that “any claim ‘in any way connected with’ [the insured’s]
operations or activities” in an excluded New York county “is not covered
under the policy.” Id. at 543. Accordingly, the Court declined to impose a
duty to defend.
31 We view the exclusionary clause in this appeal to be distinct from the
clause at issue in Flomerfelt, which required a causal nexus between the
excluded activity and the alleged harm. See 202 N.J. at 447-58. It is, in
contrast, closely analogous to the exclusion at issue in Norman International,
in which the term “arising out of” was connected by the disjunctive “or” to
more expansive terms such as “related to” and “in any way connected with”
operations or activities in an excluded county. See 251 N.J. at 549-56.
Here, as in Norman International, the disjunctive “or” means that each
term in the exclusion is alone sufficient to bar coverage. See id. at 555.
Consequently, the exclusionary clause at issue here does not turn on a causal
nexus between the excluded activities and the harm alleged. To the contrary, it
applies “to the extent the allegations” in the underlying actions “in any way”
involved “any Wrongful Act of an Insured Person serving in their capacity as
director, officer, trustee, employee, member or governor” of any entity other
than “an Insured Entity or an Outside Entity,” or “by reason of their status as
director, officer, trustee, employee, member or governor of such other entity.” 8
8 Citing an unpublished Eleventh Circuit decision, the Appellate Division held that the capacity exclusion at issue here requires a court to determine whether Krivulka’s actions as a member and manager of Akrimax caused the alleged harm, using a standard of “but for” causation. Mist Pharms., 479 N.J. Super. at 142. In the specific setting of this appeal, we respectfully disagree; here, the exclusion’s broad language is satisfied without any finding that Krivulka’s acts and omissions as an Akrimax director caused the harm alleged by CelestialRX. 32 The policy, in turn, defines “Wrongful Act” to include “any actual or alleged
breach of duty, neglect, error, misstatement, misleading statement, omission or
act” by an insured person in that person’s capacity as a “director, officer,
trustee, employee, member or governor” of an uninsured entity.
Here, it is undisputed that neither Akrimax nor any other defendant
entity except Mist Pharmaceuticals constitutes an Insured Entity or an Outside
Entity under the policy terms. Accordingly, the capacity exclusion applies “to
the extent” that the allegations in the Delaware and New Jersey Actions
“directly or indirectly result[] from” or “in any way involved” a “wrongful act”
by Krivulka “serving in [his] capacity” as a director, member, or manager of
Akrimax, or “by reason of [his] status as” a director, member, or manager of
Akrimax.
As the complaints in the Delaware and New Jersey Actions make clear,
the claims asserted focused on Krivulka’s alleged acts and omissions as a
director, member, and/or manager of Akrimax. 9 The factual allegations
We do not reach the question whether causation, in a case in which a causal nexus is essential to the application of a capacity exclusion, should be assessed under a “but for” causation standard. 9 Applying the exclusionary clause, the Appellate Division properly premised its decision on the allegations of the Delaware and New Jersey complaints, noting that the discovery produced in this action did not alter its conclusion that the claims fell within the exclusion. See Mist Pharms., 479 N.J. Super. at 138-42. This Court has recognized that “[t]here are times . . . when comparing 33 involve more than a dozen Krivulka-owned or controlled entities, but share a
common feature: Krivulka’s role as Akrimax’s member and manager is front
and center in all. As Krivulka’s alleged manipulation of Akrimax played a
critical role in the underlying claims as a whole, that claimed misconduct is at
the core of the few allegations in which Mist Pharmaceuticals was specifically
named. There is no allegation in either of the underlying actions against Mist
Pharmaceuticals -- or against Krivulka as a director, member, or manager of
Mist Pharmaceuticals -- that is unrelated to Krivulka’s capacity as a director,
member, and manager of Akrimax, an entity uninsured under Berkley’s policy.
Accordingly, the allegations asserted in the underlying actions clearly fall
within the scope of the capacity exclusion.
We respond to the dissent’s argument for an alternative interpretation of
the capacity exclusion.
the causes of action in the complaint to the exclusionary clause will not provide an answer as to whether there is a potentially covered claim,” a situation that “occurs ‘when coverage, i.e. the duty to pay, depends upon a factual issue which will not be resolved by the trial.’” Norman Int’l, 251 N.J. at 550 (quoting Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 388 (1970)). That principle, however, does not apply in this matter, in which the question of coverage is not driven by a factual issue that would have remained unresolved had the underlying actions been tried. 34 The dissent’s position is that the exclusion precludes coverage for
wrongful actions Krivulka committed in an uninsured capacity, but does not
preclude coverage for wrongful actions Krivulka committed in an insured
capacity. Post at ___ (slip op. at 4-5). The dissent claims that the capacity
exclusion excludes some, but not all, coverage for the claims alleged in the
underlying actions, and that some of those claims are not within the
exclusion’s description of claims that the policy does not cover. Ibid.
The plain text of the capacity exclusion cannot be reconciled with the
construction urged by the dissent. That exclusion applies to any claim “in any
way involving” any wrongful act by Krivulka in his “capacity as director,
officer, trustee, employee, member or governor of any other entity other than
an Insured Entity or an Outside Entity,” or by reason of his status “as director,
officer, trustee, employee, member or governor of such other entity.” 10
10 The dissent argues that we should not consider the phrase “in any way involving” in “isolation from the rest of the Policy.” Post at ___ n.6 (slip op. at 32 n.6). Because the disjunctive “or” separates the exclusion’s alternative phrases, however, any one of those phrases, considered alone, is “sufficient to trigger the exclusion.” See Norman Int’l, 251 N.J. at 547. Consequently, no matter what the rest of the policy states, the exclusion bars coverage for any claim “in any way involving” “any Wrongful Act” by Krivulka “serving in their capacity as director, officer, trustee, employee, member or governor” of Akrimax, Mist Acquisition, Mist Partners, or any other entity that Berkley did not insure. 35 It clearly encompasses any cause of action premised on Krivulka’s alleged
misuse of his authority over multiple entities in which he was a director,
officer, or member -- whether that claim involved Mist Pharmaceuticals and
the uninsured Akrimax, Mist Pharmaceuticals and the uninsured Mist
Acquisition, Mist Pharmaceuticals and the uninsured Mist Partners, or Mist
Pharmaceuticals and multiple uninsured entities in combination.
The dissent cites claims in the underlying actions that it views to be
outside the scope of the capacity agreement. We respectfully disagree.
The dissent first relies on an allegation in the New Jersey Complaint that
Krivulka “entered into agreements with Akrimax ‘to shift valuable assets to
. . . Mist Pharma[] for no consideration,’” thus allowing Mist Pharmaceuticals
to “terminate and retake” distribution rights to a pharmaceutical product. - Post --
at ___ (slip op. at 28-29) (alterations in original). That claim certainly relates
to Krivulka’s role at Mist Pharmaceuticals, as the dissent observes. It is,
however, an allegation of misconduct by Krivulka in the management of
Akrimax as well. CelestialRX alleged that Krivulka secretly and unlawfully
directed Akrimax to agree to contract provisions, favorable to Mist
Pharmaceuticals and Mist Acquisition, that deprived Akrimax of valuable
36 rights. 11 Thus, it is unquestionably a claim “in any way involving” alleged
wrongful acts by Krivulka in his capacity as a “director,” “officer” and
“member” of not one but two uninsured entities, Akrimax and Mist
Acquisition.
The dissent next invokes an allegation in the New Jersey Action that
Krivulka sent Akrimax a letter “on behalf of several companies, including Mist
Pharma,” exercising their right to terminate Akrimax’s distribution rights.
Post at ____ (slip op. at 29). That allegation implicates a claimed wrongful act
by Krivulka in his capacity as a director, officer, and member of Mist
Pharmaceuticals -- his direction to Mist Pharmaceuticals to send the letter
terminating Akrimax’s rights. It is premised, however, on an alleged wrongful
act by Krivulka is his capacity as a director, officer, and member of Akrimax.
CelestialRX contended that Akrimax was seriously damaged when Krivulka
compelled it to agree to contractual provisions directly adverse to its interests
but favorable to other companies within his control. In addition, the allegation
directly relates to Krivulka’s role in two other uninsured entities, Mist Partners
11 Referring to Akrimax’s agreement -- entered into at Krivulka’s behest -- that its rights to two pharmaceutical products could be terminated on thirty days’ notice, CelestialRX alleged that those termination provisions “existed solely to provide Krivulka with hegemonic power over Akrimax” and constituted “a mechanism to shift valuable assets to Mist Acquisition and Mist Pharmaceuticals for no consideration.” 37 and Mist Acquisition. The claim cited by the dissent is indisputably an
allegation “in any way involving” alleged wrongful acts by Krivulka in his
separate capacity as a director, officer, and/or member of not one but three
uninsured entities.
The final allegation on which the dissent relies is CelestialRX’s claim in
the New Jersey Action that all defendants, including Mist Pharmaceuticals,
“aided and abetted Krivulka in breaching his fiduciary duties owed to Akrimax
and Celestial[RX], committed civil racketeering, and participated in a civil
conspiracy.” - Post - - at ____ (slip op. at 29). In this allegation, CelestialRX
asserts concerted misconduct by Krivulka in his capacity as a director, officer,
and/or member of more than a dozen uninsured entities. It is clearly a claim
within the capacity exclusion’s broad parameters.
In short, we view every claim in the underlying actions to fit within the
capacity exclusion’s expansive terms.
Mist Pharmaceuticals and Berkley could have agreed to a policy with the
narrow capacity exclusion that the dissent envisions: an exclusion that has no
effect on claims premised on a director or officer’s misconduct in a “dual
capacity” for insured and uninsured entities. Such a policy, however, was
neither issued by Berkley nor paid for by Mist Pharmaceuticals. We apply the
policy terms to which the parties agreed.
38 We do not view the dissent’s construction of the capacity exclusion to
constitute a “fair interpretation” of the policy language that would give rise to
an ambiguity. See Flomerfelt, 202 N.J. at 442. 12 We respectfully decline to
construe and apply the capacity exclusion in the manner advocated by the
dissent.
We conclude that Berkley has met its burden to demonstrate that the
exclusion bars coverage for the claims at issue here.
12 The dissent cites cases from other jurisdictions, arguing that they support Mist Pharmaceuticals’ construction of the capacity exclusion in this case. Post at ___ (slip op. at 23-25). None of those cases involve capacity exclusion language analogous to the policy language at issue here. See Zayed v. Arch Ins. Co., 932 F. Supp. 2d 956, 970-71 (D. Minn. 2013) (interpreting capacity exclusion barring claims “arising from, based upon, or attributable to any Insured person serving as a director, officer . . . or equivalent executive or as an employee of any entity other than an Insured Organization”); Abrams v. Allied World Assurance Co. Inc., 657 F. Supp. 3d 1280, 1284 (N.D. Cal. 2023) (construing a capacity exclusion excluding from coverage “any loss ‘alleging, arising out of, based upon or attributable to any actual or alleged act or omission of any Insured Person serving in any capacity other than as an Executive’”). Two of the cases cited by the dissent do not involve capacity exclusions at all. See McAninch v. Wintermute, 491 F.3d 759, 762 nn.3, 4, 771-72 (8th Cir. 2007) (addressing a definition of “wrongful act” starkly different from that of the policy relevant here, and construing an exclusion barring coverage for claims for loss against the insured bank by any state or federal official agency); Grigg v. Aarrowcast, Inc., 909 N.W.2d 283, 185-86, 198 (Wis. Ct. App. 2018) (construing a policy that undisputedly covered alleged wrongful acts committed by the insured individual in his capacity as a director or officer of the insured corporation). The cases invoked by the dissent are not relevant to this appeal.
39 C.
We next consider Mist Pharmaceuticals’ argument that Berkley is
precluded from asserting its rights under the capacity exclusion under this
Court’s decisions in Fireman’s Fund, 72 N.J. at 69-79, and Griggs, 88 N.J. at
355-64.
Fireman’s Fund arose from a dispute between an excess insurer and an
insured law firm that was sued in two actions for legal malpractice. 72 N.J. at
67. It was undisputed that the primary insurer provided $50,000 in coverage,
and the excess insurance policy issued by Fireman’s Fund provided excess
coverage up to $250,000. Ibid. The law firm settled the malpractice claims
with the cooperation of the excess insurer but not the primary insurer, which
refused to contribute its policy limit. Ibid. The law firm accordingly assigned
its rights against the primary insurer to the excess insurer. Ibid. Given the
primary insurer’s clear obligation to provide coverage, the trial court found
that it had acted in bad faith in failing to cooperate, a finding that the insurer
did not dispute. Id. at 68. The trial court held that in those circumstances,
“the insured may proceed to effectuate a reasonable good faith settlement for
an amount in excess of the policy limits and, upon proof of the insurer’s bad
faith, may recover from it the amount of its policy limits” notwithstanding the
40 absence of a judgment against the insured. Id. at 67. The Appellate Division
affirmed. Ibid.
In that discrete setting -- in which the insurer had clearly breached its
obligations under the policy and acted in bad faith -- this Court held that the
insurer had forfeited its right to control the settlement of the underlying
claims. Id. at 68-73. It noted that “[b]efore an insurance company will be
heard to allege the breach of a contractual provision by plaintiff, the insurance
company must be able to assert its own lack of any breach.” Id. at 71 (quoting
Warren v. Emps.’ Fire Ins. Co., 53 N.J. 308, 311-12 (1969)). The Court
observed that “[w]hile the right to control settlements reserved to insurers is an
important and significant provision of the policy contract, it is a right which an
insurer forfeits when it violates its own contractual obligation to the insured.”
Ibid. (citations omitted). The Court noted that “implicit in the power . . .
reserved to the insurer” to control the settlement was “an obligation that the
insurer exercise its reserved power in good faith and with concern for the
interests of the insured.” Id. at 74.
This Court therefore held that “[i]f the insurer delays unreasonably in
investigating and dealing with a claim asserted against its insured,” then “the
insured may make a good faith reasonable settlement and then recover the
settlement amount from the insurer” within the policy limits. Id. at 73. It
41 imposed the burden of proof as to the reasonableness of the settlement on the
insured. Id. at 79. The Court considered the settlement in that case to be
reasonable and entered into in good faith, and held that the excess insurer was
entitled to recover against the primary insurer the amount of the policy limit.
Id. at 66-67.
In Griggs, the defendant was involved in a fight with the plaintiff at a
basketball game. 88 N.J. at 353. He provided his insurer with notice that a
claim could be brought against him and informed the insurer’s investigator that
he had punched the plaintiff twice during the altercation. Ibid. Although the
defendant’s insurance policy excluded coverage for an intentional tort, the
insurer “gave no indication that any potential claim or legal action arising from
this incident would not be covered under the policy or that it would disclaim
coverage in the event such a claim or action were brought.” Ibid.
Seventeen months later, the plaintiff filed a complaint, which the
defendant forwarded to the insurer. Id. at 353-54. The insurer disclaimed
coverage based on the policy’s intentional tort exclusion. Id. at 354. The
parties settled, stipulating to the entry of a consent judgment in the plaintiff’s
favor for $9,000 but agreeing that the plaintiff had the right to pursue the
defendant’s insurer rather than the defendant himself. Ibid. The trial court
entered judgment in that amount against the insurer, reasoning that “the
42 carrier’s failure to notify [the insured] promptly of its intention to disclaim
estopped it from denying coverage,” and the Appellate Division affirmed. Id.
at 354-55. The insurer appealed. Id. at 355.
Noting court decisions that barred insurers from disclaiming coverage
after initially defending insureds, this Court explained that an insurer “may be
estopped [from disclaiming coverage] if it assumes control of a case prior to
the filing of a complaint with knowledge of facts on which to disclaim
coverage but without any reservation of the right later to do so.” Id. at 356.
The Court reasoned that estoppel should also apply “where the insurer has
neither assumed the actual control of a case nor undertaken the preparation of
any defense on behalf of the insured” but “has failed for an unreasonable
period of time to inform its insured of the possibility of a disclaimer of
coverage, notwithstanding the insurer’s early notification of a possible claim
and awareness of grounds for disclaimer.” Id. at 357.
The Court viewed those factors to support a finding that the defendant
was prejudiced by his insurer’s conduct. Id. at 363. It held that “where, after
timely notice, adequate opportunity to investigate a claim, and the knowledge
of a basis for denying or questioning insurance coverage,” an insurer “fails for
an unreasonable time to inform the insured of a potential disclaimer,” that
insurer “is estopped from later denying coverage under the insurance policy in
43 the event a legal action is subsequently brought against its insured.” Id. at
363-64.
In Griggs, the Court also considered whether -- given its refusal to
participate in the settlement negotiations -- the insurer was required to pay the
settlement amount notwithstanding a “no action” provision of the policy that
prohibited “recovery unless there is a settlement entered into with the
insurance carrier’s participation or a judgment following an actual trial.” Id. at
364. The Court invoked its holding regarding forfeiture in Fireman’s Fund to
find that the insurer, “estopped from denying coverage under the policy,” was
“similarly estopped from insisting on compliance with the ‘no action’
provision of the policy.” Ibid. Distinguishing the burden of proof for the
estoppel claim before it from that imposed under the forfeiture analysis of
Fireman’s Fund, however, the Court imposed a burden-shifting framework for
determining whether a settlement is reasonable and has been reached in good
faith. Id. at 367-68.
Neither Fireman’s Fund nor Griggs stands for the proposition that an
insurer is somehow barred from contesting its obligation to cover a given
claim or from seeking to enforce an exclusion in its policy. See Griggs, 88
N.J. at 355-70; Fireman’s Fund, 72 N.J. at 66-78. Indeed, in Griggs, the Court
noted that “[t]he insured’s reasonable expectation of protection of its interests
44 by the insurer can, of course, be dispelled by timely notice from the insurance
carrier of a possible disclaimer of coverage.” 88 N.J. at 362. Neither decision
addressed a setting in which the insurer invoked an exclusion or provided a
reservation of rights. See Griggs, 88 N.J. at 352-55; Fireman’s Fund, 72 N.J.
at 66-70.
As this Court stated in Passaic Valley Sewerage Commissioners v. St.
Paul Fire & Marine Insurance Co., in which it deemed the insurer’s three
reservation-of-rights letters and three notices of policy implications to meet the
mandate of Griggs, “[r]eservation of rights letters have long been regarded as
proper defense mechanisms for insurance companies.” 206 N.J. 596, 616
(2011). The Court held that “[b]y reserving rights and providing defense costs
on covered claims, an insurer fulfills its defense obligations.” Ibid. As the
Court observed, “a good-faith challenge to coverage is not a breach of an
obligation to defend.” Id. at 617.
We do not view Fireman’s Fund to support Mist Pharmaceuticals’
argument in this appeal. The holding of Fireman’s Fund derived from the
undisputed fact that the primary insurer’s policy covered the legal malpractice
claims at issue and the trial court’s uncontested finding that the insurer had
acted in bad faith. See Fireman’s Fund, 72 N.J. at 67-71. Here, in contrast, an
exclusion applies. The policy issued by Berkley does not cover Mist
45 Pharmaceuticals for the claims asserted in the Delaware and New Jersey
Actions. There is, accordingly, no basis for a finding that Berkley acted in bad
faith, and indeed no such finding was made in this case. Under the terms of
the policy, absent a covered claim, Berkley had no obligation to contribute its
policy limit to the global settlement. Berkley did not forfeit any contractual
right when it declined to participate in the settlement of what it determined --
correctly -- to be uncovered claims. Fireman’s Fund is simply inapplicable to
this appeal.
Nor is Mist Pharmaceuticals correct in asserting that the circumstances
of this case warrant a finding of estoppel under Griggs. In Griggs, the Court
required that an insurer, once aware of “grounds for questioning coverage,”
promptly advise its insured of “its intention to disclaim coverage” or “the
possibility that coverage will be denied or questioned.” 88 N.J. at 357.
During the five years preceding the global settlement on June 23, 2020,
Berkley repeatedly restated the full text of its capacity exclusion in
correspondence with Mist Pharmaceuticals. It reserved its rights under that
exclusion and other policy provisions in letters and emails no fewer than ten
times. And Berkley advised Mist Pharmaceuticals at least six times that
nothing in its correspondence should be construed as a waiver, modification,
or estoppel of its rights, which included its right to rely on the capacity
46 exclusion set forth in its policy. Moreover, more than two and a half years
before Mist Pharmaceuticals entered into the global settlement, Berkley
unequivocally stated in its answer to the coverage complaint that it had no
obligation to insure Mist Pharmaceuticals for the claims asserted in the
underlying actions. 13
Given that long history of reservations of rights and other
communications by Berkley, Mist Pharmaceuticals cannot establish that it
entered into the global settlement of CelestialRX’s claims in justifiable
reliance on any commitment by Berkley to cover those claims or contribute
any portion of its policy limit to that settlement. Mist Pharmaceuticals thus
13 The dissent contends that “Berkley never disclaimed all insurance coverage relying on the capacity exclusion and it never gave notice of the possibility of such a disclaimer.” Post at ___ (slip op. at 7). To the dissent, Berkley’s reservation of its right to disclaim coverage “for ‘allegations pertaining to [Krivulka’s] roles with Mist Acquisition, Mist Partners, Akrimax or any other [uninsured] entity’” is somehow inconsistent with a reservation of Berkley’s right to invoke the capacity exclusion and deny any coverage for the misconduct alleged in the underlying actions. Post at ___ (slip op. at 13) (alterations in original). Given the capacity exclusion’s broad terms -- and the fact that every allegation against Mist Pharmaceuticals in the underlying actions was an allegation “in any way involving” Krivulka’s roles with Akrimax, Mist Acquisition, Mist Partners, and/or other uninsured entities -- Berkley’s reservation of rights letters squarely placed Mist Pharmaceuticals on notice that Berkley’s exclusion would be invoked to bar coverage for that misconduct. That notice was underscored by Berkley’s assertion in this litigation -- well before the settlement of the underlying actions -- that by virtue of the capacity exclusion, it had no obligation to insure Mist Pharmaceuticals in the underlying actions. The considerations that supported a finding of estoppel in Griggs, 88 N.J. at 353-55, are absent here. 47 stands in stark contrast to the insured in Griggs, who received no
communication from the insurer remotely suggesting that coverage was in
question or might be disclaimed. See 88 N.J. at 353-55.
In sum, we do not view the doctrine of estoppel or the doctrine of
forfeiture to support Mist Pharmaceuticals’ position in this appeal.
Because we view the capacity exclusion to govern this coverage dispute,
we agree with the Appellate Division that Berkley’s refusal to consent to the
settlement was not unreasonable, and the trial court improperly granted Mist
Pharmaceuticals’ motion for summary judgment and denied Berkley’s motion
for partial summary judgment. See Mist Pharms., 479 N.J. Super. at 137-38,
142-43. 14 In light of our holding that the capacity exclusion in the policy bars
coverage, we do not reach the question whether the global settlement was
reasonable and entered into in good faith or the question whether the trial court
properly excluded the affidavit of Berkley’s corporate designee from the
record. We decline to disturb the Appellate Division’s holding remanding this
14 The dissent asserts that this Court cannot decide this matter because there are factual disputes regarding “(1) whether Berkley breached the Policy by unreasonably withholding its consent to settle; and, if so, (2) whether the settlement reasonably apportioned any loss from wrongful acts by Mist Pharma and Krivulka in his capacity as chairman of Mist Pharma; (3) whether the settlement amount is reasonable; and (4) whether the Mist Insureds settled in good faith.” Post at ___, ___ (slip op. at 38, 48). Because we find no breach of Berkley’s policy by virtue of its decision not to consent to the settlement, the remaining issues identified by the dissent are not before us. 48 matter for an award of counsel fees up to July 7, 2021, which Berkley did not
challenge in a cross-petition for certification. ------ See id. at 143.
The judgment of the Appellate Division is affirmed as modified, and the
matter is remanded for further proceedings in accordance with this opinion.
CHIEF JUSTICE RABNER and JUSTICES PIERRE-LOUIS, WAINER APTER, and NORIEGA join in JUSTICE PATTERSON’s opinion. JUSTICE FASCIALE filed a dissent in which JUSTICE HOFFMAN joins.
49 Mist Pharmaceuticals, LLC,
JUSTICE FASCIALE, dissenting.
Because of Berkley Insurance Co. (Berkley)’s woefully late and
unreasonable delay in informing the Mist Insureds of its belated position that
the capacity exclusion completely bars coverage, it is estopped from relying
upon this exclusion as an absolute defense. For over five years, Berkley
repeatedly represented to the Mist Insureds that partial coverage was available
under the policy at issue. In multiple letters sent in 2016 and 2017, Berkley
admitted that, under the capacity exclusion, “coverage for Krivulka is limited
to any actual or alleged conduct in his capacity as chairman of Mist Pharma.”
But it was not until five years later -- after multiple briefings, motions, and
oral arguments -- that Berkley finally decided to argue that the exclusion at
issue excluded all coverage. As we held in Griggs v. Bertram, when an “insurance carrier fails for an unreasonable time to inform the insured of a
potential disclaimer, it is estopped from later denying coverage under the
insurance policy.” 88 N.J. 347, 363-64 (1982). Accordingly, the majority errs
in concluding that Berkley can rely on the capacity exclusion as a complete bar
to coverage. An insurer cannot be permitted to make representations of
coverage for years, only to then reverse course in a thirteenth-hour attempt to
disclaim coverage upon which the insured reasonably relied.
As to the capacity exclusion at issue, our law is clear. Insurance policy
exclusions must be narrowly interpreted -- they are strictly construed against
the insurer, and, therefore, “if there is more than one possible interpretation of
the language, courts apply the meaning that supports coverage rather than the
one that limits it.” Flomerfelt v. Cardiello, 202 N.J. 432, 442 (2010); accord
Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 41 (1998); Norman
Int’l, Inc. v. Admiral Ins. Co., 251 N.J 538, 552 (2022).
Here, the majority broadly and liberally interprets the capacity exclusion
to bar all coverage, including loss arising out of wrongful acts committed in an
insured capacity. I do not agree with the majority’s interpretation of the
capacity exclusion; as I read the exclusion, it does not clearly bar all coverage
for wrongful acts committed in both insured and uninsured capacities. At best,
there is more than one way to interpret the exclusion, and we must therefore
2 apply the meaning that supports coverage. To hold otherwise is violative of
our longstanding insurance jurisprudence.
The plaintiffs in the underlying lawsuits sued multiple defendants
including Mist Pharmaceuticals (Mist Pharma) and its chairman, Joseph
Krivulka (collectively, the Mist Insureds). Those plaintiffs sought damages
from the Mist Insureds, alleging that Mist Pharma committed wrongful acts
and that Krivulka committed wrongful acts in insured and uninsured
capacities. Mist Pharma held a Directors and Officers Insurance Policy (the
Policy) from Berkley, which covered both Mist Pharma and Krivulka in his
capacity as a member and officer of Mist Pharma. To cap their liability
exposure in the underlying cases, the Mist Insureds requested consent to settle
from Berkley. Berkley, however, withheld that consent. The Mist Insureds
then settled the underlying cases without Berkley’s approval. 1
The legal questions here are (1) whether Berkley is estopped from
disclaiming all coverage based on the capacity exclusion; (2) whether the
capacity exclusion bars all coverage for wrongful acts committed in dual
1 The full value of the underlying cases was approximately $300 million. A $12 million Global Settlement was reached, which includes a twenty-five percent apportionment for covered claims, meaning damages were capped at $3 million. The policy limits were $2 million, which defense costs continue to erode, and the Mist Insureds seek indemnification only for the remaining limits.
3 capacities (i.e., when an officer acts in both insured and uninsured capacities);
and (3) whether Berkley must pay, but not exceed, its remaining policy limits
for any part of the underlying settlement. I disagree with the majority’s
disposition and reasoning on each issue.
As to the first question, I would hold that Berkley is estopped from
relying on the capacity exclusion to exclude all coverage. Berkley never
reserved its rights to rely on the capacity exclusion to disclaim all coverage. It
reserved its rights to disclaim coverage only for wrongful acts committed in an
uninsured capacity. Despite having the information it needed, Berkley waited
more than five years to argue, for the first time, that the capacity exclusion
excluded all insurance coverage. And it delayed making such an argument
until the underlying actions settled and a judge had approved the Global
Settlement. During settlement negotiations in the underlying lawsuits, the
Mist Insureds believed that loss from wrongful acts committed in an insured
capacity would be covered, and Berkley never said otherwise until all its other
coverage arguments failed.
In answering the second question, the entire text of the capacity
exclusion is important, but the word “capacity” provides critical context. As a
matter of law, I would hold that the capacity exclusion does not bar all
coverage when wrongful acts are simultaneously committed in both insured
4 and uninsured capacities -- it bars coverage only for wrongful acts committed
in an uninsured capacity. Both the text and purpose of the Policy reflect that
the Policy focuses on the specific capacity in which the officer or director acts.
Thus, a director’s actions cannot be excluded simply because the director acted
in both uninsured and insured capacities. Rather, when some allegations
pertain to actions taken in an insured capacity but other allegations pertain to
actions in an uninsured capacity, the former must be covered even though the
latter are not. Ascertaining what the insurer is required to cover therefore
requires differentiating between the director’s insured and uninsured
capacities.
Accordingly, in order to determine if coverage exists, we must
distinguish between Krivulka’s insured and uninsured roles. The loss arising
from Krivulka’s alleged wrongful acts as chairman of Mist Pharma is covered
by insurance because Krivulka committed those acts in an insured capacity. In
contrast, loss arising from Krivulka’s alleged wrongful acts with Mist
Acquisition, Mist Partners, and Akrimax is not covered because those are
uninsured entities. Unpacking the part of the settlement earmarked for loss
from wrongful acts committed in an insured capacity is difficult. But that is no
reason to bar all coverage.
5 Answering the third question must await resolution of four disputed
issues of material fact. Determining Berkley’s legal obligation to pay any part
of the settlement in the underlying suits should depend upon whether (1)
Berkley unreasonably withheld its consent to settle; and, if so, (2) whether the
underlying settlement reasonably apportioned loss for Mist Pharma’s wrongful
acts and loss for Krivulka’s wrongful acts committed in his capacity with Mist
Pharma; (3) whether the settlement amount is reasonable; and (4) whether the
Mist Insureds settled the underlying actions in good faith. Instead of grappling
with those disputed fact issues, the majority bars all insurance coverage and
dismisses the coverage complaint. Legal indemnification obligations cannot
be resolved by any court on summary judgment due to those disputed issues of
material fact.
The procedural history is complicated. After Berkley belatedly argued
that the capacity exclusion bars -all- coverage, the trial judge rejected that
contention and denied Berkley summary judgment. He correctly pointed out
that “material fact disputes . . . litter the record with respect to [Krivulka’s]
actual role and activities vis à vis the various parties,” and he added that the
“actions of Krivulka must be considered . . . by a fact finder before a [legal]
decision [as to indemnification] can be made.” Those disputed fact issues that
litter the record were never resolved at the trial level. Despite discovery
6 remaining incomplete and despite fact issues as to whether Krivulka
committed wrongful acts in an insured capacity, the appellate court and
majority rely on the capacity exclusion to dismiss this declaratory judgment
complaint and grant Berkley summary judgment. But applying a de novo
review, summary judgment on those grounds is still precluded by disputed
issues of fact.
I would follow longstanding precedent, reverse the judgment of the
Appellate Division, and remand for further proceedings consistent with this
My first point of disagreement with the majority is its finding that
Berkley is not estopped from invoking the capacity exclusion. Application of
case law to the record before us compels a finding that Berkley is estopped
from disclaiming all coverage based on the capacity exclusion. “Unreasonable
delay in disclaiming coverage, or in giving notice of the possibility of such a
disclaimer, . . . can estop an insurer from later repudiating responsibility under
the insurance policy.” Griggs, 88 N.J. at 357. Here, Berkley never disclaimed
all insurance coverage relying on the capacity exclusion and it never gave
notice of the possibility of such a disclaimer. The first time Berkley even
mentioned disclaiming all coverage was more than five years after it agreed to
7 defend the Mist Insureds, and only after a judge had approved the settlement in
the underlying actions. Based on Berkley’s reservation of rights (ROR) letters,
the Mist Insureds settled the underlying actions believing that they were at
least insured for wrongful acts committed in insured capacities. The Mist
Insureds only learned about Berkley’s belated attempt to disclaim all coverage
based on the capacity exclusion after they filed this coverage lawsuit.
This Court explained the rationale behind estoppel in situations when an
insurer, acting “without a valid [ROR] to deny coverage at a later time,”
subsequently disclaims coverage:
[O]nce the insurer has acknowledged the claim and assumes control of the defense, the insured is justified in relying upon the carrier to protect it under its policy and to be responsible for any judgment against it. The insured’s justifiable reliance arises from the insurer’s contractual right to control the defense under the policy. In assuming this contractual right of control, the insurer preempts its insured from defending itself. If the insurer could later repudiate its responsibility and ultimate liability under the policy, it would in effect have left its insured defenseless or seriously hampered in its ability to protect itself. That resultant inequity is a necessary ingredient of an estoppel.
[Id. at 356 (citation omitted).]
In Griggs, defendant Bertram notified his insurer about the possibility of a
claim shortly after he physically fought with Griggs. Id. at 353. The insurer
failed to notify Bertram about the possibility that the claim would not be
8 covered. Ibid. The insurer established that Bertram punched Griggs twice, but
it was not until seventeen months later -- right after Griggs filed a personal
injury lawsuit against Bertram -- that the insurer disclaimed coverage, relying
on an intentional tort exclusion. Id. at 354. Bertram initiated a third-party
action against the insurer seeking to hold it responsible under the policy. Ibid.
The personal injury lawsuit settled without the insurer’s participation. Ibid.
At the trial against the insurer, Bertram admitted he punched Griggs on
purpose and conceded that this intentional tort was not covered by the policy.
Ibid. The trial judge, however, estopped the insurer from denying coverage.
Ibid. In affirming, this Court stated:
We therefore conclude that where, after timely notice, adequate opportunity to investigate a claim, and the knowledge of a basis for denying or questioning insurance coverage, the insurance carrier fails for an unreasonable time to inform the insured of a potential disclaimer, it is estopped from later denying coverage under the insurance policy in the event a legal action is subsequently brought against its insured.
[Id. at 363-64.]
Here, the underlying plaintiffs filed suit against the Mist Insureds and
others in November 2015. The plaintiffs amended their complaint on March 8,
9 2016. 2 On March 9, 2016, Berkley notified the Mist Insureds that it would
participate in the defense of the Mist Insureds while only reserving its right to
disclaim coverage in the future for “allegations pertaining to [Krivulka’s] roles
with Mist Acquisition, Mist Partners, Akrimax, or any other [uninsured]
entity.” Berkley acted in a timely manner and provided notice that it would
disclaim coverage for wrongful acts committed in an uninsured capacity.
But one important distinction must be made: Berkley never reserved its
rights to disclaim coverage for loss arising from wrongful acts by Mist Pharma
and wrongful acts by Krivulka acting in his insured capacity as chairman of
Mist Pharma. Its ROR letters in March 2016 and July 2017 expressly state that
2 Any reliance on Berkley’s nineteenth affirmative defense to suggest that Berkley provided notice of the possibility that the capacity exclusion would bar all coverage is entirely misplaced by the exclusion’s plain terms:
Coverage for CelestialRX’s claims against Mist Pharma is barred to the extent the allegations in the Underlying Action are based upon, arise out of, directly or indirectly result from or in consequence of, or in any way involve a “Wrongful Act” of an “Insured Person” serving in their capacity as a director, officer, trustee, employee, member or governor of any other entity other than an “Insured Entity” or an “Outside Entity,” or by reason of their status as a director, officer, trustee, employee, member or governor of such other entity.
[(emphases added).]
10 Berkley reserved its rights only to disclaim coverage for “allegations
pertaining to [Krivulka’s] roles with Mist Acquisition, Mist Partners, Akrimax,
or any other [uninsured] entity.” It never reserved its rights as to wrongful
acts by Mist Pharma and wrongful acts of Krivulka in his capacity with Mist
Pharma. It did just the opposite -- Berkley stated that “coverage for Krivulka
is limited to any [wrongful acts] in his capacity as chairman of Mist Pharma.”
(emphases added). Accordingly, the majority’s assertion that “Berkley
unequivocally stated in its answer to the coverage complaint that it had no
obligation to insure Mist Pharmaceuticals for the claims asserted in the
underlying actions,” ante at ___ (slip op. at 46-47), is patently incorrect.
The Policy was meant to cover wrongful acts by Mist Pharma and
wrongful acts by Krivulka in his capacity as chairman of Mist Pharma.
Berkley had timely notice of the underlying claims, it fully evaluated the
allegations in the underlying complaints, it relied on defense counsel’s status
reports and opinion letters, and it had substantial and adequate opportunity to
investigate the underlying claims. Berkley even reserved its rights to retain
separate counsel to represent Krivulka as to his alleged wrongful acts
committed in an insured capacity. But Berkley failed to inform the Mist
Insureds of any potential for disclaiming all coverage based on the capacity
exclusion despite having all the information it needed before the filing of this
11 declaratory judgment action. Thus, Berkley is estopped from relying on the
capacity exclusion -- five years after it agreed to participate in the defense and
only after the underlying settlement occurred -- to deny coverage for the very
thing the Policy was meant to cover.
Berkley’s actions, moreover, underscore that it is estopped from
asserting the capacity exclusion as an absolute defense. First, Berkley’s
conduct before the Mist Insureds filed its complaint in this coverage dispute
demonstrates that it fully understood that the Policy covered both Mist Pharma
and Krivulka for his alleged wrongful acts committed in his capacity as
chairman of Mist Pharma -- an insured entity. And second, its conduct after
the Mist Insureds filed this coverage case illustrates its understanding that the
capacity exclusion does not wholly preclude coverage.
Before Mist Pharma filed this insurance coverage complaint, Berkley
reviewed the allegations in the underlying complaints and agreed to participate
in the defense of those matters under two carefully written ROR letters. Those
ROR letters were meticulously written to reflect that some of the underlying
claims were covered under the Policy --- and that some of the claims were not
covered.
12 In its 2016 and 2017 ROR letters, Berkley expressly confirmed that the
Policy provided insurance and protected Krivulka when he engaged in
wrongful acts in his Mist Pharma capacity but not when he engaged in
wrongful acts with uninsured entities. Berkley stated, “coverage for Krivulka
is limited to [wrongful acts] in his capacity as the chairman of Mist Pharma.” 3
In those same ROR letters, Berkley expressly stated that “[c]overage is
therefore not available for Krivulka for allegations pertaining to his roles with
[uninsured entities, including] Mist Acquisition, Mist Partners, Akrimax, or
any other entity.” Relying on the capacity exclusion, Berkley reserved its right
to disclaim coverage only for “allegations pertaining to [Krivulka’s] roles with
Mist Acquisition, Mist Partners, Akrimax, or any other [uninsured] entity.” It
did not -- and could not -- reasonably reserve its right to deny insurance
coverage for loss arising out of what the Policy was meant to cover: loss
arising from any claim for any wrongful acts of Krivulka in his capacity as
director of Mist Pharma.
In August 2017, before Mist Pharma filed this complaint, Berkley
unsuccessfully withdrew from the defense of the underlying matters and
3 In the context of agreeing to pay for defense costs incurred in the underlying lawsuits, Berkley even reserved its “right to appoint separate counsel to represent Mist Pharma and Krivulka in his capacity as director of Mist Pharma.” (emphasis added).
13 disclaimed coverage, not based on the capacity exclusion -- because it could
not -- but rather by attempting to rely on a “related claims” exclusion. That is
what prompted the Mist Insureds to file this insurance coverage complaint in
September 2017. And Berkley’s conduct thereafter continues to comport with
my position that it is estopped from relying on the capacity exclusion as a
complete bar to coverage.
After the Mist Insureds filed this coverage case, they immediately filed a
summary judgment motion challenging Berkley’s misplaced reliance on the
“related claims” exclusion and improper withdrawal from participating in the
Mist Insureds’ defense. Berkley opposed the motion without raising the
capacity exclusion. In December 2018, the trial judge granted the Mist
Insureds’ motion, rejected Berkley’s “related claims” argument, and required
Berkley to continue defending the Mist Insureds. The capacity exclusion was
not even mentioned.
Even then, during the Mist Insureds’ repeated requests for Berkley’s
consent to settle, Berkley did not withdraw from the underlying suit relying on
the capacity exclusion. Instead, it waited more than five years -- and only after
a judge in the underlying matter approved the settlement -- to argue, contrary
to its previous written ROR concession that limited insurance coverage
14 existed, that all coverage is barred. During that five-year period, Berkley
never disclaimed all coverage. As Berkley confirmed at oral argument, it had
all the information it needed to make that argument while the underlying
actions remained alive, but it still waited until after the underlying matters
settled to invoke the exclusion.
As this coverage case limped along, Berkley did not invoke the capacity
exclusion to bar all coverage in its many motions and filings in 2017, 2018, or
2019. It was not until December 2020 -- in response to the Mist Insureds’
November 2020 summary judgment motion -- that Berkley first relied on the
exclusion and contended, for the first time, that the capacity exclusion barred
all coverage based on the initial allegations in the underlying complaint.
The trial judge cut through that belated contention, denied Berkley’s
cross-motion, and rejected Berkley’s reliance on the capacity exclusion to
exclude all coverage arising from wrongful acts by Mist Pharma and wrongful
acts by Krivulka acting as chairman of Mist Pharma. The judge denied the
motion for two reasons. First, there existed genuine issues of material fact
about whether loss arose from any wrongful acts by Mist Pharma and wrongful
acts by Krivulka acting as chairman of Mist Pharma. The judge insightfully
explained:
The court can only wonder why if this [capacity] exclusion had any applicability, Berkley would not
15 have raised it [in December 2018] during the [parties’] hard-fought briefing on the duty to defend [two and one-half years earlier]. It was not mentioned. In any event, the court has concluded that . . . material fact disputes . . . litter the record with respect to [Krivulka]’s actual role and activities vis à vis the various parties.
[(emphasis added).]
And second, in denying Berkley’s cross-motion for summary judgment, the
judge addressed the capacity exclusion and stated, “the motion record is not
sufficiently distilled as to Krivulka’s activities” to grant summary judgment,
and as to disputed facts, he explained that the “actions of Krivulka must be
considered . . . by a fact finder before a decision can be made.” 4 (emphasis
added).
Therefore, Berkley’s conduct, before and after the Mist Insureds filed
this coverage complaint, reflected not only Berkley’s understanding that the
capacity exclusion did not preclude coverage in the underlying actions, but
also, and more specifically, that the capacity exclusion does not and cannot
4 In October 2022, on reconsideration, the judge did not reach the capacity exclusion and instead found Berkley had to pay its remaining policy limits because Berkley unreasonably withheld consent to settle the underlying lawsuits. The judge granted reconsideration after he struck an affidavit submitted by a corporate designee, Carol Threlkeld, Assistant V.P. of Claims for Berkley, in opposition to Mist Insureds’ motion. The propriety of striking that affidavit was not considered by the appellate court or majority.
16 preclude coverage for all loss arising from Krivulka’s wrongful acts in his
capacity with insured entities. The majority’s conclusion that Berkley can rely
on the capacity exclusion as a complete bar to coverage ignores both the facts
and the law. Berkley’s actions -- delaying its disclaimer and misleading the
Mist Insureds -- are exactly the type of conduct estoppel is designed to
remedy.
II.
The majority next errs in its interpretation and application of the
capacity exclusion.
Interpretation of a capacity exclusion is an issue of first impression in
New Jersey, but the applicable interpretative principles are well-established.
“An insurance policy is a contract that will be enforced when its terms are
clear in order that the expectations of the parties will be fulfilled.” Flomerfelt,
202 N.J. at 441. We interpret an insurance policy “according to its plain and
ordinary meaning.” Ibid. (quoting Voorhees v. Preferred Mut. Ins. Co., 128
N.J. 165, 175 (1992)). The Court should “not ‘engage in a strained
construction to support the imposition of liability or write a better policy for
the insured than the one purchased.’” Templo Fuente De Vida Corp. v. Nat’l
Union Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 200 (2016) (quoting Chubb
Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231, 238 (2008)). But
17 “where the policy language of an insurance policy supports two meanings, one
favorable to the insurer and the other to the insured, the interpretation favoring
coverage should be applied.” Progressive Cas. Ins. Co. v. Hurley, 166 N.J.
260, 273 (2001) (emphasis added) (brackets omitted) (quoting Lundy v. Aetna
Cas. & Sur. Co., 92 N.J. 550, 559 (1983)).
“Exclusionary clauses are presumptively valid and are enforced if they
are ‘specific, plain, clear, prominent, and not contrary to public policy.’”
Flomerfelt, 202 N.J. at 441 (quoting Princeton Ins. Co. v. Chunmuang, 151
N.J. 80, 95 (1997)). However, “insurance policy exclusions must be narrowly
construed; the burden is on the insurer to bring the case within the exclusion.”
Am. Motorists Ins. Co., 155 N.J. at 41 (emphasis added) (quoting Princeton
Ins. Co., 151 N.J. at 95). Accordingly, “exclusions are ordinarily strictly
construed against the insurer, and if there is more than one possible
interpretation of the language, courts apply the meaning that supports coverage
rather than the one that limits it.” Flomerfelt, 202 N.J. at 442 (emphases
added) (citation omitted).
The capacity exclusion at issue here denies insurance coverage for
wrongful acts committed in an uninsured capacity. Accordingly, when a
director engages in wrongful acts in both insured and uninsured capacities,
coverage is not entirely foreclosed -- loss arising from a director’s acts with an
18 insured entity remains covered. The majority, however, views the capacity
exclusion to bar coverage whenever the underlying allegations in any way
involve an insured committing a wrongful act as a director, member, or
manager of an uninsured entity. I disagree with that broad interpretation.
And, regardless, because the capacity exclusion is at best ambiguous, our case
law compels us to adopt the interpretation finding coverage.
I reach those conclusions in view of (A) the purpose of capacity
exclusions, (B) case law interpreting capacity exclusions, (C) the text of the
Policy at issue, (D) application of the Policy to the allegations in the
underlying complaints, and (E) my rejection of the majority’s overly broad
interpretation.
Before discussing the capacity exclusion, some background on this type
of insurance policy is instructive. Directors and Officers (D&O) Liability
Insurance protects corporate directors and officers from personal liability for
acts and decisions performed or made in a corporate capacity. 9A Couch on
Insurance § 131:32 (June 2025 Update). Because a wide variety of claims can
be brought against corporate officers -- from common law allegations such as
breach of fiduciary duty to shareholder derivative suits -- corporations face
significant legal costs. David J. Marchitelli, Construction & Application of
19 Directors & Officers Insurance Policy, Exclusive of Exclusion & Notice of
Claim Provisions, 22 A.L.R. 6th 113 (2007). Accordingly, corporations,
including for-profit organizations, non-profit organizations, trusts, and school
districts, commonly purchase D&O insurance to protect against those legal
expenses. Law of Corporate Officers & Directors: Indemnification &
Insurance (Officers & Directors Law) § 4.1 (Nov. 2024 Update); 4 New
Appleman on Insurance Law (Appleman) § 26.01(1) (Rev. 2021). The “chief
function” of a D&O policy is to “encourage independent directors to serve . . .
as directors.” Appleman § 26.01(1). D&O insurance accomplishes that
objective by protecting directors and officers from financial losses arising
from their management decisions. Coverage extends to all acts “which are
inseparable from the insured’s duties as officer or director even though such
activities may not arise ‘solely’ out of the insured’s official capacity.” 9A
Couch on Insurance § 131:32 (June 2025 Update).
Officers and directors often work in various capacities. D&O insurance
functions as a critical safeguard for company executives because those policies
offer protection against claims that arise from their actions taken in the course
of their duties as corporate officers. See In re First Cent. Fin. Corp., 238 B.R.
9, 16 (Bankr. E.D.N.Y. 1999) (“D&O policies are obtained for the protection
of individual directors and officers.”). The policy typically makes this insured
20 capacity limitation clear through either a limiting term or a capacity exclusion.
Howard B. Epstein & Theodore A. Keyes, Insured Capacity and Outside
Capacity: Status Matters, N.Y.L.J. (Jan. 25, 2024).
Limiting terms, which are “tantamount to exclusions,” often reduce
coverage to only alleged wrongdoing with an insured entity. Appleman
§ 26.07(1). Many D&O policies limit coverage by narrowly defining the term
“wrongful act” so that “it does not include liability of individual insureds not
claimed solely by reason of their being directors or officers.” Ibid. For
example, if a director or officer is sued for misconduct committed solely in
their capacity as a shareholder of the company, coverage would not apply as
the alleged wrongdoing occurred in an uninsured role. Ibid.
When a corporate officer acts in only one capacity, D&O coverage is
clear. If a director engages in a wrongful act in his capacity as an insured
person -- as a director or officer of an insured entity -- the loss arising from
that wrongful act is covered. Officers & Directors Law § 4.9; see also Abrams
v. Allied World Assurance Co. Inc., 657 F. Supp. 3d 1280, 1288 (N.D. Cal.
2023) (finding that a capacity exclusion did not exclude coverage because the
alleged acts were committed in the insured persons’ capacity as company
executives). If a director instead engages in a wrongful act outside of his
corporate role with the insured entity -- for example, in a personal capacity or
21 with some entity other than the insured entity -- the capacity exclusion of the
D&O policy denies insurance coverage. Officers & Directors Law § 4.15; see
also Sauter ex rel. Sauter v. Hou. Cas. Co., 276 P.3d 358, 362-63 (Wash. Ct.
App. 2012) (finding that a D&O policy did not provide coverage for a CEO’s
losses arising from a bank’s enforcement of a loan guaranty that the CEO had
executed for the LLC because the CEO executed the guaranty in his personal,
not his official, capacity).
But officer or director actions may not be so cleanly delineated.
Sometimes, like here, they may commit wrongful acts in dual capacities --
acting both in their capacity as a director or officer of an insured entity and in
their capacity with an uninsured entity. In that situation, both covered and
uncovered claims exist. The capacity exclusion will preclude coverage only as
to wrongful acts committed with an uninsured entity. But loss arising from
wrongful acts with an insured entity are covered. “[N]othing . . . support[s]
the conclusion that the presence of uncovered claims obviates an insurer’s duty
to indemnify its insured with respect to covered claims.” McAninch v.
Wintermute, 491 F.3d 759, 771 (8th Cir. 2007). Insureds are entitled to the
coverage that they reasonably expect, both as a matter of policy construction
and of public policy. See Flomerfelt, 202 N.J. at 441.
22 B.
When interpreting a capacity exclusion, courts look to the capacity in
which the director acted when committing the alleged wrongful act. 5 For
example, in Zayed v. Arch Insurance Co., the District of Minnesota declined to
construe a capacity exclusion broadly to bar all coverage where a corporate
director committed wrongful acts in dual capacities. 932 F. Supp. 2d 956,
970-71 (D. Minn. 2013). The D&O insurer argued that a capacity exclusion
precluded coverage because the underlying complaint alleged the director
acted “at all times on behalf of both an insured organization . . . and a
noninsured organization.” Id. at 970. The court disagreed, finding that the
insurer’s “interpretation of the insured-capacity exclusion [was] not clearly
mandated by the language of that exclusion.” Id. at 971. Moreover, the court
concluded the capacity exclusion did not bar coverage for the claims
“pertain[ing] to acts committed by [the director] solely in his capacity as
director of [the insured entity].” Ibid.
5 The majority asserts that the out-of-state cases to which I cite -- cases that involve interpretation of capacity exclusions and wrongful acts taken in both insured and uninsured capacities -- are “not relevant to this appeal.” Ante at ___ n.12 (slip op. at 39 n.12). But relevant authority may and should involve out-of-state and analogous case law, particularly as the interpretation of a capacity exclusion is an issue of first impression before this Court. See Petro- Lubricant Testing Labs. Inc. v. Adelman, 233 N.J. 236, 252 (2018).
23 Similarly, in McAninch, the Eighth Circuit rejected an insurer’s
argument that a D&O policy’s limited definition of “wrongful act” barred all
coverage where directors committed wrongful acts while acting in dual
capacities. 491 F.3d at 770-71. Instead, the court found “ample support” for
concluding that an insurer had a duty to indemnify covered claims when both
covered and uncovered claims existed, and that this duty applied where the
underlying claim clearly alleged wrongful conduct by the insured in their
capacity as a director of an insured entity. Id. at 771-72; see also Grigg v.
Aarrowcast, Inc., 909 N.W.2d 183, 197-98 (Wis. Ct. App. 2018) (holding that
a D&O policy covered the director’s purported wrongful acts taken while
acting as a director of the insured entity, “regardless of whether those acts
were the same acts or omissions he was making” in his uninsured capacity).
When determining whether a capacity exclusion precludes coverage,
courts consider whether the underlying complaint alleged that the director or
officer committed wrongful acts in an insured capacity. See Abrams, 657 F.
Supp. 3d at 1282. In Abrams, the Northern District of California concluded
that a capacity exclusion did not bar coverage in light of the underlying
complaint. Id. at 1287. Although the pleadings claimed the officers and
directors of Altierre Corporation, the insured entity, breached their fiduciary
duties by purportedly taking control of the Altierre board and stripping the
24 company of its assets for the benefit of an uninsured entity (where the officers
also served as corporate officers), the court clarified that the claims asserted
against the insureds in the underlying action were “for breach of fiduciary
duties owed solely based on their capacities as Altierre executives.” Ibid.
The court thus found that the capacity exclusion did not bar coverage in
the underlying action because the claims against the defendants arose from
their insured capacities as executives of the insured entity. Id. at 1288. The
court declined to follow out-of-state cases that did bar coverage under a
capacity exclusion, noting that those cases did not apply California law, which
-- like New Jersey law -- requires that insurance policies be “interpreted
broadly to afford the greatest possible protection to the insured,” id. at 1285,
and that “exclusionary clauses [be] interpreted narrowly against the insurer,”
id. at 1289 (quoting MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1213 (Cal.
2003)).
To apply the capacity exclusion in this case -- a case dealing with an
insured person acting in dual capacities -- I must explain what the Policy at
issue does and does not cover. The Policy broadly covers loss arising from
wrongful acts. The D&O Policy states:
I. Insuring Agreements
25 A. Directors and Officers Liability Insurance
This Policy shall pay on behalf of the Insured Persons all Loss arising from any Claim . . . for any actual or alleged Wrongful Act.
III. Definitions
E. Insured Person means:
1. any past, present or future duly elected or appointed director or officer of an Insured Entity, or
2. any past, present or future duly elected or appointed member of the board of managers, member of the management committee, or equivalent executive of an Insured Entity if organized as a limited liability company.
G. Wrongful Act means:
1. with respect to the Insured Persons, any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Insured Persons in the respective capacities as such, or any matter claimed against them by reason of their status as an Insured Persons, or any matter claimed against them arising out of their serving as a director, officer, trustee or governor of an Outside Entity in such capacities, but only if such service is at the
26 specific request or direction of the Insured Entity, or
2. with respect to an Insured Entity, an actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Insured Entity.
Mist Pharma is an insured entity, Krivulka is an insured person, and the Policy
provides insurance for losses arising from any claim for any actual or alleged
wrongful act by an insured person when they act in an insured capacity.
The Policy excludes from insurance coverage loss arising in any way
from wrongful acts committed in uninsured capacities. The exclusion states:
IV. Exclusions
[T]he Insurer shall not be liable to make any payment for Loss in connection with a Claim made against any Insured:
G. based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving any Wrongful Act of an Insured Person serving in their capacity as director, officer, trustee, employee, member or governor of any other entity other than an Insured Entity or an Outside Entity or by reason of their status as director, officer, trustee, employee, member or governor of such other entity. [(emphases added).]
27 The text of the exclusion does not expressly state that the Policy wholly
precludes coverage when a director acts in dual capacities. Rather, the text of
both the capacity exclusion and the text of the definition of “wrongful acts”
focus on the capacity in which the officer committed the wrongful acts.
Specifically, those provisions turn on whether the corporate officer committed
the wrongful acts in their capacity as an insured person or in an uninsured
capacity. Thus, insurance coverage depends on the “capacity” in which the
insured person commits wrongful acts.
D.
Upon review of the allegations in the underlying complaints, I would
hold that the capacity exclusion here does not wholly bar coverage for the
underlying claims at issue. Rather, loss resulting from Krivulka’s wrongful
acts in his capacity with insured entities remain covered.
In this case, both the underlying New Jersey and Delaware complaints
alleged that Krivulka committed wrongful acts while acting as director of Mist
Pharma. In the New Jersey complaint, the plaintiffs claimed that Krivulka
entered into agreements with Akrimax “to shift valuable assets to . . . Mist
Pharma[] for no consideration.” The complaint also asserted that Krivulka
included a provision in an agreement between Mist Pharma and Akrimax
which allowed Mist Pharma to “terminate and retake Akrimax’s” distribution
28 rights to Primlev, a pain medication. The allegations pertain directly to
wrongful acts committed in an insured capacity. For Mist Pharma to be a part
of those agreements, Krivulka, the chairman of Mist Pharma and owner of 97.3
percent of the company, acted in his capacity as director of Mist Pharma -- an
insured capacity.
The plaintiffs also alleged that Krivulka sent Akrimax a letter on behalf
of several companies, including Mist Pharma, exercising their right to
terminate Akrimax’s distribution rights to Primlev, resulting in unjust
enrichment, conversion, tortious interference with contract, tortious
interference with prospective economic advantage, and waste. In addition, the
complaint claimed that defendants -- including Mist Pharma -- aided and
abetted Krivulka in breaching his fiduciary duties owed to Akrimax and
Celestial, committed civil racketeering, and participated in a civil conspiracy.
Plaintiff’s Delaware complaint contained similar allegations.
Accordingly, although complicated, the complaints nonetheless assert
numerous allegations that Krivulka engaged in wrongful acts while operating
in his insured capacity as director of Mist Pharma, and, as the trial judge
correctly pointed out, “material fact disputes . . . litter the record with respect
to [Krivulka’s] actual role and activities vis à vis the various parties.” He
29 added that the “actions of Krivulka must be considered . . . by a fact finder
before a [legal] decision [as to indemnification] can be made.”
The majority states that it “view[s] every claim in the underlying actions
to fit within the capacity exclusion’s expansive terms.” Ante at ___ (slip op. at
38). As I make clear above, both the Delaware and New Jersey lawsuits assert
a slew of allegations that Krivulka engaged in wrongful acts as a director of
Mist Pharma, an insured entity. Although I only address a few of these
allegations, the record is replete with such claims. I agree with the majority
that this case and the underlying complaints are far from black and white --
Krivulka committed wrongful acts in numerous capacities, many of which
were in an uninsured capacity. But as the majority notes, some “claim[s]
certainly relate[] to Krivulka’s role at Mist Pharma[].” Ante at ___ (slip op. at
36). To treat those claims as incurably tainted by Krivulka’s wrongful acts
with an uninsured entity, and precluded from coverage, is to render not only
the capacity exclusion but also the entire D&O Policy meaningless.
Delineating the precise capacity in which Krivulka acted may indeed be
complex and challenging. But the mere difficulty of this task does not justify a
sweeping and simplistic application. To do so is to abdicate our responsibility
to fairly interpret this Policy with its intended purpose and meaning.
30 Indeed, Berkley engaged in conduct throughout the litigation reflective
of my interpretation of the capacity exclusion. As noted above, Berkley
reviewed the allegations in the underlying complaints and agreed to participate
in the defense of those matters. In two carefully written ROR letters, Berkley
confirmed that coverage existed when Krivulka engaged in wrongful acts in
his Mist Pharma capacity but not when he engaged in wrongful acts with
uninsured entities: Berkley explicitly stated that it reserved its right to
disclaim coverage only for “allegations pertaining to [Krivulka’s] roles with
Mist Acquisition, Mist Partners, Akrimax, or any other [uninsured] entity.”
And throughout this matter, Berkley did not contend that the capacity
exclusion barred all coverage in its filings in 2017, 2018, or 2019. Rather, it
relied on another exclusion as its basis to deny coverage. Berkley’s conduct
emphasized not only Berkley’s own understanding that the capacity exclusion
did not wholly preclude coverage in the underlying actions, but also, and more
specifically, that the capacity exclusion does not and cannot preclude coverage
for all loss arising from Krivulka’s wrongful acts in his capacity with insured
E.
The majority misreads the capacity exclusion at issue to bar all coverage
whenever the underlying allegations “‘in any way involved’ a ‘wrongful act’”
31 as a director, member, or manager of an uninsured entity. Ante at ___ (slip op.
at 33). The majority (1) erroneously focuses on the exclusion’s “in any way
involving” phrase; (2) disregards the Mist Insureds’ reasonable expectation of
coverage; and (3) misapplies Norman International. Finally, (4) even if the
majority’s broad interpretation is valid, our case law compels us to strictly
interpret policy exclusions and therefore apply the narrower interpretation to
find coverage.
First, context matters. The majority errs in interpreting the phrase “in
any way involving” in isolation. 6 Such language must be interpreted in the
context of the exclusion’s purpose -- to bar insurance coverage for directors
and officers that engage in wrongful acts outside their corporate role. E.g.,
Flomerfelt, 202 N.J. at 442 (“[C]ourts must be careful not to disregard the
‘clear import and intent’ of a policy’s exclusion.” (quoting Westchester Fire
Ins. Co. v. Cont’l Ins. Cos., 126 N.J. Super. 29, 41 (App. Div. 1973), aff’d
6 The majority is correct that the use of “or” in the exclusion’s alternate phrases means that any one of those phrases may be considered alone. But reading a single phrase alone does not mean that the phrase is read in isolation from the rest of the Policy. Regardless of which phrase the majority gravitates towards, that phrase must be read in context with the capacity exclusion’s text and purpose, as well as the overall Policy’s text and purpose, which requires identifying the capacity in which the wrongful acts were performed.
32 o.b., 65 N.J. 152 (1974))). And an exclusion’s purpose cannot be properly
understood without consideration of the Policy’s overall scope of coverage.
See id. at 441.
Here, in delineating the scope of coverage, the Policy defines a covered
“Wrongful Act” by express reference to acts arising from an insured’s
“respective capacities,” thereby predicating coverage on a director’s specific
role. The capacity exclusion’s “in any way involving” phrase should be read
in consonance with that framing. The majority errs by reading the exclusion to
expansively bar all coverage when an insured acts in dual capacities, as such a
reading renders the specific “respective capacities” of a director’s acts entirely
meaningless. Moreover, the exclusion’s plain text says absolutely nothing
about the scope of coverage when an insured acts in dual capacities. Had the
parties intended for dual capacity acts to sweepingly bar all coverage, they
would have drafted the exclusion to expressly say so. See id. at 441-42.
Accordingly, reading the capacity exclusion to exclude all coverage when
wrongful acts are committed in dual capacities is an unduly broad
interpretation because it greatly exceeds the exclusion’s purpose -- barring
coverage for wrongful acts that occur outside an insured capacity.
33 2.
Second, the majority’s interpretation defeats the insured’s reasonable
expectation of coverage. The “fundamental principle of insurance law is to
fulfill the objectively reasonable expectations of the parties.” Werner Indus.,
Inc. v. First State Ins. Co., 112 N.J. 30, 35-36 (1988). Accordingly, “[w]hen
there is ambiguity in an insurance contract, courts interpret the contract to
comport with the reasonable expectations of the insured.” Zacarias v. Allstate
Ins. Co., 128 N.J. 590, 595 (2001); see also Flomerfelt, 202 N.J. at 441
(explaining that when “the terms are not clear . . . they are construed against
the insurer and in favor of the insured, in order to give effect to the insured’s
reasonable expectations”).
As noted above, D&O policies are intended to provide insurance to
directors and officers for actions taken while operating as directors and
officers of the insured entity. The Policy here provides as much: it expressly
covers loss resulting from a wrongful act of an insured person serving in an
insured capacity and does not cover loss arising from wrongful acts of an
insured person serving in an uninsured capacity. Thus, the Mist Insureds
would and did expect, based on the underlying complaints, that the Policy
would cover wrongful acts Krivulka took while serving in his insured capacity.
The majority’s holding -- that the insured is not entitled to coverage under the
34 capacity exclusion so long as a wrongful act in an insured capacity is linked in
some way to a wrongful act in an uninsured capacity -- undermines the
insured’s reasonable expectation that coverage exists.
Third, Norman International did not address a capacity exclusion, but
rather a “Designated New York Counties Exclusion,” and the two differ in
both purpose and the factual allegations to which they apply. 251 N.J. at 541-
42. The Norman International exclusion precluded coverage for certain
injuries that were “actually or allegedly arising out of, related to, caused by,
contributed to by, or in any way connected with . . . [a]ny operations or
activities performed by or on behalf of any insured” located in specified New
York counties. Id. at 546. The question in Norman International was whether
that language required a causal relationship between the insured’s conduct and
the alleged injury. Id. at 542-43. This Court held that a causal link was not
required, and the exclusionary clause barred coverage because the injury
occurred in an excluded county. Id. at 543. But we neither considered nor
addressed how the exclusionary clause would have applied if the injury was
connected with an insured’s operations in both an included and excluded
county.
35 The crux of the dispute here concerns acts committed in both an insured
and uninsured capacity. The majority is correct that the text of the Policy at
issue is “closely analogous” to that of the Designated New York Counties
Exclusion in Norman International, ante at ___ (slip op. at 32), but the acts
alleged to have triggered them are fundamentally distinct. Norman
International did not address the scope of coverage for dual allegations of
included and excluded acts. Indeed, in that case, it was undisputed that the
injury arose solely in an excluded county. 251 N.J. at 554-56. Accordingly,
Norman International does not compel the majority’s result because the
allegations in that case were unmistakably, materially distinct in nature from
those before us now.
4.
Finally, even if the majority’s interpretation of the capacity exclusion is
valid, an assumption that I cannot make, it is the broader of two possible ways
to interpret that exclusion. As we have repeatedly held, when there is “more
than one possible interpretation of the language,” we must “apply the meaning
that supports coverage rather than the one that limits it.” E.g., Flomerfelt, 202
N.J. at 442; Zacarias, 168 N.J. at 595; Cypress Point Condo. Ass’n Inc. v.
Adria Towers, LLC, 226 N.J. 403, 415-16 (2016). That is because of our
36 longstanding rule that policy exclusions must be narrowly interpreted and
strictly construed against the insurer. Ibid.
Here, as noted above, I view the capacity exclusion to bar coverage only
for wrongful acts committed in an uninsured capacity. Under such an
interpretation, the exclusion does not impact the insurance coverage for
wrongful acts committed in an insured capacity. Accordingly, because our
precedent compels us to apply the possible meaning that supports coverage, we
must conclude that acting both in an insured capacity and in an uninsured
capacity cannot bar all coverage under this exclusion. To find otherwise
would allow the capacity exclusion to deny insureds coverage to which they
are entitled.
Lastly, as to my third point of disagreement, the majority errs in granting
summary judgment notwithstanding the plethora of disputed issues of fact
plaguing the record. By concluding the capacity exclusion completely bars
coverage, the majority does not grapple with these dispositive issues. See ante
at ___ n.14 (slip op. at 48 n.14).
Summary judgment is appropriate only when “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
37 challenged and that the moving party is entitled to a judgment or order as a
matter of law.” R. 4:46-2(c). The essential inquiry is “whether the evidence
presents a sufficient disagreement to require submission to a jury or whether it
is so one-sided that one party must prevail as a matter of law.” Brill v.
Guardian Life Ins. Co., 142 N.J. 520, 536 (1995) (quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 251-52 (1986)). The court’s function is not to
weigh the evidence and determine the outcome, but only to decide if a material
dispute of fact exists. Gilhooley v. County of Union, 164 N.J. 533, 545
(2000).
Here, unresolved issues of material fact preclude a final legal resolution
of whether Berkley must pay any part of the settlement in the underlying
lawsuits. Specifically, the following four disputed factual issues must be
resolved: (1) whether Berkley breached the Policy by unreasonably
withholding its consent to settle; and, if so, (2) whether the settlement
reasonably apportioned any loss from wrongful acts by Mist Pharma and
Krivulka in his capacity as chairman of Mist Pharma; (3) whether the
settlement amount is reasonable; and (4) whether the Mist Insureds settled in
good faith.
38 1.
The parties dispute whether Berkley breached the Policy by
unreasonably withholding consent to settle. “[I]nsurer[s] must exercise good
faith and honest judgment in [their] approach to settlement negotiations.”
Fireman’s Fund Ins. Co. v. Sec. Ins. Co. of Hartford, 72 N.J. 63, 76 (1976).
“Particularly with respect to the settlement of claims, . . . ‘the relationship of
the [insurance] company to its insured regarding settlement is one of inherent
fiduciary obligation.’” Lieberman v. Emps. Ins. of Wausau, 84 N.J. 325, 336
(1980) (alteration in original) (quoting Rova Farms Resort, Inc. v. Invs. Ins.
Co. of Am., 65 N.J. 474, 492 (1974)).
The Policy requires the Mist Insureds to obtain Berkley’s consent to
settle. Under Section VI.A, entitled “Consent,” the Policy states:
An Insured shall not . . . enter into any settlement agreement . . . without the Insurer’s prior written consent. The Insurer’s consent shall not be unreasonably withheld, provided that the Insurer shall be entitled to full information and all particulars it may request in order to reach a decision regarding such consent. Any . . . settlements agreed to prior to the Insurer giving its consent shall not be covered hereunder.
[(emphases removed).]
39 Without Berkley’s consent, the Mist Insureds nevertheless settled the claim. 7
In 2021, both parties filed motions for summary judgment on this issue,
which the trial judge denied due to numerous fact issues. He painstakingly
highlighted those disputed facts, concluding that “the record is indeed littered
with issues of material fact as to both the reasonableness of Berkley’s decision
to not consent to fund the [underlying] Settlement [and] the information
available to it at the time the request was made.” Despite that conclusion, the
trial judge granted summary judgment in the Mist Insureds’ favor following
their motion for reconsideration, finding as a fact that Berkley unreasonably
withheld its consent. But this finding was premature as disputed fact issues
about Berkley’s withholding of consent remained, which precluded summary
judgment to either party. And the judge’s factual finding that Berkley
unreasonably withheld its consent to settle was never fully considered by the
appellate court or majority.
The Mist Insureds contend that they provided the information Berkley
needed to reach a decision regarding consent, asserting that they supplied
Berkley with interrogatory responses and 12,000 documents from the
underlying actions; furnished multiple case analyses; provided status updates;
7 In October 2020, a Delaware court approved the settlement in the underlying actions.
40 analyzed the claims against the Mist Insureds; addressed liability exposure;
and recommended settlement of the underlying suits. Additionally, the Mist
Insureds claim that throughout the underlying settlement negotiations they
kept Berkley informed of all material developments, including exchanges of
offers and counteroffers. According to the Mist Insureds, Berkley repeatedly
requested information that it already possessed, or sought details that the Mist
Insureds could not readily produce because the underlying actions had not yet
been fully litigated to conclusion.
Berkley insists that it needed more information before agreeing to
consent to settle. Specifically, it claims that the Mist Insureds provided an
insufficient analysis to support why Mist Pharma should be treated differently
from the other defendants in the underlying actions and accept a
disproportionate twenty-five percent allocation in the Global Settlement.
Berkley contends that defense counsel omitted any breakdown of the nature of
the various claims and failed to specify which claims created exposure to the
Mist Insureds.
Reviewing the summary judgment motion record de novo (a record that
remains incomplete because discovery was partially stayed), those genuine
issues of material fact preclude summary judgment on whether Berkley
breached the Policy by unreasonably withholding its consent to settle. If
41 Berkley breached the Policy by unreasonably withholding consent to settle,
that means it forfeited its right to control settlement negotiations. See
Fireman’s Fund, 72 N.J. at 71.
If the case were remanded and a factual determination were made that
Berkley reasonably withheld consent to settle, then, under the Policy, it would
have no obligation to indemnify the Mist Insureds. But if Berkley breached its
Policy by unreasonably withholding consent to settle, then Berkley’s legal
obligation to pay any amount of the underlying settlement would depend on
three additional disputed facts: whether the settlement reasonably apportioned
loss for wrongful acts by Mist Pharma and wrongful acts by Krivulka in his
capacity as chairman of Mist Pharma; whether the settlement amount is
reasonable; and whether the Mist Insureds settled in good faith. Fireman’s
Fund, 72 N.J. at 71-72; Griggs, 88 N.J. at 367-68. Once those fact issues have
been resolved, a court can then resolve the issue of indemnification.
The parties dispute whether the settlement reasonably apportioned loss
for wrongful acts by Mist Pharma and wrongful acts by Krivulka in his
capacity as chairman of that insured entity. “While the right to control
settlements reserved to insurers is an important and significant provision of the
policy contract, it is a right which an insurer forfeits when it violates its own
42 contractual obligation to the insured.” Fireman’s Fund, 72 N.J. at 71 (citations
omitted). “The breach of an insurer’s covenant, whether it be express or
implied, leaves the insured free, despite the limiting policy provisions, to
protect his own interest in minimizing a potential liability in excess of the
policy limits by agreeing to a reasonable good faith settlement . . . .” Id. at 73.
With “proof of the insurer’s default,” the insured can then “recover from it the
amount of its policy limits.” Ibid.
The Mist Insureds sought indemnity -- up to the remaining Policy limits
-- before and after they settled the underlying actions. They requested
payment for that part of the settlement related only to Mist Pharma’s wrongful
acts and Krivulka’s wrongful acts in his capacity as chairman of Mist Pharma.
Defense counsel for the Mist Insureds isolated that loss and explained to
Berkley that the allocated twenty-five percent was attributed to the Mist
Insureds due to the multiple bases for liability. The underlying allegations
claimed that Mist Pharma, which was controlled, operated, and owned by
Krivulka with approximately a ninety-five percent interest, stripped Akrimax,
and in turn Celestial, of various pharmaceutical licenses and rights. The
underlying liability theories included independent acts of conspiracy, as well
as alter ego and veil piercing that together exposed Mist Pharma to joint and
several liability for covered acts.
43 Accordingly, the Mist Insureds argue that the Global Settlement
reasonably apportioned the loss for wrongful acts by Mist Pharma and by
Krivulka acting as chairman of the corporation. Citing defense counsel’s
assessment of the underlying action, the Mist Insureds assert that the allocable
share of the Global Settlement to Mist Pharma was justified by its
determination that the Mist Insureds faced significant exposure. They also
contend that the share of the settlement allocated to Krivulka was reasonable
because Krivulka, acting as chairman of the insured Mist Pharma, was the
main defendant in the underlying suit.
Berkley, on the other hand, argues that the twenty-five percent allocated
to the Mist Insureds in the Global Settlement was disproportionate. Berkley
emphasizes that the Global Settlement involved sixteen different entities and
that most of the allegations made against the Mist Insureds were asserted
against the other defendant corporations. Given that other defendants in the
underlying actions faced the same exposure, a reasonable settlement, according
to Berkley, would have split the remaining twenty-five percent among the
sixteen other entities. Berkley argues there is no basis to allocate almost a
quarter of the settlement to Mist Pharma.
There has never been a determination about whether the settlement
reasonably apportioned loss for wrongful acts by Mist Pharma and Krivulka
44 acting as chairman of the company. On this record, we cannot resolve that
factual dispute. If the fact finder were to determine that the settlement
reasonably apportioned such loss, then the next questions would be whether
the Mist Insureds reached a reasonable settlement and whether they settled in
The parties dispute whether the settlement is reasonable. The insured
bears the initial burden of demonstrating the “operative evidential facts” of the
settlement “as to its reasonableness and good faith.” Griggs, 88 N.J. at 367-
68. Once the insured has made this showing, “the ultimate burden of
persuasion as to these elements is the responsibility of the insurer.” Id. at 368.
To determine whether a settlement is reasonable and made in good faith,
“[t]he insured must show that the settlement is ‘by the initial production of
proof[,] . . . prima facie reasonable in amount and untainted by bad faith.’”
Burlington Ins. Co. v. Northland Ins. Co., 766 F. Supp. 2d 515, 528 (D.N.J.
2011) (quoting Griggs, 88 N.J. at 367). “[R]easonableness and good faith
require that the insured expend efforts to determine whether the claims are
valid and whether the amount proposed is reflective of the injuries claimed.”
Excelsior Ins. Co. v. Pennsbury Pain Ctr., 975 F. Supp. 342, 357 (D.N.J.
1996).
45 The Mist Insureds argue that the reasonableness of the settlement is
established by the judge who approved the Global Settlement in Delaware.
Additionally, the Mist Insureds claim that since Mist Pharma received nearly
ninety percent of the purported diverted payments from Akrimax, it was a key
target in the underlying action and faced significant liability. The settlement,
they say, is therefore reasonable.
Berkley claims that Mist Pharma was not a primary target in the
underlying action and was situated identically to other defendant corporations.
Berkley echoes its argument as to the settlement’s disproportionate allocation
of loss: other defendants were equally exposed to the same causes of action,
Mist Pharma had strong liability defenses, and the settlement allocated an
outsized share of liability to the company. Berkley argues that the settlement
is unreasonable.
Once again, there has never been a factual determination made about
whether the settlement amount is reasonable. On this record, we cannot
resolve that factual dispute.
The parties dispute whether the Mist Insureds settled the underlying
actions in good faith. The Mist Insureds assert that they produced basic facts
as to their good faith in agreeing to the Global Settlement. First, the Mist
46 Insureds claim that the Global Settlement presented them with an opportunity
to achieve finality and eliminate the significant liability exposure that could
have resulted from a judgment. 8 The Mist Insureds relied on Berkley’s two
ROR letters where Berkley represented that there existed coverage for
wrongful acts committed by Krivulka in his capacity with Mist Pharma. By
settling the Delaware case, the Mist Insureds averted incurring millions of
dollars in defense costs. Second, the Mist Insureds explain that they
conducted a thorough analysis of the claims against them, including liability
exposure, and informed Berkley of the risk of a high-damages judgment. They
submit that Berkley possesses no evidence that the settlement was entered
other than in good faith.
Berkley has never fully developed its argument as to whether the Mist
Insureds negotiated the settlement in good faith. And, once again, there has
never been a factual determination made about whether the Mist Insureds
settled the underlying case in good faith. On this record, we cannot resolve
this factual dispute.
8 The total liability exposure is estimated to be in the range of $300 million.
47 B.
Those four genuine issues of disputed material facts would first need to
be resolved before a judge could answer the question of whether Berkley is
legally obligated to pay up to its Policy limits for the underlying settlement in
accordance with my holding as to the capacity exclusion. I would therefore
remand for further proceedings. Because the Appellate Division (and
majority) did not reach whether the trial judge correctly struck the corporate
designee’s affidavit, I would first remand to the appellate court for that legal
determination.
Thereafter, on remand to the trial court, the factual issues to resolve
would include (1) whether Berkley breached the Policy by unreasonably
withholding its consent to settle; and, if so, (2) whether the settlement
reasonably apportioned any loss from wrongful acts by Mist Pharma and
Krivulka in his capacity as chairman of Mist Pharma; (3) whether the
settlement amount is reasonable; and (4) whether the settlement was entered
into in good faith.
On remand to the trial court, the fact finder would not be tasked with
determining legal insurance coverage questions, such as interpreting the
capacity exclusion or ruling on Berkley’s indemnification obligations. Rather,
it would solely resolve disputed issues of material fact. In that regard, the
48 following special interrogatories would be a good starting point for
consideration:
(1) Did Berkley unreasonably withhold its consent to settle?
If not, stop deliberating. If yes, go to question 2.
(2) Did the settlement in the underlying action reasonably attribute loss to the Mist Insureds for wrongful acts committed by Mist Pharma and wrongful acts by Krivulka in his capacity as chairman of Mist Pharma?
If not, stop deliberating. If yes, go to question 3.
(3) Is the settlement amount reasonable?
If not, stop deliberating. If yes, go to question 4.
(4) Did the Mist Insureds enter into the settlement negotiations in good faith?
If not, stop deliberating.
Thereafter, application of my legal holding to those factual
determinations -- that loss arising from wrongful acts of Mist Pharma and
Krivulka’s alleged wrongful acts as chairman of Mist Pharm is covered by
insurance -- would guide the judge’s legal determination of whether Berkley
must pay for any part of the underlying settlement.
49 IV.
The majority’s conclusion that Berkley can rely on the capacity
exclusion as a complete bar to coverage ignores both the facts and the law.
Berkley’s actions -- delaying its disclaimer and misleading the Mist Insureds --
are exactly the type of conduct estoppel is designed to remedy. Our case law
demands that Berkley be held to its prior assurances and therefore barred from
relying on the capacity exclusion as an absolute defense.
As to the exclusion, a foundational feature of a D&O insurance policy is
that coverage is limited to losses undertaken by officers and directors in their
“capacities” with insured entities. The capacity exclusion does not exclude all
coverage when officers and directors act in dual capacities. It excludes only
loss arising from any wrongful acts committed by officers and directors in a
“capacity” with uninsured entities. Wrongful acts committed in an insured
capacity are covered.
For the foregoing reasons, I dissent.
Related
Cite This Page — Counsel Stack
Mist Pharmaceuticals, LLC v. Berkley Insurance Company, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mist-pharmaceuticals-llc-v-berkley-insurance-company-nj-2026.