# Petition for Writ of Certiorari — Liberty Mutual Insurance v. Caldwell Trucking PRP Group > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_2343%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2004 - **Citation:** 540 U.S. 1142 ## Text No. 03- IN THE Supreme Court of the Gnited States LIBERTY MUTUAL INSURANCE CO., Petitioner, Vv. CALDWELL TRUCKING PRP GROUP, Respondent. On Petition for a Writ of Certiorari to the Supreme Court of New Jersey PETITION FOR A WRIT OF CERTIORARI JONATHAN D. HACKER JOHN C. SULLIVAN O’MELVENY & MYERSLLP (Counsel of Record) 1625 Eye Street, N.W Post & SCHELL PC Washington, D.C. 20006 Four Penn Center (202) 383-5300 1600 John F. Kennedy Boulevard } Philadelphia, Pennsylvania 19103 ; (215) 587-1000 Attorneys for Petitioner (6 pv QUESTION PRESENTED Whether it is a violation of the Due Process Clause or the Takings Clause for a state supreme court to impose millions of dollars in retroactive liability on an insurer by nullifying an unambiguous insurance contract provision solely for the purpose of promoting a judicially created policy of increas- ing the money available to pay for environmental clean up. il LIST OF PARTIES AND CORPORATE DISCLOSURE The petitioner is Liberty Mutual Insurance Company. Liberty Mutual Group Inc. owns 100 percent of the stock of Liberty Mutual Insurance Company. LMHC Massachusetts Holdings Inc. owns 100 percent of the stock of Liberty Mu- tual Group Inc. Liberty Mutual Holding Company Inc. owns 100 percent of the stock of LMHC Massachusetts Holdings Inc. No publicly traded entity owns any stock of any of the above-named entities. Respondent is the Caldwell Trucking PRP Group. Cald- well Trucking PRP Group is an unincorporated association of parties alleged by the United States Environmental Protec- tion Agency to be responsible for the remediation of hazard- ous substance contamination at the Caldwell Trucking Superfund Site. The Caldwell Trucking PRP Group consists of: Scherng-Plough Corporation, E.I. du Pont de Nemours and Company, Kearfott Guidance & Navigation Corporation, Saltire Industrial Inc., Curtiss-Wnght Corporation, BP p.l.c., Cooper Industries, Inc., and Englehard Industries, Inc. The other parties who participated in the proceedings be- fore the Supreme Court of New Jersey were American Home Assurance Company, Industnal Underwriters Insurance Company, Lexington Insurance Company, and National Un- ion Fire Insurance Company of Pittsburgh, PA. lil TABLE OF CONTENTS Page QUESTION PRESENTED o.oo. ceccsccecsssssscssssesecscsscecseseeeeee. i LIST OF PARTIES AND CORPORATE PIII sic oneieessneyesaewesnsseincacoveresososssosesesvsexsneces il TABLE OF AUTHORITIES ...0..........ccccscescsccscssccsssscosssseseees Vv PETITION FOR A WRIT OF CERTIORARI ...cecccscccsssseesee. | em PEN Ee MII oo. snsssesnseccsuscesnsecsvevecessseesesereeseseserees | I I caassnsnixicenscessncsvscoavssesenesouesorevoxerjenevsesece ] CONSTITUTIONAL PROVISIONS INVOLVED.............. | STATEMENT OF THE CASE..00..cccccscssscssessscsssecsscessesseeoses 2 A. Liberty’s Non-Cumulation Clauses.........ccccccccceseseoees 2 B. The Owens-Illinois Decision ..........cccececesessesecceseseeeee. 4 C. The Carter-Wallace Decision .........ccceccccscsesesssseseoees 7 D. The Proceedings and Decision Below..........eccccesces-0. 9 REASONS FOR GRANTING THE WRIT .....cceccccccccseseeee. 15 I. THE DECISION BELOW VIOLATES THE oo 8. ae | 0 cn 17 A. The Decision Below Violates Liberty’s Fundamental Rights To Contract, Which Are Protected From Arbitrary Judicial Impairment By The Due Process Clause .......... 17 B. The Decision Below Violates Due Process Because It Imposes An Unpredictable, Severe And Unfair Retroactive Insurance ETERS ae 21 Il. THE DECISION BELOW VIOLATES THE BI EIB ois cssvnsevesersersansvccsosseenoaryeressces 24 iV II. THE DECISION BELOW CONFLICTS WITH OTHER DECISIONS ENFORCING INSURANCE CONTRACTS CONSISTENT WEE EE Fea ee BPRS sctctsnsserersscssssinnesesvincnne 25 IV. THIS CASE IS EXTREMELY IMPOR- TANT TO INSURERS AND {INSUREDS IN NEW JERSEY AND ELSEWHERE..............:00-.000 28 RAI serene nimisnriinometdone 30 Vv TABLE OF AUTHORITIES Page(s) Cases Aerojet-General Corp. v. Transport Indemnity Co., Ue Fe PO Ch NF epsieiccthcsntacisteleisnieerni 27 Allied Structural Steel Co. v. Spannaus, 438 U.S. Be Ce cscs aaa 18,19,20 Alpine Haven Property Owners Ass'n, Inc. v. Deptula, 830 A.2d 78 (Vt. 2003) ........eeeeeeeseeeseeeeeeee 26 Armstrong v. United States, 364 U.S. 40 (1960)................ y BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996)............ 22 Bouie v. City of Columbia, 378 U.S. 347 (1964)... 17 Caldwell Trucking PRP Group v. Spaulding Composites Co., 890 F. Supp. 1247 (D.N.J. EPO O D siksicsaicesrnisesnnmnarntnitemapeiaataaaiagdslmndaaanaae 10 Carmell v. £6008, S29 U.S. S13 (2OQD) ..ceccrseneveesincsonrsvsonsons 18 Carter-Wallace, Inc. v. Admiral Ins. Co., 712 A.2d SEG Ld. ee inncnincainae 7,8,9,11,14,23 City of Los Angeles v. Manhart, 435 U.S. 702 (RFR F ED secronisrsisasnsieictatiininsidunahabeanamaeepamanaiaanaeaigtemmatiilaaie 28 Cohen v. Cohen, 126 N.J.L. 605 (N.J. 1941)... eeeeeeeeeeeee 20 Columbia Propane, L.P. v. Wisconsin Gas Co., 661 BO, We ae Fe COP BO csisinncricesncniiaininnaimoniaian 26 Eastern Enterprises v. Apfel, 524 U.S. 498 Cr sacscvchvonbeniatuccmaciacnlaendsencmkanaiaede 15,21,22,23,24,25 Elliott v. Darwin Neibur Farms, 69 P.3d 1035 CD BIER sincnccsnrsiintmencabaomtonennieneuimnigncntinciaitial ossceecesenees 26 Vl Flynn v. Hartford Fire Ins. Co., 370 A.2d 61 (N.J. Super., App. Div.), certif: denied, 379 A.2d 236 Re BF Ti isxencrvcsiseennenuncisanibbmsaniniaasbaininanemaapanata 13 Hardee v. Hardee, 585 S.E.2d 501 (S.C. 2003)... 26 Hertz v. Clovis, 578 $.E.2d 391 (W. Va. 2003)..............006 26 Home Building & Loan Ass'n v. Blaisdell, 290 U.S. Ee sisncssisnnibsndandintidenneastaedaaatenaebeiel 18,19 Insurance Co. of North America v. Continental Casualty Co., 575 F.2d 1070 (3d Cir. 1978).............02. 11 Joint Anti-Fascist Refugee Committee v. McGrath, UE Is EA Ee oii canninversenns 16 Kampf v. Franklin Life Ins. Co., 161 A.2d 717 (N.J. SPI In so ruling, the court also rejected the argument that the non- cumulation provision was an “escape” clause, a sub-category of other insurance provision. “Escape” clauses are looked on with disfavor by courts because they allow an insurer to escape liability altogether when other insurance applies. See /nsurance Co. of North America v. Conti- nental Casualty Co., 575 F.2d 1070, 1072 (3d Cir. 1978). oe ee — . se J ee 12 PRP. PRP’s main argument on appeal” was that the non- cumulation clause was not applicable because it was an “other insurance” clause. Like the Appellate Division, the New Jersey Supreme Court rejected this argument. All “other insurance” clauses, the court recognized, apply only when there are concurrent policies. Their point 1s to allocate among insurers with potentially overlapping coverage re- sponsibilities. App. 20a. A non-cumulation clause, by con- trast, applies when one insurer provides successive policies, as the court acknowledged. App. 20a. The point of a non- cumulation clause 1s not to allocate lability among different insurers, but to fix a limit on the total potential lability of the single insurer providing successive vears of coverage. App. 20a (‘a non-cumulation clause governs successive policies and prevents the accretion of limits when the policies have been tnggered by a single occurrence’). The Court recognized that the non-cumulation language was directly relevant to the allocation issue: | A] non-cumulation clause generally, and Liberty's in particular, operates to limit an insurer’s lability under multiple sequential CGL policies where losses related to a “single occurrence” tngger successive poll- cies.... What the non-cumulation clause seeks to avoid is the “cumulation” of insurance policy limits when only one insured act or ‘occurrence’ 1s involved. App. 2la. Nonetheless, this Court made an explicit determi- nation to “look[] beyond contract language and traditional rules of insurance policy interpretation,” App. 17a, rather than give effect to the contract language, stating: In a word, Owens-/ilinois eliminated reliance on par- ticular contract language (other than limits and exclu- ° While the appeal was pending, Spaulding assigned all of its rights to coverage to PRP. 13 sions) and on traditional rules of interpretation, and set forth a uniform standard for resolving allocation issues in long-tail environmental exposure cases. App. 19a. The court held the clause to be void as a matter of law “because it would thwart the Owens-Illinois pro rata alloca- tion modality.” App. 22a. That “modality,” the court ex- plained, “has, at its core, a public policy that favors maxi- mizing, in a fair and just manner, insurance coverage for cleanup of environmental disasters.” App. 23a. The court further explained that if a non-cumulation clause were actu- ally enforced in accordance with the contract’s terms — in accordance, that is, with the parties’ specific agreement, nec- essarily reflected in the cost of the coverage purchased — “‘in- surers who were actually ‘on the risk’ would be insulated from their fair share of liability in direct contravention of Owens-Illinois.” App. 23a. Finally, the court distinguished the many cases from other jurisdictions enforcing non- cumulation clauses on the ground that “none of the cases ... Involves the application of the continuous trigger and pro-rata allocation methodology of Owens-Illinois.” App. 23a-24a. The court’s conclusion that Owens-Illinois necessarily rendered the parties’ non-cumulation clause void — and ret- roactively void at that — could not have been more of a sur- prise to Liberty. When Liberty issued its first policy to Spaulding in 1976, it had already “long been the law of [New Jersey] that the court is bound to enforce the policy as it is written.” Flynn v. Hartford Fire Ins. Co., 370 A.2d 61. 63-64 (N.J. Super., App. Div.), certif’ denied, 379 A.2d 236 (N.J. 1977). New Jersey courts had been “insistent that clear basic terms and particular provisions of an insurance contract may not be disregarded at will and a new contract judicially made for the parties.” Linden Motor Freight Co., Inc. v. Travelers Ins. Co., 193 A.2d 217, 225 (N.J. 1963). Accord- ingly, New Jersey law recognized that “{a]bsent statutory eerie Ie fe | 14 prohibitions, an insurance company has the nght to impose whatever conditions it desires prior to assuming its obliga- tions and such provisions should be construed in accordance with the language used.” Kampf v. Franklin Life Ins. Co., 161 A.2d 717, 721 (N.J. 1960). Owens-Illinois itself cer- tainly did not deviate from this settled tradition. To the con- trary, the Owens-Illinois Court acknowledged unequivocally that “[t]he source of any duty on the part of the Insurance Companies to defend actions or to pay any judgments is ob- viously in the contract of insurance.” Owens-Illinois, 650 A.2d at 978 (emphasis added). Indeed, the pnmary “public policy” the court below identified as at the “core” of Owens- Illinois — maximization of insurance coverage — was 1n fact explicitly reyected by the Owens-Illinois court as a sufficient basis for imposing coverage liability: “A rule of law prem- ised on nothing more than the result-oriented goal of maxi- mizing coverage has been described as judicial legislation. A more consistent principle is required.” Jd. at 981 (internal quotation marks omitted). In short, in no pnor case — not Ovens-illinois, nor Carter-Wallace, nor any other — had the New Jersey Su- preme Court ever held that a “public policy” of maximiza- tion of coverage could operate to render an unambiguous li- ability limitation in an insurance contract null and void. And certainly no decision had ever done so in a case decided twenty years after the policies had expired, undoing expecta- tions settled literally for decades. Second, leaving the errors of state-law precedent to one side, the suggestion of the court below that insurers “on the risk” would be relieved of liability by enforcement of the non-cumulation clause is wrong — indeed, it is nonsensical. An insurer can be “on” no more risk than the insurer agrees by contract to assume. If the insurer and insured agree that liability will not cumulate over successive policies, the in- surer’s “fair share of liability” is fixed by that agreement. There is nothing “fair and just” about “maximizing” Lib- 15 erty’s coverage far beyond the specific maximum set forth in the parties’ own contract of insurance. 4. Liberty moved for reconsideration. Liberty’s motion not only explained how the court had badly misread its precedents, but also specifically raised federal constitutional issues under the Due Process, Takings, and Contract Clauses in respect to the court’s ruling declaring the non-cumulation clause retroactively void. App. 58a-65a. More than two months later, the court denied the motion for reconsideration. App. 43a. This petition followed. REASONS FOR GRANTING THE WRIT It is common ground on this Court that “an unfair retro- active assessment of liability upsets settled expectations, and it thereby undermines a basic objective of law itseif.” East- ern Enterprises v. Apfel, 524 U.S. 498, 557 (1998) (Breyer, J., dissenting); see id. at 533 (plurality); id. at 549 (Kennedy, J., concurring). The retroactive and wholly unforeseeable nullification of the non-cumulation clause here literally de- prived-Liberty of due process of law: the court’s decision is a brazen act of judicial legislation, suspending Liberty’s li- ability limitation for the openly avowed purpose of increas- ing the amount of insurance money available for environ- mental cleanup in the State of New Jersey. If the New Jersey Legislature had tried to enact as statute the result in this case, it would have plainly violated fundamental constitutional constraints intended to protect settled expectations and to ensure that the lawmaking process does not entirely lose sight of its “law” component. If courts are bound by fewer explicit constitutional constraints than are legislatures, it is only because the Framers quite reasonably presumed that courts, by their very nature, are always bound by the law — a system of reasoning and judgment that, while capable of evolving, does so only by incorporating prior judgments and building slowly upon itself, with the ultimate goal of protect- ing and enforcing a system of ordered and reasonable expec- tations in private affairs. See generally Holmes, The Path of 7 rs 16 the Law, 10 Harv. L. Rev. 457 (1897). If “due process of law” means anything, it must be this: the traditional process of reasonably predictable decisionmaking through which private entitlements are protected and private obligations en- forced. See Joint Anti-Fascist Refugee Committee v. McGrath, 341 U.S. 123, 162-63 (1951) (Frankfurter, J., con- curring) (describing “due process of law” as “a delicate process of adjustment” that is “compounded of history, rea- son, the past course of decisions, and stout confidence in the strength of the democratic faith which we profess”). The New Jersey Supreme Court departed radically from that tradition, and thus deprived Liberty of its nght to “due process of law” in a most literal sense. Not only did the court wander far into the realm of legislative conduct, it went farther than even the legislature could ever go, explicitly im- pairing the obligation of Liberty’s contracts and taking its property without just compensation. In order to increase in- surance resources for environmental cleanup in the state, the New Jersey Supreme Court simply nullified an unambiguous limitation on the amount of liability Liberty had long ago agreed to assume for injuries caused by Spaulding. It did so even though Spaulding had never paid Liberty for the addi- tional coverage it would now be receiving ($8.5 million in coverage obviously costs a lot more in premiums than $1 million in coverage), and it did so without providing Liberty any measure of compensation from the State for the new public burden of environmental cleanup the court had de- cided to impose on Liberty and other insurance companies. In substance, it is exactly as if Spaulding had paid for only $1,000,000 in coverage for environmental cleanup liabilities, but the Court nevertheless decided that Liberty should pro- vide $8,500,000 in coverage, simply because the State would be better off if Liberty were forced to pay more for the inju- ries Spaulding had caused. That is not due process. It is not even law. Certiorari should be granted. 9 ’ 2 | 17 I. THE DECISION BELOW VIOLATES THE DUE PROCESS CLAUSE The decision of the New Jersey Supreme Court in this case violates due process in two distinct but related respects. First, the decision violates the basic constitutional protection of contractual rights afforded by such provisions as the Con- tracts Clause, as the principles of that Clause are incorpo- rated against judicial decisionmaking through the Due Proc- ess Clause. Second, the decision violates the Due Process Clause’s more general proscription against the imposition of unpredictable, severely retroactive civil liability. A. The Decision Below Violates Liberty’s Fundamen- tal Rights To Contract, Which Are Protected From Arbitrary Judicial Impairment By The Due Process Clause The decision blatantly impairs the obligation of Spaulding’s insurance contract with Liberty. That much is not even in dispute. The square holding and explicit point of the decision below is to nullify Liberty’s contractually guar- anteed limitation on the liability it was assuming, so that more money would be available for environmental cleanup. The Contracts Clause of the U.S. Constitution states that “No State shall... pass any ... Law impairing the Obliga- tion of Contracts.” Although the Clause by its own terms applies only to legislative enactments, see Tidal Oil Co. v. Flanagan, 263 U.S. 444, 451 (1924), its basic protection of existing contractual obligations necessarily applies to judi- cial decisions under the Due Process Clause; otherwise, the protection afforded by the Clause would be a virtual dead letter. Cf Bouie v. City of Columbia, 378 US. 347, 353-54 (1964) (“If a state legislature is barred by the Ex Post Facto Clause from passing such a law, it must follow that a State Supreme Court is barred by the Due Process Clause from achieving precisely the same result by judicial construc- tion.”). 18 This Court has recognized that contractual rights are “matters in which predictability and stability are of prime importance.” Landgraf v. USI Film Prods., 511 U.S. 244, 271 (1994); see id. at 265-66 (“In a free, dynamic society, creativity in both commercial and artistic endeavors is fos- tered by a rule of law that gives people confidence about the legal consequence of their actions.”); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245 (1978) (“Contracts en- able individuals to order their personal and business affairs according to their particular needs and interests. Once ar- ranged, those nghts and obligations are binding under the law, and the parties are entitled to rely on them.”). The Framers shared that view in spades: they considered the rights explicitly protected by the Contracts Clause “to be ‘perhaps greater securities to liberty and republicanism than any [the Constitution] contains,” and violations of such rights to be “contrary to the first principles of the social compact and to every principle of sound legislation.”” Car- mell v. Texas, 529 U.S. 513, 521 (2000) (quoting The Feder- alist, No. 44, at 282 (James Madison), No. 84, at 511 (Alex- ander Hamilton) (Clinton Rossiter ed., 1961)). They be- lieved the Clause necessary for at least two reasons: to bar states from retroactively “changing the relative situation of debtor and creditor,” Home Building & Loan Ass'n v. Blais- dell, 290 U.S. 398, 427-28 (1934); see Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 503 (1987) (Con- tract Clause’s “primary focus was upon legislation that was designed to repudiate or adjust pre-existing debtor-creditor relationships that obligors were unable to satisfy.”), and “to encourage trade and credit by promoting confidence in the stability of contractual obligations,” United States Trust Co. v. New Jersey, 431 U.S. 1, 15 (1977). Those basic purposes would be frustrated just as easily by judicial suspension cf contractual obligations as by legislative. It follows that courts must be bound to the essential principles, at least, of the Contracts Clause through every court’s obligation to pro- ce ee en eee thoes 19 vide due process of law, even if courts are not bound to the letter of the Contracts Clause or to every detail of judicially- developed doctrine applying the Clause. There is no doubt that the decision below, were it simply re-captioned “A Law Passed By The New J ersey Assembly,” would violate the very essence of the rights protected by the Contracts Clause — and thus the rights also protected by the Due Process Clause. The Contracts Clause does not bar the enforcement of all laws that affect contractual obligations — inasmuch as virtually all economic legislation may have some effect on existing contracts — but the Clause does “im- pose some limits upon the power of a State.to abridge exist- ing contractual relationships, even in the exercise of its oth- erwise legitimate police power.” Spannaus, 438 U.S. at 242. If “the state law has, in fact, operated as a substantial im- pairment of a contractual relationship,” as opposed to a mere “[mJinimal alteration,” it is invalid. Jd. at 244-45. Under this Court’s precedents, an impairment is “substantial”. if the contracting party “had no reason to anticipate” the impair- ment, and instead- “relied heavily, and reasonably, on this legitimate contractual expectation in calculating” its obliga- tions under the contract. Jd. at 245-46. While a “temporary” impairment of contractual relationships might not be sub- stantial, a law that works a “severe, permanent, and immedi- ate change in those relationships—irrevocably and retroac- tively,” id. at 250, obviously works a substantial impairment. The archetypal substantial impairment is one that “nullifies express terms of the company’s contractual obligations and imposes a completely unexpected liability” when those obli- gations are “in an area where the element of reliance [is] vi- tal.” Jd. at 246-47. That is exactly what the decision below does. Directly in the face of the Clause’s most central purpose of barring States from “changing the relative situation of debtor and creditor,” Blaisdell, 290 U.S. at 427-28; the decision “nulli- fies express terms” of the debtor-creditor insurance contract, 20 see Cohen vy. Cohen, 126 N.J.L. 605, 609 (N.J. 1941) (in- sured-insurer relationship is “clearly that of debtor and credi- tor’), imposing “completely unexpected liability” and a “‘se- vere,” “permanent,” “immediate,” and “retroactive” change in the parties’ contractual relationship. This is all particu- larly harmful in an industry (insurance) where reliance on express contract terms is so critical, because the very nature of the industry depends upon being able to painstakingly analyze and calculate precise degrees of risk and transform that analysis into contractual terms. Just as the employer in Spannaus “made contributions to [its pension] fund based on actuarial predictions of eventual payout needs,” Spannaus, 438 U.S. at 237, which were obviously based on its contrac- tual obligations, so too did Liberty rely on actuarial predic- tions in forming its insurance contracts and determining the premiums it would charge.’ If the nghts protected by the Contracts Clause mean any- thing, they must be secure against judicial infringement as well as legislative. This is not a question of interpretation committed to the courts, nor a question on the margins of contract enforcement — a question, say, of unconscionability or violation of public policy — where the exercise of reason- able judicial judgment is to be expected. This is a simple case of a state court refusing to enforce an unambiguous con- tractual nght, for one reason — to make one party pay much ’ Even a “substantial” impairment may be upheld if it is “necessary” to serve a “significant and legitimate public purpose.” Keystone Bitumi- nous Coal, 480 U.S. at 505. Environmental cleanup may be an important public interest, but the decision below does not even purport to explain why it is “necessary” to serve that interest by forcing insurers to pay many times more for cleanup than they ever promised to pay. If those actually responsible for environmental damage cannot or will not pay for clean-up, leaving the public with the bill, then the public must pay it — confiscating resources from individual private parties to pay for per- ceived public needs is precisely what the Contracts Clause, among other constitutional provisions, is supposed to bar the State from doing. 21 more than it owes because the public would benefit from the confiscation. That will not justify state action of any kind, much less action by a court bound to provide due process of law. The rights underlying the Contracts Clause are im- paired not once but twice in this case — first, by failing to en- force the contract as indisputably written, and second, by giving force to a substituted contract that the parties never made, one in which the potential lability for a continuing occurrence is $8,500,000 rather than $1,000,000. B. The Decision Below Violates Due Process Because It Imposes An Unpredictable, Severe And Unfair Retroactive Insurance Liability The decision below deprives Liberty of due process be- Cause it imposes a severe and deeply unfair retroactive civil liability on Liberty. Even if the Due Process Clause were not understood as incorporating Contracts Clause principles per se, the Due Process Clause itself exists more broadly to protect the same settled expectations the Contracts Clause protects specifically in the contract setting. As this Court has recognized, “[e]lementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly; settled ex- pectations should not be lightly disregarded.” Landgraf, 511 U.S. at 265. Accordingly, “due process protection for prop- erty must be understood to incorporate our settled tradition against retroactive laws of great severity.” Eastern Enter- prises, 524 U.S. at 549 (Kennedy, J., concurring). “If retro- active laws change the legal consequences of transactions long closed, the change can destroy the reasonable certainty and security which are the very objects of property owner- ship.” Jd.; see id. at 558 (“To find that the Due Process Clause .. . protects against an unfair allocation of public burdens through this kind of specially arbitrary retroactive means — is to read the Clause in light of a basic purpose: the fair application of law, which purpose harkens back to the Magna Carta.”) (Breyer, J., dissenting). And if “an unfair tb, retroactive assessment of liability upsets settled expectations, and ... thereby undermines a basic objective of law itself,” id. at 558 (Breyer, J., dissenting), it follows that any judicial decision that upsets settled expectations by imposing an un- fair retroactive liability on a party necessarily deprives the party of due process of law itself. The Due Process Clause’s protection of settled expecta- tions is manifested in the “core due process concepts” of “notice” and “foreseeability.” Rogers v. Tennessee, 532 U.S. 451, 459 (2001); see Quill Corp. v. North Dakota, 504 U.S. 298, 312 (1992) (“notice” or “fair warning” is the “analytic touchstone” of due process analysis); World-Wide Volks- wagen Corp. v. Woodson, 444 U.S. 286, 297 (1980) (“fore- seeability” is “critical to due process analysis”). These re- quirements of course ensure that a State’s actions do not vio- late the settled, reasonable expectations of its citizens. These requirements apply to courts no less than to legislatures. Thus, this Court has held it to be a violation of due process for a court to assert jurisdiction over a person in the absence of state contacts sufficient to give the person notice of the state’s power over him, see Quill Corp., 504 U.S. at 313 (minimum contacts are a “proxy for notice’), to apply a state’s law to a party’s conduct in violation of the party’s reasonable expectations, see Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 822 (1985), and to impose a punitive damage award beyond what a party might reasonably expect given other indicators of the wrongfulness of the conduct, see BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574 (1996). It has also held that “limitations on ex post facto decision- making are inherent in the notion of due process.” Rogers, 532 US. at 456. The retroactive liability imposed here was imposed with- Out notice, fair warning, or foreseeability of any kind. From 1976 to 1984, and for the two decades preceding the decision below, when Liberty assessed its potential liabilities, calcu- lated premiums, and entered into contracts of insurance, the rath BLA ibe PORES abet: LAR Sap OAH ARB ED OSE CRN SEM OS i NE eat Oat Aas pa emanate! Seances.) 23 law of New Jersey — and every jurisdiction in this country — was that courts were bound to enforce an insurance contract as it is written. As a result, when Liberty and Spaulding agreed to their nine contracts from 1976 to 1984, they had not the least reason to expect that the non-cumulation clause clearly fixing Liberty’s total potential liability for continuous injunies would be nullified by a court twenty years later. Even if Owens-Illinois or Carter-Wallace had given such notice — and they assuredly did not — they were not decided until more than ten years after the last of the contracts ex- pired. Where ex post facto laws are by their nature fundamen- tally unfair when enacted by a legislature, they are likewise “fundamentally unfair” as the result of judicial rulings. Whether the governmental actor responsible for the in- fringement is a legislature or a court is irrelevant: the essen- tial stability is no less undermined by seven justices in a courtroom than by a legislature in session. The judicial deci- sion imposing retroactive liability here is little different in substance than the federal statute imposing retroactive liabil- ity in Eastern Enterprises — except that the decision here was worse from a due process perspective, because it was en- tirely unforeseeable when the nullified contractual provi- sions were agreed to by the parties. In Eastern Enterprises, this Court invalidated a federal law imposing several mil- lions of dollars of mineworkers’ benefits liability on a coal company for events that took place 35 years earlier. The plurality reasoned: “The distance in the past that the Act reaches back to impose liability on Eastern and the magni- tude of that liability raise substantial questions of fairness.” Eastern Enterprises, 524 U.S. at 534. Although the plurality addressed the problem under the Takings Clause, see id. at 533, Justice Kennedy’s concurrence — which reflected his decisive fifth vote — explained the same problem in terms of the Due Process Clause, finding a violation of the Clause be- cause “in creating liability for events which occurred 35 24 years earlier the Coal Act has a retroactive effect of unprece- dented scope.” Jd. at 549. And both Justice Kennedy and the four-Justice plurality recognized that while Congress might well have a legitimate interest in resolving “the prob- lem of funding miners’ benefits,” “the Constitution does not permit a solution to [that] problem .. . that imposes such a disproportionate and severely retroactive burden upon East- er.” /d. at 536 (plurality). So it is here. The decision in this case would fundamen- tally rework transactions closed between 19 and 27 years ago. In doing so it would impose millions of dollars in un- expected liability on one party to those transactions. While a state may have a legitimate interest in ensuring adequate funds for environmental cleanup, its supreme court cannot accomplish this goal by imposing disproportionate and se- verely retroactive burdens on insurers who took care to nego- tiate with their highly sophisticated insureds very specific and unambiguous limits on their liabilities for such cleanup. The decision below is an affront to the most fundamental premise of the Due Process Clause — that whatever process a party may receive, it will in all events be due process of law. The decision below is not law — it is straight confiscatory policymaking. If the New Jersey Legislature had attempted such an act, no court would have allowed it. The fact that a court itself has attempted it does not mitigate, but exacer- bates, the constitutional harm. It certainly cannot immunize the act from constitutional review. Certiorari should be granted. Il. THE DECISION BELOW VIOLATES THE TAK- INGS CLAUSE The New Jersey Supreme Court’s retroactive imposition of liability on Liberty also violates the Takings Clause, U.S. Const. amend V, for essentially the same reasons it violates due process. “The aim of the [Takings] Clause is to prevent the government ‘from forcing some people alone to bear u | 1 aig actreitensmibee: ineseinsintai tccsamaalialll ih a aa apd A, 25 public burdens which, in all fairness and justice, should be borne by the public as a whole.’” Eastern Enterprises, 524 U.S. at 522 (plurality opinion) (quoting Armstrong v. United States, 364 U.S. 40, 49 (1960)). That is exactly what the de- cision below does. As the Eastern Enterprises plurality ex- plained, governmental action constitutes an impermissible Taking “if it imposes severe retroactive liability on a limited class of parties that could not have anticipated the liability, and the extent of that liability is substantially disproportion- ate to the parties’ experience.” Eastern Enterprises, 524 U.S. at 528-29. That test is easily met here: as discussed above, the liability imposed is “severe,” it is “retroactive,” it is imposed on a “limited class of parties,” it “could not have [been] anticipated,” and it is “substantially disproportionate to the parties’ experience” — which experience, after all, was to negotiate the very liability limitation the decision nullifies. Certiorari should be granted to rectify the grossly unfair taking of Liberty’s property effected by the retroactive impo- sition of millions of dollars of unforeseeable liability on Lib- erty. IiIl.THE DECISION BELOW CONFLICTS WITH OTHER DECISIONS ENFORCING INSURANCE CONTRACTS CONSISTENT WITH THEIR LAN- GUAGE It should come as no surprise that the decision below conflicts with decisions of other state courts of last resort holding that contracts, including insurance contracts, must be enforced according to their terms, unless those terms are un- conscionable or unlawful. Indeed, decisions from every ju- risdiction in the United States have made clear that it is not even within the judicial power, as that power is understood in our system of law, to rewrite the unambiguous terms of private contracts, barring fraud, unconscionability, or some other form of illegality in the agreement. “The judicial func- tion of a court of law is to enforce a contract as made by the parties, and not to rewrite or distort, under the guise of con- 26 struction, contracts, the terms of which are plain and unam- biguous.” Hardee v. Hardee, 585 S.E.2d 501, 503 (S.C. 2003).° This principle of course applies fully to insurance con- tracts. As the Michigan Supreme Court recently observed in refusing to deviate from the terms of an insurance policy, it is a “bedrock principle of American contract law that parties are free to contract as they see fit, and the courts are to en- force the agreement as wnitten absent some highly unusual circumstance, such as a contract in violation of law or public policy.” Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776, 782 (Mich. 2003). A “highly unusual circumstance” is not a court’s professed interest in promoting pollution cleanup in disregard of the terms of private contracts. In direct contrast with the New Jersey Supreme Court in this case, the Michi- gan court recognized the constitutional dimension of the re- quirement that insurance contracts must be enforced accord- ing to their terms: The notion, that free men and women may reach agreements regarding their affairs without government interference and that courts will enforce those agree- ments, is ancient and irrefutable. It draws strength from our common-law roots and can be seen in our fundamental charter, the United States Constitution, * The principle that courts lack authority under our system of law to disregard the lawful, unambiguous terms of private contracts is so well settled that a complete list of citations endorsing it would be impossible to include in any brief. In addition to the cases cited in the text, the fol- lowing decisions from state courts of last resort on this point were re- ported in just the last few months: Elliott v. Darwin Neibur Farms, 69 P.3d 1035, 437 (Idaho 2003); Yarcheski v. Reiner, 669 N.W.2d 487, 495 (S.D. 2003); Alpine Haven Property Owners Ass'n, Inc. v. Deptula, 830 A.2d 78, 86 (Vt. 2003); Standard Banner Coal Corp. v. Rapoca Energy Co., 576 S.E.2d 435, 437 (Va. 2003); Hertz v. Clovis, 578 S.E.2d 391, 395 (W. Va. 2003); Columbia Propane, L.P. v. Wisconsin Gas Co., 661 N.W.2d 776, 783 (Wis. 2003). ——— 27 where government is forbidden from impairing the ob- ligation of contracts of citizens, art. I, § 10, cl. 1.... It is, in short, an unmistakable and ineradicable part of the legal fabric of our society. Id. at 782. Other state supreme court decisions have simi- larly recognized that, in our constitutional system, courts “do not rewnte any provision of any contract, including an insur- ance policy, for any purpose.” Rosen v. State Farm Gen. Ins. Co., 70 P.3d 351, 353 (Cal. 2003) (alterations omitted); see, €.g., Aerojet-General Corp. v. Transport Indemnity Co., 948 P.2d 909 (Cal. 1997); Medlar v. Aetna Ins. Co., 248 A.2d 740, 747 (Vt. 1968). Rosen is especially on point. In that case, the insured made a claim for the cost of repairing two decks, which liad been in a state of imminent collapse, despite the fact that coverage under the policy was expressly restricted to actual collapse. The California Supreme Court rejected the argu- ment that notwithstanding the language of the collapse pro- vision in the insurance contract, public policy mandated that the insurer afford coverage: Applying the same logic, with the same lack of re- straint, courts could convert life insurance into health insurance. In rewriting the coverage provision to con- form to their notions of sound public policy, the trial court and the Court of Appeal exceeded their author- ity, disregarding the clear language of the policy and the equally clear holdings of this court. Rosen 70 P.3d at 355. In so ruling, the court drew an anal- ogy to earlier rulings addressing coverage for environmental cleanup in which the court had recognized that “[w]hile we agree that it is in everyone’s best interests to have hazardous wastes cleaned up, we do not agree that a California court may rewrite an insurance policy for that purpose or for any purpose.” Jd. at 356 (citations omitted). ———— es 28 The decision of the New Jersey Supreme Court in this case cannot be reconciled with these other decisions, or with the deeply embedded constitutional principle they endorse. IV.THIS CASE IS EXTREMELY IMPORTANT TO INSURERS AND INSUREDS IN NEW JERSEY AND ELSEWHERE This case is not a minor or commonplace contractual dis- pute between insurer and insured. The decision below alone means the difference between $1 million and $8.5 million in potential liability for Liberty. But there is much more to it than that. Non-cumulation clauses are a commonplace fea- ture of Liberty’s policies. Because no court had ever sug- gested that such clauses are simply void, for literally decades Liberty sold policies to insureds in New Jersev that included this important cap on Liberty’s potential liability. The deci- sion below nullifies the coverage limitation — the essence of the bargain — in every one of those contracts as it applies in continuous injury situations. Potentially scores of millions of dollars are at stake. This Court has previously acknowledged the enormous costs and virtually inherent unfairness of retroactive insur- ance liability: [I]nsurance depend{s] on the accumulation of large sums to cover contingencies. The amounts set aside are determined by a painstaking assessment of the in- surer’s likely liability. Risks that the insurer foresees will be included in the calculation of liability, and the rates or contnbutions charged will reflect that calcula- tion. The occurrence of major unforeseen contingen- cies, however, jeopardizes the insurer’s solvency and, ultimately, the insureds’ benefits. Drastic changes in the legal rules governing pension and insurance funds, like other unforeseen events, can have this effect. City of Los Angeles v. Manhart, 435 U.S. 702, 721 (1978). Manhart involved the retroactive application of a federal re- Bannan ss Me re ya regulatory statute affecting insurance funds, not a statute or court decision retroactively nullifying a fundamental liability limitation in an insurance contract. But its recognition of the inequities and hidden costs of imposing retroactive insurance liability of any kind is directly applicable here. The costs and unfairness do not affect Liberty alone. Non-cumulation clauses are ot provisions secretly or uniquely devised by Liberty. They are a commonplace fea- ture of policies sold by many other insurers as well. The court below well understood that it was not imposing a spe- cial burden on Liberty alone — it was tapping the resources of every insurer with a policy in New Jersey limiting its liabil- ity over successive contracts. The more coverage, the better, the court explicitly held. In short, the Due Process Clause and Takings violation that occurred here will not affect just this one insurer in this one case. It will affect many other insurers in many other cases. The retroactive effect of the law across the industry will be enormous. This case is thus an appropriate vehicle through which to remind state courts that, while the common law may be ca- pable of evolving, at bottom courts must always remain courts of law. Review and reversal here need not draw this Court into endless battles over claimed error in state-law contractual disputes. As we have explained, the error here is of a qualitatively different kind: whether or not the court below was correct in its reading of prior precedents, what cannot be disputed is that the decision (1) nullifies an unam- biguous contractual provision, (2) does so retroactively, and (3) in a manner that was wholly unforeseeable at the time, now more than twenty years ago, that the contracts were en- tered into. The asserted error, in other words, is not one of State law; indeed it is just the opposite. Liberty does not dis- pute that the New Jersey Supreme Court, as the final arbiter of New Jersey state law, is entitled to interpret contracts in accordance with its well-settled principles of contract inter- 30 pretation. But an approach in which judges divine a public policy and then rewrite contracts made years earlier is an- tagonistic to due process of law. If New Jersey law allows a court to refuse to enforce an unambiguous insurance liability limitation simply to increase the insurance dollars available for environmental cleanup, then application of that New Jer- sey law to Liberty deprives Liberty of due process and takes its property without just compensation. Because it is the rare court that departs so fundamentally from the basic precepts of law that govern all courts, it is the rare petition for certiorari in a contract dispute, otherwise governed by state law, that presents — or ever would present — a meritorious federal constitutional claim. Recognition of that claim here thus would ultimately have the salutary effect of minimizing the number of petitions claiming such error, for reversal of the decision below would serve as a potent reminder to all state courts that they must continue, as they largely have for centuries, to respect the boundaries of their critically important role as arbiters of law in our constitu- tional order. CONCLUSION For the foregoing reasons, the petition should be granted. Respectfully submitted, JONATHAN D. HACKER JOHN C. SULLIVAN O’MELVENY & MYERSLLP (Counsel of Record) 1625 Eye Street, N.W Post & SCHELL PC Washington, D.C. 20006 Four Penn Center (202) 383-5300 . 1600 John F. Kennedy Boulevard Philadelphia, Pennsylvania 19103 (215) 587-1000 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_2343%3A1. Public record. Not legal advice.