                                                                  NOT PRECEDENTIAL


                     UNITED STATES COURT OF APPEALS
                          FOR THE THIRD CIRCUIT
                               _____________

                                      No. 14-3685
                                     _____________


     THE TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA,

                                                                Appellant

                                            v.

                              USA CONTAINER CO., INC.

                    ____________________________________

                   On Appeal from the United States District Court
                             for the District of New Jersey
                        (District Court No.: 2-09-cv-01612)
                      District Judge: Honorable Jose L. Linares
                    _____________________________________

                                Argued on March 9, 2017

         Before: HARDIMAN, VANASKIE, and RENDELL, Circuit Judges.


                              (Opinion filed: April 18, 2017)


John M. Bowens [ARGUED]
Valerie A. Vladyka
Schenck Price Smith & King
220 Park Avenue
P.O. Box 991
Florham Park, NJ 07932

      Counsel for Appellant
Kenneth L. Moskowitz
Steven R. Rowland [ARGUED]
Shalom D. Stone
Brown Moskowitz & Kallen
180 River Road
Summit, NJ 07901

       Counsel for Appellee

                                      ____________

                                      O P I N I O N*
                                      ____________

RENDELL, Circuit Judge,

       This action arises from a protracted insurance dispute between Appellee USA

Container Co., Inc. (“USA Container”), a company that supplies industrial containers,

logistical services, and warehousing, and its insurer, Appellant Travelers Property

Casualty Company of America (“Travelers”). Because we write for the benefit of the

parties, who by now are well familiar with the details of this case, we will recount only

the essential facts.

       In 2006, USA Container contracted with Meelunie B.V./Amsterdam (“Meelunie”),

a corn syrup distributor, to arrange for the transfer of corn syrup from rail cars to drums

and then on to Meelunie’s customers overseas. For the corn syrup to be moved from the

rail cars to the drums, it had to be heated in accordance with standard operating

procedures (“SOPs”) developed by Meelunie’s corn syrup supplier, Archer Daniels

Midland. USA Container subcontracted with Passaic River Terminal, LLC (“Passaic

   *
     This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does
not constitute binding precedent.

                                              2
River”) to perform all of the work necessary to transfer the corn syrup to the drums for

transport. Passaic River failed to follow the SOPs and damaged Meelunie’s corn syrup

by overheating it. The damage was discovered after the corn syrup was shipped to

Meelunie’s customers, who rejected it. Meelunie subsequently sold the corn syrup at a

reduced rate and ultimately incurred $782,723.77 in damages. Meelunie demanded that

USA Container compensate it for its loss and USA Container turned to Travelers,

claiming coverage for the loss. Travelers denied USA Container’s claim, asserting that

the damage was not covered under the terms of the parties’ Commercial General Liability

policy (the “CGL Policy”). USA Container and Meelunie later entered into a settlement

agreement (the “Settlement Agreement”). Multiple rounds of litigation between USA

Container and Travelers followed, and the District Court issued two orders, first finding

that the CGL Policy covered the property damage, and second that Travelers was

obligated to pay USA Container for its loss in the amount of $732,000 as set forth in the

Settlement Agreement. The District Court also awarded USA Container prejudgment

interest and attorney’s fees. Travelers timely appealed the District Court’s orders.

       The issues we must now address are: (1) whether USA Container’s loss arising

from the damage to the corn syrup is covered under the terms of the CGL Policy, (2)

whether the District Court correctly concluded that USA Container’s loss under the

Settlement Agreement was for $732,000 and (3) whether the District Court correctly

calculated prejudgment interest and attorney’s fees.




                                             3
       Before we begin our analysis, we note that the Erie doctrine instructs that where,

as here, a federal court sits in diversity, state substantive law applies.1 Gasperini v. Ctr.

of Humanities, Inc., 518 U.S. 415, 427 (1996). Here, New Jersey law applies and, as we

have long held under Erie, a federal court is bound to follow state law as announced by

the state’s highest court (here, the New Jersey Supreme Court). Edwards v. HOVENSA,

LLC, 497 F.3d 355, 361 (3d Cir. 2007).



I. Insurance Coverage

       The District Court granted USA Container’s motion for partial summary judgment

on its breach of contract claim against Travelers.2 We review a grant of summary

judgment de novo under the same standard as the district court applied.3 Cypress Point

Condominium Ass’n, Inc. v. Adria Towers, L.L.C., 143 A.3d 273, 279–280 (N.J. 2016).

Because there is no genuine issue of material fact before us, we do not afford deference

to the District Court’s legal determinations and instead review its coverage conclusions

de novo. Id. at 280.



   1
    The District Court had diversity jurisdiction pursuant to 28 U.S.C. § 1332 and we
have appellate jurisdiction pursuant to 28 U.S.C. § 1291.
   2
    USA Container had sought a ruling that the CGL Policy “provides USA Container
coverage for the claims of Meelunie . . . arising from subcontractor Passaic River’s
damage to Meelunie’s corn syrup, and that Travelers breached its duty to defend and
indemnify USA Container.” A. 7.
   3
     A court grants summary judgment if the moving party “shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56.

                                              4
       The issue of insurance coverage turns on the terms of the CGL Policy that USA

Container procured from Travelers. The parties agree that, as the insured, USA

Container has the burden to prove coverage, while the burden to prove the applicability

of any exclusion falls on the insurer, Travelers.



       A. Occurrence4

       The CGL Policy provides, in relevant part, that Travelers is required “to pay those

sums that [USA Container] becomes legally obligated to pay as damages because of . . .

‘property damage’ to which the insurance applies.” A. 75. The insurance applies to

“property damage”5 if it is caused by an “occurrence,” id., which is defined as “an

accident, including continuous or repeated exposure to substantially the same general

harmful conditions.” A. 88. In Cypress Point, an opinion the New Jersey Supreme Court

issued after the District Court’s partial summary judgment grant, the court defined an

“accident” as “encompass[ing] unintended and unexpected harm caused by negligent

   4
     On October 22, 2015, Travelers withdrew its appeal of the issue “whether claims
asserted against USA Container fall within the definition of ‘occurrence.’” Appellant’s
Mot. to Withdraw Only “Occurrence” Issue from Present Appeal, Oct. 22, 2015, Dkt. No.
37. Travelers stated during oral argument before this Court on March 9, 2017 that its
withdrawal motion effectively conceded that, under the terms of the CGL Policy, an
“occurrence” resulted in the damage to the corn syrup. This Court never acted on
Travelers’ withdrawal motion and as such we will address the occurrence issue. We also
note that both parties addressed it in their supplemental briefs and at the March 9, 2017
oral argument.
   5
    At the District Court, Travelers did not argue that the Meelunie damage does not
constitute “property damage” under the CGL Policy, nor did it do so on appeal.
Therefore, that argument is forfeited. United States v. Pelullo, 399 F.3d 197, 222 (3d Cir.
2005).

                                              5
conduct.”6 143 A.3d at 287. The property damage that occurred here clearly meets the

criteria of this test.

        Travelers disregards the broad contours of this “occurrence” test and urges instead

that there is a “faulty workmanship” limitation on the CGL Policy’s initial grant of

coverage. Travelers reiterates this as the central point throughout its supplemental briefs

– that the CGL Policy does not provide coverage to replace or repair defective work –

and dismisses the damages here as “economic damages” that it maintains are never

covered because they are part of the foreseeable risk inherent in any job. Travelers relies

on Weedo v. Stone-E-Brick, Inc., 405 A.2d 788 (N.J. 1979), for this proposition.7 But in

Cypress Point, the New Jersey Supreme Court rejected this very argument: “[R]elying

on Weedo, the insurers assert that damage to an insured’s work caused by a

subcontractor’s faulty workmanship is foreseeable to the insured developer because


    6
     Cypress Point bears directly on the insurance coverage question in this case. We
reject Travelers’ efforts to dismiss the salience of Cypress Point on the grounds that it
dealt with an exclusion not at issue here. The court’s analysis of “occurrence” is
completely independent of the exclusion and applies to the same basic coverage terms as
those in the CGL Policy here. Further, the principles with which Cypress Point interprets
the policy as a whole are not contingent on the specifics of any exclusion.
    7
     In Weedo, which dealt with a now-outdated version of the standard CGL form, the
parties conceded that there was an occurrence and that the only remaining issue was the
application of exclusions. The New Jersey Supreme Court held that CGL policies do not
indemnify insureds where the damages claimed are the cost of correcting the alleged
defective work. 405 A.2d at 791–92. The Appellate Division later extended Weedo by
applying the business risk logic of the exclusions at issue in Weedo to the first-order
question of whether there is an occurrence. Firemen’s Ins. Co. v. Nat’l Union Fire Ins.
Co., 904 A.2d 754, 759 (N.J. Super. Ct. App. Div. 2006). Cypress Point effectively
rejected this extension, cabining Weedo to questions pertaining to exclusions and not to
“the question of initial coverage.” 143 A.3d at 287.

                                             6
damage to any portion of the completed project is the normal, predictable risk of doing

business. . . . We disagree.” 143 A.3d at 287. The court also cited favorably to U.S. Fire

Insurance Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla. 2007), where the Florida Supreme

Court rejected an insurer’s argument that faulty workmanship can never be an accident

because it results in reasonably foreseeable damages; and “confirm[ed] that the 1986

revisions to the standard CGL policy . . . specifically cover[ed] damage caused by faulty

workmanship to other parts of work in progress; and damage to, or caused by, a

subcontractor’s work after the insured’s operations are completed.”8 Cypress Point, 143

A.3d at 282 (alterations in original) (citation and quotation marks omitted). Relatedly,

Cypress Point noted that U.S. Fire represents a “strong recent trend in the case law [of

most federal circuit and state courts] interpret[ing] the term ‘occurrence’ to encompass

unanticipated damage to nondefective property resulting from poor workmanship.” Id. at

285 (alterations in original) (citation omitted).

       Accordingly, we affirm the District Court’s finding that USA Container’s claim

falls within the basic coverage provisions of the CGL Policy.9


   8
     U.S. Fire also explicitly rejected assessing an occurrence based on its impact on
other property: “[W]e fail to see how defective work that results in a claim against the
contractor because of injury to a third party or damage to a third party’s property is
‘unforeseeable,’ while the same defective work that results in a claim against the
contractor because of damage to the completed project is ‘foreseeable.’” 979 So. 2d at
883.
   9
     It appears that our decision today conflicts with a non-precedential opinion
previously issued by this Court. In Pennsylvania National Mutual Casualty Insurance
Co. v. Parkshore Development Corp., 403 F. App’x 770 (3d Cir. 2010), the insured was
the general contractor for a condominium development. The insured subcontracted the
caulking of windows, but it was not done properly and resulted in water leakage. The
                                               7
        B. Exclusions

        Travelers asserts that even if the occurrence issue were resolved against it, two

exclusions, j(6) and n, apply to this case, and that each would be sufficient to relieve

Travelers of its obligation under the CGL Policy to cover USA Container’s loss. These

assertions are incorrect.

        Exclusion j(6) provides that coverage shall not extend to “[t]hat particular part of

any property that must be restored, repaired, or replaced because ‘your work’ was

incorrectly performed on it.” A. 78. The District Court correctly noted that Meelunie’s

damaged corn syrup was not “restored, repaired, or replaced” as required by Exclusion

j(6)’s clear terms. As it did before the District Court, and then again before this Court

during oral argument on March 9, 2017, Travelers has failed to identify any evidence to

the contrary. Nor can it point to any contractual provision that makes it such that the corn

syrup, if damaged, “must be” restored, repaired, or replaced.10 While Travelers urges in

its most recent brief that Meelunie’s damages “cannot be characterized as anything other

than damages associated with the repair/replacement of the product rejected due to USA

Container’s faulty work,” Appellant’s Supp. Br. 8 (emphasis added), this claim is

baseless, and Travelers does not – and cannot – point to anything in the record to support



panel held that “[w]hile other courts have permitted an ‘occurrence’ where faulty
construction damages only the insured’s own work, New Jersey courts foreclose such a
possibility” because of the Weedo line of cases. 403 F. App’x at 772 (footnote omitted).
Cypress Point rejects that notion.
   10
      Under the terms of Exclusion j(6), it is not sufficient if the corn syrup could have
been restored, repaired, or replaced.

                                              8
it. Indeed, the record clearly reflects Travelers’ own awareness that Meelunie sold the

corn syrup at a reduced rate because of the damage. See A. 287.

        Travelers’ attempt to impose a business risk exclusion based on Exclusion j(6)

fares no better. This exclusion is not about any risks inherent in any business; it is about

clearly demarcated scenarios that did not occur here. As Cypress Point noted, if an

insurer identifies a risk that it does not want to insure, “it can clearly amend the policy to

exclude coverage.” 143 A.3d at 289. Travelers did not fashion a business risk or “your

work” exclusion that would apply to this set of facts when it negotiated the CGL Policy

with USA Container, and it may not retroactively do so now.11,12

        Travelers makes a weak argument as to Exclusion n, which applies to events that

did not occur here: precautionary recalls. See Newark Ins. Co. v. Acupac Packaging,

Inc., 746 A.2d 47, 56 (N.J. Super. Ct. App. Div. 2000). It is questionable whether we can

even properly consider Exclusion n because Travelers did not invoke it until responding

to USA Container’s brief in support of its motion for summary judgment. But potential

procedural infirmity aside, it is abundantly clear that this exclusion is irrelevant to this

case. The record does not in any way suggest, let alone establish, that Meelunie ever


   11
      Cypress Point underscores this basic tenet of contract law: “[C]ourts enforce
contracts based on the intent of the parties, the express terms of the contract, surrounding
circumstances and the underlying purpose of the contract. . . . Thus, when the terms of an
insurance contract are clear, it is the function of a court to enforce it as written and not to
make a better contract for either of the parties.” 143 A.3d at 280 (citations and quotation
marks omitted).
   12
       Interestingly, the CGL Policy contains a limited “your work” exclusion – Exclusion
(l) – but Travelers has not urged, nor could it, that it applies here.

                                               9
recalled the damaged corn syrup. To the contrary, Travelers’ own investigation showed

that Meelunie sold the damaged corn syrup at a reduced price.

        We therefore affirm the District Court’s finding that neither Exclusion j(6) nor

Exclusion n applies to this case. Accordingly, USA Container’s loss is covered under the

terms of the CGL Policy.



II. Settlement Agreement

        Travelers argues that the District Court erred in interpreting USA Container’s loss

under the Settlement Agreement to be $732,000 and awarding that amount to USA

Container. Because we agree that the District Court erred in its interpretation, we will

vacate its order and remand for entry of judgment for loss of $425,000 to USA Container

and for an award of $425,000 to USA Container.

        “A settlement agreement between parties to a lawsuit is a contract,” Nolan v. Lee

Ho, 577 A.2d 143, 146 (N.J. 1990), and we review a district court’s interpretation de

novo, Selective Ins. Co. of Am. v. Hudson E. Pain Mgmt. Osteopathic Med. & Physical

Therapy, 46 A.3d 1272, 1276 (N.J. 2012) (interpretation of a contract is a question of

law).

        The Settlement Agreement obligated USA Container to pay Meelunie $425,000 in

two installments, and USA Container paid that amount. The Settlement Agreement also

contained the following provision:

        In the event that USA Container receives any monies, proceeds, or
        compensation from Passaic River, an insurance carrier[,] or any other third
        party for damages alleged in the Lawsuit . . . then USA Container and

                                             10
       Meelunie shall share equally in any such recovery . . . . At that such time
       that Meelunie has received payment totaling [$732,000] from USA
       Container, Passaic River, any insurance carrier and/or any other party
       concerning the claims it has asserted in the Lawsuit, then any and all
       additional funds recovered by USA Container from any third party shall
       belong exclusively to USA Container.

A. 528–29 (emphasis added). Thus, USA Container committed to paying Meelunie a

maximum additional $307,000 only if it receives payment from another party at some

point in the future. The sharing scenario imagined by the Settlement Agreement – USA

Container splits its additional recovery with Meelunie until Meelunie has recouped

$732,000 – is purely hypothetical. USA Container has not parted with any money under

this provision.

       In finding the Settlement Agreement to be for $732,000, the District Court focused

on New Jersey law’s concern that settlement agreements be “reasonable” and entered into

in “good faith.” A. 22. But that focus, which USA Container underscores in its briefs, is

off-point as Travelers does not directly urge that these criteria are not satisfied here, but

rather, that the Settlement Agreement does not support a loss to USA Container in the

amount of $732,000. Travelers argues instead that while $732,000 is a maximum amount

that USA Container could recover under the terms of the Settlement Agreement, its loss

is limited to $425,000.

       The language of the leading New Jersey case on settlement obligations is

instructive:

       [T]he insurer is liable for the amount . . . of the settlement made by [the
       insured]. The only qualifications to this rule are that the amount paid in the
       settlement be reasonable and that the payment be made in good faith . . . .
       The measure of the insured’s damages is . . . the amount paid by the insured

                                              11
        in making a reasonable good faith settlement of the negligence action
        before trial.

Fireman’s Fund Ins. Co. of Hartford v. Sec. Ins. Co., 367 A.2d 864, 868, 872–73 (N.J.

1976) (citation omitted) (emphasis added).13 Fireman’s clearly contemplates coverage

for money already paid – an amount that is not inclusive of money that might be paid in

the future. Moreover, any amount that might be paid upon recovery from a third party is

merely a share of the amount paid by the third party, not an amount that USA Container

would part with from its own funds. It is not reflective of its loss.

        Thus, the District Court erred in construing the Settlement Agreement so as to

support a claim for $732,000. Instead, “the amount paid by the insured” was $425,000.

We therefore vacate the District Court’s order and will remand for entry of judgment for

loss of $425,000 to USA Container and for an award of $425,000 to USA Container as

per the terms of the Settlement Agreement.



III. Prejudgment Interest and Attorney’s Fees

        The District Court awarded prejudgment interest of $51,852.77 to USA Container.

It calculated this amount as accruing from the date that Travelers (wrongly) denied

coverage to USA Container, rejecting both Travelers’ argument to calculate from the date


   13
     The Settlement Agreement leaves each party with an indeterminate amount,
subjecting Meelunie’s total recovery to possible – but not guaranteed – third-party
payments. USA Container’s recovery is similarly conditional on the steps, if any, Passaic
River or another entity may take in the future. Though Fireman’s did not directly address
how courts ought to construe settlement agreements with indeterminate amounts, we
nonetheless find its holding instructive.

                                             12
USA Container made the $425,000 Settlement Agreement payment to Meelunie, and

USA Container’s argument to calculate from the date Travelers completed its

investigation of USA Container’s insurance claim. The District Court then applied

interest rates reported by the New Jersey Cash Management Fund to the sum of

$732,000, the amount it determined as the settlement amount.

        The standard of review for a district court’s prejudgment interest calculation is

“manifest denial of justice.” Litton Indus., Inc. v. IMO Indus., Inc., 982 A.2d 420, 431

(N.J. 2009). “The same discretion applicable to a court’s determination of the

appropriate pre-judgment interest rate applies to the court’s determination of the date

upon which pre-judgment interest will begin to accrue.” Munich Reinsurance Am., Inc. v.

Tower Ins. Co. of N.Y., Civ. Action No. 09-2598 (FLW), 2012 WL 1018799, at *3

(D.N.J. Mar. 26, 2012).

        Because we find that the District Court erred in its calculation of the underlying

amount of the Settlement Agreement, despite the highly deferential standard of review,

we will vacate and remand the prejudgment interest calculation to be recalculated based

on the new figure of $425,000.14


   14
       We also note that the New Jersey Supreme Court supports Travelers’ position with
respect to the date from which to calculate prejudgment interest – namely, that
prejudgment interest should run from the date that the insured paid the claimant. Rova
Farms Resort, Inc. v. Inv’rs Ins. Co. of Am., 323 A.2d 495, 512 (N.J. 1974). At the same
time, we recognize that New Jersey case law specifically leaves such date selection to a
district court’s discretion. See AGS Computs., Inc. v. Bear, Stearns & Co., 581 A.2d 508,
510 (N.J. Super. Ct. App. Div. 1990) (reversing the trial judge’s denial of prejudgment
interest but giving the trial judge discretion to determine the date from which interest is to
run); Ellmex Const. Co., Inc. v. Republic Ins. Co., 494 A.2d 339, 349 (N.J. Super. App.
Div. 1985) (reversing the trial judge’s denial of prejudgment interest but indicating that
                                             13
IV. Attorney’s Fees

       Under New Jersey law, “fee determinations by trial courts will be disturbed only

on the rarest occasions, and then only because of a clear abuse of discretion.” Rendine v.

Pantzer, 661 A.2d 1202, 1217 (N.J. 1995). The soundness of the District Court’s

reasoning for awarding USA Container attorney’s fees in the amount of $256,512.95 is

apparent on its face and we will affirm the award.



V. Conclusion

       For the foregoing reasons, we will (1) Affirm the District Court’s finding that

USA Container’s claim falls within the basic coverage provisions of the CGL Policy and

that exclusions j(6) and n do not apply; (2) Vacate the District Court’s ruling that the

Settlement Agreement is for $732,000; (3) Vacate the District Court’s calculation of

prejudgment interest; (4) Remand for (a) entry of judgment for loss of $425,000 to USA

Container under the Settlement Agreement and for an award of $425,000 to USA

Container, and for (b) recalculation of prejudgment interest; and (5) Affirm the District

Court’s award of attorney’s fees.




prejudgment interest can reasonably be calculated from either the date a claim was denied
or from defendant’s receipt of plaintiff’s sworn proof of loss).

                                             14
