Franklin Township wins dispute with insurance carrier over coverage for Kiddie Kollege litigation

Franklin Township wins dispute with insurance carrier over coverage for Kiddie Kollege litigation

Source:, January 27, 2012
By: Carly Q. Romalino

An insurance dispute related to municipal coverage in the Kiddie Kollege toxic exposure trial ended in favor of Franklin Township after months of arbitration talks with its environmental issue insurance carrier that attempted to revoke coverage.

In a 2-1 vote, a panel of three arbiters decided that Franklin Township would remain covered by the New Jersey Environmental Risk Management Fund (EJIF) for four years of litigation in the Kiddie Kollege case and a subsequent trial in which Franklin was a defendant.

“It’s an absolute relief,” said Mayor Joseph Petsch. “The insurance company tried to deny coverage and the courts have determined we had coverage … We’re elated, we’re happy. We always believed the coverage was in place.”

The township filed a claim with the EJIF in 2006 after the state Department of Environmental Protection suddenly shut down Kiddie Kollege, a former thermometer factory-turned-day care center, where children were exposed to toxic levels of mercury vapor for two years.

EJIF chose an attorney to represent the township in the years of litigation leading up to a class action trial in 2010, where attorneys argued that children who were exposed to mercury vapors should receive medical monitoring.

Months before the trial was set to go before a Superior Court judge, EJIF notified Franklin Township that it’s $1 million policy for attorney fees had dwindled down to $250,000, as part of Franklin’s eroding policy limits.

Franklin Township initiated arbitration with the insurer last year to dispute the eroding coverage.

In a December arbitration panel decision — which was kept under wraps by the township until Tuesday — found that the EJIF’s contract language did not clearly indicate an eroding limit Franklin’s $1 million policy for legal fees. In addition, the panel was compelled to note in its written decision that the EJIF did not raise policy limit concerns from the time litigation began in 2006 to 2010 when the trial was set to begin.

Petsch said the arbitration victory — which awarded Franklin a “blank check” for legal fees in continuing litigation and $1 million to cover any court-ordered awards to plaintiffs — is a win for township taxpayers.

“By going after our insurance company and saying, ‘No, we disagree with you,’ we were able to bring that entire $1 million policy back onto the table as coverage in addition to the attorneys fees,” Petsch said. “Arguing with the insurance company was the right thing to do.”

In arbitration, the municipality risked losing its coverage and paying out of its municipal budget more than $800,000 in legal fees to its Kiddie Kollege attorney Jim Maley, plus the $525,000 award Rafferty ordered the township pay into a medical monitoring fund in his trial decision.

Other insurance arbitration proceeding will continue between Franklin and the EJIF. The insurance carrier has brought up other claims that Franklin officials knew the Kiddie Kollege site was contaminated before the claim was files. Rafferty pointed out in his trail court decision that, in his opinion, Franklin officials did know about pollution when the tax sale certificates for the Station Avenue site was purchased by local real estate brokers.

The tax certificate sales is still in litigation, and the class action law suit, in which Franklin was found at fault, could be up for a retrial.

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