Full Opinion

NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________ No. 25-2395 _____________ GEA MECHANICAL EQUIPMENT US, INC., Appellant v. FIRST STATE INSURANCE COMPANY; HARTFORD ACCIDENT AND INDEMNITY COMPANY; HARTFORD FIRE INSURANCE COMPANY; WELLFLEET NEW YORK INSURANCE COMPANY as successor to ATLANTA INTERNATIONAL INSURANCE COMPANY; CONTINENTAL INSURANCE COMPANY _____________________________________ On Appeal from the United States District Court for the District of New Jersey (District Court No. 2:20-cv-09741) District Judge: Honorable Brian R. Martinotti _____________________________________ Argued April 29, 2026 (Filed: November 5, 2026) Before: CHAGARES, Chief Judge, ROTH and RENDELL, Circuit Judges. Erin D. Fleury [ARGUED] Joseph C. Safar K&L GATES 210 Sixth Avenue Pittsburgh, PA 15222 Donald W. Kiel K&L GATES One Newark Center 10th Floor Newark, NJ 07102 Counsel for Appellant Louis H. Kozloff [ARGUED] Eileen M. Bradley KENNEDYS CMK 1600 Market Street Suite 1410 Philadelphia, PA 19103 Kristin V. Gallagher KENNEDYS CMK 400 Connell Drive Suite 700 Berkeley Heights, NJ 07922 Counsel for Appellees _________ O P I N I O N* _________ RENDELL, Circuit Judge. Appellant GEA Mechanical Equipment US, Inc. (“GEA”) argues that the District Court misapplied New Jersey law when it granted summary judgment to GEA’s liability insurer on its late-notice affirmative defense. Because GEA’s liability insurer did not satisfy its burden of establishing appreciable prejudice, we will vacate the District Court’s order and remand for further proceedings. * This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not constitute binding precedent. 2 I. This suit stems from a personal injury action filed by Charles and Constance Thornton in 2017, alleging that Charles contracted terminal mesothelioma as a result of exposure to asbestos-containing brakes and clutches contained in centrifuges or separators sold by GEA’s predecessor to his employer (the “Thornton Action”). GEA’s primary line of defense was based on a lack of causation. During a 2018 mediation, the Thorntons made a substantial pre-trial settlement demand, and GEA responded with a minimal counteroffer, which ended the mediation. No further settlement offers were made until the eve of trial when GEA offered a higher amount, but the Thorntons did not respond to the offer. The case proceeded to trial in June 2019. At the close of evidence, GEA made an increased settlement offer of roughly one half of the Thorntons’ initial demand, to which the Thorntons did not respond. The jury returned a verdict for $70.102 million in compensatory damages. While post-trial motions were pending, GEA and the Thorntons entered into a confidential settlement agreement to resolve the claim. Hartford1 issued primary general liability policies and excess umbrella liability policies (“Excess Policies”) (together, “the Policies”) to GEA’s predecessor, Centrico Inc. The Policies are governed by New Jersey law. Both the Policies contain the same or substantially similar provisions which require the insured to timely notify Hartford of an occurrence, claim, or suit. In August 2019—nearly two months after the jury verdict, but before reaching final settlement—GEA notified Hartford of the Thornton Action, and, a 1 “Hartford” refers collectively to Appellees First State Insurance Company, Hartford Accident and Indemnity Company, and Hartford Fire Insurance Company. 3 day later, initiated this coverage action in New Jersey state court. After removal to the District Court, both parties moved for summary judgment and the District Court granted summary judgment to the insurers based on a late-notice defense. GEA appealed, and we vacated the District Court’s summary judgment order because the District Court erred in its application of the appreciable prejudice prong of a late notice defense under New Jersey law. See GEA Mech. Equip. US, Inc. v. First State Ins. Co., No. 23-2062, 2024 WL 3738639 (3d Cir. Aug. 9, 2024). On remand, the District Court applied the correct test and granted Hartford’s motion for summary judgment. GEA again appeals. II.2 Under New Jersey law, an insurer seeking to disclaim coverage based on late notice must show both (1) a breach of the insurance contract’s notice provision, and (2) a “likelihood of appreciable prejudice” resulting from the breach. Cooper v. Gov’t Emps. Ins. Co., 237 A.2d 870, 874 (N.J. 1968). Breach alone is insufficient because New Jersey public policy favors coverage for the insured. Id. at 873–74. The insurer has the burden of persuasion. Id. at 874. 2 The District Court had jurisdiction under 28 U.S.C. § 1332(a)(1), and we have jurisdiction under 28 U.S.C. § 1291. Our review of the District Court’s summary judgment decision is plenary, and we will “uphold a grant . . . of summary judgment only when there is no genuine issue of material fact and a party is entitled to judgment as a matter of law.” Transportes Ferreos de Venez. II CA v. NKK Corp., 239 F.3d 555, 560 (3d Cir. 2001). In considering a motion for summary judgment, we may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party’s evidence “is to be believed, and all justifiable inferences are to be drawn in his favor.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Summary judgment may not be granted “if there is a disagreement over what inferences can be reasonably drawn from the facts even if the facts are undisputed.” Nathanson v. Med. Coll. of Pa., 926 F.2d 1368, 1380 (3d Cir. 1991). 4 On appeal, GEA argues that the District Court erred in applying New Jersey’s appreciable prejudice law to Hartford’s late-notice defense and in drawing factual inferences in Hartford’s favor. GEA also contends that the District Court erred by failing to consider New Jersey’s allocation law when evaluating whether Hartford demonstrated a breach of the Excess Policies’ notice provisions. A. Appreciable Prejudice Appreciable prejudice requires two showings: that “substantial rights have been irretrievably lost,” and that the insurer would have had a “likelihood of success . . . in defending against the accident victim’s claim.” Morales v. Nat’l Grange Mut. Ins. Co., 423 A.2d 325, 329–30 (N.J. Super. Ct. Law Div. 1980); see also Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 89 F.3d 976, 996–97 (3d Cir. 1996) (recognizing the Morales test). We read “likelihood of success . . . in defending against [an] accident victim’s claim” to encompass likelihood of success in settling an accident victim’s claim, Morales, 423 A.2d at 330; see Chem. Leaman, 89 F.3d at 996–97, and we note that “an insurer [may] show . . . that [it] could have settled the underlying case for a small sum or smaller sum than that for which the insured ultimately settled the claim” to satisfy Morales prong two, see Jordan R. Plitt, Steven Plitt, Daniel Maldonado & Joshua D. Rogers, 13A Couch on Insurance § 193:29 (West 2024). The issue here is limited to the District Court’s conclusion on the second prong of Morales: whether Hartford has shown that it would have likely succeeded in defending against the Thornton Action—specifically, whether Hartford would probably have achieved a better settlement result. “Under New Jersey law, mere conjecture or suspicions may not 5 form the basis for establishing appreciable prejudice.” Transportes Ferreos de Venez. II CA, 239 F.3d at 561.3 Rather, the insurer must “provide . . . concrete evidence supporting its contention.” Kitchnefsky v. Nat’l Rent–A–Fence of Am., Inc., 88 F. Supp. 2d 360, 368 (D.N.J. 2000) (internal citations and quotation marks omitted). The District Court found Hartford’s argument that it would have used its collective databases (containing information related to other asbestos case outcomes) during the pretrial settlement negotiations “convincing” that Hartford likely would have achieved a more favorable result if noticed properly. App. 17. It reasoned: “Had [Hartford’s databases] been used in guiding settlement negotiations or defense at trial, such databases . . . would surely and inevitably increase the likelihood of success in achieving a more favorable result, including in securing a settlement agreement before trial.” App. 17–18. GEA urges that the District Court misapplied New Jersey’s law and improperly relied on Hartford’s arguments rather than on actual evidence that pointed to a better result, i.e., a likely settlement. On appeal, Hartford points to its corporate witness’ testimony that had Hartford been timely notified, it would have followed its normal procedures and required periodic updates from retained counsel, engaged in discussions regarding the quality of plaintiff’s firm, demographics, and verdict history of the jurisdiction, and required the preparation of 3 Hartford cites to other states’ recognition of the tension in the speculative basis of the “some likelihood” standard by placing the burden on the insured to prove the absence of prejudice when notice is late, unreasonably late, or after the liability was established by judgment or settlement. But New Jersey seemingly has not joined these states in moving the burden, and we cannot assume it would. 6 a form to evaluate the claim.4 He also testified regarding the information they would have learned through that process, which would have led Hartford to conclude that the Thornton Action presented a significant risk exposure. Hartford’s corporate representative also criticized GEA’s counsel’s approach to the December 2018 mediation and later negotiations. While Hartford relies in part on an affidavit from the Thorntons’ counsel regarding their willingness to settle prior to trial, a declaration regarding a client’s belief is not based on the personal knowledge of the affiant and is thus hearsay and inadmissible. See, e.g., In re Kennedy Inn Assocs., 221 B.R. 704, 710 (Bankr. S.D.N.Y. 1998) (“A declaration as to a client’s understanding or belief is not made on the personal knowledge of the affiant for purposes of Rule 56(e).”). Thus, we do not know of the Thorntons’ willingness to settle for less than their opening demand before trial. Hartford asks us to draw an inference to reach its desired conclusion that the actions Hartford would have taken would have led to a better settlement had it been noticed properly. GEA responds that the District Court’s determination that Hartford’s databases would have been used to achieve a better pretrial settlement is merely speculative and lacks the specificity needed to satisfy the second prong. We agree. Weighing the evidence in GEA’s favor, Hartford has failed to satisfy its burden that there was a likelihood that it would have achieved a better settlement. Hartford presents only speculative evidence that 4 Hartford also points to its expert report for evidence of the average verdicts in Miami- Dade County, the Thornton Action’s venue. GEA argues that this report is “demonstrably false” due to the omission of defense verdicts or low-value plaintiff verdicts. Reply at 17– 19. Further, Hartford failed to set forth these facts in its Statement of Material Facts. Regardless, these facts are disputed. 7 cannot survive summary judgment. It does not point to any testimony from its corporate representative stating what settlement offers Hartford would have made had it been noticed properly, nor that there was some likelihood that the process he alleged Hartford would have followed would have achieved a better settlement. Hartford focuses on what GEA’s counsel did wrong and steps it would take to assess the risk, not on what specific steps it would have taken that would have resulted in a settlement; e.g., would it have approved of an offer in the amount of the Thorntons’ opening demand? See, e.g., Chem. Leaman, 89 F.3d at 997 (“However, [insurers] fail to demonstrate what better arrangement the insurance carriers would have been able to obtain if they had assumed [insured’s] defense upon timely notice.” (quoting Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. 1136, 1159 (D.N.J. 1993)); State of New Jersey Dep’t of Env’t Prot. v. DiFlorio, No. L- 2070-02, 2007 WL 4553046, at *7 (N.J. Super. Ct. App. Div. Dec. 28, 2007) (“To conclude that had [insurer] hired an attorney to represent it in negotiations with the [plaintiff], it might have affected [insured’s] obligations to clean the property, is pure speculation.”). Instead, Hartford requires us to draw disputed inferences to conclude that it was likely a better settlement would have been reached. Although Hartford criticizes GEA’s approach to settlement negotiations, Hartford has provided little evidence indicating that its typically followed actions would have resulted in a more favorable settlement in the Thornton Action. Summary judgment cannot be granted where there is “a disagreement over what inferences can be reasonably drawn from the facts even if the facts are undisputed,” Nathanson v. Med. Coll. of Pa., 926 F.3d 1368, 1380 (3d Cir. 1991)—here, the parties disagree about the inferences that may be drawn from the evidence presented 8 by Hartford. Accordingly, Hartford’s motion for summary judgment on its late-notice defense should be denied. Because the lack of appreciable prejudice dooms Hartford’s late-notice defense, we will not address the arguments related to the breach of the Excess Policies. III. For these reasons, we will vacate the order of the District Court granting Hartford’s summary judgment motion on the late-notice defense and remand for further proceedings. 9