Coverage

New Jersey Supreme Court Looks Outside Pleadings in NJ to Deny Duty to Defend

In Norman Int’l, Inc. v. Admiral Ins. Co., No. 086155, 2022 WL 3220868 (N.J. Aug. 10, 2022), the New Jersey Supreme Court ruled on the application of a county-specific exclusionary clause in an Admiral Insurance Company (“Admiral”) policy issued to Richfield Window Coverings, LLC (“Richfield”)—Richfield sells window coverings, blinds, etc., and also provides retailers with cutting machines to cut its products. The Admiral policy issued to Richfield excluded liability for “bodily injury” that was “in any way connected with” operations/activities in select New York counties, including Nassau County.

Instantly, a Home Depot employee in Nassau County, NY, was injured while using Richfield’s cutting machine­­—a machine which was also maintained by Richfield. The employee filed suit against Richfield in Nassau County. Richfield next sought coverage under its policy with Admiral but Admiral invoked the county-specific exclusionary clause. Richfield sought a declaration in the Superior Court that Admiral was obligated to defend Richfield because the terms “operations” and “activities” in the county-specific exclusionary clause were ambiguous. This argument was rejected and Admirals motion for summary judgment was granted. The Appellate Division, however, reversed and found there was no causal relationship between Richfield’s activities involving the cutting machine and the causes of action raised in the complaint.

More importantly though, the Appellate Division noted that the trial court improperly considered facts from discovery to arrive at its decision. On this issue, the New Jersey Supreme Court stated, in no uncertain terms, that courts in fact can consider “those facts beyond the complaint necessary to determine the duty to defend issue.” Another noteworthy aspect of the opinion was its stance on the meaning of the language “in any way connected with.” On this, the Court stated “in any way connected with” does not require a showing of causation­—it was enough that Richfield provided the machine to Home Depot. Consequently, the Appellate Division’s holding was reversed.

Thanks to Richard Dunne for his contribution to this article.  Should you have any questions, contact Matthew Care.Read More

Non-Parties Cannot Intervene In Insurance Company’s Declaratory Judgment Action

In County Hall Insurance Company, Inc. v. Mountain View Transportation, LLC, the M.D.P.A ruled that non-parties who had a personal injury claim against an insured individual cannot intervene in the insurance’s company’s declaratory judgment action that it filed against the same insured. The underlying state court suit stemmed from a motor vehicle accident in which a number of occupants were seriously injured. Following this accident, County Hall, Mountain View’s Insurance provider, filed a declaratory judgment action against Mountain View and John Humes, arguing it was not obligated to provide coverage under the policy because John Humes was not a scheduled driver of Mountain View and any punitive damages awarded are not recoverable under the policy. When Mountain View and Humes failed to file an answer, County Hall requested default judgment be entered against them. Around the same time, individuals who were allegedly involved in the underlying motor vehicle accident filed a motion to intervene, arguing that they had a claim to the property at the center of insurance company’s declaratory judgment, and thus they should have the ability to protect their interests.

The Court denied the non-parties attempt to get involved in County Hall’s declaratory judgment against Mountain View. The Court ruled that under federal law, “strangers to an insurance contract cannot intervene as of right in a declaratory judgment action…to establish scope of coverage.” Although the non-parties claimed their economic interest in the applicability of the policy was sufficient to support their motion, the Court disagreed, stating the “mere economic interest in the outcome of litigation” is insufficient to the support the motion.

In short, despite the outcome of County Hall’s declaratory judgment having a practical effect on the non-parties ability to recover in their personal injury suit, they have no right to participate in the action.

Thanks to Brian Zappala for his contribution to this post. Please contact Heather Aquino with any questions.

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SDNY Among Federal Courts Rejecting Claims For Coverage Of COVID-19 Business Losses

Two recent SDNY decisions highlight the national consensus among courts across the country to rejects insureds’ claims for coverage of pandemic business losses. According to Law360’s COVID-19 Insurance Case Tracker, these two cases are among nearly 1,400 federal cases across the country since the pandemic began. About half of all such federal cases have been dismissed. Of Interest previously covered developments at the state level, the New Jersey Appellate Division, that continued the national trend upholding insurers’ denial of coverage for business losses during the pandemic.

JRLDDS LLC d/b/a Jeffrey R. Lemler, DDS v. The Hartford Financial Services Group and Trumbull Insurance Company, 21-CV-9487 (JMF), (S.D.N.Y. Jul. 29, 2022)

In JRLDDS v. The Hartford Financial Services Group and Trumbull Insurance Company, the Court began its discussion referring to the “more than six dozen decisions applying New York law (…) to claims of the sort made by” the insured in this case.  Plaintiff, a dentist, held an all-risk insurance policy that covered business interruption losses and “direct physical loss of or damage to” his business property. When the insurer denied coverage, plaintiff sued for breach of contract, breach of the implied covenant of good faith and fair dealing, violation of the NYGBL, and unjust enrichment. The Court granted defendants’ motion to dismiss for failure to state a claim and relied on the rationale of the dozens of cases that had already decided similar issues:

1) Direct physical loss of or damage to property does not encompass “loss of use” of business facilities; 2) The “presence of the COVID-19 virus in the air and on the surfaces” of an insured premise does not “constitute[] ‘direct physical loss or damage to’” property; 3) COVID-19 shut-down orders did not trigger coverage because they “were the result of the COVID-19 pandemic and the harm it posed to human beings, not … risk of physical damage to property.”

BROADWALL Management Corp. et al, v. Affiliated FM Insurance Co., 21-CV-10247 (PAE), (S.D.N.Y. Aug. 1, 2022)

In dismissing this plaintiff’s amended complaint, the Broadwall Court similarly referred to the “avalanche of authority” in New York courts that has determined that “while the presence of COVID-19 may render property potentially harmful to people, it does not constitute harm to the property itself.”

Both SDNY cases above relied on the Second Circuit’s 2021 decision in 10012 Holdings, Inc. d/b/a Guy Hepner v. Sentinel Insurance Company, Ltd which held that an art gallery was not entitled to coverage for business losses it suffered during the pandemic and related government restrictions because a loss of use of its premises did not constitute actual physical loss or damage to the property.

Thanks to Abed Bhuyan for his contribution to this post.  Please contact Heather Aquino with any questions

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New Jersey Supreme Court Provides Clarity On Insurance Exclusion Clauses

The New Jersey Supreme Court recently held in Norman International, Inc. v Admiral Insurance Company, that an insured cannot claim an exclusionary clause does not apply because their product was sold to the parent company in a non-excluded zone but directed for delivery to a site in an excluded area. The Court emphasized that they must analyze the precise wording of the policy and consider the actions of the insured within the excluded zone.

When considering the wording, the courts looked at the policy terms that stated, “This insurance does not apply to “bodily injury”, “property damage” or “personal and advertising injury”, including costs or expenses, actually or allegedly arising out of, related to, caused by, contributed to by, or in any way connected with. . . Any operations or activities performed by or on behalf of any insured in the Counties shown in the Schedule above [which contained the county where the injury occurred].” The court defined and focused on the phrase “in any way connected with”  and determined it was to be applied broadly and to mean that it would apply to an injury that is connected in any fashion regardless of its remoteness.

With the broad interpretation of the policy, the Court then considered the actions of the insured to determine whether the injury was in any way connected with the insured. The Court held that the fact that the insured provided the machine that resulted in the injury was enough to trigger the exclusion. The court reasoned that the injury could not have occurred without the machine being provided by the insured and, therefore, the injury was connected with the insured performing an activity within the excluded zone. The court also emphasized that the insured providing training and servicing further supported the connection.

The takeaway from this decision is that, in consideration of exclusionary clauses, the courts will be inclined to closely examine the wording of the policy. While ambiguity will be considered in favor of the non-drafting party, the courts will consider the words and phrases for their precise definitions.

Thanks to Ryan Dame for his contribution to this article.  Should you have any questions, contact Andrew Gibbs.

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Was The Defect Trivial?

In Santos-Brea v. 901 Honeywell, LLC the Supreme Court, Bronx County addressed whether the raised sidewalk at issue was considered trivial and in turn, not actionable.  Plaintiff alleged to sustain injuries when the front wheel of her walker hit a raised sidewalk adjacent to the defendant’s property.

The defendants argued that the alleged defect was trivial in nature. In addition, their expert engineer opined that the height differential between slabs was .375 inches. However, plaintiff’s expert opined “….that the defendant’s construction of the sidewalk with expansion joints which require a 1 ¼ inch width of caulking material was a departure from good and acceptable engineering practices in that the same resulted in the caulking material being unstable, coming out of the expansion joint, thus causing and creating a 1 inch wide, 1 inch deep, sidewalk defect…”.

The court stated: “With regard to the duty to repair, §19-152(a) provides that a property owner is required to repair “a defective sidewalk flag in front of or abutting such property,” which “contains a substantial defect.” A substantial defect is defined to include a height differential between sidewalk flags of one-half inch or more.” The court then held that the plaintiff’s opposition raised a triable issue of fact as to whether the height differential was considered a substantial defect.

This decision serves as a reminder that an abutting landowner may not be granted summary judgment unless you can prove that the raised sidewalk is not a substantial defect.

Thanks to Corey Morgenstern for his contribution to this article.  Should you have any questions, contact Andrew Gibbs.Read More

PA Senate Bill 1222: Peer-to-Peer Carsharing And Insurance Implications

A new law was introduced in the House Appropriations Committee as an amendment to Senate Bill 1222 and officially became law on July 11^th. The amendment outlines the coverage requirements for companies engaging in peer-to-peer carsharing, mandating an additional layer of insurance so injured third parties won’t be left uninsured if a car owner’s policy includes exceptions for livery, or business activities.

Peer to peer carsharing is the process of renting vehicles from other people rather than traditional car rental companies. It has been coined “AirBnB for cars” and provides many benefits including lower prices and more variety in vehicle choices. The fledgling industry is not without complications, primarily on the insurance and regulatory fronts. Chief among the insurance issues is that some carsharing networks’ fine print says a renter’s personal auto policy would be the primary source for paying claims, even though most personal policies typically exclude renting or driving car-sharing vehicles from coverage.

Some attorneys have noted the amendment is similar in substance to another proposed bill on the topic – Senate Bill 548. The bill, introduced in April 2021, was aimed at putting carshare companies on a more equal footing with car rental companies and to ensure additional protections for owners, drivers and third parties now that carsharing is on the rise.

From the defense and carrier standpoint, the new law does not invalidate exclusions that are already in place, and it requires carsharing companies to provide coverage that would otherwise be out of bounds under the owner’s policy. However, litigators on the plaintiffs side have raised questions about the measure’s effectiveness in protecting the parties. Some have expressed concerns that because consumers’ personal auto insurance may contain an exclusion, they may be forced to rent these cars using the companies’ minimum insurance policies, which likely won’t provide adequate coverage in the event of an accident.

One thing lawyers on both sides of the issue can agree on is that these new disputes will be headed to the courts.

Thanks to Sydney Kockler for her  contribution to this article.  Should you have any questions, please contact Heather Aquino.

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No Duty to Defend: Insurer Need Not Defend Insured Against Unjust Enrichment Claim (NY)

The Southern District of New York reaffirmed that New York liability insurance policies that provide coverage for bodily injury and property damage of the insured against a third-party generally do not afford coverage to the insured against unjust enrichment claims.

In Godfrey v. Executive Risk Indemnity Inc., the Court rejected Plaintiffs’ motion for a declaratory judgment that would require defendant insurance company to defend and indemnify Plaintiffs against an unjust enrichment claim made by a third-party in an underlying action. There, a third-party contractor renovated Plaintiffs’ New York City home where faulty water sprinklers went off, damaging a substantial portion of the apartment, requiring further renovation. The unforeseen renovation spiked up the final cost of the remodel. After Plaintiffs refused to pay the additional cost of the renovation, the third-party contractor sued the Plaintiffs alleging unjust enrichment in attempt to collect the remaining balance.

The Southern District of New York granted Defendant-insurer’s motion for summary judgment, concluding that New York Insurance policies regarding Personal Liability Coverage only covers damages for personal injury and property damage, not claims against the insured of unjust enrichment or breach of contract by a third-party. Despite the allegation of unjust enrichment being directly related to property damage that occurred in the Plaintiffs’ home, the Court emphasized that such relation does not establish an allegation of property damage in and of itself. Thus, because the Insurance Policy does not provide coverage against unjust enrichment claims, the Insurance Company has no duty to defend or indemnify Plaintiffs, its insured, in such suits.

This ruling highlights the duties and non-duties insurers have to their insured based on both the individual insurance policy and New York’s general insurance law. Additionally, merely because an action is related to damages that would be covered by the policy does not necessarily mean the insured may reasonably expect the policy to cover that action.

Thanks to Alexa Schimp for her contribution to this article.  Should you have any questions, please contact Heather Aquino.Read More

NJ Superior Court Holds Virus Exclusion Applies And Mandated Business Closure Does Not Constitute Physical Loss

The Superior Court of New Jersey, Appellate Division recently dealt with a plaintiff’s coverage claim for business interruption cause by the COVID-19 pandemic and Governor Philip D. Murphy’s Executive Order 107(EO 107). EO 107 was a mandate which cancelled large gatherings of individuals, required the closure of “the brick-and-mortar premises of all nonessential retail business,” and mandated the closure of “[a]ll recreational and entertainment business.”

In Rockleigh Country Club LLC v. Hartford Insurance Group, the Plaintiff was a country club whose business involved the pre-contracting and pre-planning of social events, such as weddings. Plaintiff was forced to shut down its venue in March 2020 pending further orders from Governor Murphy and later brought suit against its insurer seeking among other things, a declaratory judgment that its insurer was required to provide business interruption coverage for losses sustained while the plaintiff could not operate its business.

The policy’s business interruption provision provided coverage for “the actual loss of business income … due to the necessary interruption of business operations … due to direct physical loss of or direct physical damage to property caused by or resulting from a covered cause of loss[.]” Additionally, the policy also contained “Civil Authority” provision which provided coverage for loss of business income when access to plaintiff’s scheduled premises is “specifically prohibited by order of a civil authority as the direct result of a covered cause of loss to property in the immediate area.” However, the policy also contained a “virus exclusion” which stated that the insured would not pay for losses caused directly or indirectly by the “presence, growth, proliferation, spread or any activity of ‘fungus,’ wet rot, dry rot, bacteria or virus.”

Ruling in favor of the insurer, the court found that (1) plaintiff’s inability to use its premises to host large social gatherings did not constitute physical loss or damage to its property; (2) plaintiff was not entitled to coverage the Civil Authority provision because the provision required that access to plaintiff’s property be prohibited by a civil authority “as the direct result of a covered cause of loss to property in the immediate area.” (3) Lastly, finding that EO 107 was issued in response to the COVID-19 virus and therefore was caused directly or indirectly by the virus, the court held that the virus exclusion bars any claim for coverage under the policy.

Thanks to Steven Kaufman for his contribution to this article.  Should you have any questions, please contact Heather Aquino.Read More

The Benefit Of The Auto Insurance Bargain (PA)

On July 6, 2022, in an appeal from the Western District of Pennsylvania, the Third Circuit upheld the district court’s grant of summary judgment in favor auto insurer State Farm’s motion for summary judgment. The case, Tina Bubonovich v. State Farm Mutual Auto Ins. Co., was initiated by the plaintiff when, after recovering the available limits of the other driver’s liability coverage, as well as her own underinsured motorist coverage (“UIM”), she was precluded from stacking her son’s UIM coverage. Hence, the question before the court was whether the plaintiff can stack her son’s UIM policy on top of her own recovery when stacking was selected in one policy (the plaintiff’s) but waived in the other (the son’s).

The relevant facts are as follows: (1) plaintiff was driving her car at the time of the accident; (2) plaintiff was residing with her son at the time of the accident; (3) plaintiff’s son is the named insured under his own State Farm policy; (4) the son’s policy does not include the plaintiff’s vehicle as an insured vehicle; and (5) the plaintiff’s son executed a non-stacking waiver as to his policy.

The Third Circuit rearticulated the holding in Craley v. State Farm Fire & Casualty Co., 895 A.2d 530 (Pa. 2006), which stated it is the concerned policy and its exclusions that are applicable to the legal issues, nothing else. Accordingly, although the plaintiff in Bubonovich argued that she elected stacking and should receive the benefit of that bargain, the Third Circuit acknowledged the bargain did not include the ability to draw on other policies of insurance under which the named insured waived stacking.

Thanks to Richard Dunne for his contribution to this article.  Should you have any questions, please contact Matthew Care.

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Hacked Emails Will Cost You More Than You Realize

In a recent case from the Eastern District of PA, Constr. Fin. Admin. Serv. LLC v. Fed. Ins. Co., the court upheld an insurance company’s exclusion for “hacked” losses.  The plaintiff/policyholder in the case brought suit against its insurer after it mistakenly sent wire transfers to a foreign company after receiving fraudulent emails vis a vis a client contractor.

The plaintiff construction company sent $1.3 million dollars in funds to a foreign account after receiving emails from a client contractor. However, it was later demonstrated that the email had been hacked and scam messages to the plaintiff precipitated the transfer. The plaintiff was able to recover around $127,000 dollars through police intervention, and sought coverage for the rest from its carrier.  Unfortunately for this policyholder, the policy as written did not cover “social engineering.” Under Pennsylvania law, the insured has the burden “to establish coverage under an insurance policy” and the court held there was no dispute of material fact, that the policy was clear, and it did not cover hacking.

Thanks to Kevin Riley for his contribution to this post.  Should you have any questions, please do not hesitate to contact Tom Bracken.

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