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Limiting The Scope of A Policy’s Assault and Battery Exclusion (NJ)

June 13, 2019

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<p style="text-align: justify;">In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2019/06/CMS-v.-AEIC.pdf">CMS v. AEIC</a></em><a href="https://www.njcourts.gov/attorneys/assets/opinions/appellate/unpublished/a2056-17.pdf?c=u6d"></a>, the New Jersey Appellate Division addressed the applicability of a policy’s “assault and battery” exclusion, as well as the potential impact of an insurer’s failure to timely disclaim coverage.</p>
<p style="text-align: justify;">Plaintiff CMS Investment Ventures was the owner of an apartment building in Irvington, New Jersey.  CMS was insured through American European Insurance Company (AEIC).  The policy contained an “assault and battery” exclusion, which barred coverage for, in part, claims “based on Assault and Battery.”  In 2013, an intruder broke into one of the apartments in the building and sexually assaulted one of the tenants.  Shortly thereafter, CMS reported the incident to its broker.</p>
<p style="text-align: justify;">In 2015, the tenant filed suit against CMS, alleging it breached its duty of care by failing to adequately maintain the property, failing to keep the premises safe, and by not taking precautions to protect tenants from reasonably foreseeable criminal activity.  CMS sought coverage from AEIC, who ultimately denied coverage based upon the “assault and battery” exclusion.</p>
<p style="text-align: justify;">On appeal, the court focused on whether the tenant’s claim was “based on” an assault and battery, such that the exclusion would bar coverage.  The court noted that other cases discussing assault and battery exclusions contained the phrase “arising out of”, to which courts have applied a “broad definition.” However, it noted, even some of these cases have limited the application of such exclusions so as not to cover all claims proximately caused by the excluded act.  The court then turned to the dictionary’s definition of “based” and analyzed the sentence structure of the exclusion, and held that “the exclusion applies to claims, demands or suits where ‘Assault and Battery’ forms or serves as the claim’s foundation.”  Because the tenant’s claim was not based <em>only</em> on sexual assault, the court held that the exclusion did not apply.  Specifically, the tenant had sued under a premises liability theory, i.e. negligence, which was not encompassed by the exclusion.  Additionally, the court conclude that CMS was entitled to attorneys’ fees based on AEIC’s untimely disclaimer.</p>
<p style="text-align: justify;">This case is notable insofar as it is one of the few cases analyzing the specific term “based on” in the context of an insurance exclusion.  Given that New Jersey courts have seemingly interpreted the phrases “arising out of” and “based on” in differing ways, <em>CMS</em> is a boon to policyholders who are seeking coverage for claims further removed from the excluded act at issue.  Additionally, this case also highlights the potential consequence of an insurer failing to timely disclaim coverage in New Jersey.</p>
<p style="text-align: justify;">Thank you to Doug Giombarrese for his contribution to this post.  Please email <a href="mailto:chayes@wcmlaw.com">Colleen E. Hayes</a> with any questions.</p>

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