Wade Clark Mulcahy LLP

Homeowner’s insurance policies typically provide first-party coverage for property damage as well as third-party liability coverage for injuries which occur on the insured property.  The liability coverage is subject to various exclusions, one of which precludes coverage for dependents or others who live with the insured.  

In Iaeck v. Barnaba, the New Jersey Appellate Division recently addressed the applicability of this exclusion in a case involving an injury claim by a woman who had lived in a condominium with the insured owner. The resident sued the owner after a fall down a flight of stairs, and the owner sought coverage under her homeowner’s insurance policy. The plaintiff was not related to the owner but had lived with her for many years under a verbal lease and paid rent. The two shared certain common spaces in the condo.

The policy provided personal liability coverage for the owner but contained a “Covered person’s or dependent’s personal injury” exclusion which precluded coverage for damages for personal injury “for which you or a family member can be held legally liable in any way, to a spouse, a family member, a person who lives with you, or a person named in the Coverage Summary.” The insurer denied coverage based on this exclusion and plaintiff amended her complaint to assert a direct claim against the insurer for coverage. Plaintiff obtained a large default judgment against the owner and the trial court ultimately granted summary judgment to the insurer, finding that it did not have a duty to defend or indemnify the owner for plaintiff’s injury claims.

The Appellate Division affirmed, finding that the “Covered person’s or dependent’s personal injury” exclusion applied to preclude coverage. In so holding, the Court echoed the principle that if the plain language of the policy is unambiguous, the court is not to engage in a strained construction to support the imposition of liability or write a better policy for the insured than the one purchased. The Court found that the exclusion at issue was “plain and unambiguous” and applied in the case because plaintiff was living with Barnaba at the time of the accident. The Court also noted that the exclusion was not contrary to public policy because “it is reasonable for an insurer to exclude coverage for liability for personal injuries to people who live with the covered person.”

The Appellate Division also rejected plaintiff’s argument that the exclusion should be read to apply only to individuals who are part of the covered person’s household or who have a romantic or familial relationship with the covered person. Such a reading was inconsistent with the plain language of the exclusion which clearly stated that there was no coverage for injuries to “a person who lives with” the covered person.

The Iaeck decision stands out in that despite creative and result-oriented arguments by the party seeking coverage, the Court applied the facts and law to reach the correct decision based on the language of the policy. The facts clearly supported an application of the exclusion and the Court’s decision was consistent with New Jersey’s longstanding coverage rules.