By Mark R. Vespole, Partner, Tressler LLP
Going back more than one-half century, it has been the law in New Jersey that the duty to defend is broader than the duty to pay. See Burd v. Sussex Mutual Ins. Co., 56 N.J. 383 (1970); Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504 (1965); Danek v. Hommer, 28 N.J. Super. 68 (App. Div. 1953), aff'd o.b., 15 N.J. 573 (1954). Therefore, in later cases such as Hartford Ins. Group v. Marson Constr. Corp., 186 N.J. Super. 253, 257 (App. Div. 1982), the court, relying on this long-established line of cases, made the following pronouncement:
The insurer's obligation to defend is triggered by a complaint against the insured alleging a cause of action which may potentially come within the coverage of the policy, irrespective of whether it ultimately does come within the coverage and hence irrespective of whether the insurer is ultimately obliged to pay. This principle, of course, applies where there is a factual issue between the third-party claimant and the insured, the resolution of which may result in an adjudication that at least part of the claim against the insured is within the policy coverage.
As recently as 2011, the court in Abouzaid v. Mansard Garden Assocs., 207 N.J. 67 (2011), reiterated the principle that even if a claim covered by the policy is not articulated in the complaint against the insured, the duty to defend will be triggered, However, in Memorial Properties, LLC v. Zürich American Insurance Co., 46 A.3d 525 (N.J. 2012), the court never even considered the fact that there were negligence claims asserted against the insured, which could have been based upon its failure to discover that body parts were missing, even in the absence of its having any involvement in the illegal harvesting of body parts. It is difficult to understand how the court distinguished this case from some of its earlier cases in concluding that the insurer had no duty to defend.
The Memorial Properties court also failed to consider that the insured had both professional and general liability coverage, based upon which, it ought to have had a reasonable expectation of coverage for any damages arising out of its "business negligence". Search EDP, Inc. v. American Home Ins. Co., 267 N.J. Super. 537 (App. Div. 1993), certif. denied, 135 N.J. 466 (1993). Because the Memorial Properties court held that the "improper handling" exclusion, which was defined to include the failure to bury, cremate or "properly dispose of" a deceased body by any insured resulted in a proper disclaimer of coverage it is difficult to understand precisely what professional liability coverage would be available to a crematory under this policy. This is because almost every negligent mistake it made in the course of its business operation could reasonably be characterized as its failure to properly dispose of a deceased body.
In giving rather a rather broad interpretation to the improper handling exclusion, the court seems to have ignored some of its own precedents, including the principle that "[i]n general, insurance policy exclusions must be narrowly construed; the burden is on the insurer to bring the case within the exclusion." Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 41, (1998). Moreover, "doubts are resolved in favor of the insured and, therefore, in favor of reading claims that are ambiguously pleaded, but potentially covered, in a manner that obligates the insurer to provide a defense. Cent. Nat'l Ins. Co. v. Utica Nat'l Ins. Group, 232 N.J. Super. 467, 470, (App. Div. 1989).
Mark Vespole is a partner based in the Newark office of Tressler LLP. Mark focuses his practice on the counseling and representation of various financial institutions and corporations and their employees on corporate raiding, FINRA and SEC compliance, customer and industry securities arbitrations, insurance coverage, bad faith, professional liability, rescission actions, products liability, directors and officers, liability, business torts, construction, employment, toxic tort and general negligence defense litigation, as well as mediation and arbitration. Mark has been certified by the New Jersey Supreme Court as a civil trial attorney for the past 24 years and has also been a certified mediator. In addition, Mark has authored the LEXIS-NEXIS Practice Guide New Jersey Civil Discovery (2007-2011 Editions), co-authored the LEXIS-NEXIS Practice Guide New Jersey Pretrial Practice (2007-2011 Editions), co-authored LEXIS-NEXIS Practice Guide New Jersey Insurance Litigation (2008-2011 Edition) and wrote a chapter on expert witnesses for the LEXIS-NEXIS Practice Guide New Jersey Trial, Post-Trial and Appellate Proceedings (2007 Edition). Additionally, Mark has been selected for inclusion in the 2005 2006, 2007, 2009, 2010 and 2011New Jersey Super Lawyers®.
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