Extrinsic Evidence Determines Duty to Defend

Extrinsic Evidence Determines Duty to Defend

     Exclusive Remedy Remains Exclusive

This appeal required a New Jersey Appellate court to determine the scope of an insurer’s duty to defend an insured under Indiana law. In Ware Industries, Inc. v. Wausau Underwriters Insurance Co., A-3522-11T1 (N.J.Super.App.Div. 10/24/2013) [enhanced version available to lexis.com subscribers], an employee of plaintiff Ware Industries, Inc. (Ware) was injured on the job at a Ware facility in Indiana.

Defendant Wausau Underwriters Company (Wausau) provided worker’s compensation and employer liability insurance to Ware also paid worker’s compensation benefits to Enrique Herrera, Jr. Herrera filed a complaint in Indiana against Ware, alleging Ware failed to train him properly, knowingly provided him with inappropriate equipment, and deliberately intended or knew injury was certain to occur. After Wausau refused to defend, Ware filed its complaint in New Jersey, seeking a declaratory judgment that Wausau had a duty to defend and indemnify. The trial court granted Wausau’s motion for summary judgment based on the policy exclusion of intentional conduct. Ware appealed.


The Wausau policy covers Ware and numerous Ware entities in at least thirteen states, including Indiana, but not New Jersey. The policy covers bodily injury caused by accident or disease.

Part One of the policy provides worker’s compensation insurance as required by each of the states. It “applies to bodily injury by accident or bodily injury by disease.” The policy provides, “We will pay promptly when due the benefits required of you by the workers compensation law.” The accompanying duty to defend excluded uncovered claims, stating:
* * * “We have no duty to defend a claim, proceeding or suit that is not covered by this Insurance.”

Part Two of the policy provides employer’s liability insurance. It also “applies to bodily injury by accident or bodily injury by disease, ” provided, among other things, the “bodily injury must arise out of and in the course of the injured employee’s employment by you.” Part Two insures Ware against any “sums [it] legally must pay as damages because of bodily injury to [its] employees, provided the bodily injury is covered by this Employers Liability Insurance.” The duty to defend under Part Two closely tracks the comparable Part One provision.


Herrera’s January 2010 application for worker’s compensation benefits from Ware alleged that on May 31, 2008, he suffered a fractured pelvis and other significant injuries when he was crushed by a steel coil. Herrera was operating a forklift. He alleged Ware was grossly negligent in providing him “an unsafe forklift” and “by failing to properly train employees.” Herrera was found to have suffered sixty percent whole person permanent partial impairment. Wausau paid Herrera’s worker’s compensation benefits, including over $727,000 in medical expenses, plus a weekly benefit of $330.

Herrera then filed a civil action against Ware that was ultimately removed to the United States District Court for the Northern District of Indiana. In an effort to avoid the worker’s compensation bar, Herrera alleged that Ware intentionally caused him injury, or acted with knowledge of certain injury. Herrera also recounted the circumstances of his injury, including allegations that Ware failed to train him properly, and required him to use unsafe equipment. Specifically, Herrera complained that Ware failed to properly train Herrera for the job of fork lift operator and further failed to train Herrera and his co-workers on critical job safety practices.

Wausau — by a letter from Liberty Mutual Group — acknowledged its receipt of the complaint, declined to provide a defense, and disclaimed liability to indemnify. Wausau stated that “the allegations in the complaint do not create a potential of coverage under the policy.” Wausau reasoned that there was no coverage, and, therefore, no duty to defend under Part One because Herrera was not seeking worker’s compensation benefits.

As to Part Two, Wausau denied a duty to defend, stating, “The policy applies only to bodily injury by accident or bodily injury by disease. The plaintiff does not allege bodily injury by accident.” The letter added that even if Herrera’s injuries were deemed accidental, the policy denies coverage “for any bodily injury intentionally caused or aggravated by you. The plaintiff alleges his injuries were intentionally caused by [Ware].”

The federal district court ultimately granted summary judgment, dismissing Herrera’s suit as barred by the Indiana Worker’s Compensation Act (Indiana Act).


Indiana has expanded the exceptions to the exclusive remedy provision of the Workers’ Compensation Act to encompass intentional torts committed by the employer. This is because the Act is limited to injuries that occurred by accident, and intentional acts exceed its scope. To meet this exception, the employer itself must have intended the injury or had actual knowledge that an injury was certain to occur. This condition is not satisfied if the intent was on behalf of a supervisor, manager, or foreman. The plaintiff must show that the corporation was the tortfeasor’s alter ego, that the corporation substituted its will for that of the individual who committed the tortious acts, or that the injuries were an intended product of corporate policy. Negligence, gross negligence, or recklessness on the employer’s behalf is insufficient.

Herrera alleged conduct sufficient to surmount the worker’s compensation bar. While Herrera’s suit was pending in federal court, ten months before Ware obtained summary judgment, Ware filed its complaint in New Jersey in December 2010, seeking a declaratory judgment that Wausau was obliged to defend and, if necessary, indemnify Ware for any liability arising out of Herrera’s suit. Judge Joseph Rea granted the insurer’s motion in the declaratory relief action.

The appellate court concluded that Indiana law governed its analysis. Indiana is the site of the risk, the injury, the lawsuit, the plaintiff, and the defendant-insured.

As Ware succeeded in securing dismissal of Herrera’s suit, the appellate court concluded Ware’s appeal is moot in that part seeking indemnity. Indiana courts accept, like courts everywhere, the general principle that the duty to defend is broader than the duty to indemnify. The duty to defend includes a duty to defend unfounded, false or fraudulent suits based upon risks it has insured. The duty to defend exists even if only some of the claims implicate covered risks. If the policy is otherwise applicable, the insurance company is required to defend even though it may not be responsible for all of the damages assessed.

In Indiana the duty to defend is usually determined solely by the nature of the complaint. The appellate court concluded that Indiana law does not bar a party from looking beyond the face of the complaint. Extrinsic evidence is useful and even when a plaintiff has not clearly alleged a claim against an insured that is covered, an investigation may demonstrate that the underlying facts could fall within an insured risk. Similarly, an insurer may refuse a defense, notwithstanding that a covered claim is alleged on the face of the complaint, if an investigation demonstrates no conceivable basis for coverage.

Of course, an insurer that refuses to defend based on its investigation, without seeking a declaratory judgment or choosing to defend pursuant to a reservation of rights, does so at its own peril.

Although Herrera’s complaint is far from a model of clarity, the court found it clear that Herrera alleged a non-accidental injury — one caused with deliberate intent, or with knowledge of certain injury. He did so in an express effort to overcome the worker’s compensation bar since, without such allegations his rights were limited to the benefits of the workers’ compensation system.

If Herrera proved his factual allegations that Ware acted negligently it would trigger only an obligation by Ware to pay worker’s compensation benefits. Those benefits had already been paid. Looking beyond the complaint permits the conclusion that Wausau’s declination of a defense was justified because the claim was patently outside of the risk covered by the policy.

The trial court appropriately exercised its discretion to deny Ware’s motion for reconsideration The court correctly denied reconsideration of the order denying plaintiff’s motion for partial summary judgment and affirming defendants’ motion as it pertained to the duty to defend. The remainder of the case was moot.


Workers’ Compensation serves an important purpose: it allows recovery of benefits by a person injured in the workplace regardless of fault. Herrera obtained the benefits allowed by the Indiana workers’ compensation law. He wanted more. To gain more he sued his employer in federal court claiming his injury was intentionally caused by the employer, a cause not covered by workers’ compensation laws.

His employer’s insurer refused to defend and was sued for defense of Herrera’s tort suit. Unfortunately, for the employer, Ware, there is no coverage for intentional acts, the only acts the employee alleged or could allege under the facts.

Many try to avoid the workers’ compensation laws when they, like Herrera, are severely injured. The task is difficult and, since the claim must be non fortuitous acts, is not insurable in the basic insurance marketplace and probably unaffordable in any other market.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or zalma@zalma.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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