New Jersey Insurance Blog

Is money “tangible property”?  What about checks?  These questions recently were answered in the negative by a New Jersey Appellate Court in Estate of Keppel v. Angela’s Angels Home Healthcare, LLC, 2019 WL 2060285 (May 9, 2019).

Donna Thomas was a home health aide employed by Angela’s Angels Home Healthcare.  She was no angel, however.  While working for Louis Keppel over a period of two years, she wrote checks on Mr. Keppel’s account totaling $225,000.  The checks were made payable to herself, her son, her son’s girlfriend, “cash,” and a company she set up.  The theft of funds was not discovered until after Mr. Keppel’s death.

During the time that the thefts occurred, Angela’s Angels was insured under a comprehensive general liability policy issued by Nautilus Insurance Company.  The policy provided coverage for “property damage,” which was defined to include both “[p]hysical injury to tangible property, including all resulting loss of use of the property” and “loss of use of tangible property that is not physically injured.”  Nautilus denied coverage for the claim made by Angela’s Angels on the basis that money and checks are not “tangible property.”  

Mr. Keppel’s estate subsequently sued Angela’s Angels, Ms. Thomas, and Nautilus.  Ms. Thomas never entered an appearance in the action, and the estate settled with Angela’s Angels for a nominal sum.  In exchange, Angela’s Angels assigned its rights under the Nautilus policy to the estate.  After conducting discovery, the estate moved for summary judgment and Nautilus cross-moved.  The trial judge granted summary judgment in favor of Nautilus, and that decision was later affirmed on appeal.

The Appellate Division began its analysis by noting that the term “tangible property” was not defined in the policy.  Thus, the court held that, under well-established rules of insurance policy interpretation, it had to apply the plain and ordinary meaning of the term.  In making this determination, the court looked to decisions from New Jersey and elsewhere defining “tangible property” in the insurance and other contexts and to dictionary definitions.

Based on those decisions and definitions, the court concluded that “‘tangible property’ is physical property that can be perceived by the senses and has genuine monetary value.”  Id. at *3.  The court went on to note:

Checks represent money in a bank that exists in digital form in a computer database in the name of the account holder.  Checks are a representation of money held by a bank and are simply a medium of exchange.  A medium of exchange, such as coins or dollar bills, is not tangible property.  Thus, the checks misappropriated by Thomas and then cashed without permission are not property damage as defined in the Nautilus policies.

Id.  The court further noted:

The loss of use of a check does not equate with the loss of money.  Here, there is no injury to the checks, and the loss of use relates to the money misappropriated.  Therefore, there is no property damage claim under the Nautilus policies.

Id.   

As issue in Keppel were checks stolen by Ms. Thomas that she later filled out and cashed, resulting in $225,000 in funds being withdrawn from Mr. Keppel’s bank accounts.  It appears, however, that the result would have been the same even if Ms. Thomas had stolen money directly from Mr. Keppel’s home.  The court noted that “[t]he loss of stolen money does not constitute ‘property damage’ because money, or the checks representing money, is not ‘tangible property.’”  Id.  Unlike checks, money “can be perceived by the senses and has genuine monetary value.”  Nonetheless, the Keppel court and courts in other jurisdictions have held that money itself is not tangible property.        

Putting aside the court’s holding, the lesson to be learned here is that one has to be very cautious when settling with a tortfeasor for little or no money in exchange for an assignment of any rights the tortfeasor has under its insurance policy.  In the event the denial of coverage is upheld, the injured party can end up walking away with little or no recovery while the party primarily responsible for the injuries (i.e., the tortfeasor) avoids potential liability.     

© William D. Wilson and NJInsuranceBlog.com, 2019.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.  

A life insurance policy is valid only if the insured has an “insurable interest” in the person covered by the policy at the time it is issued. Where no insurable interest exists, the policy is void and the policyholder has no right to recovery.  The insurable interest requirement is grounded in public policy so as to discourage the use of insurance for illegitimate purposes, and mitigate the risk that a beneficiary will intentionally harm the covered person in order to wrongfully recover benefits. 

In 1876, the United States Supreme Court held that “[a] man cannot take out insurance on the life of a total stranger, nor on that of one who is not so connected with him as to make the continuance of the life a matter of some real interest to him.”  Conn. Mut. Life Ins. Co. v. Schaefer, 94 US. 457, 460 (1876).  In New Jersey, the insurability of interests in persons is principally governed by statute.  Pursuant to N.J.S.A. 17B:24-1.1, in addition to the named insured, close relatives, corporations, charities, and other persons with certain ties to the insured may have an insurable interest in the insured’s life.  A stranger with no ties to the insured would not qualify under the statute.    

The United States Supreme Court has made clear that, as long as the insured  procured the policy in good faith—i.e., with the intent to obtain financial protection for those with an insurable interest in his life—that interest need not exist throughout the duration of the risk period nor exist at the time of the loss.  Grigsby v. Russell, 222 U.S. 149, 157 (1911).  Thus, subject to certain requirements, an insured may assign the benefits of his life insurance policy to someone who lacks an insurable interest in his life, provided there was no pre-existing assignment agreement at the time of issuance.  Id. at 157; Howard v. Commonwealth Beneficial Ass’n, 98 N.J.L. 267, 268 (E. & A. 1922); Meyers v. Schumann, 54 N.J. Eq. 414, 417 (E. & A. 1896).

Over the past few decades, there has been significant growth in the secondary, “life settlement” market.  A traditional life settlement generally involves the sale of an existing life insurance policy, after the contestability period has expired, to someone without an insurable interest in the insured’s life in exchange for cash in excess of the policy’s surrender value, but less than the policy’s death benefits.  This type of transaction gained popularity in the 1980s, amidst the AIDS crisis, as it allowed terminally ill patients to fund their health care or settle accounts while they were still alive.  See Life Partners, Inc. v. Morrison, 484 F.3d 284, 287 (4^th Cir. 2007); Afonso V. Januario & Narayan Y. Naik, Empirical Investigation of Life Settlements: The Secondary Market for Life Insurance Policies 6 (June 10, 2013).  Life settlements continued to grow not only with terminally ill patients, but the elderly, as well.  Indeed, billions of dollars worth of policies are sold annually on the secondary market.  Lincoln Nat’l Life Ins. Co. v. Calhoun, 596 F. Supp. 2d 882, 885 (D.N.J. 2009).

Life settlements for terminally ill patients are called “viatical settlements,” and are strictly regulated by statute in New Jersey.  The statutory definition specifically provides that a “viatical settlement contract includes an agreement with a viator to transfer ownership or change the beneficiary designation at a later date regardless of the date that compensation is paid to the viator.” N.J.S.A. 17B:30B-2.

Traditional “life settlements” are legal insofar as they do not violate the insurable interest requirement.  However, issues with respect to the insurable interest in a life insurance policy arise “when [insureds] intend at the time of the policy’s issuance, to profit by transferring the policy to a stranger with no insurable interest at the expiration of the contestability period.”  Calhoun, 596 F. Supp. 2d at 889 (D.N.J. 2009).  This non-traditional transaction, called “stranger-owned life insurance” or “STOLI,” has been summed up by the court in Calhoun as where:

[a]n agent attempts to sell a life insurance policy to an elderly insurable candidate, and offers the candidate up-front cash in exchange for promising a future sale of the policy. The agent informs the candidate that the candidate will be able to obtain the policy at virtually no cost to himself, because the agent has secured [third-party] non-recourse financing to purchase the policy. The candidate then acts as a “nominal grantor” of a life insurance trust that is used to apply for the policy.  “At that time, the agent will tell the insured that, in all probability, the policy will be sold to investors for a price that will pay the loan and accrued interest, leaving a profit to split between the agent and the insured . . . .  If the insured survives [the two-year contestability period on the policy], the owner (the life insurance trustee) typically has two options in addition to the sale of the policies to investors: (1) have the insured pay the outstanding debt with accrued interest and retain the policy; or (2) transfer the policy to the lender in lieu of foreclosure.

Id. at 885 (citing, J. Alan Jensen & Stephan R. Leimberg, Stranger-Owned Life Insurance:  A Point/Counterpoint Discussion, 33 ACTEC J. 110, 111 (2007)).  Thirty states have enacted anti-STOLI legislation.  At least ten anti-STOLI bills have been introduced in New Jersey, but none has passed or was enacted.

In Sun Life Insurance Company of Canada v. Wells Fargo Bank, N.A., 2019 WL 2345444 (N.J. June 4, 2019), the New Jersey Supreme Court finally addressed the validity of STOLI policies.  The court concluded that stranger owned life insurance policies, which it referred to as stranger originated life insurance policies, are not valid if they were procured with the intent to benefit persons without an insurable interest in the life of the insured.  The court further held that such policies are void ab initio and, therefore, a later purchaser who was not aware of the illegal conduct may be entitled to a refund of any premiums it paid. 

By referring to the policies as stranger “originated” as opposed to stranger “owned” insurance policies, it appear that the court was making a distinction beyond policies that are properly obtained and then transferred to a third party at a later date versus policies in which the intent from the outset is to transfer the policy to a third party.  The former are still valid in New Jersey subject to certain requirements.

In Sun Life, the plaintiff/life insurer commenced an action against the transferee of a STOLI policy seeking to avoid its obligations to pay the death benefit under the policy.  It also argued that it was not required to return the premiums paid by a subsequent transferee that was not involved in the procurement of the policy.     

In that case, Nancy Bergman, an 82 year old retired middle school teacher, applied for a $5 million life insurance policy from Sun Life Assurance Company of Canada.  In the application, Ms. Bergman grossly overstated her annual income and net worth.  She also claimed that she had no other life insurance policies.  In fact, five life insurance policies were taken out on her life, providing over $37 million in coverage.        

The sole beneficiary under the policy was the Nancy Bergman Irrevocable Trust.  The trust had five members, Ms. Bergman’s grandson and four investors who were strangers to Ms. Bergman.  The four investors deposited money in the trust to pay the policy premiums.  The original trust agreement provided that any policy proceeds would be paid to Ms. Bergman’s grandson, but that was changed five weeks after the policy was issued.  At that time, the grandson resigned as trustee and appointed the four investors as successor co-trustees.  In addition, the trust was changed so that the benefits would go to the four trustees, who also were given authority to sell the policy.

As required by law, the policy at issue contained an incontestability clause, which barred Sun Life from challenging the validity of the policy for anything other than the non-payment of premiums after it had been in effect for two years.  Two years after the policy was issued, it was sold to SLG Life Settlements, LLC.  The policy subsequently was transferred to a company named LTAP and then to Wells Fargo Bank, N.A.  After Ms. Bergman passed away, Wells Fargo made a claim under the policy, which was denied by Sun Life.  Sun Life then commenced a declaratory judgment action in federal court in New Jersey seeking a declaration that the policy was void ab initio.  Wells Fargo counterclaimed, seeking recovery of the $1,928,726 it paid in premiums, both directly and indirectly.

On certified questions from the Third Circuit, the New Jersey Supreme Court held that STOLI policies are void ab initio.  According to the Court, “a life insurance policy procured with the intent to benefit persons without an insurable interest in the life of the insured does violate the public policy of New Jersey, and such a policy is void at the outset.”  Id. at *22.  The Court further held that the incontestability clause would not preclude a challenge to the policy.  Finally, the court held that “[d]epending on the circumstances, a party may be entitled to a refund of premium payments it made on a void STOLI policy, particularly a later purchaser who was not involved in any illicit conduct.”  Id. at *22.  The factors to be considered in making that determination “include a party’s level of culpability, its participation in or knowledge of the illicit scheme, and its failure to notice red flags.”  Id.

While the Court’s holding is not surprising, this recent decision highlights the state legislature’s surprising lack of anti-STOLI legislation, which has allowed litigation concerning the enforcement of such policies to drag on for many years.  STOLI policies are a form of wagering contract in which investors gamble on how long a person will live.  The shorter the period of time, the more money the investors earn.  Such wagering transactions have long been banned.  To get around that ban, life settlement companies tried to disguise the transactions.  However, time and time again courts and state legislatures have seen through the disguise.  Of course, by the time that happened, many of the initial investors had long since cashed in and left subsequent transferees holding the bag. 

© William D. Wilson and NJInsuranceBlog.com, 2019.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.  

What is a four-wheel passenger auto?  That was a question that recently was answered by the New Jersey Appellate Division in Starner v. Haemmerle, No. A-0153-17T2, 2018 WL 5273995 (N.J. App. Div. Oct. 24, 2018). Specifically, the issue before the court was whether an all-terrain vehicle (ATV) qualified as a “four-wheel passenger auto” under an automobile liability policy.  The trial court held that it did.  On appeal, however, the Appellate Division reversed the trial court’s decision.

The insurer in that case, Government Employees Insurance Company (GEICO), issued an automobile liability policy to the parents of Bailey Snyder.  The policy provided coverage for, among other things, a “private passenger auto,” which was defined as “a four-wheel private passenger, station wagon or jeep type auto.”    

Ms.Snyder, who was 14 at the time, was driving an ATV with several passengers.  The ATV was owned by a third party.  Ms. Snyder lost control of the ATV, causing injuries to Hanna Starner, one of her passengers.  Ms. Starner subsequently sued the owner of the ATV and Ms. Snyder.  Ms. Snyder sought coverage under her parents’ insurance policy.  Unfortunately, the ATV was neither registered nor insured. 

The trial court concluded that the ATV qualified as a four-wheel passenger auto because it had four wheels and had the capacity to transport passengers.  The court further noted that a registered ATV can be operated on public roadways, albeit in extremely limited circumstances.  Specifically, a registered ATV can be used to cross, or be driven adjacent and parallel to, a highway to get to an area whereATVs can be driven.

The Appellate Division reversed the trial court. The court held that is was bound by the New Jersey Supreme Court’s decision in Wilno v. New Jersey Manufacturers Ins. Co., 89 N.J. 252 (1982). In Wilno, rather than write a separate opinion, the Court simply adopted the dissenting opinion in the court below.  In that opinion, former Judge Allcorn, relying on the dictionary definition of automobile, held that a dune buggy was not a private passenger automobile. In reaching his conclusion, Judge Allcorn emphasized, among other things, “the unusual dangers presented by dune buggies, due to their construction and their intended use as high-risk off-road recreational vehicles.”     

After discussing Wilno, and summarizing and contrasting various statutory provisions that apply to automobiles with those that apply to ATVs, the court reasoned:

All of these statutory provisions convince us that an ATV is not a private passenger automobile. Further, given that an ATV cannot be driven on public roads, except to cross a road in order to reach an ATV site, and given that children can drive ATVs, we conclude that no reasonable policyholder would believe that the GEICO policy reference to “private passenger auto” coverage would extend to an ATV.Lastly, even if we had doubts about our conclusion, we are bound by the Supreme Court’s holding in Wilno. Given Judge Allcorn’s reasoning, which the Court adopted, we can find no principled basis on which to distinguish the case.

2018 WL 5273995 at *4.  The court specifically rejected the argument that the phrase “private passenger auto” was ambiguous.  The court also rejected the argument that an insured would reasonably have believed that an ATV qualifies as a “private passenger auto.” 

This is a case where the trial court overreached in an attempt to create coverage where none existed.  Clearly, there was no intent on the part on the insureds to obtain coverage under their automobile liability policy for injuries caused by their fourteen-year-old daughter while riding someone else’s ATV.  Yet, the trial court granted summary judgment in favor of the insureds.  Fortunately, rather than simply hold that the language of the policy was ambiguous, or mechanically apply the reasonable expectations doctrine, the Appellate Division performed a detailed analysis of the policy language, the relevant statutes, and prior New Jersey Supreme Court precedent to arrive at its conclusion that there was no coverage.

© William D. Wilson and NJInsuranceBlog.com, 2018.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.

An insurer typically has two distinct, albeit related, obligations under a third-party policy:  the duty to defend the insured in connection with potentially covered claims asserted against the insured and the duty to pay any judgments against the insured in connection with covered claims.   It is well established that an insurer can be estopped from denying coverage if it undertakes the defense of its insured and fails to timely inform its insured that coverage may not exist and/or may be limited.  In other words, failure to inform the insured of a coverage limitation may result in waiver of that limitation.  As summarized by the New Jersey Supreme Court:

Under certain circumstances an insurance carrier may be estopped from asserting the inapplicability of insurance to a particular claim against its insured despite a clear contractual provision excluding the claim from the coverage of the policy. The strongest and most frequent situation giving rise to such an estoppel is one wherein a carrier undertakes to defend a lawsuit based upon a claim against its insured.  If it does so with knowledge of facts that are relevant to a policy defense or to a basis for noncoverage of the claim, without a valid reservation of rights to deny coverage at a later time, it is estopped from later denying coverage.

Griggs v. Bertram, 88 N.J. 347, 355-56 (1982); see also Merchants Indem. Corp. v. Eggleston, 37 N.J. 114, 126 (1962).

The issue of whether an insurer should be estopped from denying coverage after agreeing to defend its insured arises fairly frequently.  The most recent case to address this issue is Drive New Jersey Insurance Company v. D’Alessio, 2018 WL 3339796 (N.J. Super. Ct. App. Div. July 9, 2018).  In that case, the insurer, Drive New Jersey Insurance Company, agreed to defend its insured in a wrongful death action without issuing a reservation of rights (ROR) letter.  Although the Drive policy provided an overall coverage limit of $500,000, it reduced coverage to $15,000 for the use of a vehicle for business purposes.  After agreeing to defend its insured without first raising the reduced limit, Drive later sought to limit its liability to $15,000.

The underlying action arose out of a fatal car accident in which Louis A. D’Alessio, Jr., Drive’s insured, struck and killed a pedestrian.  At the time, D’Alessio was using his own car to deliver bagels for Bagel Express, his employer.  Bagel Express had its own insurance with Sentinel Insurance Company.  After undertaking the defense of its insured in the underlying action, Drive commenced a separate declaratory judgment action against D’Alessio, Bagel Express, Sentinel, and the decedent.  Drive did not seek to stay the underlying wrongful death action and continued to defend the insured in that action.

After the close of discovery in the declaratory judgment action, Sentinel moved for summary judgment, seeking a ruling that Drive was precluded from avoiding liability for the full amount of the policy limit.   During discovery Drive failed to produce a ROR letter, and at oral argument of the summary judgment motion its counsel did not take the position that a ROR letter had been sent.  Rather, Drive merely asserted the rather novel argument that such a letter was not necessary because it was only reducing coverage and not denying it.

After losing on summary judgment, Drive filed a motion for reconsideration.  This time, Drive produced, for the first time, an unsigned letter that it purportedly sent to the insured’s former counsel.  That letter made specific reference to the $15,000 coverage limit, although it did not specifically state that Drive was reserving its rights.  The former counsel had been retained to represent the insured only in connection with an examination under oath requested by Drive and did not represent the insured in either litigation.  Drive claimed it mistakenly failed to provide the letter to its own counsel, which is why it had not been produced earlier.  Drive also produced for the first time a letter to the insured in which it stated that while the insured had $500,000 in coverage, it was possible that a judgment in excess of that amount could be entered against the insured and, for that reason, he may want to retain a personal attorney.  It is not clear why Drive believed that that letter supported its position.

The judge scheduled a testimonial hearing to deal with the factual issue raised by the motion for reconsideration.  On the date of the hearing, Drive was not prepared to proceed for a number of reasons. The judge subsequently denied the motion.  The court noted that there was no evidence that the two letters could not have been located earlier through diligent effort. Without going into any detail, the court further noted that even if Drive could prove that the insured’s former attorney had received the newly discovered letter at a time when he was still representing the insured, it did not qualify as a ROR letter.

The Appellate Division affirmed.  The court began its analysis by agreeing with the motion judge that “Drive could not undertake the defense of its insured, without giving the insured advance notice that Drive intended to deny most of the coverage the policy provided and that it would defend under a reservation of that right.” Id. at *4.  Citing Griggs, the court went on to note that “[e]ven if a formal ROR letter were not required, an insurer must timely invoke a policy exclusion.”  Id.  Finding that “[t]he undisputed summary judgment evidence established that Drive neither timely invoked the exclusion nor served its insured with a reservation of rights letter,” the court upheld the lower court’s decision.  The court also rejected Drive’s argument that Sentinel had no standing to raise the estoppel issue, pointing out that Drive chose to sue Sentinel.

The court’s decision is not surprising and the result is not that uncommon.  It is critical for an insurer to closely examine its policy prior to assuming the defense of its insured, or hire coverage counsel to do so on its behalf, and raise any potential defense and/or limitations as soon as possible.  Otherwise, it runs the risk of being estopped from raising those defenses and/or limitations.  That is what happened to Drive, and it ultimately cost Drive $485,000.

© William D. Wilson and NJInsuranceBlog.com, 2018.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.

Introduction

When will it end is a refrain that must be on many liability insurers’ minds when it comes to liability under commercial general liability policies issued decades ago.  Many such policies contain anti-assignment clauses, the purpose of which is to allow an insurer to limit its liability to successor companies and better gauge its potential future liability.  In Givaudan Fragrances Corp. v. Aetna Cas. & Sur. Co., 442 N.J. 28 (2015), however, the New Jersey Supreme Court held that an anti-assignment clause in an insurance policy is no bar to the post-loss assignment of an insurance claim.

Givaudan dealt with the issue of the assignment of claims under decades-old insurance policies.  The Court held that “once an insured loss has occurred, an anti-assignment clause in an occurrence policy may not provide a basis for an insurer’s declination of coverage based on the insured’s assignment of the right to invoke policy coverage for that loss.”  The reasoning behind this rule is that liability under an occurrence-based policy attaches once the occurrence takes place even though no claim has been asserted.  Thus, the insurer becomes obligated to the insured on the date of the loss and that obligation may freely be assigned.

Recently, the Appellate Division reached a similar conclusion in Cooper, LLC  v. Columbia Cas. Co., 2018 WL 1770260 (April 13, 2018).  The real issue in Cooper, however, was not whether the claims could be assigned, but rather whether they had, in fact, been assigned.  That case involved coverage for environmental damage under multiple policies that were in effect during the period from 1971 through 1980.  The policies had been issued to McGraw-Edison Company.  The plaintiff, Cooper, was named as a potentially responsible party at a hazardous waste site that had been owned by McGraw-Edison.  As the successor in interest to McGraw-Edison, Cooper sought coverage under the McGraw-Edison policies.

The Corporate Restructuring

In May 1985, McGraw-Edison, which the court refers to as Old McGraw, was acquired by Cooper.  A series of complex transactions concerning the business operations, assets, and liabilities of Old McGraw then took place.

First, Old McGraw’s business operations were divided among ten “Mirror Image Companies.”  The Mirror Image Companies owned an acquisition company named CI Acquisition.  CI Acquisition, in turn, owned another acquisition company named CM Mergerco.  Neither acquisition company owned any operating assets.

On May 30, 1986, Old McGraw and CI Acquisition merged.  As part of the merger, CI Acquisition assumed all of Old McGraw’s obligations and liabilities.  The merger agreement stated that “all the property, rights … and other assets of [every] kind and description” were being transferred from Old McGraw to CI Acquisition.  Although the agreement makes no refence to insurance policies or claims, the appellant-insurers did not dispute that Old McGraw’s rights under its insurance policies were transferred to CI Acquisitions.

Five minutes after the merger took place, five of the Mirror Image Companies were merged together to form McGraw-Edison Company, which the court refers to as New McGraw.  CI Acquisition then distributed all its assets (which just minutes ago had been owned by Old McGraw) to New McGraw and the remaining Mirror Image Companies.  The transfer of assets took place by way of bills of sale.  In the New McGraw bill of sale, CI Acquisitions transferred “all of [its] assets, rights and projects of every kind and nature … used in or related to all operations other than its Power Systems, Controls, Clark and Service operations.”  Once again, the agreement made no reference to insurance policies or claims.  It did indicate, however, that New McGraw assumed all of CI Acquisition’s liabilities.  After the transfer of assets, CI Acquisition, which only held the assets for a matter of minutes, was liquidated.

Over the next eighteen years, Cooper owned New McGraw and the remaining Mirror Image Companies.  In November 2004, Cooper merged New McGraw into itself.

Transfer of the Insurance Rights

There was no dispute that if the insurance rights had been transferred to New McGraw as part of the 1986 bill of sale, they would have been transferred to Cooper as part of the 2004 merger.  Thus, the bill of sale between CI Acquisitions and New McGraw was the critical document.  The bills of sale purportedly transferred various rights to New McGraw and the surviving Mirror Image Companies, but the specific rights that were transferred to each company were never identified.

As noted by the court, “in interpreting the 1986 Bill of Sale between CI Acquisition and New McGraw, the analysis boils down to whether the language alone clearly provided for the transfer of the insurance rights, and, if so, which entity received those rights.”  Id. at *4.  The court found the language in the bill of sale (“all … assets, rights and properties of every kind and nature”) was sufficient to transfer any insurance rights.  The dispositive question, however, was whether those rights were transferred to New McGraw or one of the Mirror Image Companies.

Because the bill of sale was not clear with respect to that issue, the court relied on the deposition testimony of several witnesses.  One witness was the general counsel of Cooper, who previously worked in the law department.  She testified that the bill of sale was intended to transfer all of the assets and liabilities of Old McGraw, which had been acquired by CI Acquisitions, to New McGraw.  She further testified that the Mirror Image Companies did not receive any new rights through the asset sales and that they had no interest in the insurance rights.  However, she did not participate in the drafting of the bill of sale, although she had general knowledge concerning Cooper’s business operations.

The other two witnesses worked in Cooper’s risk management and insurance department.  Although neither individual was involved in the 1986 asset sale, they claimed to have knowledge of Cooper’s business operations prior to and after the sale.  In addition, and more significantly, they had knowledge concerning Cooper’s dealings with Old McGraw’s insurers.  Significantly, they testified that Cooper had made retroactive premium payments to the insurers and had submitted claims under the policies, which were, in fact, paid by the insurers.  There also was documentary evidence supporting this testimony.

While general knowledge about Cooper’s business practices arguably has questionable relevance on the issue of the parties’ intent, the fact that the insurers treated Cooper as having rights under the policies directly supported the argument that Old McGraw’s rights under the policies had been transferred to Cooper.

Notably, even though Cooper’s general counsel had no personal knowledge concerning the intent of the drafters of the bills of sale, the court credited her testimony because she was designated as the corporate designee.  According to the court:

Under N.J.R.E. 602, witnesses may not testify to a matter unless they have personal knowledge of it. One exception to that requirement is set forth in Rule 4:14-2, which provides that a party may depose a corporation, and the corporation must designate one or more persons to testify on its behalf. These corporate witnesses may then testify “as to matters known or reasonably available to the organization,” even if these matters are outside the witness’ personal knowledge.

Id. at *5.  While the court’s recitation of the rules is correct, the corporate designee must still have a basis for his or her testimony.  That is something that seemed to be lacking in this case in that no reference was made to the source of the information about which the witness testified.

Conclusion

In light of the Givaudan decision, the Appellate Division’s ruling in Cooper that the insurance rights could be transferred is not surprising.  Because liability for environmental contamination attached at the time the contamination occurred, which in this case was in the 1970s and early 1980s, there was no question that any potential right to assert a claim arose long before the transfer of Old McGraw’s rights under the policies.

What the case shows is how difficult it is to predict when an insurer’s potential liability will end.  It does not appear that insurance coverage was on the mind of Cooper when it undertook the series of transactions that ultimately resulted in it being named as a potentially responsible party at a hazardous waste site 23 years later.  Unfortunately for the insurers, their acceptance of premiums and payment of claims under policies issued decades earlier undercut their argument that Cooper had no rights under the policies.

© William D. Wilson and NJInsuranceBlog.com, 2018.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.

In a recent case, the United States District Court for the District of New Jersey held that an insured had no duty to defend an insured accused of falsely advertising the origin of its product.  Albion Engineering Company, a New Jersey company, was sued by a competitor for false advertising because it claimed that its products were made in America when, in fact, they were made in Taiwan.  Albion then sought coverage from its insurer, Hartford Fire Insurance Company.  The Hartford policy provided coverage for, among other things, personal and advertising injury.  In Albion Engineering Co. v. Hartford Fire Ins. Co., 2018 WL 1469046 (D.N.J. March 26, 2018), Judge Noel L. Hillman held that there was no coverage for the claims.

Many liability policies provide coverage in connection with “advertising injury.”  In determining the extent to which such coverage exists, it is necessary to closely examine the policy language because the wording of such coverage provisions varies widely.  In addition, over the years insurers have modified their policy wording to address issues raised by the courts.  Thus, decisions issued just a few years ago may have little or no relevance.

The policy at issue in Albion defined “personal and advertising liability” to include injury arising out of the “[o]ral, written or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services . . . .”  Thus, coverage was limited to two types of claims: defamation and disparagement.  As summarized by the court:

The issue before this Court is whether the [the underlying action] asserts a claim for “injury . . . arising out of . . . publication of material that slanders or libels a person or organization or disparages a[n] . . . organization’s goods, products or services.”

Id. at *7.  In other words, the issue addressed by the court was whether falsely stating that one’s products are manufactured in the United States is defamatory toward, or disparages products made by, a competitor.

Both Albion and its competitor, Newborn Brothers Co., Inc., a Maryland-based company, manufacture caulking guns and accessories in Taiwan.  Albion claimed, however, that its products were manufactured in the United States.   Newborn sued Albion in federal court in New Jersey, asserting claims for false advertising and product marking under the Lanham Act and tortious unfair competition.  Newborn’s allegations against Albion were summarized by the court as follows:

Albion’s misrepresentations and material omissions concerning the geographic origin of the subject merchandise include that these products are “Made in America” and Albion’s failure to disclose that these products are “Made in Taiwan” are unfair competition that has injured Newborn by causing distributors to substitute the subject merchandise for Newborn’s competitive goods.

Id.

Albion commenced a separate action against Hartford in federal court in New Jersey after Hartford refused to defend it in the underlying action.  Both parties subsequently moved for summary judgment.  Although the duty to defend is broader than the duty to indemnify, Hartford took the position that it had no duty to defend Albion in the underlying action because the allegations against Albion did not give rise to potentially covered claims.

As noted by the court, to state a valid claim for product disparagement under New Jersey law, it must be alleged that the defendant made “false allegations concerning plaintiff’s property or product.”  Id. at *7 (quoting Gillon v. Bernstein, 218 F. Supp. 3d 285, 294 (D.N.J. 2016)).  There was no allegation in the underlying action that Albion made any statements whatsoever about Newborn’s products or that it compared their products in any way.  Nor did Albion claim that only its products were manufactured in the United States.  Rather, Albion simply advertised, albeit falsely, that its own products were made in the United States.  Because Newborn did not allege that Albion disparaged Newborn’s products, the court held that there was no coverage for the claims.  According to the court:

Under New Jersey law, the allegedly disparaging publication must concern the plaintiff in the Newborn Suit or its products. The allegation that Plaintiff falsely represented that its products were made in the United States when they were in fact made in Taiwan contains no statement that references Newborn, explicitly or implicitly.

Id. at *9.

The court further held that Newborn, the underlying plaintiff, failed to state a defamation claim that would trigger a duty to defend.  “As with disparagement, an essential element of defamation is that the statement be concerning the plaintiff.”  Id. at *13.  Because Albion made no reference to Newborn’s products, any defamation claim also would fail.

The court did not address the validity of the Lanham Act claims, presumably because there was no allegation that they would trigger a duty to defend.

Interestingly, Albion lied about its products, but it did not lie enough to trigger insurance coverage.  Had Albion stated that it was the only manufacturer whose products were made in the United States, that its products were somehow better than its competitors’ products because they were made in the United States, or pointed out that Newborn’s products were manufactured overseas, coverage may have been triggered.  Of course, had it done that, Albion also would have opened itself up to potentially greater liability.

As a result of the court’s decision, Albion is left to cover its own costs in the two litigations and any potential judgment in the Newborn action.  In addition, because Albion and Newborn are not the only manufacturers of such productions, Albion may face additional lawsuits.  It would be interesting to see if any “benefit” Albion received from falsely advertising its products outweighed the cost it must now pay.  Regardless, Albion has changed its advertising since the commencement of the underlying action by Newborn.  Albion now states on its website that its products are “designed” in the United States and that it has “substantial USA quality control and manufacturing capabilities.”

© William D. Wilson and NJInsuranceBlog.com, 2018.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson and NJInsuranceBlog.com with appropriate and specific direction to the original content.

Liability insurance policies do not provide coverage for injuries resulting from conduct that is “particularly reprehensible.”  As a general rule, coverage is barred where the insured had an intent to injure.  In most circumstances, courts apply a subjective standard to determine whether an insured had an intent to injure.  “Even when the actions in question seem foolhardy and reckless, the courts have mandated an inquiry into the actor’s subjective intent to cause injury.”  Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 1841 (1992).  However, an intent to injure will be presumed where the conduct at issue is “particularly reprehensible.”  As noted by the New Jersey Supreme Court in Voorhees:

When the actions are particularly reprehensible, the intent to injure can be presumed from the act without an inquiry into the actor’s subjective intent to injure.  That objective approach focuses on the likelihood that an injury will result from an actor’s behavior rather than on the wrongdoer’s subjective state of mind.

Thus, for instance, an intent to injure is presumed in situations involving the sexual molestation of children.  The Appellate Division has also held that the non-consensual exposure of an individual to the HIV virus during sexual relations is “particularly reprehensible,” and, therefore, an intent to injure will be presumed.

Recently, in D.G. v. B.E.A., 2018 WL 1527558 (N.J. Super. Ct. App. Div. March 29, 2018), the Appellate Division held that acts of domestic violence are particularly reprehensible and, therefore, there is no coverage for injuries resulting from such acts.  In that case, the plaintiff and the defendant, who had been dating for a number of years, went to Atlantic City for the weekend.  After a day and evening of heavy drinking, the defendant returned to the hotel room and viciously attacked his girlfriend, the plaintiff.  He blamed the attack on “extreme voluntary intoxication” and claimed that he was so intoxicated that he could not have formed an intent to injure the plaintiff.  Id. at *2.  There was no prior history of domestic violence between the parties.

The defendant’s insurer denied coverage for the incident, claiming “that defendant’s violent assault of plaintiff was not an accident under the policy, but rather, a particularly reprehensible act of domestic violence, where intent to injure is presumed.”  Id. at *2.  The court agreed, as did the trial court.  The court held that the given the nature of the incident in question, the insurer had no duty to defend or indemnify the defendant, even though the plaintiff asserted claims based on negligent conduct, in addition to intentional and reckless conduct.

The Appellate Division also rejected the defendant’s argument that the parties’s non-violent history was relevant. According to the court, a single act of domestic violence is sufficient to preclude coverage.  Citing an earlier decision, the court further noted “that spousal abuse in any form is ‘so inherently injurious, that it can never be an accident’ . . . .”  Id. at * 5 (quoting Merrimack Mut. Fire Ins. Co. v. Coppola, 299 N.J. Super. 219, 230 App. Div. 1997)).  The court further rejected the argument that intoxication was a defense to the argument that the defendant intended to injure the plaintiff.

Despite the court’s statement that domestic violence is so inherently injurious that it can never be an accident, the court noted:

Although there was only one incident of domestic violence here, it was sufficiently egregious to warrant the denial of coverage. Defendant brutally assaulted plaintiff, causing her significant and permanent injuries. Defendant’s conduct was so egregious as to be “particularly reprehensible,” warranting a presumption of intent to injure plaintiff and denial of coverage under the policy exclusion.

Id. at *6. Thus, the court appeared to leave the door open to a finding in a future case that an act of domestic violence may not rise to the level of being “particularly reprehensible.”  In other words, the court appears to be suggesting that not all acts of domestic violence are so egregious as to be considered particularly reprehensible as a matter of law.

© William D. Wilson and NJInsuranceBlog.com, 2018.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson and NJInsuranceBlog.com with appropriate and specific direction to the original content.

Insurance policies commonly contain an exclusion for losses caused by “earth movement” or “subsidence.”  Such exclusions typically exclude coverage for losses caused by earthquakes, landslides, mudflows, and earth sinking or shifting.  Absent language to the contrary, “[e]arth movement exclusions are often interpreted to refer to only natural, non-human events.”  See, e.g., El-Ad Group v. Northbrook Property & Casualty Insurance Company, 2006 WL 8406838 (D.N.J. March 15, 2006); see also Ariston Airline & Catering Supply Co. Inc. v. Forbes, 211 N.J. Super. 472 (Law Div. 1986) (“the words ‘earth movement’ must be interpreted as referring to a natural phenomenon akin to earthquakes, landslides, mud flows, earth sinkings, and earth risings or shiftings.  An earthquake, for example, is not the result of human activity.”).  However, some exclusions specifically provide that they also apply to non-natural, man-made events.

One such exclusion was addressed by the New Jersey Appellate Division several years ago in Essex Insurance Company v. New Jersey Pan-African Chamber of Commerce & Industry, Inc., 2013 WL 515934 (N.J. Super Ct. App. Div. August 27, 2013).  Essex involved both property damage and personal injury claims arising out of the collapse of a building.  Construction activity on a neighboring property allegedly caused the collapse.

Essex Insurance Company, the general liability insurer for the property where the construction work was being performed, commenced a declaratory judgement action seeking a ruling that it had no obligation to defend the property owner, among others, based on an earth movement exclusion contained in its policy.  The exclusion provided that there was no coverage for “‘movement of land or earth’ regardless whether emanating from, aggravated by, or attributable to any operations performed by or on behalf of any insured . . . .”  Id. at *2.  Based on that language, the court held that the exclusion applied to man-made events and, therefore, Essex was not required to provide coverage to its insured.  The court reasoned as follows:

We reject defendants’ contention, based upon the cases they cite, that the exclusions at issue here apply only to natural phenomena.  All of the cases cited by defendants are distinguishable because they involved exclusions that did not explicitly, as is the case here, define earth movement as including non-natural activities.  Here, the definition specifically includes earth movement “emanating from, aggravated by, or attributable to any operations performed by or on behalf of any insured[.]”

Id.  at *4.  The court further observed:

earth movement exclusions are not universally interpreted to encompass only naturally occurring earth movement.  Rather, such exclusions are interpreted on a case-by-case basis in accordance with the specific exclusion’s language.

Id. at *5.

Essex later added the insurer for the general contractor (Navigators Specialty Insurance Company) as a party to the action, seeking a ruling that Navigators was required to defend the property owner.  Navigators, in turn, commenced a third-party action against the insurer for the subcontractor (Scottsdale Insurance Company), seeking a ruling that Scottsdale was obligated to defend the general contractor.  Prior to the collapse the subcontractor had been performing pile driving activities at the construction site.

The case recently made its way to the Appellate Division a second time.  See Essex Insurance Company v. New Jersey Pan-African Chamber of Commerce & Industry, Inc., 2017 WL 4051726 (N.J. Super Ct. App. Div. Sept. 14, 2017).  The court was asked once again to decide whether a subsidence exclusion precluded coverage for the loss.  The exclusion at issue, which was contained in Scottsdale’s policy, provided:

This policy does not apply to “bodily injury” or “property damage” caused by, resulting from, attributable or contributed to, or aggravated by the subsidence of land as a result of landslide, mudflow, earth sinking or shifting, resulting from operations of the named insured or any subcontractor of the named insured.

Id. at *2.  Like the exclusion in the Essex policy, the last clause of the Scottsdale exclusion made it clear that it also applied to man-made events.  Thus, the court was not required to address that issue again.  Rather, the question before the court was whether the collapse of the neighboring building was caused by “subsidence of land” within the meaning of the above-quoted exclusion.

Navigators and Scottsdale both cross-moved for summary judgment in the court below.  The trial court granted partial summary judgment in favors of Navigators, finding that Scottsdale had a duty to defend the general contractor.  The court rejected Scottsdale’s argument that the subsidence exclusion barred coverage.  The trial court observed that “the complaints in the underlying actions alleged the subcontractor’s conduct caused vibrations and erosions to the surrounding land.”  Id. at *2.  According to the court, in order for the exclusion to apply, Scottsdale was required to prove “that the subsidence was caused by an earth movement, which includes earth rising, sinking, shifting, or subsiding, landslide, or mudflow.”  Id.  The court concluded:

Reasonable minds can disagree as to whether vibrations mean earth shifting or sinking. The policy does not provide for a definition of earth shifting.  Additionally, the policy does not negate coverage for all “earth movements,” which would have encompassed vibrations.

Id.  Consequently, the court found the exclusion to be ambiguous and construed it against Scottsdale.

On appeal, the Appellate Division reversed the granting of partial summary judgment in favor of Navigators.  The court began its analysis by noting that the duty to defend is determined by comparing the allegations in the complaint with the policy language to determine whether the complaint states a potentially covered claim.  Id. at 2.  The court next determined that the allegations in the property damage and personal injury complaints did not meet that standard:

These complaints allege the pile-driving activity caused vibrations which in turn caused the soil beneath the Pan–African building’s foundations to “erode and subside down into the excavation”; and caused “erosion to the surrounding land.” The allegations fall within the clear import and intent of the Scottsdale policy’s exclusion for subsidence of land caused by earth sinking or shifting, resulting from operations of the pile subcontractor.

Id. at 4.

The court went on to note:

Although we do not necessarily disagree with the trial court’s observation that “[r]easonable minds can disagree as to whether vibrations mean earth shifting or sinking,” that statement is incomplete. The property damage and personal injury complaints did not merely allege vibrating sand or soil beneath the Pan–African building’s foundation caused the collapse. Rather, they allege the vibrations generated by construction activity caused the sand or soil to “erode and subside down into the excavation.” The earth’s erosion and subsiding down into the excavation constituted earth “sinking or shifting” and thus fell within the policy’s exclusion.

Id. Thus, Navigators, whose policy apparently did not contain such an exclusion, was left holding the bag.

As noted, for many years the general rule was that earth movement and subsidence exclusions were interpreted to refer only to natural, non-human events.  The Appellate Division’s 2013 decision made it clear that despite the general rule, such exclusions will not be limited to losses caused by natural phenomena as long as they explicitly refer to non-natural, man-made activities.  Its most recent decision shows the importance of carefully pleading a cause of action.  The Appellate Division agreed with the trial court that “[r]easonable minds can disagree as to whether vibrations mean earth shifting or sinking.”  In this particular case, however, the plaintiffs specifically plead that the vibrations caused the soil “to erode and subside down into the excavation.”  Use of those particular words led to a finding that Scottsdale had no duty to defend the general contractor.  Had the allegations been phrased differently, the court may have ruled otherwise.  Nonetheless, even if a duty to defend had been found, whether there would have been a duty to indemnify is an entirely different issue.  Under New Jersey law, the duty to defend is much broader than the duty to indemnify.

© William D. Wilson and NJInsuranceBlog.com, 2017.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson and NJInsuranceBlog.com with appropriate and specific direction to the original content.

An updated and expanded version of New Jersey Insurance Coverage Litigation – A Practitioner’s Guide, the book I co-authored, is now available.  It has been over two years since the first edition of this book was published.  In this second edition, my co-author and I have added discussions concerning many of the over seventy insurance cases that were decided by New Jersey state and federal courts since the first edition was published.  In addition, a new chapter was added that discusses the potential liability of insurance agents and brokers.

For more information, click on the following link:

https://tcms.njsba.com/personifyebusiness/njicle/Store/ProductDetails.aspx?productid=9526652

Leases of real property often require the tenant to obtain liability insurance covering the premises and to name the landlord as an additional insured under the policy.  The extent to which the landlord is entitled to coverage depends, at least in the first instance, on the particular language in the tenant’s policy.  A typical additional insured endorsement provides coverage to a landlord for liability “arising out of” the ownership, use, or maintenance of the premises by the tenant.

The phrase “arising out of” has been given expansive meaning by New Jersey courts.  When a tenant’s policy contains such language, a landlord will be entitled to coverage as an additional insured if the conduct at issue “originates from,” “grows out of,” or has a “substantial nexus to” the tenant’s acts or omissions.  See Flomerfelt v. Cardiello, 202 N.J. 432, 451-54 (2010).  Recently, however, the New Jersey Appellate Division went a step further and held that a landlord was entitled to coverage as an additional insured even though a third-party’s injuries had no real connection to the tenant’s use of the leased premises.

In that case, Killeen v. Jenson & Mitchell, Inc., 2017 WL 1632645 (App. Div. May 2, 2017), the court held that a landlord was entitled to coverage as an additional insured in connection with injuries sustained by a firefighter when he fell through a glass panel on the roof of the premises leased by the tenant.  The firefighter was responding to a fire at a neighboring property that was not leased by the tenant-insured.  The firefighter climbed on the roof of the leased property to access the neighboring property.  There is no indication that the tenant caused or in any way contributed to the fire.

The lease required the tenant to obtain liability insurance and name the landlord as an additional insured under the policy.  The lease agreement also contained mutual indemnification clauses, requiring the landlord and the tenant to indemnify each other for liability arising out of their respective negligence.  The lease specifically provided, however, that the landlord was responsible for repairs to, and maintenance of, the roof.

The insurance policy obtained by the insured provided:

WHO IS AN INSURED . . . is amended to include as an insured any person or organization . . . with whom you have agreed in a written contract, executed prior to loss, to name as an additional insured, but only with respect to liability arising out of the ownership, maintenance or use of that part of any premises leased to [the tenant] . . . .

Id. at *2.

The firefighter sued both the landlord and tenant alleging negligent maintenance of the property.  The landlord filed a third-party complaint against the tenant’s insurer, seeking coverage under the policy.  Both the landlord and the insurer moved for summary judgment.  The trial court ruled in favor of the insurer, noting that the lease required the landlord to maintain the roof.  The Appellate Division reversed, finding that the roof was part of the leased premises.

As the court correctly noted, as a general rule, when an insurance policy is clear and unambiguous, extrinsic evidence, such as a lease agreement, should not be considered.  Id. at *4 (“The extent of coverage in an unambiguous insurance policy is determined by the relevant policy terms, not the terms of an underlying contract, in this case the lease, that mandates insurance coverage”).  In Killeen, however, there was an issue as to whether the tenant was responsible for the “maintenance” of the roof.  That issue could not be resolved without reference to the lease.  In that regard, this case was similar to Pennsville Shopping Center Corporation v. American Motorists Insurance Company, 315 N.J. Super. 519 (App. Div. 1998), certif. denied, 157 N.J. 647 (1999), a case in which the court did consider the terms of the lease.

The Killeen court attempted to distinguish the Pennsville case on the basis that the policy in Pennsville was “unclear.”  However, the Pennsville court never determined that the policy language was unclear.   Indeed, the policy language is not even quoted in the opinion.  More important, the Pennsville court held that it was appropriate to consider extrinsic evidence regardless of whether the policy language was clear or unclear:

Manifestly, irrespective of the language of provisions of tenant’s insurance policy covering landlord as an additional insured, tenant could not be seen to be providing any indemnification to landlord for damages sustained because of a condition for which tenant bore no responsibility at all and which, to the contrary, the parties had expressly agreed in their lease was the sole responsibility of landlord. . . . Absent an express and unambiguous contractual undertaking to do so, a tenant cannot logically be seen to be providing insurance to a landlord in respect of a liability for which the landlord has assumed sole responsibility and has agreed to indemnify the tenant.  The indemnification rights of plaintiff carrier can rise no higher than the rights of its insured.

315 N.J. Super. at 523.  It is hard to reconcile this language with the court’s holding in Killeen.

As to whether the tenant “used” the roof, there is no question that a roof was necessary for the tenant to conduct its operations.  However, the tenant’s “use” of the roof in no way caused or contributed to the firefighter’s injuries.  In other words, the firefighter’s injuries did not “arise out of” the use of the roof by the tenant.  Nonetheless, according to the court:

Here, the roof was integral to the leased premises and the accident was “a reasonable incident or consequence of the use of the leased premises.”

Id. at *5.  Had the firefighter been injured while fighting a fire that started on the leased premises, or while physically within the space occupied by the tenant, the issue may have been different.  Given the facts at issue, however, it cannot be said that the firefighter’s injuries “originated from,” “grew out of,” or had a “substantial nexus to” the tenant’s acts or omissions.

In reaching its decision, the court relied on three other decisions in which a customer of a tenant was injured after leaving the tenant’s business premises.  The court noted that in the first case, “although the accident did not occur within the leased premises, it occurred from the use of the premises leased by the tenant because there was a relationship between the occurrence and the use of the premises leased by the tenant.”  Id. at *5 (discussing Franklin Mut. Ins. Co. v. Security Indem. Ins. Co., 275 N.J. Super. 335 (App. Div.), certif. denied, 139 N.J. 185 (1994)).  In the second case, coverage was found to exist because “the landlord [could] trace the risk creating its liability directly to the tenant’s business presence.”  Id. (quoting Harrah’s Atlantic City, Inc. v. Harleysville Ins. Co., 288 N.J. Super. 152, 158-59 (App. Div. 1996)).  In this third case, the “accident . . . occurred off the tenant’s premises, but close to the premises, and involved a prospective customer approaching the tenant’s store.”  Id. at *6 (discussing Liberty Village Assoc. v. West American Ins. Co., 308 N.J. Super. 393 (App. Div. 1998)).

In Killeen there was no relationship between the occurrence and the use of the premises leased by the tenant, the risk creating the landlord’s liability (i.e., the failure to maintain the roof) could not be traced to the tenant’s business presence, and the injured party was not a prospective customer.  Thus, the cases relied on by the court are distinguishable.

The Killeen court arguably stretched the “arising out of” language beyond its intended meaning.  There was no dispute that the tenant was not responsible for the maintenance of the roof and the firefighter’s presence on the roof had no real nexus to the tenant’s use of the premises.  Based on the court’s holding, it is hard to envision a case in which a landlord will not be found to be an additional insured under such language.

© William D. Wilson and NJInsuranceBlog.com, 2017.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.