On appeal from Superior Court, Law Division, Union County.
Petrella, D'Annunzio and Keefe. The opinion of the court was delivered by Petrella, P.J.A.D.
Continental Insurance Company (Continental) appeals on leave granted from an interlocutory order which required it to assume the defense of James W. Smith and indemnify him for any loss resulting from an action brought by plaintiffs Robert and Diane Mroz for sexual harassment and numerous harassing telephone calls.
The motion Judge decided the matter on cross-motions for summary judgment in the third-party portion of the litigation in which Smith sought to compel Continental to provide him with a defense and indemnification for any recovery against him by the Mrozes.
On its appeal Continental argues that (1) the motion Judge erroneously disregarded the policy exclusion for injury or loss caused by a violation of a penal law or ordinance; (2) the injuries alleged in the Mrozes' complaint are not covered since they were intended or expected from the standpoint of its insured; (3) the Judge violated public policy in ordering it to defend and indemnify Smith for a loss or damages incurred as a result of his willful wrongdoing in violation of a criminal statute; and (4) in any event, the Judge should have excluded coverage for punitive damages.
Due to the numerous harassing and annoying telephone calls to the residence of the Mrozes from 1981 through 1990, the
Mrozes obtained a "caller I.D. device" and retained the services of a private investigator. As a result it was determined that Smith had made the telephone calls. Smith had been a coemployee of Diane Mroz and had assertedly made unsolicited sexual advances towards her.
On September 19, 1990, the Mrozes filed a complaint against Smith which alleged that he had made "unsolicited sexual advances toward her which she rebuffed." The complaint also alleged that Smith made "thousands of harassing and annoying telephone calls" to plaintiffs' residence from 1981 until 1990. It asserted that the actions of Smith caused shock, emotional distress and mental anguish for which the Mrozes sought compensatory and punitive damages.
After being served with the complaint, Smith turned it over to his insurer, Continental, and requested it to defend the action under his homeowner's policy which included a provision for extended coverage. Continental declined coverage, taking the position that the homeowner's policy did not provide coverage for what had been alleged in the complaint.
In the meantime, Smith's personal attorney filed an answer to the complaint and a counterclaim. He also successfully moved to add Continental as a third-party defendant.
The pertinent policy provisions in Continental's homeowner's policy are set forth below. In a subsection entitled "Coverage E-Personal Liability," the following provision specifies the coverage for claims made against the insured, and provides:
If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to ...