The opinion of the court was delivered by: Stein, J.
On certification to the Superior Court, Appellate Division.
Plaintiff John Picciallo brought suit against his former employer L-C-A Sales Company (LCA) and certain individuals at LCA, alleging wrongful termination based on a violation of New Jersey's Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -49. The thrust of plaintiff's claim against LCA was that he was forced out of his position because of his age. This appeal presents the issue whether an "employee exclusion" contained in a comprehensive general liability (CGL) insurance policy precludes a corporate policyholder from securing coverage for damages arising from a claim of wrongful termination.
Picciallo worked as a salesman for LCA for over thirty years until his termination on December 31, 1991. Picciallo and LCA entered into several employment agreements during Picciallo's tenure at the company, the last of which was dated January 1, 1977. It superseded the prior employment agreements and provided that Picciallo would be given two weeks' written notice prior to termination.
According to Picciallo, Joel Schwartz, a partner at LCA, and Steven Hall, an employee, began to harass him in 1990 in an effort to force him into retirement. Picciallo alleged that a younger employee was hired in June 1991 to assume control over Picciallo's sales territory. Picciallo asserted that Hall began informing LCA customers that the new employee was replacing Picciallo because of his impending retirement. On December 17, 1991, Picciallo received a letter from Schwartz dated December 13, 1991, informing Picciallo of the termination of his employment effective two weeks after receipt of the letter. Pursuant to that letter, Picciallo's employment was terminated on December 31, 1991. At the time of his dismissal, Picciallo was sixty-seven years old.
In April 1992, Picciallo filed suit against LCA, Schwartz, Ellen Schwartz (another LCA partner), and Hall (collectively "LCA"). The gravamen of Picciallo's complaint was that LCA violated the LAD by terminating him simply because of his age. Picciallo also alleged causes of action based on breach of contract, breach of the implied covenant of good faith, wrongful discharge, negligence, tortious interference with contract, respondeat superior, and intentional infliction of emotional distress. During discovery, Picciallo asserted that as a result of his wrongful dismissal from LCA he suffered emotional distress with resulting heart palpitations, sleepwalking, loss of libido, decrease in frequency of sex, constipation, bloating, headaches, diarrhea and stomach pains. Picciallo also complained of a loss of appetite that precipitated weight loss, indigestion and loss of cognitive skills, and alleged that he also suffered a stroke.The events surrounding Picciallo's dismissal occurred at about the same time LCA changed its insurance carrier. From December 28, 1990, to December 28, 1991, LCA was insured under CGL and umbrella liability policies issued by Michigan Mutual Insurance Company (Michigan Mutual). From December 28, 1991, to December 28, 1992, LCA was insured under a CGL policy issued by American Motorists Insurance Company (American Motorists). During that same period, LCA was also insured under a commercial catastrophe policy issued by Lumbermens Mutual Casualty Insurance Company (Lumbermens). (Because both American Motorists and Lumbermens are part of the Kemper Companies, we refer to them collectively as "Kemper.") Both CGL policies issued by Michigan Mutual and Kemper contained a standard employee exclusion clause, providing that the insurance did not apply to "bodily injury" to "[a]n employee of the insured arising out of and in the course of employment by the insured."
Because the involvement of LCA's insurers significantly complicated the path of the litigation, we provide a brief summary of the intricate procedural history. LCA filed an answer to Picciallo's complaint in July 1992, and sought coverage and a defense from Kemper. Kemper disclaimed coverage on several grounds, including the employee exclusion, and filed a declaratory judgment action seeking a determination that no coverage was available under its policy. The Picciallo suit and Kemper's declaratory judgment action were then consolidated for discovery purposes.
In May 1993, LCA moved for summary judgment against Kemper on the coverage issue, and Kemper cross-moved for summary judgment, asserting for the first time in support of its motion that Picciallo's dismissal occurred prior to the effective date of its coverage. The trial court denied both motions without prejudice, pending the completion of Picciallo's deposition. Kemper later amended its complaint to include Michigan Mutual as a defendant. After Picciallo's deposition, LCA filed a second motion for summary judgment, and both Kemper and Michigan Mutual responded with their own summary judgment motions. Reversing its prior determination, the trial court ruled that Picciallo's cause of action arose prior to December 31, 1991, and that both Kemper and Michigan Mutual had a duty to defend LCA. Subsequently, the trial court vacated that decision as well.
Ultimately, the trial court granted summary judgment to both insurance companies, holding that the language of the employee exclusion was clear and precluded coverage for Picciallo's claim. On the same date, Picciallo settled with LCA for $130,000, of which LCA agreed to pay $25,000, and LCA assigned to Picciallo its rights, if any, to coverage for the balance of Picciallo's claim.
In an unreported decision, the Appellate Division affirmed the grant of summary judgment in favor of Kemper and Michigan Mutual, but held that coverage was not precluded by the employee exclusion. Extending the reasoning of Cairns v. City of East Orange, 267 N.J. Super. 395 (App. Div. 1993), the court determined that Picciallo's termination did not "arise out of his employment" and concluded that the employee exclusion "suffices only to exclude workers['] compensation claims." The court determined that Picciallo's claim was an "occurrence" within the meaning of the insurance polices, that the date of the occurrence was the date on which Picciallo received the termination letter (thus bringing the claim within the period of Michigan Mutual's coverage and excluding coverage by Kemper), but that LCA's delay of nearly two years before notifying Michigan Mutual of the suit violated the policy's notice requirement and precluded coverage.We granted LCA's petition for certification, Picciallo's petition for certification, Kemper's cross-petition for certification, and Michigan Mutual's cross-petition for certification. 151 N.J. 468 (1997).
The Michigan Mutual and Kemper CGL policies each contain an exclusion for workers' compensation claims, and an ...