Before Judges Pressler, Ciancia and Alley. On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-109-99.
The opinion of the court was delivered by: Pressler, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This declaratory judgment coverage action arises out of a legal malpractice claim made in the underlying case by Linda Smalley against defendant Miller & Pincus, P.A., and three of its lawyers, Charles Miller, Marvin Pincus, and Marc Brenner (M&P). Plaintiff Garden State Indemnity Company, defendants' malpractice carrier, commenced this action seeking a declaration that the personal injury that Smalley allegedly sustained arising out of M&P's malpractice was outside the scope of the coverage. Plaintiff also alleged that it was relieved of obligation under the policy by reason of defendants' untruthful answer to a question asked in the application. On motion and cross-motion for summary judgment, the trial judge accepted plaintiff's non-coverage position and entered summary judgment dismissing the complaint. Defendants appeal, and we reverse. We conclude that ambiguities in the policy mandate the coverage defendants seek.
The facts underlying Smalley's claim, insofar as they implicate this coverage action, may be briefly stated. Smalley sustained injury in 1987 in an automobile accident. Her personal injury protection (PIP) carrier, NJUFIUA/Hanover Amgro Insurance (JUA), paid PIP benefits through April 1991, when it declined further payment. It did, however, make a payment in January 1992 to a medical provider. Smalley retained M&P in February 1993 to seek further PIP benefits from JUA. It is not disputed that the limitations period for Smalley's action against JUA expired in January 1994, two years after the last PIP payment. N.J.S.A. 39:6A- 13.1a. See Ochs v. Federal Ins. Co., 90 N.J. 108 (1982). M&P failed to file suit against JUA before the expiration of the limitations period. JUA then brought a declaratory judgment action against Smalley seeking a determination that it was no longer liable to her for PIP benefits by reason of the running of the statute of limitations. Along with her answer to that complaint, Smalley filed a third-party complaint against M&P in which she claimed that as a result of their malpractice in missing the statute of limitations, she lost the benefit of her PIP entitlement. By a separate count she also alleged that as a further result of the malpractice and because her PIP benefits had been withheld, she was unable to obtain the medical treatment she required and "thereby [was] caused to suffer, and continues to suffer, great pain and suffering." Plaintiff assumed the defense of the first claim only, that is, Smalley's alleged economic loss resulting from the withheld PIP payments. Eventually, JUA obtained judgment in its declaratory judgment action releasing it from further PIP liability, and plaintiff, as M&P's malpractice carrier, settled that claim with Smalley in the amount of $75,000. Smalley then released M&P from that claim but not from her personal injury claim that plaintiff had refused to cover. Plaintiff then brought this action seeking a declaration that under its policy it was not obliged to defend and indemnify defendant in respect of that claim.
In support of its position, plaintiff relied on a provision of Part B of its policy, entitled "Liability Not Insured." The introductory clause of Part B reads as follows:
We do not provide insurance for any sort of costs, damages, expenses, liability, or settlements, directly or indirectly, wholly or partially, aggravated by, caused by, or resulting from any of the following, even if a covered activity otherwise insured contributes to such concurrently or in any sequence. [Underscored in the original.]
Thereafter follow thirteen numbered paragraphs, the first of which, entitled "Bodily Injury/Property Damage," reads, in respect of bodily injury, in full as follows:
A. We do not insure here any claim for bodily injury. [Underscored in the original.]
Plaintiff's contention then is simply that the language of that exclusion effected by Part B is clear and precise and excludes coverage for bodily harm resulting from a covered activity. The trial court agreed despite its conclusion, with which we agree, that such an exclusion is contrary to the insured's reasonable expectations of coverage.
We consider this exclusionary clause in the context of well- settled principles of insurance-contract construction. In sum, policies of insurance, as contracts of adhesion, will be construed liberally in favor of the insured in order to meet the insured's reasonable expectations, and, consequently, ambiguities will be construed in favor of the insured, and exclusions and exceptions will be construed strictly against the insurer. See, e.g., Miller v. McClure, 326 N.J. Super. 558, 564-565 (App. Div. 1998), aff'd o.b., 162 N.J. 575 (1999); United Serv. Auto. Ass'n v. Turck, 156 N.J. 480, 492-493 (1998); American Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 41 (1998); Morton Int'l, Inc. v. Gen. Acc. Ins. Co. of Am., 134 N.J. 1, 76 (1993); cert. denied, 512 U.S. 1245, 114 S. Ct. 2764, 129 L. Ed. 2d 878 (1994); Lee v. General Accident Ins. Co., 337 N.J. Super. 509, 513 (App. Div. 2001); Conduit v. Hartford Cas. Ins. Co., 329 N.J. Super. 91, 99 (App. Div.), certif. denied, 115 N.J. 135 (2000).
We consider the totality of this policy in light of these principles.
To begin with, there is no dispute that the gravamen of defendants' malpractice, missing a statute of limitations, is a covered activity. It is also true that the first of these exclusions, which we have quoted, appears to deny coverage for a client's bodily injury resulting from a covered activity——the case here. But it also appears that such coverage is expressly ...