November 28, 2008
ESTATE OF MONICA HART, PLAINTIFF-RESPONDENT,
JONATHAN SINGER AND MARCIA SINGER, DEFENDANTS/THIRD-PARTY PLAINTIFFS-APPELLANTS/ CROSS-RESPONDENTS,
CONTINENTAL CASUALTY COMPANY*FN1 , BUCKALOO & ASSOCIATES, BROWN & BROWN AND COMMERCE NATIONAL INSURANCE SERVICES, THIRD-PARTY DEFENDANTS-RESPONDENTS, AND ACE INSURANCE COMPANY OF NORTH AMERICA, THIRD-PARTY DEFENDANTRESPONDENT/CROSS-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-621-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted October 6, 2008
Before Judges Lisa, Reisner and Alvarez.
In this insurance coverage case, we consider Jonathan Singer's appeal from an order dismissing his claim against Continental Casualty Company (Continental), the issuer of a workers' compensation and employers' liability insurance policy on his podiatric practice. The practice was conducted in a residential property owned by Jonathan and his wife, Marcia Singer, in Bayonne. The Singers also held a homeowners' insurance policy issued by ACE Insurance Company of North America (ACE). Monica Hart, an employee of Jonathan's podiatric practice, slipped and fell on the ice in front of the insured property while leaving work one evening. She pursued a workers' compensation claim, which Continental defended and which ultimately resulted in a settlement providing for an award of benefits to her. Hart also filed this civil action against the Singers alleging a premises liability claim.
ACE had previously filed a declaratory judgment action seeking a determination that it was not obligated to defend or indemnify the Singers because of the business activities exclusion in its policy. The trial court ultimately determined that the exclusion applied to Jonathan but not Marcia. ACE provided counsel for Marcia in Hart's underlying tort action. That claim eventually settled. Although a dispute between Marcia and ACE regarding counsel fees and costs incurred by Marcia in the underlying action were originally part of this appeal (including a cross-appeal by ACE), that aspect of the appeal has been settled and a stipulation of dismissal has been filed. Accordingly, we dismiss ACE's cross-appeal, and we will not further address any issues pertaining to ACE's duty to defend or indemnify.
In the underlying tort action, Jonathan filed a third-party complaint against Continental seeking a declaration that Continental had a duty to defend and indemnify him. The trial court eventually dismissed Hart's claim based upon the worker's compensation exclusivity bar. See N.J.S.A. 34:15-8. The trial court also issued an order at that time dismissing as moot Jonathan's claim against Continental for attorney's fees and costs incurred in defending the Hart action. Jonathan's reconsideration motion was denied. This appeal followed.*fn2
Jonathan argues that the trial court erred in dismissing his third-party complaint against Continental and denying his motion for summary judgment declaring that Continental had a duty to defend and indemnify him. He argues that the policy provisions render Hart's claim against him a covered claim, and that such a duty existed. Because Hart's claim was ultimately dismissed, no issue regarding indemnification arises. From our review of the policy and our consideration of the legal principles guiding interpretation of insurance policies, we conclude that Continental had a duty to defend Jonathan against Hart's claim. Accordingly, we reverse and remand for a determination of the amount due to reimburse Jonathan for the costs of defense.
The applicable portions of the Continental policy, which was in effect when Hart fell and was injured, provided:
PART TWO - EMPLOYERS LIABILITY INSURANCE
A. How This Insurance Applies
This employers liability insurance applies to bodily injury by accident or bodily injury by disease. Bodily injury includes resulting death.
1. The bodily injury must arise out of and in the course of the injured employee's employment by you.
B. We Will Pay
We will pay all sums you legally must pay as damages because of bodily injury to your employees, provided the bodily injury is covered by this Employers Liability Insurance.
The damages we will pay, where recovery is permitted by law, include damages:
1. for which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of injury to your employee;
2. for care and loss of services; and
3. for consequential bodily injury to a spouse, child, parent, brother or sister of the injured employee; provided that these damages are the direct consequence of bodily injury that arises out of and in the course of the injured employee's employment by you; and
4. because of bodily injury to your employee that arises out of and in the course of employment, claimed against you in a capacity other than as employer.
This insurance does not cover: . . . .
4. any obligation imposed by a workers compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law;
D. We Will Defend
We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance. We have the right to investigate and settle these claims, proceedings and suits.
We have no duty to defend a claim, proceeding or suit that is not covered by this insurance. We have no duty to defend or continue defending after we have paid our applicable limit of liability under this insurance.
In her complaint, Hart did not allege an employer-employee relationship with Jonathan, nor did she allege that her injuries arose out and in the course of employment. She alleged that the premises were in an unsafe condition, causing her to fall and suffer injuries. However, as required by Rule 4:5-1(b)(2), the complaint contained the certification of Hart's attorney, stating that "[t]his matter is also the subject of a related Workers' Compensation action pending in Jersey City Workers' Compensation Court." Continental, of course, was aware of the workers' compensation action and was defending it. Continental was aware that in her workers' compensation petition, Hart alleged that the injuries she suffered in this incident arose out of and in the course of her employment with Jonathan.
We exercise de novo review over the trial court's interpretation of the insurance policy. Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998).
As insurance policies are contracts of adhesion, it is clear that we must resolve any ambiguities in the language of the policy against its drafter, the insurer. Pinto v. N.J. Mfrs. Ins. Co., 365 N.J. Super. 378, 386-87 (App. Div. 2004), aff'd, 183 N.J. 405 (2005). We read the policy in liberal fashion to afford coverage "to the fullest extent that any fair interpretation will allow." Christafano v. N.J. Mfrs. Ins. Co., 361 N.J. Super. 228, 234 (App. Div. 2003). We construe ambiguous exclusionary clauses in strict fashion, to conform with the insured's objectively reasonable expectations. Di Orio v. N.J. Mfrs. Ins. Co., 79 N.J. 257, 269 (1979); Conduit & Found. Corp. v. Hartford Cas. Ins. Co., 329 N.J. Super. 91, 99 (App. Div. 2000).
We will not, however, draft a "'better policy of insurance than the one purchased.'" Christafano, supra, 361 N.J. Super. at 234-35 (quoting Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529 (1989)). "[W]hen the language of an insurance policy is clear, we must enforce its terms as written." Conduit & Found. Corp., supra, 329 N.J. Super. at 99.
This appeal centers on Continental's duty to defend Jonathan against Hart's civil action. The duty to defend derives from the language of the policy. Hartford Accident & Indem. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. 18, 22 (1984). It arises when a comparison of the allegations of the complaint and the language of the policy "reveals that if the allegations of the complaint are sustained, the insurer will be required to pay any resulting judgment." Sears Roebuck & Co. v. Nat'l Union Fire Ins. Co., 340 N.J. Super. 223, 241 (App. Div.), certif. denied, 169 N.J. 608 (2001). The duty "comes into being when the complaint states a claim constituting a risk insured against." Danek v. Hommer, 28 N.J. Super. 68, 77 (App. Div. 1953), aff'd o.b., 15 N.J. 573 (1954). We resolve any doubts about coverage in favor of the insured. Salem Group v. Oliver, 128 N.J. 1, 4 (1992); Sears Roebuck, supra, 340 N.J. Super. at 241.
The duty to defend is broader than the duty to indemnify. Hofing v. CNA Ins. Cos., 247 N.J. Super. 82, 88 (App. Div. 1991); Danek, supra, 28 N.J. Super. at 77. The insurer will not be relieved of the duty to defend because of the simple fact that there may be no merit to the claim against the insured. Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 174 (1992); F.S. v. L.D., 362 N.J. Super. 161, 169 (App. Div. 2003) ("The test for determining whether an insurer has a duty to defend does not take into account the legal viability of the action against the insured."). The duty to defend does not detach until the final disposition, however obtained, of all covered claims. Sears Roebuck, supra, 340 N.J. Super. at 241-42. Assuming that an insurer disclaims the duty to defend, a judicial declaration of coverage converts this duty into a duty to reimburse the insured's defense costs. Tradesoft Techs. v. Franklin Mut. Ins. Co., 329 N.J. Super. 137, 142 (App. Div. 2000).
Continental argues that the employers' liability policy does not cover Hart's allegations. It relies on the policy's "workers compensation" exclusion. The argument ignores the plain language of Hart's complaint and the policy exclusion. The complaint did not seek compensation under "any obligation imposed by a workers compensation" law. Continental conceded as much at oral argument in the trial court.
An employers' liability policy serves as a "gap-filler" for those instances in which an employee can bring a tort action under an exception to the exclusivity bar of the Workers' Compensation Act. Producers Dairy Delivery Co. v. Sentry Ins. Co., 718 P.2d 920, 927 (Cal. 1986) (citing 7B John Alan Appleman, Insurance Law and Practice § 4571 at 2 (Walter F. Berdal ed. 1979)). In her civil action, Hart sought to impose liability on the Singers as homeowners of the Bayonne property. She sought to evade the exclusivity bar through a suit against "third persons." See N.J.S.A. 34:15-40 (noting that the Workers' Compensation Act does not foreclose common law actions against a "third person" liable to the employee for his or her injury). The so-called "dual capacity doctrine" explains the attempt to classify "homeowner" Jonathan as a different legal entity than "employer" Jonathan.*fn3
Continental's primary argument against coverage, however, focuses on the absence of an express allegation in Hart's complaint that Jonathan, as an employer, acted to cause her injuries. Under Section A of Part Two, coverage requires that "[t]he bodily injury must arise out of and in the course of the injured employee's employment by [the insured]."
Although the complaint did not allege that Hart's injury arose out of and in the course of her employment with Jonathan, the attorney certification disclosing the pendency of a workers' compensation claim alerted any reader of the complaint to that possibility. When Continental received the complaint, it was in the process of defending Jonathan in the workers' compensation action. It was in possession of a copy of Hart's workers' compensation claim petition, in which she alleged that these same injuries arising out of this same incident arose out of and in the course of her employment with Jonathan. Therefore, extrinsic evidence was in Continental's hands to that effect.
There is legal support for Jonathan's reliance on "extrinsic facts" to bring Hart's allegations within the terms of the employers' liability policy. "[T]he duty to defend is not necessarily limited to what is set forth in the complaint." Jolley v. Marquess, 393 N.J. Super. 255, 271 (App. Div. 2007). The Supreme Court held, in SL Indus. v. Am. Motorists Ins. Co., 128 N.J. 188, 198 (1992), that "facts outside the complaint may trigger the duty to defend." It explained:
Insureds expect their coverage and defense benefits to be determined by the nature of the claim against them, not by the fortuity of how the plaintiff, a third party, chooses to phrase the complaint against the insured.
To allow the insurance company to construct a formal fortress of the third party's pleadings and to retreat behind its walls, thereby successfully ignoring true but unpleaded facts within its knowledge that require it, under the insurance policy, to conduct the putative insured's defense would not be fair. [Id. at 198-99 (citations and internal quotation marks omitted).]
Section B of Part Two provides that Continental will pay for damages for bodily injury to an employee that arise out of and in the course of employment, that are "claimed against [the insured] in a capacity other than as employer."
In our view, the applicable provisions of Part Two of Continental's policy are ambiguous as to Continental's duty to defend in circumstances such as these. Under Section B, Continental agreed to pay for injuries to an employee arising out of and in the course of employment claimed against the insured in a capacity other than as the employer. This provision lends itself to an interpretation that if, as a matter of fact, the injury arose out of and in the course of employment, but a civil action was brought against the employer in some capacity other than as an employer, there would be coverage. That is exactly what happened here.
Hart had a valid workers' compensation claim, on which she recovered because, of necessity, her injuries arose out of and in the course of her employment. Nevertheless she brought this claim against her employer, purportedly in his capacity as a homeowner, intentionally attempting to circumvent the exclusivity bar of the Workers' Compensation Act. Read in this manner, the reasonable expectations of the insured would be that coverage existed. A policyholder could reasonably read Section B4 as contemplating that Continental would have a duty to defend an alleged "dual capacity" claim such as this.
Although a stricter interpretation could ensue from a reading of that provision along with others in Part Two, when more than one interpretation is reasonable, that favoring the insured must apply. The ambiguity must be resolved in favor of the insured.
Accordingly, the trial court orders dismissing Jonathan's third-party complaint against Continental and denying Jonathan's motion for summary judgment against Continental are reversed. Jonathan is entitled to reimbursement by Continental of the reasonable costs he incurred in defending Hart's action. The matter is remanded for a determination of those costs.
Reversed and remanded.