December 6, 2010
MORGAN CALLO, PLAINTIFF-APPELLANT,
ALLSTATE INSURANCE COMPANY, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-3495-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 15, 2010
Before Judges Lisa and Reisner.
Plaintiff, Morgan Callo, suffered personal injuries resulting from an assault and battery committed by Tara Burgess, an insured of Allstate Insurance Company (Allstate). After issuing a reservation of rights letter, Allstate provided Burgess with counsel to defend the underlying action, which also included claims of negligent conduct. In that action, the jury found that Burgess committed an intentional assault and battery and awarded Callo $250,000. The verdict withstood an unsuccessful motion for a new trial and was sustained on appeal. While the appeal was pending, Burgess filed for bankruptcy, although the amount of the verdict was within the limits of coverage provided by Allstate.
Allstate refused to pay the judgment, contending that its insured's conduct fell outside the scope of coverage provided by the policy. Callo brought this declaratory judgment action against Allstate seeking a declaration of coverage. The parties exchanged extensive discovery, after which they filed cross-motions for summary judgment. They also provided Judge Peterson with a transcript of the trial in the underlying action. Both parties agreed that no material facts were in dispute and the matter was ripe for summary disposition.
Callo argued that Allstate's reservation of rights letter was couched in oblique and ambiguous terms and was insufficient to preserve a future right to disclaim coverage once it assumed the defense of Burgess and her parents (against whom a claim had also been made in the underlying action). Callo further argued that Allstate should be precluded from denying coverage because it failed to communicate its ultimate coverage decision to Burgess prior to trial of the underlying action. Callo also argued that, for various reasons, Allstate should be estopped from denying coverage. These reasons included the failure to provide separate counsel for Burgess and her parents and coercion in the submission of the reservation of rights letter. Finally, Callo argued that the trial record did not establish that Burgess intended to harm Callo, and instead demonstrated that she had no such intention, as a result of which Callo's conduct fell within the coverage provisions of Allstate's policy.
Allstate contended that the trial record in the underlying action established as a matter of law that Burgess' conduct was intended to cause harm to Callo, as a result of which the claim could not be found to fall within the coverage of the policy. Allstate further argued that the terms of the reservation of rights letter were clear and sufficiently placed Burgess and her parents on notice of Allstate's litigation and coverage positions. Allstate also argued that it did nothing in the course of these events that would estop it from denying coverage. Indeed, it pointed out that nothing in the record suggested that its insured, Burgess, ever thought she was covered for this conduct or detrimentally relied on any conduct by Allstate. This was evidenced most clearly by the fact that Burgess filed for bankruptcy after the judgment was entered against her. Had she thought she was covered, she would have pursued payment of the judgment by Allstate rather than filing for bankruptcy. Because the amount of the judgment was within the coverage limits, none of her personal assets would have been jeopardized if there was coverage.
Judge Peterson rendered a thorough oral decision on December 18, 2009. He comprehensively addressed each of the arguments of the parties. He rejected Callo's arguments and accepted Allstate's. He therefore granted Allstate's summary judgment motion and denied Callo's.
On appeal, Callo makes the following arguments:
POINT I: ALLSTATE IS ESTOPPED FROM DENYING COVERAGE.
A. THE CRYPTIC, OBLIQUE AND AMBIGUOUS LANGUAGE USED BY ALLSTATE IN ITS LETTER OF MAY 22, 2003 WAS INSUFFICIENT TO PRESERVE A FUTURE RIGHT TO DISCLAIM COVERAGE ONCE IT ASSUMED CONTROL OF THE LITIGATION.
B. ALLSTATE'S FAILURE TO COMMUNICATE ITS COVERAGE DECISION TO TARA BURGESS PRIOR TO THE TRIAL OF MORGAN CALLO'S LAWSUIT AGAINST HER ESTOPPED IT FROM DENYING COVERAGE FOLLOWING TRIAL.
C. ALLSTATE'S FAILURE TO SATISFY ITS FIDUCIARY OBLIGATION TO TARA BURGESS ESTOPS IT FROM DENYING COVERAGE TO HER.
POINT II: THE TRIAL RECORD DOES NOT ESTABLISH THAT TARA BURGESS INTENDED TO HARM PLAINTIFF.
These are essentially the same arguments that Callo presented to the trial court. An appellate court reviewing an order granting summary judgment is bound by the summary judgment factual record developed before the trial court and applies to that the governing legal standards. Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007). With regard to the legal conclusions reached on summary judgment, the trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference; an issue of law is subject to de novo review. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
Based upon our de novo review, we are satisfied that Judge Peterson's analysis of the facts in the record was accurate, that he applied the correct legal principles controlling the issues presented, and that he reached the correct conclusion. Therefore, we affirm substantially for the reasons Judge Peterson expressed in his December 18, 2009 oral decision. For the sake of completeness, we set forth a brief summary of the facts and procedural history, together with a few comments regarding the legal issues.
The underlying incident occurred on December 15, 2000. Callo and Burgess were high school students at the same school.
In the weeks leading up to that date, some animosity developed between them over a series of events that we need not describe here. On the day before the incident, threats were communicated to Callo, indicating that Burgess might cause her physical harm. On December 15, 2000, while the girls were in homeroom, they argued, after which Burgess threatened to physically assault Callo. Burgess followed through with her threat, punching Callo in the face and knocking her to the floor, after which she got on top of her and repeatedly punched her in the face until she was pulled off by a teacher or security person. While being pulled off, she continued kicking at Callo. Callo's injuries included a fractured nose. Callo never struck or hit Burgess in the course of the incident.
On April 4, 2002, Callo, through her guardian ad litem, sued Burgess and her parents. The three-count complaint alleged (1) that Tara Burgess "carelessly, negligently and recklessly" committed an assault and battery upon Callo, (2) that Tara Burgess "willfully, intentionally [and] wantonly" committed an assault and battery against Callo, and (3) that Burgess' parents carelessly, recklessly, and negligently failed to ensure that all persons who came in contact with their daughter would be safe from harm.
The Burgesses did not file an answer, default was entered against them and, after a proof hearing, judgment was entered against them on January 23, 2003 for $211,985, including interest and costs.
On May 20, 2003, the Burgesses reported the claim to Allstate, which responded with its reservation of rights letter dated May 22, 2003. Allstate agreed to defend the Burgesses for counts one and three, which alleged negligent conduct. Allstate reserved the right to disclaim coverage "as to all or part of the Complaint" once it conducted its investigation into the facts giving rise to the complaint. Allstate further advised that it would not defend the claim unless it was successful in vacating the default judgment because the Burgesses failed to comply with policy provisions requiring prompt notification of a claim. Allstate further reserved the right to disclaim coverage because the allegations of assault and battery "may not meet the definition of 'occurrence' as defined by your policy." The letter continued by stating that the policy defined "occurrence" as an "accident" resulting in bodily injury. Finally, the letter informed the Burgesses that Allstate would not defend them against claims for punitive damages and suggested they obtain other legal representation regarding those claims. All three of the Burgesses signed the letter, acknowledging their agreement with its terms.
Allstate provided counsel, who succeeded in having the default judgment vacated. Counsel also succeeded in obtaining dismissal of the count against Burgess' parents. The remaining claims against Burgess proceeded to trial on July 26 and 27, 2005. The evidence established the facts as we have described them, inducing the jury to find that Burgess committed an assault and battery on Callo. The jury awarded $250,000 in damages, judgment was entered, Burgess' motion for a new trial was denied, and we affirmed on appeal.
Commenting first on Callo's second appeal argument, it is abundantly clear to us, as it was to the trial court, that Burgess' conduct established as a matter of law that she intended harm to Callo. Whether analyzing the issue under the terms of coverage, defining an "occurrence" as an "accident," or under the intentional acts exclusion, precluding coverage for bodily injury "intended by, or which may reasonably be expected to result from the intentional acts or omissions of" the insured, the result is the same. We are mindful that in the reservation of rights letter, Allstate referenced only the coverage portion, and not the intentional acts exclusion, upon which it has also relied in this declaratory judgment action.
We find no infirmity in this apparent discrepancy. As we stated, the result is the same under either provision.
Relying on Prudential Property & Casualty Insurance Co. v. Karlinski, 251 N.J. Super. 457, 465-66 (App. Div. 1991), Callo argues that the trial court erred by failing to apply the clear and undisputed law of this State that the unintended consequences of an intentional act are considered "accidental" for insurance coverage purposes. Callo argues that Burgess intended nothing more than passing discomfort to her, thus precluding Allstate from claiming the incident was anything other than accidental. She analogizes Burgess' actions to those described in Karlinski as "mutually accepted tests of dominance and prowess, involving physical conduct." Id. at 465 n.3. We reject this argument out of hand.
Public policy denies insurance indemnification for the civil consequences of intentional wrongdoing. Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 181 (1992). While it may not be necessary that an actor intend the very consequences that occur for the public policy against indemnity to apply and relieve an insurer of its contractual obligation to indemnify an insured, if the actor knows that injuries are certain or substantially certain to follow from his or her act and still goes ahead, it is the same in law as if he or she had, in fact, intended the end result. Ambassador Ins. Co. v. Montes, 147 N.J. Super. 286, 292 (App. Div. 1977), aff'd, 76 N.J. 477 (1978). Where a coverage exclusion is expressed in terms of bodily injury expected or intended by the insured, factual inquiry into the actual intent of the actor to cause that injury is necessary only if the intentional act does not have the inherent probability of causing the degree of injury actually inflicted. Karlinski, supra, 251 N.J. Super. at 464.
An assault and battery can and will provide a basis as a matter of law for denying coverage for accidents in circumstances such as those in this case. Merrimack Mut. Fire Ins. Co. v. Coppola, 299 N.J. Super. 219, 227 (App. Div. 1997). We explained:
That is not to say, however, that the actor's subjective intent must always be a matter for jury determination simply because the actor claims he or she had no intent to injure, although fully intending the act. There are occasions where the objective conduct of the actor also determines the actor's subjective intent to injure. Such is the case where the actor engages in assault and battery. The very nature of the conduct imputes the actor's subjective intent to cause some injury to the victim. Where, as here, the plaintiff claims no more than the type of injuries that are inherently probable from such conduct there is no need to inquire into defendant's subjective intent. Thus, we are satisfied that no coverage is afforded defendant as a matter of law for the one act of physical assault that allegedly occurred during the policy period. [Id. at 227-28 (emphasis added) (internal citations omitted).]
In Merrimack, a man physically assaulted his wife when he grabbed her arm and pulled her to the floor by her hair. Id. at 224. The language of the insurance policy in Merrimack afforded coverage for bodily injury caused by an occurrence, and defined occurrence as an accident. Id. at 225.
We initially note that it is the insured who bears the burden of showing that a claim falls within the coverage of the insurance policy. Reliance Ins. Co. v. Armstrong World Indus., Inc., 292 N.J. Super. 365, 377 (App. Div. 1996). Allstate has disclaimed coverage in part because the assault and battery by Burgess was not an accident, and therefore not an occurrence. It is the insured's burden to make a contrary showing.
Evidence in the record supports a finding as a matter of law that Burgess' acts objectively established that she intended to harm Callo. Immediately prior to the altercation, Callo addressed Burgess directly, and Burgess responded that Callo should sit down or she would punch her in the face. When Callo attempted to call her bluff, Burgess followed through by punching Callo multiple times in the face. She had to be pulled off Callo forcibly by school personnel, and she possibly kicked Callo as well.
These facts are not analogous to the type of circumstances contemplated in Karlinski. This was not a "one-on-one basketball or hockey match-up" or a "king-of-the-hill assault" where "there is no intent to cause more than passing discomfort." Karlinski, supra, 251 N.J. Super. at 465 n3. Burgess threatened to punch Callo, and completed that threat multiple times. As the trial court found, this is more analogous to Harleysville Insurance Co. v. Garitta, 170 N.J. 223, 240 (2001), where an insured took a knife to a fight, wielded it, and caused bodily injury that resulted in death, which was a probable consequence of the insured's action.
Merrimack requires the same result. Burgess engaged in an assault and battery, which led to the probable consequence. She hit Callo in the face multiple times, causing extensive bodily injury to the nose and face. Indeed, Burgess' actions were even more egregious than those in Merrimack. These facts clearly established intent to harm as a matter of law, and did not require inquiry into the actor's subjective state of mind, as Karlinski suggests in a less clear-cut case.
We therefore concur with Judge Peterson that the conduct in this case falls outside the scope of coverage that Allstate provided.
Turning to Callo's first appeal argument, we are satisfied, for the reasons Judge Peterson expressed, that Allstate was not estopped from denying coverage. The language in its reservation of rights letter was sufficiently clear. Its delay in disclaiming coverage was justified by the failure of the Burgesses to timely notify Allstate of the claim. There is nothing in the record to suggest that the Burgesses were coerced into agreeing to the terms of the disclaimer letter. There was no reason to provide separate counsel to Burgess and her parents because a conflict of interest never arose between them.
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