December 6, 2010
IONBOND, INC., PLAINTIFF-APPELLANT,
VALLEY FORGE INSURANCE COMPANY, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-2455-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted: November 17, 2010 - Decided: Before Judges Axelrad and J. N. Harris.
Ionbond, Inc. (Ionbond) appeals from summary judgment dismissal of its complaint against Valley Forge Insurance Co. (Valley Forge) seeking a declaratory judgment that Valley Forge had a duty to defend a tort action against it. We reverse and remand for a determination of the amount due to reimburse Ionbond the costs of defense.
Ionbond was a commercial tenant of an office building located in Rockaway. Saviejath Maughan, one of Ionbond's employees, slipped and fell in the parking lot of the complex. At the time of the accident, Ionbond was insured by Valley Forge through a CNA workers' compensation and employers' liability insurance policy. Maughan pursued a workers' compensation claim, not at issue here, for which Valley Forge provided a defense. She also filed a tort action against Ionbond, as the tenant, as well as against the owner of the office building, asserting a premises liability claim. Valley Forge rejected the requested tender of a defense and indemnity for the suit, asserting the Workers' Compensation Act bar, N.J.S.A. 34:15-8, and specific exclusion within the employers' liability provision of the policy.*fn1
Ionbond filed this declaratory judgment and breach of contract action against Valley Forge, seeking a determination that Valley Forge had a duty to defend and indemnify it in the underlying tort action.*fn2 The parties filed cross-motions for summary judgment. They stipulated that Maughan was an employee of Ionbond and was injured in the parking lot of the office building in the course of her employment. Following oral argument on March 5, 2010, the motion judge denied Ionbond's motion and granted summary judgment to Valley Forge dismissing the complaint, finding Valley Forge had no duty to defend the underlying action because it was a compensable workers' compensation claim excluded by the terms of the employers' liability portion of the policy. The ruling was memorialized in an order of the same date. This appeal ensued.
The applicable portions of Part Two, the employers' liability insurance policy then in effect, provided:
A. How This Insurance Applies
This employers liability insurance applies to bodily injury by accident or bodily injury by disease . . . .
l. 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:. . . .
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 an 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.
Maughan filed suit against Ionbond in a capacity other than as employer. Although the complaint neither alleged an employer-employee relationship with Ionbond nor that her injuries arose out of and in the course of her employment, these facts are undisputed.
We exercise de novo review over the motion judge's interpretation of the insurance policy. Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. l998). Our function is to interpret the contract of insurance before us using long-established tools of construction.
"[I]n general, insurance policy exclusions must be narrowly construed; the burden is on the insurer to bring the case within the exclusion." Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 4l (l998) (quoting Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (l997)). As insurance policies are contracts of adhesion, if the terms are not clear, but instead are ambiguous, they are construed against the insurer and in favor of the insured, in order to give effect to the insured's reasonable expectations. Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010); Voorhees v. Preferred Mut. Ins. Co., 128 N.J. l65, 175 (l992). This is particularly so with insurance policy exclusions. Aetna Ins. Co. v. Weiss, 174 N.J. Super. 292, 296 (App. Div.), certif. denied, 85 N.J. l27 (l980). If there is more than one possible interpretation of the language, courts apply the meaning that supports coverage rather than the one that limits it. Cobra Prods., Inc. v. Fed. Ins. Co., 317 N.J. Super. 392, 401 (App. Div. l998), certif. denied, l60 N.J. 89 (l999). Nonetheless, when considering ambiguities and construing a policy, courts cannot "write for the insured a better policy of insurance than the one purchased." Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529 (1989).
The duty to defend 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, 24l (App. Div.), certif. denied, 169 N.J. 608 (200l). 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. l953), aff'd o.b., 15 N.J. 573 (l954). Any doubts about coverage must be resolved in favor of the insured. Salem Group v. Oliver, 128 N.J. l, 4 (l992); Sears Roebuck, supra, 340 N.J. Super. at 241.
It is well established that the duty to defend is broader than the duty to indemnify. Hofing v. CNA Ins. Cos., 247 N.J.
Super. 82, 88 (App. Div. l99l); Danek, supra, 28 N.J. Super. at 79. An insurer cannot be relieved of the duty to defend simply because there may be no merit to the claim against the insured. As the Court explained:
The duty to defend is not abrogated by the fact that the cause of action stated cannot be maintained against the insured either in law or in fact -- in other words, because the cause is groundless, false or fraudulent. Liability of the insured to the plaintiff is not the criterion; it is the allegation in the complaint of a cause of action which, if sustained, will impose a liability covered by the policy.
[Voorhees, supra, 128 N.J. at l74 (quoting Danek, supra, 28 N.J. Super. at 76-77).]
See also F.S. v. L.D., 362 N.J. Super. l6l, l69 (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 24l-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. l37, 142 (App. Div. 2000).
The motion judge found persuasive Valley Forge's argument that because the tort claim asserted by Ionbond's employee was almost sure to fail in view of the workers' compensation bar, the insurer had no initial duty to defend under the Section Two, (C)(4) exclusion of its policy ("an obligation imposed by a workers compensation . . . law"). We disagree.
Contrary to Valley Forge's assertion, Schmidt v. Singer, 155 N.J. 44 (l998), is factually inapposite and is not dispositive of the issue. Schmidt involved the question of whether insurance coverage existed under a similar employers' liability provision for claims of workplace sexual harassment resulting in bodily injury. Id. at 46. For reasons inapplicable here, the Court found there was coverage. Ibid. Citing Producers Dairy Delivery Co. v. Sentry Insurance Co., 718 P.2d 920, 927 (Cal. l986), the Court noted that "[e]mployers liability coverage . . . is traditionally written in conjunction with workers' compensation and is intended to serve as a 'gap-filler' providing protection to the employer in those situations where the employee has a right to bring a tort action despite provisions of the workers' compensation statute." Schmidt, supra, 155 N.J. at 49-50 (internal quotation marks omitted). We are not convinced that language bars coverage in the present case.
In her civil action, Maughan sought to impose premises liability on Ionbond as a commercial tenant, not an employer. By attempting to treat her employer as a "third person" in tort, the employee sought to evade the exclusivity bar of the Workers' Compensation Act, N.J.S.A. 34:15-8. The employee likely would not have been successful as a matter of law because the "dual capacity" doctrine has been disfavored in New Jersey. See Kaczorowska v. Nat'l Envelope Corp., 342 N.J. Super. 580, 592 (App. Div. 2001) (explaining that an employer normally shielded from tort liability by the exclusivity bar of the workers' compensation statute "may be liable in tort to its own employee if it occupies, in addition to its capacity as an employer, a second capacity that confers on it obligations independent of those imposed on him as an employer[;]" however, "[i]n New Jersey [the doctrine] is disfavored, if not outright disapproved."). Nonetheless, the employee chose to file the tort action against Ionbond, and Ionbond was forced to defend itself.
Valley Forge's obligation to defend Ionbond under Part Two of the policy is not crystal clear. As we are satisfied the provisions in the employers' liability section are susceptible of more than one possible interpretation, the ambiguity must be resolved against the insurer and in favor of the insured to give effect to the insured's reasonable expectations. Part Two, section (B)(4) requires Valley Forge to pay damages for bodily injury to an employee arising out of and in the course of employment, "claimed against [the insured] in a capacity other than as employer." A policyholder such as Ionbond could reasonably read that provision as triggering coverage for, and obligating Valley Forge to provide a defense to, Maughan's "dual capacity" tort claim, regardless of the ultimate merits of the action. Ionbond could also reasonably expect the (C)(4) exclusion not to apply as the Law Division action was not "an obligation imposed by a workers compensation . . . law" but, rather, was an independent suit for damages in tort.
Accordingly, we reverse the orders granting summary judgment to Valley Forge and dismissing Ionbond's complaint, and denying Ionbond's motion for summary judgment. We remand for the entry of an order granting summary judgment to Ionbond entitling it to reimbursement by Valley Forge of the reasonable costs it incurred in defending Maughan's action, and for a determination of those costs.
Reversed and remanded.