On certification to the Superior Court, Appellate Division.
The opinion of the court was delivered by: Justice Long
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Abouzaid, et al. v. Mansard Gardens Associates, LLC, et al.
LONG, J., writing for a unanimous Court.
In this case, the Court considers a claim under Portee v. Jaffee, 84 N.J. 88 (1980)(negligent infliction of emotional distress claim based on witnessing the death or serious injury of a family member), and determines whether a Portee claim that does not allege a physical manifestation triggers the duty to defend under a "bodily injury" provision in a commercial general liability insurance policy.
In 2007, defendants Jack and Sally Pomeranc, doing business as Mansard Gardens Associates, LLC (Mansard), were the owners of an apartment building in Bayonne. Greater New York Mutual Insurance Company (GNY) was Mansard's insurer under a commercial general liability insurance policy (Policy). The Policy provided that it would defend any lawsuit against the insured for property damage or bodily injury, but would not defend a lawsuit that did not involve property damage or bodily injury, which the Policy defined as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time."
Plaintiffs Magdy and Manal Abouzaid and their son, Moustafa, were tenants in a Mansard apartment on August 22, 2007. Plaintiff Eman Kandil was visiting with her sons, Omar and Tarek Osman. Earlier that day, repairs had been performed on the apartment on behalf of Mansard. A liquid paint thinner had been applied to the kitchen floor to remove tile adhesive. A flash fire erupted when vapors from the paint thinner were ignited by the stove's pilot light. The fire spread rapidly through the apartment and trapped the three boys. The mothers heard the explosion and saw their sons "engulfed by a fireball." The flames injured the boys, but did not physically injure the women.
Plaintiffs filed a complaint against Mansard that included claims for the boys' injuries, pain and suffering, and damages. The third count of the complaint asserted emotional distress by the mothers for suffering that arose from watching their sons become engulfed by flames. It demanded damages for pain and suffering, impairment, disability, loss of enjoyment of life, any medical or economic losses, and other relief. It did not allege physical injury to the mothers or specify that their emotional distress was accompanied by physical manifestations.
Mansard forwarded the complaint to GNY, which issued a reservation of rights and partial disclaimer. GNY agreed to provide a limited defense in the underlying litigation, but denied coverage and representation for the third count, explaining that the emotional distress claim did not satisfy the bodily injury requirement of the Policy. Mansard retained an attorney, who filed a third-party complaint against GNY asserting that it was obligated to defend against the count. GNY filed a motion to dismiss the third-party complaint. Meanwhile, Mansard filed a motion to dismiss the plaintiffs' third count as inadequately pled. The trial court denied both motions, reasoning that it was premature to dismiss the third-party complaint and finding that plaintiffs had asserted a viable Portee claim in the third count. Mansard then moved for summary judgment against GNY and for an award of counsel fees. GNY in turn moved for reconsideration. While these motions were pending, the trial court permitted plaintiffs to file an amended complaint revising the third count to state that the mothers had incurred medical treatment costs for the physical impact caused by their emotional distress. Based on the amended complaint, GNY issued a supplemental notice of reservation of rights expanding its defense to include the amended third count, while reserving the right to deny coverage if investigation revealed that the emotional distress was not accompanied by a physical manifestation of the injury. As such, GNY agreed to provide Mansard with a defense for all counts from the date of the notice of the amended complaint. The same day, the trial court denied GNY's motion for reconsideration and granted Mansard's motion for summary judgment on the coverage issue, declaring that the duty to defend was triggered by the initial complaint. Following a plenary hearing, the trial court awarded Mansard fees and costs in the amount of $38,345.75. GNY appealed that ruling.
The Appellate Division reversed the trial court's decision regarding defense and counsel fees and ordered the dismissal of Mansard's third-party complaint against GNY with prejudice. The panel determined that plaintiffs' assertion of a Portee claim without a reference to a related physical injury was insufficient to trigger coverage under the Policy. The panel reasoned that nothing in Portee or later opinions demanded a physical manifestation as a required element for a claim of negligent infliction of emotional distress, and GNY was not obligated to defend Mansard against the Portee claim until plaintiffs amended the third count to include the allegation of physical impact. The Supreme Court granted certification. 205 N.J. 14 (2010).
HELD: Because a plaintiff's claim for negligent infliction of emotional distress under Portee v. Jaffee, 84 N.J. 88 (1980), may involve physical sequelae and, therefore, is potentially covered by a "bodily injury" provision of a defendant's commercial general liability insurance policy, the burden of defense must be borne by the insurer until the question of physical injury clearly drops out of the case.
1. The Court reviews the history of the tort of negligent infliction of emotional distress, which initially did not permit a recovery unless there was a contemporaneous physical injury, but later evolved into the "zone of danger" rule in which an immediate fear of personal injury could serve as the basis for recovery so long as substantial bodily injury or sickness resulted from the distress. The Court then discusses Portee, which addressed the unique emotional distress suffered by a mother as she watched her seven-year-old son die while trapped in a malfunctioning elevator. The Court explains that such claims do not require direct physical impact or threat of injury to the bystander or require that physical injury result from the emotional distress. Although a Portee claim may assert a physical injury, it need not do so-serious psychological damage will suffice. (pp. 10-15)
2. In determining whether an insurer must defend a Portee claim under a bodily injury provision in a commercial general liability insurance policy, the Court reviews several principles, including that an insurer is obligated to provide the insured with a defense against all actions potentially covered by the insurance policy. The potential merit of the claim is immaterial: the duty to defend is not abrogated by the fact that the cause of action cannot be maintained against the insured either in law or in fact. Nor is the analysis dependent solely on the facts asserted in the complaint; the duty may be triggered by facts that arise during the resolution of the dispute. (pp. 15-19)
3. The Court discusses two opinions involving emotional distress claims that recognized the relevance of after-acquired information to the duty to defend analysis: Voorhees v. Preferred Mutual Insurance Co., 128 N.J. 165 (1992)(bodily injury provision affords coverage for emotional distress claim accompanied by physical manifestations; insurer must defend until physical manifestation is disproved or otherwise drops out of case); and SL Industries v. Am. Motorists Ins. Co., 128 N.J. 188 (1992)(an insured's duty to defend may be triggered by facts outside of the complaint, but no duty to defend found in this case). These cases demonstrate that an insurer need not defend claims that are clearly outside the contract of insurance, but poorly-pled claims possessing the potential to result in coverage remain within the sweep of the duty to defend. (pp. 19-26)
4. Here, plaintiffs' Portee count was silent regarding the existence of physical manifestations, but it did not exclude the possibility that such manifestations would be proved during the course of the litigation. As a result, it was indefinite whether the claim was within the scope of coverage. In those circumstances, a potential for plaintiffs to prove a covered claim existed and doubts regarding the duty to defend should have been resolved in favor of the insureds. The Court presumes that the extraordinary level of emotional distress required to support a Portee claim- severe emotional distress-will, in most cases, bear with it a physical component. Thus, a policy providing coverage for claims of bodily injury will be understood to require a defense from the filing of a Portee complaint unless such defense is specifically excluded by other contract language. That is reasonable from the perspective of the insurer, who is on notice that the plaintiff may, in fact, prove physical sequelae, and from that of the insured, who expects to be defended against potential claims, regardless of the imprecision of the pleadings. (pp. 26-28)
The judgment of the Appellate Division is REVERSED; the judgment of the trial court is REINSTATED.
CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, RIVERA-SOTO and HOENS join in JUSTICE LONG's opinion.
JUSTICE LONG delivered the opinion of the Court.
The question presented on this appeal is whether a Portee*fn1 claim that does not allege physical sequelae triggers the duty to defend under a "bodily injury" provision in a commercial general liability insurance policy. In Voorhees v. Preferred Mutual Insurance Co., 128 N.J. 165 (1992), we held that a "bodily injury" provision affords coverage for an emotional distress claim accompanied by physical manifestations. Id. at 169. We also required the insurer to defend the complaint for emotional distress, which did not allege physical injury, at least until physical manifestation was disproved or otherwise dropped out of the case. The rationale for the requirement of defense was the existence of a "potentially" covered claim. Id. at 174-75. Because a Portee claim may, but need not, involve physical sequelae, such a claim is potentially, but not necessarily, covered by a "bodily injury" provision. In such circumstances, the burden of defense must be borne by the insurer until the question of physical injury clearly drops out of the case.
I. In 2007, defendants, Jack and Sally Pomeranc, d/b/a Mansard Gardens Associates, LLC (Mansard), were the owners of an apartment building on West 23rd Street in Bayonne, New Jersey. At the time, Greater New York Mutual Insurance Company (GNY) was Mansard's insurer under a commercial general liability insurance policy (Policy). The Policy provided, in relevant part:
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. . . .
b. This insurance applies to "bodily injury" and "property damage" only if:
(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the ...