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John T. Carlin v. Cornell


August 11, 2011


On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-10003-95.

Per curiam.


Argued: December 6, 2010

Before Judges A.A. Rodriguez, Grall and C.L. Miniman.

Defendant/Third-Party Plaintiff Karl Koch Erecting Co., Inc. (Koch), appeals from a November 20, 2009, order that (1) vacated an earlier grant of summary judgment in favor of Koch on its third-party declaratory judgment action against third-party defendant CIGNA Property & Casualty Companies (CIGNA); (2) denied an award of counsel fees and costs to Koch; and (3) entered judgment in favor of CIGNA. That judgment declared that CIGNA had no duty to defend Koch in this 1995 Middlesex County action alleging spoliation and concealment of evidence that allegedly occurred during the successful defense by CIGNA's appointed counsel of a 1987 Camden County personal injury case against Koch and others. This appeal presents the issue of whether a spoliation claim growing out of the successful defense of a covered claim falls within the scope of coverage applicable to the covered claim or constitutes a new claim outside the scope of coverage. We now reverse; reinstate the May 1, 2009, judgment in favor of Koch; and remand for a determination of a reasonable award of counsel fees and costs.


The 1987 action (the bodily injury action) was filed by John T. Carlin, Barry Pennington, James Allen, and others (the injured plaintiffs) against their former employer, Cornell, Hegarty, and Koch (CHK), and its owners, including Koch (the CHK defendants). CHK was a partnership formed to perform bridge-rebuilding construction in New Jersey and elsewhere. The partnership consisted of Cornell and Co., Inc.; William F. Hegarty, Inc.; James Hegarty; and Koch. The Delaware River Port Authority (DRPA) retained CHK in 1985 on a rehabilitation project for the Benjamin Franklin Bridge. The injured plaintiffs were ironworkers who were employed on the rehabilitation project.

The complaint was filed after periodic tests of the injured plaintiffs' blood revealed increasing lead levels. The injured plaintiffs sought money damages for personal injuries allegedly suffered from exposure to toxic lead fumes during their work on the project. To avoid the exclusive remedy provision of the Workers' Compensation Act, N.J.S.A. 34:15-8, the injured plaintiffs alleged that the CHK defendants intentionally concealed information about lead exposure at the project site, thereby preventing the injured plaintiffs from learning about the nature and extent of the dangers to their health. The injured plaintiffs claimed that the CHK defendants endangered their health by allowing them to work while being exposed to toxic lead fumes, causing them to become ill as a result.

The injured plaintiffs were represented in the bodily injury action by the firm later known as Walker, Dansky & Katz. CIGNA, DRPA's carrier, provided a defense to CHK and its owners under the comprehensive general liability (CGL) policies issued to DRPA because CHK and its owners were additional insureds under those CGL policies. CIGNA retained defendant Montano, Summers, Mullen, Manuel, Owens & Gregorio, P.C. (the Mantano, Summers law firm) to represent the CHK defendants. The CHK defendants ultimately prevailed in a jury trial in January 1990.

On May 1, 1991, Carlin, his wife Nancy, and Pennington filed a complaint against Walker, Dansky, & Katz and its individual attorneys alleging that the firm's legal malpractice caused them to lose their bodily injury lawsuit. Carlin, his wife, and Pennington claimed that their former counsel failed to name DRPA and certain DRPA employees as defendants in the 1987 lawsuit and that certain documents were fraudulently concealed and not produced in the previous lawsuit. Allen filed a similar legal malpractice lawsuit. The parties settled these two suits (the malpractice actions) on November 30 and December 23, 1994, respectively.

In June 1995, the malpractice plaintiffs (hereinafter plaintiffs) filed a third suit, this time naming CHK, its partners, and the Montano, Summers law firm as defendants (the spoliation action). Plaintiffs alleged that they "were knowingly and intentionally exposed to toxic lead fumes by the defendants, excluding the attorney defendants" and that they suffered bodily injuries "[a]s a result of the said lead exposure." They further alleged that the CHK defendants were aware of the injuries but "deliberately, fraudulently, maliciously, willfully, and wantonly concealed that information" from plaintiffs.

Plaintiffs claimed that defendants "fraudulently concealed information from [plaintiffs] which they knew they were obligated to disclose, with the intent and purpose of thwarting plaintiffs' ability to recover against the named defendants to [the bodily injury] action." Plaintiffs asserted that they relied on the CHK defendants' responses to discovery to their detriment because the CHK defendants' fraudulent representations and concealments during discovery resulted in the dismissal of their claims in the 1987 trial with prejudice. They alleged spoliation and falsification of documents during the bodily injury action and asserted that they were "deprived of proper compensation and of the economic gain to be expected from a punitive damage verdict [on their Millison*fn1 claim] as a result of that fraud." Plaintiffs sought compensatory damages, punitive damages, interest, attorneys' fees, and costs of suit.

We pause briefly in our exposition of the relevant facts to discuss spoliation claims and the remedies available to injured parties. The topic was thoroughly reviewed by our Supreme Court in Tartaglia v. UBS PaineWebber Inc., 197 N.J. 81 (2008). A spoliation claim is essentially a claim for fraudulent concealment or destruction of evidence prior to or during litigation. Id. at 116. In a spoliation action, the plaintiff must prove:

(1) That defendant in the fraudulent concealment action had a legal obligation to disclose evidence in connection with an existing or pending litigation;

(2) That the evidence was material to the litigation;

(3) That plaintiff could not reasonably have obtained access to the evidence from another source;

(4) That defendant intentionally withheld, altered or destroyed the evidence with purpose to disrupt the litigation; [and]

(5) That plaintiff was damaged in the underlying action by having to rely on an evidential record that did not contain the evidence defendant concealed. [Id. at 118 (internal quotation marks omitted).]

"[T]he choice of remedies would depend in part on the timing of the discovery of the spoliation." Id. at 117. If the spoliation is discovered during the underlying litigation, the injured party is entitled to an adverse inference and "may amend his or her complaint to add a count for fraudulent concealment." Ibid. (internal quotation marks omitted). In that case, the fraudulent concealment counts must be bifurcated at trial "because the fraudulent concealment remedy depends on the jury's assessment of the underlying cause of action." Id. at 117-18 (internal quotation marks omitted). A verdict for a plaintiff on the underlying claim does not preclude relief on the bifurcated claim. Id. at 120.

Instead, in that circumstance, the subsequent prosecution of the bifurcated claim will not create a duplicative recovery because the focus in that proceeding will be on the damages, both compensatory and punitive, incurred in having to proceed without the destroyed evidence. That is to say, if a plaintiff has already prevailed on the substantive claim with the benefit of the adverse inference, the bifurcated proceeding cannot be an opportunity for the jury to consider anew whether its substantive verdict would have been different had the missing evidence been considered. In that context, the bifurcated counts will offer the plaintiff a chance to recover additional compensatory damages limited to the further costs of proceeding without the spoliated evidence, or costs incurred in an effort to replace that evidence, together with, if appropriate, a punitive award. [Id. at 120-21 (emphasis added).]

If the spoliation is not discovered until after the underlying action is concluded, then "the plaintiff may file a separate tort action." Id. at 119 (internal quotation marks omitted). In that case, "the cause of action for the fraudulent concealment will be entirely separate and, depending on the outcome of the original trial, may include both consideration of the substantive counts as well as the further spoliation-based damages." Id. at 121 (emphasis added).

Therefore, whether a plaintiff succeeds on the claim in the original litigation or not, there are damages that might be recovered, including punitive damages, in the event that the plaintiff can demonstrate that the loss of the evidence caused that plaintiff to incur costs or expenses in the litigation that would not otherwise have been incurred. Thus, for example, a plaintiff who is deprived of evidence due to a defendant's spoliation and is therefore required to hire additional experts or to develop and rely on alternate proofs might well sustain damages separate and apart from those incurred as a result of the underlying cause of action. Likewise, a plaintiff who is deprived of the use of a tangible thing and is forced to employ an expert to create a model based on photographs or verbal descriptions might well be entitled to those costs as an element of her damages on the bifurcated claim. At the same time, there may be no damages to be attributed to spoliation separate and apart from the damage award in a plaintiff's case in chief in a particular matter. [Id. at 121-22.]

With the remedies for spoliation firmly in mind, we turn to the facts bearing on the third-party declaratory judgment action. DRPA purchased the CGL policies from Insurance Company of North America and workers' compensation and employer liability (WC/EL) policies from Pacific Employers Insurance Company. Both carriers were CIGNA's predecessors.

The two CGL policies were in effect from March 1, 1985, to December 31, 1987. The policies included as additional insureds all of DRPA's contractors, sub-contractors, and sub-sub-contractors, which included CHK and its partners. The CGL policy commencing on March 1, 1985 (the 1985 CGL policy), stated that the carrier will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage to which this insurance applies, caused by an occurrence and [the carrier] shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but [the carrier] shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of [the carrier's] liability has been exhausted by payment of judgments or settlements.

The 1985 CGL policy defined an "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the [i]nsured." "Bodily injury" was defined as "bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom."

When the CGL policy was renewed commencing on December 31, 1986 (the 1986 CGL policy), the coverage language changed. Under the 1986 CGL policy, the carrier agreed to 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. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS----COVERAGES A AND B. This insurance does not apply to "bodily injury" or "property damage" which occurred before the Retroactive Date, if any, shown in the Declarations or which occurs after the policy period. The "bodily injury" or "property damage" must be caused by an "occurrence."

The "occurrence" must take place in the "coverage territory." We will have the right and duty to defend any "suit" seeking those damages.

The coverage section of the 1986 CGL Policy further provided:

b. This insurance applies to "bodily injury" and "property damage" only if a claim for damages because of the "bodily injury" or "property damage" is first made against any insured during the policy period.

(2) All claims for damages because of "bodily injury" to the same person, including damages claimed by any person or organization for care, loss of services, or death resulting at any time from the "bodily injury," will be deemed to have been made at the time the first of those claims is made against any insured.

The 1986 CGL policy also redefined "[o]ccurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." "Bodily injury" meant "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." The 1986 CGL policy excluded from coverage "'[b]odily injury' or 'property damage' expected or intended from the standpoint of the insured."

The first WC/EL policy was effective from March 1, 1985, to March 1, 1986, and it included CHK as an insured (the 1985 WC/EL policy). The second WC/EL policy was effective from March 1, 1986, to March 1, 1987, and it likewise included CHK as an insured (the 1986 WC/EL policy). Under both policies, the carrier was obligated to 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.

Both policies set forth the carrier's "right and duty to defend, at [its] expense, any claim, proceeding or suit against [Koch] for damages payable by this insurance," and "the right to investigate and settle these claims, proceedings and suits."

By letter dated July 28, 1995, DRPA, on behalf of CHK, requested that CIGNA, then the carrier, assume defense of the spoliation action. CIGNA denied coverage on August 28, 1995, under the CGL policies because "the allegations of concealment, fraud and conspiracy, fraudulent actions and fraudulent misrepresentation are intentional." As such, they did not fall within the policy definition of "occurrence." Further, because there was "no bodily injury being alleged in this complaint [that] results from an occurrence as defined in the policy we will not be able to respond to this complaint." As to the WC/EL policies, CIGNA denied coverage because the policies applied only to bodily injuries. Further, punitive damages were not insured.

On December 4, 1995, summary judgment was granted to defendants in the spoliation action, dismissing plaintiffs' claims with prejudice. We affirmed, but the Supreme Court remanded the matter to us. Carlin v. Cornell, Hegarty & Koch (Carlin I), 151 N.J. 69, 69-70 (1997). We then ordered reinstatement of the litigation, after which the Supreme Court denied defendants' petition for certification as to the reinstatement order. Carlin v. Cornell, Hegarty & Koch (Carlin II), 152 N.J. 363 (1998).

Michael Hegarty, on behalf of CHK, again requested coverage, this time on June 12, 1996, arguing that the spoliation action arose from the bodily injury action for which the carrier had provided a defense. CIGNA again refused on July 30, 1996. Hegarty objected to the second refusal the next day, but to no avail. This led the CHK defendants to file a third-party complaint on May 26, 1998, seeking a declaration that CIGNA was required to defend and indemnify them. Summary judgment was ultimately entered in favor of Koch on July 9, 2007, and plaintiffs' spoliation claims against it were dismissed with prejudice.

In March 2009, CIGNA moved for summary judgment dismissing the third-party complaint. Koch cross-moved for summary judgment the following month. On May 1, 2009, the motion judge granted Koch's cross-motion, denied CIGNA's motion, and ordered CIGNA to reimburse Koch for attorneys' fees and costs of suit incurred in defending the 1995 lawsuit.

CIGNA thereafter moved for reconsideration of the orders. Koch cross-moved for entry of a final judgment awarding it the costs and fees it incurred in defending the spoliation claims. On November 20, 2009, the judge granted CIGNA's motion; vacated the orders dated May 1, 2009; granted summary judgment in favor of CIGNA; and denied summary judgment in favor of Koch. In her decision placed on the record that day, the judge found the facts and stated the parties' arguments. She then discussed the case of Holman Enterprises v. Fidelity & Guaranty Insurance Co., 556 F. Supp. 2d 466 (D.N.J. 2008), and reconsidered her prior grant of partial summary judgment declaring the rights of parties under the policies. She noted that it was undisputed that the underlying claims were covered. Although the bodily injury action was the catalyst for the spoliation action, she found that the first was not the cause of the second. She found that the key issue was whether plaintiffs "would still have suffered bodily injury regardless of defendant[s'] alleged misrepresentations." Because they clearly would have, "the suits are unrelated for the purpose of coverage by CIGNA's policy."

The judge rejected Koch's argument that the relationship between the two suits required CIGNA to defend the spoliation action. Further, she rejected Koch's argument that the first-filed-claim clause required coverage because that clause "related directly and exclusively to bodily injury." As a consequence, the judge concluded that CIGNA was not required under the policies to reimburse Koch for its costs related to the spoliation action. This appeal followed.


Koch contends that CIGNA had a duty to defend because the underlying claim was for bodily injury caused by an occurrence. Next, it argues that CIGNA should be estopped from refusing to defend the spoliation action because its appointed counsel controlled the defense of the bodily injury action. Third, it asserts that the employers liability portion of the WC/EL policies applied because they do not exclude coverage for fraud, deceit, or concealment and plaintiffs suffered a bodily injury. Last, Koch urges that the judge abused her discretion in reconsidering her earlier grant of summary judgment in Koch's favor because the facts in Holman were distinguishable from the facts before her.

CIGNA responds that the terms of all four policies are clear and unambiguous and must be enforced as written. It urges that the claims asserted in the spoliation action are not claims for bodily injuries and, no matter how they relate to the bodily injury action, coverage is not available. Further, the spoliation claims were not caused by an "occurrence" during the policy periods, precluding coverage. It points out that Koch has cited no legal authority for the proposition that a carrier can be equitably estopped from denying coverage based on acts of independent counsel. Finally, CIGNA argues that the judge was acting well within her discretion in reconsidering her earlier decision based on the Holman case.

In reviewing a grant of summary judgment, whether by initial order or by order on reconsideration, we apply the same standard as that governing the trial court. Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998); Antheunisse v. Tiffany & Co., Inc., 229 N.J. Super. 399, 402 (App. Div. 1988), certif. denied, 115 N.J. 59 (1989). Summary judgment is appropriate if there is "no genuine issue as to any material fact" in the record. R. 4:46-2(c).

The judgment or order sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law. [Ibid.]

In Brill v. Guardian Life Insurance Co. of America, 142 N.J. 520, 540 (1995), the Supreme Court outlined the standard for deciding a summary judgment motion:

[A] determination whether there exists a "genuine issue" of material fact that precludes summary judgment requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational fact[-]finder to resolve the alleged disputed issue in favor of the non-moving party.

Therefore, the court considering the motion must assume that the non-moving parties' assertions of fact are true and must "grant all the favorable inferences to the non-movant." Id. at 536. The determination is whether the evidence "'is so one-sided that one party must prevail as a matter of law.'" Id. at 540 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202, 214 (1986)).

Moreover, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). The interpretation of an insurance contract is a question of law decided independently of a trial court's conclusions. Simonetti v. Selective Ins. Co., 372 N.J. Super. 421, 428 (App. Div. 2004); Nat'l Union Fire Ins. Co. v. Transp. Ins. Co., 336 N.J. Super. 437, 443 (App. Div. 2001). Because each issue raised by Koch presents a question of law, the judge's rulings here are reviewed de novo. Raspa v. Office of Sheriff of Gloucester, 191 N.J. 323, 334-35 (2007).


We find no merit to Koch's argument that the policies should be construed to cover the spoliation claims. Insurance contracts are contracts of adhesion subject to special rules of interpretation. Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 537 (1990); Meier v. N.J. Life Ins. Co., 101 N.J. 597, 611-12 (1986). An insurance carrier is an "expert in its field and its varied and complex instruments are prepared by it unilater-ally whereas the assured or prospective assured is a layman unversed in insurance provisions and practices." Allen v. Metro. Life Ins. Co., 44 N.J. 294, 305 (1965). When interpreting insurance policies, we "assume a particularly vigilant role in ensuring their conformity to public policy and principles of fairness." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992).

Insurance policies are interpreted according to their plain and ordinary meaning. Longobardi, supra, 121 N.J. at 537. "[P]olicies should be construed liberally in . . . favor [of the insured] to the end that coverage is afforded to the full extent that any fair interpretation will allow." Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482 (1961) (internal quotation marks omitted). Where there is a dispute over interpretation of the policy, "it is the insured's burden to bring the claim within the basic terms of the policy." Rosario v. Haywood, 351 N.J. Super. 521, 529 (App. Div. 2002) (internal quotation marks omitted).

In the absence of an ambiguity, we may not engage in a strained construction to impose a duty on the carrier that is not contained in the policy. Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 273 (2001). When the terms of the policy are clear, we must enforce them as written. Stone v. Royal Ins. Co., 211 N.J. Super. 246, 248 (App. Div. 1986); Flynn v. Hartford Fire Ins. Co., 146 N.J. Super. 484, 488 (App. Div.), certif. denied, 75 N.J. 5 (1977). We may not make a better policy for the parties than the one they purchased. Flynn, supra, 146 N.J. Super. at 488.

Where an ambiguity exists, it is ordinarily resolved in favor of the insured. Cruz-Mendez v. ISU/Ins. Servs., 156 N.J. 556, 571 (1999); Doto v. Russo, 140 N.J. 544, 556 (1995); Lundy v. Aetna Cas. & Sur. Co., 92 N.J. 550, 559 (1983) (holding that "[w]here the policy language supports two meanings, one favorable to the insurer and the other to the insured, the interpretation favoring coverage should be applied"). However, an ambiguity does not arise simply because the parties have offered two conflicting interpretations. Rosario, supra, 351 N.J. Super. at 530-31. Rather, a genuine ambiguity exists "where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage," Lee v. General Accident Insurance Co., 337 N.J. Super. 509, 513 (App. Div. 2001) (citing Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 247 (1979)), or where "the text appears overly technical or contains hidden pitfalls, cannot be understood without employing subtle or legalistic distinctions, is obscured by fine print, or requires strenuous study to comprehend," Zacarias v. Allstate Insurance Co., 168 N.J. 590, 601 (2001) (citations omitted).

When reading the plain language of the CGL and WC/EL policies, it is clear that the phrases "on account of," "because of," and "caused by an occurrence" are not ambiguous. The phrasing of the policies is not "so confusing that the average policyholder cannot make out the boundaries of coverage." Weedo, supra, 81 N.J. at 247. Rather, the phrases set the boundaries of coverage at damages attributable to a bodily injury suffered as a result of an occurrence. If the damages sought to be recovered are not produced by a bodily injury suffered as a result of an occurrence, then the damages are not covered under the policy. Koch's reasoning that the terms are ambiguous because the phrases could connote one of several types of causation disregards the plain meaning of the phrases and is not a ground for finding an ambiguity. See ibid.; Rosario, supra, 351 N.J. Super. at 530-31. In the absence of a genuine ambiguity, on CIGNA to cover the spoliation claims. See Hurley, supra, 166 N.J. at 273.

We also find no merit to Koch's primary basis for reversal, i.e., that the proximate-cause test of insurance coverage requires CIGNA to reimburse it. The proximate-cause test has primarily been employed to resolve facial conflicts in insurance policies between covered risks and those that appear to be excluded. Search EDP, Inc. v. Am. Home Assurance Co., 267 N.J. Super. 537, 543 (App. Div. 1993), certif. denied, 135 N.J. 466 (1994). New Jersey courts have accepted the proximate-cause test for determining coverage, particularly where "multiple events, one of which is covered, occur sequentially in a chain of causation to produce a loss." Flomerfelt v. Cardiello, 202 N.J. 432, 447 (2010); accord DEB Assocs. v. Greater N.Y. Mut. Ins. Co., 407 N.J. Super. 287, 300 (App. Div.), certif. denied, 200 N.J. 473 (2009). According to this test, [w]here a peril specifically insured against sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produced the result for which recovery is sought, the insured peril is regarded as the proximate cause of the entire loss. It is not necessarily the last act in a chain of events which is, therefore, regarded as the proximate cause, but the efficient or predominant cause which sets into motion the chain of events producing the loss. An incidental peril outside the policy, contributing to the risk insured against, will not defeat recovery . . . . In other words, it has been held that recovery may be allowed where the insured risk was the last step in the chain of causation set in motion by an uninsured peril, or where the insured risk itself set into operation a chain of causation in which the last step may have been an excepted risk. [DEB Assocs., supra, 407 N.J. Super. at 300 (internal quotation marks omitted).]

In applying this test, courts have typically required a direct or clear causal connection between the covered risk and the claim for which coverage is sought. See, e.g., Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc., 181 N.J. 245, 256-59 (2004) (employing test in defining a direct loss and determining "whether a loss is direct under a fidelity insurance policy," id. at 259); DEB Assocs., supra, 407 N.J. Super. at 300 (applying test in finding the connection between the covered damage and the excluded loss was both "a clear causal connection" and a "direct connection"); Search EDP, supra, 267 N.J. Super. at 543-44 (test would entitle the plaintiffs to a defense if they prevailed where bodily injury was last step in series of events following the defendant's act of professional negligence, an insured risk, and it was either caused by insured as a "direct and proximate result" of its covered negligence or not caused by the insured at all, id. at 544); Stone, supra, 211 N.J. Super. at 252 (under test, coverage was extended to excluded risk where that risk "started the loss-producing chain of causation" and the last event was a covered risk); Franklin Packaging Co. v. Cal. Union Ins. Co., 171 N.J. Super. 188, 189-92 (App. Div. 1979) (under test, policy which covered "'direct loss by [v]andalism,'" id. at 189, also covered damage to premises and stock resulting from flooding caused by vandals), certif. denied, 84 N.J. 434 (1980).

The Supreme Court expounded on this test in Gentilini Ford, supra, 181 N.J. 245. There, the Court explained that New Jersey cases applying the test "to find coverage under an insurance policy did so in circumstances where the loss ultimately sustained would have been covered by the policy except for an exclusionary clause." Id. at 257. The Court observed that the question in those cases was not whether the loss fit within the definition of the policy, but whether an exclusionary clause could act to nullify the fundamental coverage purportedly offered by the policy. In those circumstances, courts applied a proximate-cause analysis to resolve an apparent conflict in the policy language to fulfill the reasonable expectations of the insured. [Id. at 257-58.]

Here, there were "multiple events, one of which is covered, [that] occur[red] sequentially," but they did not occur "in a chain of causation to produce a loss." Flomerfelt, supra, 202 N.J. at 447. The spoliation was not caused by the exposure to the toxic lead fumes or the concealment of blood tests. The alleged acts of spoliation were entirely independent acts that did not follow in an unbroken chain of causation. While the bodily injuries were, as Koch essentially argues, a but-for cause of the 1995 lawsuit, they were not the proximate cause. That, however, is not the end of the inquiry.


As we have observed, this is a spoliation claim against the tortfeasors in the bodily injury action, which was filed after the underlying bodily injury action ended in a verdict of no cause for action. Plaintiffs sought compensatory damages for their bodily injuries from the tortfeasors in addition to spoliation damages from them. The plaintiffs were required first to prove spoliation by Koch, but they were then required to prove their underlying Millison claims on liability. If they did so, then and only then would they be able to recover compensatory damages from the tortfeasors for their bodily injuries in addition to their spoliation damages, such as expert-witness fees incurred in the first trial.

CIGNA ordinarily would have no duty to defend against the spoliation claim despite the fact that proof of the damages sought would require proof of bodily injury, which is covered by CIGNA's policy. An insurer's duty to provide a defense in an action involving a covered and an uncovered claim generally exists where "'the carrier would have to pay if the claimant prevailed in the action.'" New Jersey Mfrs. Ins. Co. v. Vizcaino, 392 N.J. Super. 366, 370 (App. Div. 2007) (quoting Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 388 (1970)). Because plaintiffs' claim of damages for personal injury covered by CIGNA's policy in the second action would necessarily fail upon dismissal of the fraudulent concealment claim, the application of that principle is not readily apparent.

There can be no doubt that CIGNA would have been required to defend had plaintiffs successfully moved under Rule 4:50-1 for relief from the judgment of no cause for action in the bodily injury action on the ground of "newly discovered evidence," or "fraud . . . , misrepresentation, or other misconduct of an adverse party." R. 4:50-1(b), (c). This would be so whether or not plaintiffs were granted leave in the bodily injury action to add spoliation claims to their complaint.*fn2 Query whether the result should be different where the retrial is in the guise of a subsequent spoliation action. We think not.

Because plaintiffs could have recovered damages for the covered personal injuries by way of motion to vacate the judgment in the personal injury action pursuant to Rule 4:50-1(b) and (c), the Vizcaino principle applies. To prevail under paragraph (b), plaintiffs would not be required to prove any intentional misconduct on Koch's part, which they would be required to do in order to prevail under paragraph (c).

"Although courts generally look to the complaint to ascertain the duty to defend, the analysis is not necessarily limited to the facts asserted in the complaint." Abouzaid v. Mansard Gardens Assocs., LLC, ___ N.J. ___, ___ (2011) (slip op. at 18). "[A]n insurer's duty to provide a defense may also be triggered by 'facts indicating potential coverage that arise during the resolution of the underlying dispute.'" Ibid. (quoting SL Indus. v. Am. Motorists Ins. Co., 128 N.J. 188, 198 (1992)). That approach "align[s] with the expectations of insureds, who 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." Id. at 18-19 (internal quotation marks omitted). Where there is an allegation that pertinent evidence was not provided, there is a potential that the failure to provide it was innocent, negligent or intentional.

Here, plaintiff's spoliation complaint was, in effect, an attempt to reopen the first litigation on the covered claim on the ground that it did not have all of the pertinent evidence. Koch understandably expected the insurer who provided the defense in the first action to do the same here regardless of the merits.

Where an action alleges covered and non-covered claims, such as compensatory and punitive damages, the carrier is required to defend until all covered claims have been resolved. See, e.g., Flomerfelt, supra, 202 N.J. at 444 (holding that "if a complaint includes multiple . . . causes of action, the duty to defend will attach as long as any of them would be a covered claim and it continues until all of the covered claims have been resolved"); Voorhees, supra, 128 N.J. at 174 (same).

This is consonant with the long-recognized precept that the duty to defend is broader than the duty to indemnify. Rosario, supra, 351 N.J. Super. at 534. Thus, if plaintiffs had moved pursuant to Rule 4:50-1, CIGNA would have had to provide a defense up to the point in time when the court found fraud or misrepresentation. Because that issue was resolved in Koch's favor, CIGNA's duty to defend is converted to an "obligation" to pay "all costs of the defense." Vizcaino, supra, 392 N.J. Super. 16 369-70. We need not address the other issues on appeal.

Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.

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