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Cumberland County Guidance Center, H. Dieter Hovermann, Walter Goff, Carmelie Durkin v. Scottsdale Insurance Company

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


December 16, 2011

CUMBERLAND COUNTY GUIDANCE CENTER, H. DIETER HOVERMANN, WALTER GOFF, CARMELIE DURKIN, PLAINTIFFS,*FN1
v.
SCOTTSDALE INSURANCE COMPANY, DEFENDANT-APPELLANT/ CROSS-RESPONDENT, AND J.A.P. AND E.T.P., INDIVIDUALLY; AND J.A.P. AS GUARDIAN AD LITEM FOR T.E.P. AND G.S.P., MINORS, DEFENDANTS-RESPONDENTS/ CROSS-APPELLANTS.

On appeal from Superior Court of New Jersey, Law Division, Cumberland County, Docket No. L-343-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 8, 2011

Before Judges Yannotti, Espinosa and Skillman.

This is an insurance coverage action that requires an interpretation of the application of a "retroactive period" in a "claims made" professional liability (PL) policy and a professional services exclusion in a commercial general liability policy (CGL) issued to plaintiff Cumberland County Guidance Center (CCGC). Defendant Scottsdale Insurance Company (Scottsdale) denied coverage to its insureds for the claims asserted in the underlying tort action. As part of the settlement of that action, the insureds assigned their rights to any and all claims against Scottsdale. The trial court determined that there was coverage under the PL policy, no coverage under the CGL policy and that Scottsdale owed its insureds a duty to defend. For the reasons that follow, we affirm the decision that there is no coverage under the CGL policy, reverse on the determination of coverage on the PL policy, and conclude that Scottsdale was not obligated to provide a defense in the underlying tort action.

I

J.A.P. and E.T.P. are the parents of three children, D.P., T.E.P., and G.S.P. Their oldest son, D.P., participated in an outpatient program at CCGC from June 1984 to April 1985, when he was eight years old. D.P. has admitted that he began to sexually abuse his younger sister, G.S.P., and his younger brother, T.E.P., when he was ten years old. The abuse continued until approximately 1993.

In November 1998, J.A.P. and E.T.P. filed a complaint on their own behalf and with J.A.P. as guardian ad litem for T.E.P. and G.S.P.*fn2 against employees of CCGC: H. Dieter Hovermann, the Executive Director of CCGC; Carmelie Durkin, a counselor; and Walter Goff, Durkin's aide.*fn3 Neither D.P. nor CCGC were named as parties in the tort action. Referring to D.P. as "John Doe Offender," the complaint alleged that he was "sexually molested and abused by his peers" at CCGC, and that, as a direct and proximate result, he began a course of conduct which included aggravated sexual assault of T.E.P. and G.S.P. The complaint alleged further that CCGC employees failed to report the incident to them. They later argued that the CCGC employees breached a duty to report the alleged abuse to the Division of Youth and Family Services ("DYFS").

The two policies issued by Scottsdale at issue here include a "claims made" professional liability policy for the policy period July 1, 1996 to July 1, 1997 (the PL Policy), and an "occurrence" commercial general liability policy for the policy period July 1, 1995 to July 1, 1996 (the CGL Policy).

In March 2004, after Scottsdale denied coverage under both policies, a declaratory judgment complaint was filed by CCGC, the CCGC employees, and the J.A.P. parties against Scottsdale, seeking a declaration that Scottsdale owed the CCGC employees $2,000,000/$3,000,000 in coverage, a defense and reimbursement of defense costs in the underlying tort action. The parties filed motions and cross-motions for summary judgment. In September 2005, the trial court denied summary judgment to the J.A.P. parties and to Scottsdale regarding the PL Policy. The court granted summary judgment to Scottsdale, dismissing all claims under the CGL Policy, finding that the wrongful acts alleged against the CCGC employees fell within the professional services exclusion in the Policy because their actions required their professional judgment in the treatment of D.P.*fn4 All parties moved for reconsideration, which was denied.

The trial as to coverage under the PL Policy was conducted on the papers, with parties filing joint and individual submissions of proposed facts and conclusions of law. On September 18, 2006, the trial court issued a letter opinion finding coverage and a duty to defend under the PL Policy.

Prior to the court's decision on the summary judgment motions, the J.A.P. parties, CCGC, and the CCGC employees agreed to a Griggs*fn5 settlement. The agreement provided for payment of $750,000 to each of the minors, $250,000 to their mother, J.A.P., and $100,000 to their father, E.T.P. CCGC and the CCGC employees agreed to pay an aggregate amount of $104,000*fn6 and to "an assignment of rights to any and all claims against Scottsdale Insurance[.]" The settlement was explicitly "contingent upon the Court finding that the settlement was a reasonable settlement, was negotiated at arm[']s length and was not the result of collusion." Without court approval, the settlement would be deemed void.

Thereafter, the court conducted a Griggs hearing and determined that the parties' settlement was reasonable and entered in good faith as to the minors, but unreasonable and unenforceable as to the parents. The court entered judgments awarding each minor $762,932.03, defense costs to be assigned to the J.A.P. plaintiffs of $45,394.25, and counsel fees of $349,882.50.

Scottsdale appeals from the order declaring that it owed coverage to the insureds under the PL Policy, certain orders pertaining to in limine rulings at the Griggs hearing, the order finding that the minors' settlements were reasonable, and the award of counsel fees. The parents appeal from the order granting summary judgment to Scottsdale on the CGL Policy, the order denying reconsideration of their motions, and the order declaring that their settlement was unreasonable and unenforceable. The minors appeal from the orders granting partial summary judgment to Scottsdale declaring that it did not owe coverage under its CGL Policy, and cross-appeal from the denial of their motions for summary judgment.

II We begin with a review of the facts relevant to the underlying tort action.

After manifesting behavioral problems in school beginning in kindergarten, D.P. began outpatient therapy at CCGC in June 1984, when he was eight years old and in second grade. He had been suspended from school for kicking and biting. It was reported that he did not obey at school or at home, resented authority, and was rough with his two-year-old brother and one-year-old sister.

Throughout his treatment, D.P.'s difficulty with peers is a recurring theme in the CCGC progress notes. Defendant Durkin, a counselor at CCGC, prepared progress notes pertaining to D.P. for April 9, 1985, which state:

[D.P.] was very polite with staff today.

Gave in to a more aggressive peer who threatened to hurt [D.P.] if [D.P.] didn't do what he wanted. Submitted to sexual behavior after being threatened by his peer. Avoided peers after they were overly aggressive with him; seeks protection from adults. Carmelie Durkin, M.S.W.

Defendant Walter Goff, Durkin's aide, prepared activity notes pertaining to D.P. for the same day, which state:

[D.P.] allowed a peer to order him around with the threat that he would hurt [D.P.] if he didn't do what peer wanted. Cried easily when peers tryed [sic] to hurt him. Ran to staff for protection.

Goff also wrote activity notes regarding T.M., the peer involved, which state:

[T.M] intimidated a smaller peer by threatening him, to remove clothes. [T.M.] had already removed his own clothes. Was very involved in sexual behavior, both in gestures and verbally. When questioned about how he knew all about sexual things, he said he learned at his "good friend John's."

Neither Durkin nor Goff reported the incident to D.P.'s parents or DYFS. CCGC did contact DYFS regarding T.M. However, the contact was not made because of the observations of him with D.P. Rather, DYFS was contacted because T.M. reported that he had learned all about sexual things from an adult, his "good friend John."

When she was deposed in the declaratory judgment matter in 2005, Durkin explained why the observations contained in her April 9 Progress Notes had not been reported to DYFS. She stated that, in writing "sexual behavior," the term did not "signify he was being molested in any way. Behavior could have been verbal." She did not interpret her note to mean that D.P. was being touched. She interpreted her note as reflecting that she "didn't see anything sexually happening that would raise a red flag with [her] that [she] would need to contact the authorities." Durkin defined "sexual abuse" as "[a]nother person being taken advantage of, being touched inappropriately by another person[,]" and testified that if she had "noted any sexual abuse going on," she would have reported it. She testified that she did not witness any sexual contact, did not recall anyone talking to her about any sexual contact, and was unaware "of a sexual contact incident that would need to be reported." In her professional judgment, it was not appropriate to contact DYFS regarding the incident.*fn7

Similarly, Goff testified at deposition in the tort action that if a patient had disclosed to him that he or she had submitted to sexual contact, he would have reported that disclosure to a supervisor. Goff testified that D.P. never disclosed to him that he submitted to sexual contact by anyone.

On April 18, 1985, D.P. was discharged from CCGC for reasons unrelated to the April 9, 1985 incident.

Some time thereafter, D.P. began to sexually abuse his younger sister, G.S.P., and his younger brother, T.E.P. After learning of the sexual abuse in September 1993, D.P.'s parents contacted DYFS which, in turn, reported the abuse to the State Police. A trooper went to the family home, where he interviewed the parents and G.S.P. With E.T.P.'s consent, the trooper also interviewed D.P., then sixteen years old.

After being advised of his Miranda*fn8 rights, D.P. agreed to be questioned and admitted that he started abusing his sister when he was ten, having sexual intercourse and "[sticking] his penis in his sister's mouth" when she was seven years old, and having anal intercourse with her when she was eight years old. A juvenile delinquency complaint was filed, alleging that D.P. committed aggravated sexual assault upon G.S.P. in violation of N.J.S.A. 2C:14-2(a). D.P. was adjudicated as a sex offender and sentenced to a term at a juvenile facility. He was released in February 1995.

D.P. returned to CCGC for counseling, beginning treatment with Nan Karl, the sexual assault therapist, in October 1996. He recalled being at CCGC as a child and "indicated that something sexual had happened to him." Karl's notes reflected that D.P. told her he had been molested by an older boy in the presence of two adult employees of the CCGC. However, she testified that D.P. never told her "the specifics" of what occurred and that she did not know what the "sexual assault" involved. Her best recollection was that D.P. indicated that one boy was involved; he never shared that there was more than one occurrence; he never disclosed the incident to anyone but stated that both Durkin and Goff were in the room when it occurred and that Goff had seen the incident take place.

Karl obtained and reviewed D.P.'s file regarding his prior treatment at CCGC. Upon seeing Goff's and Durkin's notes, she went to Hovermann, who had the matter investigated by the director of the Child/Adolescent Program. Karl later told D.P.'s mother that "there was evidence in [D.P.]'s chart that another child had sexually assaulted him[.]"

D.P. was deposed in the tort action. He was not a party to the action and was indeed the "John Doe Offender" referenced in the complaint. Nonetheless, D.P. stated that his family had agreed he would share equally in the judgment or settlement received in the litigation. Although D.P. testified that he told Karl "everything," his deposition testimony described considerably more egregious behavior and multiple incidents as opposed to the single incident in the CCGC record. The evidence also revealed that D.P.'s sexual experience included being sexually assaulted by a female baby-sitter and playing pornographic tapes for his siblings in his parents' bedroom.

D.P. also testified that his father frequently beat him, sometimes with a belt, for matters as trivial as breaking a glass or waking him up, that he suffered from recurring nightmares, and that his house had been haunted, requiring an exorcism by a priest.

III

We next review the pertinent policies and claim history. Scottsdale issued multiple policies to CCGC for policy years from July 1, 1986 through July 1, 2000, including the PL and CGL policies at issue here. Prior to 1986, CCGC was insured by a different, now defunct, carrier.

The first notice of claim was sent to Scottsdale on February 7, 1997. The notice only referenced the PL Policy and identified the date of loss as April 9, 1985.

As a "claims made" policy, the PL Policy provides coverage for defined damages arising from an injury only if the claim "is first made against the insured during the POLICY YEAR[,]" which was July 1, 1996 to July 1, 1997. A claim is defined as "the receipt of a demand for money or services naming any insured and alleging a WRONGFUL ACT." The PL Policy defines a wrongful act as "any act, error or omission in the furnishing of professional health care services." The Policy explicitly states,

This insurance does not apply to injury caused by a WRONGFUL ACT which was committed before the Retroactive Date shown in the Declarations or which occurs after the POLICY YEAR.

[(Emphasis added).]

The Retroactive Date shown in the declarations for the PL Policy is July 1, 1986, approximately fifteen months after the reported date of loss.

By letter dated February 13, 1997, Scottsdale disclaimed coverage under the PL Policy, stating that there was no coverage for the loss under the Policy because the reported date of loss had occurred prior to the Policy's retroactive date. CCGC did not contest the denial of coverage and has not represented in this action that it had a reasonable expectation of coverage under the terms of the PL Policy.

Scottsdale acknowledged receiving another notice of claim in June 2003 that sought coverage under the CGL Policy. As an "occurrence" policy, the CGL Policy provides coverage for "bodily injury" and "property damage" caused by an "occurrence." An "occurrence" policy ordinarily provides coverage for occurrences that occur during the policy period, which was from July 1, 1995 to July 1, 1996, here. However, the CGL Policy had an endorsement that extended coverage to "prior acts" as follows:

[1]b. This insurance applies to "bodily injury" and "property damage" only if:

(2) The "bodily injury" or "property damage" occurred prior to the policy period and the claim is made or "suit" is brought against the insured after the effective date of this endorsement, providing that such loss occurred after the Retroactive Date shown above. This coverage shall apply only if, prior to the effective date of this endorsement, the Insured did not know of such prior loss occurrence. Claims covered by this endorsement will be considered to have occurred on the Inception date of the policy.

Like the PL Policy, the Retroactive Date for the CGL Policy was July 1, 1986. The notice of claim identified the date of occurrence as December 18, 1998, the apparent date the complaint was served upon CCGC. Scottsdale has not argued that the J.A.P. parties' claims are barred by the language contained in this endorsement.

The CGL Policy contained a professional services exclusion which, in pertinent part, excluded coverage for any "bodily injury" or "personal injury" "due to the rendering or failure to render any professional service." The CGL Policy for the following year, 1996-1997, had the same coverage clause, and the same professional services liability exclusion endorsement.

In response to this claim, Scottsdale noted that the claim was based upon a wrongful act that allegedly occurred on April 9, 1985; that coverage had been previously denied because the act occurred prior to the retroactive date of July 1, 1986; and that CCGC had not contested the denial of coverage. Scottsdale denied coverage under the CGL Policy on several grounds, including that there was no coverage under the professional services exclusion and that the alleged wrongful act occurred prior to the coverage retroactive date. The declination letter also noted that the claim was made on this policy four and one-half years after the lawsuit had been filed and almost four years after the policy period had expired. Finally, Scottsdale stated it would not provide a defense for CCGC and its employees in the underlying lawsuit.

IV

Because the interpretation of an insurance contract is a purely legal question, we review the coverage issues de novo. See Polarome Int'l, Inc. v. Greenwich Ins. Co., 404 N.J. Super. 241, 260 (App. Div. 2008), certif. denied, 199 N.J. 133 (2009).

We first address the question whether there was coverage for the asserted claims under the PL Policy. Specifically, we must consider whether the retroactive period in the Policy bars coverage for the wrongful act alleged, or whether the nature of the wrongful act, a failure to report conduct observed in April 1985, constitutes an omission that continued into the retroactive period.

N.J.S.A. 9:6-8.10 establishes the following reporting requirement:

Any person having reasonable cause to believe that a child has been subjected to child abuse or acts of child abuse shall report the same immediately to the Division of Youth and Family Services by telephone or otherwise.

The J.A.P. parties contend the conduct observed by CCGC employees in April 1985 provided "reasonable cause" that triggered an obligation to report abuse. They allege that the failure to report such conduct constituted a wrongful act under the PL Policy, which provides coverage for any "act, error or omission in the furnishing of professional health care services."

However, the PL Policy limits coverage to claims of wrongful acts "committed" during a finite period, excluding coverage for "injury caused by a WRONGFUL ACT which was committed before the Retroactive Date shown in the Declarations[,]" which is July 1, 1986. Scottsdale argues that there is no coverage because the claim that CCGC employees failed to report suspected abuse in 1985 constituted an allegation of a wrongful act committed before July 1, 1986. The J.A.P. parties argue that the wrongful act was an "omission," and as "something left undone," it "occurs continuously and ends when disclosure is made." Because the CCGC employees never reported the alleged abuse, the J.A.P. parties argue that the wrongful omission continued indefinitely and, therefore, into the coverage period. The trial court agreed with this interpretation. We do not.

A.

When there is a dispute regarding the interpretation of a policy, the insured bears the burden of bringing the claim within the basic terms of the policy. Polarome, supra, 404 N.J. Super. at 258. Although the insurer bears the burden of establishing that any matter falls within an exclusion, exclusions are presumptively valid and will be given effect if "specific, plain, clear, prominent, and not contrary to public policy." Doto v. Russo, 140 N.J. 544, 559 (1995); see also Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997). In Passaic Valley Sewerage Comm'rs v. St. Paul Fire and Marine Ins. Co., 206 N.J. 596 (2011), the Supreme Court reviewed the principles applicable to our interpretation of the insurance policy provisions here:

Critically important to our analysis is the principle that to fulfill the expectations of the parties, we will enforce the terms of an insurance policy as written if the language is clear. Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960). If the policy terms are clear, we interpret the policy as written and avoid writing a better insurance policy than the one purchased. Villa v. Short, 195 N.J. 15, 23 (2008) (quoting President v. Jenkins, 180 N.J. 550, 562 (2004)).

If the terms are not clear, but instead are ambiguous, we construe them against the insurer and in favor of the insured to give effect to the insured's reasonable expectations. Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010)[.] [Id. at 608.]

A genuine ambiguity exists in policies that are "'overly complicated, unclear, or written as a trap for the unguarded consumer[,]'" id. at 608 (quoting Zacarias v. Allstate Ins. Co., 168 N.J. 590, 604, aff'd, 168 N.J. 590 (2001)), such as "where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage[,]" Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 274 (2001) (quoting Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 247 (1979)). In determining whether an ambiguity exists, we are not required to "credit every conceivable deconstruction of contractual language," A & S Fuel Oil Co., Inc. v. Royal Indem. Co., Inc., 279 N.J. Super. 367, 371 (App. Div.), certif. denied, 141 N.J. 98 (1995), "'engage in a strained construction to support the imposition of liability,' or write a better policy for the insured than the one purchased[,]" Chubb Custom Ins. Co. v. Prudential Ins. Co. of America, 195 N.J. 231, 238 (2008) (quoting Progressive Cas. Ins. Co., supra, 166 N.J. at 272-73 (2001)); see also Polarome, supra, 404 N.J. Super. at 259. "[T]he 'doctrine of ambiguity' should be invoked only to resolve 'genuine' ambiguities, not 'artificial' ambiguities created by 'semantical ingenuity.'" A & S Fuel Oil Co., Inc., supra, 279 N.J. Super. at 371 (quoting Weedo, supra, 81 N.J. at 246-47). Determining whether genuine ambiguity is present in an insurance policy requires interpreting the policy "as a whole, by giving a reasonable meaning to its form and cast[.]" Arrow Indus. Carriers, Inc. v. Continental Ins. Co. of N.J., 232 N.J. Super. 324, 332 (App. Div. 1989).

In reviewing the terms in question, we note that the relevant language is not overly technical or misleading and does not create a hidden pitfall for the insured. See Zacarias, supra, 168 N.J. at 601 (2001); Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482-83 (1961). Moreover, the J.A.P. parties do not argue the language establishing the retroactive period is either ambiguous or violative of public policy. See Sparks v. St. Paul Ins. Co., 100 N.J. 325, 334 (1985). Therefore, we interpret the policy as written.

B.

As a preliminary step, we note the important role that the declarations sheet plays in informing an insured about the parameters of insurance coverage. Zacarias, supra, 168 N.J. at 602. We have described the declarations sheet as "'the one page of the policy tailored to the particular insured and not merely boilerplate'" and have deemed the page "'to define coverage and the insured's expectation of coverage.'" Greer ex rel. Peterson v. Naklicki, 379 N.J. Super. 153, 160 (App. Div.) (quoting Lehrhoff v. Aetna Cas. and Sur. Co., 271 N.J. Super. 340, 347 (App. Div. 1994)), certif. denied, 185 N.J. 390 (2005). By way of example, in enforcing the terms of a "claims made" policy, the Supreme Court noted the prominence of the following statement on the declarations page: "This Is A Claims-Made Policy - - Read Carefully." Zuckerman v. Nat'l Union Fire Ins. Co., 100 N.J. 304, 321 (1985).

In this case, Item 2 on the declarations page identifies the Policy Period as July 1, 1996 to July 1, 1997, and Item 3 identifies the Retroactive Date as July 1, 1986. Section I of the PL Policy identifies what coverage is and is not provided:

We will pay those sums that the insured becomes legally obligated to pay as DAMAGES because of injury as a result of a WRONGFUL ACT. This insurance applies to injury only if CLAIM for DAMAGES because of the injury is first made against the insured during the POLICY YEAR.

This insurance does not apply to injury caused by a WRONGFUL ACT which was committed before the Retroactive Date shown in the Declarations or which occurs after the POLICY YEAR. [(Emphasis added).]

Thus, even if the significance of the Retroactive Date was not apparent to the insureds from reading the declarations sheet, the portion of the policy that defines the time limitations upon wrongful acts explicitly refers to the location of the Retroactive Date in the policy, giving clear and unequivocal notice of this limitation upon the coverage provided.

Although we are mindful of "the principle of giving effect to the 'reasonable expectations' of the insured for the purpose of rendering a 'fair interpretation' of the boundaries of insurance coverage[,]" Di Orio v. N.J. Mfrs. Ins. Co., 79 N.J. 257, 269 (1979) (quoting Kievit, supra, 34 N.J. at 482-83), we are not presented with a situation in which the insureds have claimed that the denial of coverage defeated their reasonable expectations. See Harleysville Ins. Cos. v. Garitta, 170 N.J. 223, 240 (2001). Specifically, the record does not include any certification from the insureds that they had any expectation that the retroactive period did not apply to omissions of the sort alleged here. Indeed, the insureds did not dispute Scottsdale's declination of coverage on this basis in 1997.

C.

It is also significant that the dispute concerns the time period covered by the policy, a "main consideration when measuring the scope of professional insurance liability policies[,]" 20 Eric Mills Holmes, Holmes' Appleman on Insurance 2d, § 130.4 at 296 (2002), obviously relevant to a calculation of the predictable level of risk insured against. "[T]he premium paid by the insured does not buy coverage for all . . . damage but only for that type of damage provided for in the policy." Hardy ex rel. Dowdell v. Abdul-Matin, 198 N.J. at 95, 102 (quoting Weedo, supra, 81 N.J. at 237). Both the premium paid and the coverage purchased "are based on predictable levels of risk[.]" Shotmeyer v. N.J. Realty Title Ins. Co., 195 N.J. 72, 83 (2008).

Although "claims made" policies typically cover "any claim first made during the policy year, irrespective of when the act giving rise to that claim was committed[,]" carriers may limit their exposure by excluding "claims arising out of acts occurring prior to a specified date, referred to as the 'retroactive date.'" Holmes, supra, § 130, at 296. The language regarding the retroactive period here is plainly designed "'to restrict and shape the coverage otherwise afforded.'" Hardy, supra, 198 N.J. at 102 (quoting Weedo, supra, 81 N.J. at 237). When a "claims made" policy ends exposure at a fixed point, the underwriter has an "ability to calculate risks and premiums with greater exactitude[.]"

Zuckerman, supra, 100 N.J. at 313. However, if, as the J.A.P. parties propose, coverage for an omission would continue indefinitely, the period of coverage would be unlimited, creating a major underwriting challenge that would prevent insurers from "making a precise calculation of premiums based upon the cost of the risks assumed." See Zuckerman, supra, 100 N.J. at 311.

In addition, the interpretation proposed by the J.A.P. parties would result in different periods of coverage depending upon whether the wrongful act alleged was an "act" or an "omission." A wrongful act would be deemed complete and therefore clearly precluded from coverage if it were "committed" before the retroactive date. If an omission is considered to be continuing until the omitted act is performed, there would be no limit to the timeframe in which it is "committed." There is, however, nothing in the PL Policy to support the view that Scottsdale and the insureds agreed that the risk assumed by Scottsdale included different coverage periods for acts and omissions or that the coverage period for omissions should be open-ended.

In short, a review of the PL Policy provides no support for an interpretation that would have such an unsettling impact on the underwriters' ability to assess the predictable risks covered to arrive at a fair premium for the coverage. See Shotmeyer, supra, 195 N.J. at 83 ("[B]ecause insurance premiums and coverage provisions are based on predictable levels of risk, . . . insurers need to rely on certain consistent conditions in order to calculate premium rates reliably.").

D.

Relying upon Mut. Fire, Marine & Inland Ins. Co. v.

Vollmer, 508 A.2d 130 (Md. 1986), the trial court concluded that the CCGC employees' failure to report the alleged abuse constituted a continuing tort, resulting in a wrongful act that was committed during the retroactive period. In Vollmer, an insured physician examined his patient shortly before the retroactive date in his policy and did not treat her thereafter. The allegations against him included a failure to order follow-up studies after the retroactive date that would have revealed the patient's lung cancer at a time when it would have been operable. Id. at 131. Coverage was found because it was determined that his duty to his patient continued after the retroactive date in the policy. Id. at 136.

The trial court's reliance upon Vollmer was misplaced. For there to be a continuing tort or wrongful act, there must be a continuing duty. See Russo Farms v. Vineland Bd. of Educ., 144 N.J. 84, 114 (1996); see also Maslauskas v. United States, 583 F. Supp. 349 (D. Mass. 1984) (holding that a prisoner's suit against the government for negligence leading to his incarceration was time-barred because the government had no continuing duty to investigate the causes of incarceration).

The allegations in the complaint here sound in negligence that the J.A.P. parties argue is based, at least in part, upon the statutorily created reporting requirement. N.J.S.A. 9:6-8.10 states, "[a]ny person having reasonable cause to believe that a child has been subjected to child abuse or acts of child abuse shall report the same immediately to the Division of Youth and Family Services[.]" (Emphasis added). Because the statute requires immediate action, the wrongful omission based upon the failure to comply with this requirement is complete when a person has reasonable cause to believe abuse has occurred and fails to act.

Moreover, the reporting requirement did not create a duty to any of the J.A.P. parties. N.J.S.A. 9:6-8.10 "does not purport to incorporate or codify any common-law standard[,]" and does not establish an independent basis for a civil remedy. J.S. v. R.T.H., 155 N.J. 330, 348-49 (1998). The purpose of the reporting requirement was to "immediately safeguard" children who have been abused "from further injury[.]" N.J.S.A. 9:6-8.8. The reporting requirement was therefore designed to protect D.P. against sexual abuse by his peer, see J.S., supra, 155 N.J. at 349, and not to protect the minor plaintiffs against sexual abuse by D.P. Significantly, D.P. has not alleged any breach of this duty to him. It follows that the statute cannot serve as the legal authority for the J.A.P. parties' claims or for an argument that the duty to protect D.P. evolved into a duty to protect others from him. The claims of both the parents and the minor plaintiffs must then rest upon an argument that CCGC breached a new duty, owed to them. We are satisfied that the claims did not, therefore, assert the breach of a continuing duty that resulted in a wrongful act "committed" within the retroactive period.

E.

In summary, the declarations page clearly states that there was no coverage for any wrongful act, including an omission, that was committed before the retroactive period. We are satisfied that the declarations page is appropriately deemed to represent the insured's understanding of the scope of coverage. The record lacks any assertion by the insured to the contrary. The open-ended period of coverage for "omissions" urged by the J.A.P. parties would result in a difference between coverage periods for acts and omissions that is unsupported by other language in the Policy. Finally, we are satisfied that under the facts of this case, requiring coverage for an unlimited period of time when the wrongful act alleged was an omission would "constitute[] an unbargained-for expansion of coverage, gratis, resulting in the insurance company's exposure to a risk substantially broader than that expressly insured against in the policy." Zuckerman, supra, 100 N.J. at 324; see also Aviation Charters, Inc. v. Avemco Ins. Co., 170 N.J. 76, 80 (2001). We therefore conclude that there was no coverage under the Policy because the wrongful "omission" occurred before the retroactive period.

V

The J.A.P. parties argue the trial court erred in declining to find that Scottsdale was estopped from denying coverage under the CGL Policy because it failed to issue any disclaimer of coverage under that policy despite having knowledge of the facts underlying the claim in February 1997. This argument lacks sufficient merit to warrant discussion in a written opinion, R. 2:11-3(e)(1)(E), beyond the following brief comments.

Griggs, supra, 88 N.J. at 355-56, provides the principles that govern whether an insurer is equitably estopped from denying coverage. The underlying rationale is that "once the insurer has acknowledged the claim and assumes control of the defense," the insurer has preempted the insured from defending itself, and "the insured is justified in relying upon the carrier to protect it under its policy and to be responsible for any judgment against it." Id. at 356.

That rationale does not apply to the facts here. CCGC did not give notice of a claim under the CGL Policy until 2003. Upon receipt of the claim, Scottsdale denied coverage, unequivocally, within a reasonable period of time. Scottsdale did not assume control of the defense, encroach upon CCGC's right to protect itself in the underlying tort action or take any action that induced CCGC to believe that it had assumed control or otherwise limited its right to defend itself. Further, CCGC was not prejudiced by Scottsdale's actions regarding the claim.

VI

The J.A.P. parties also argue that the trial court erred in finding that the professional services exclusion barred coverage under the CGL Policy. We disagree.

The CGL Policy contains the following exclusion:

With respect [to] any professional services shown in the Schedule, this insurance does not apply to "bodily injury", "property damage", "personal injury" or "advertising injury" due to the rendering or failure to render any professional service. [(Emphasis added).]

The Schedule lists "All Professional Services" as the subject of this exclusion.

As previously noted, the conduct underlying the complaint was the failure of CCGC employees Durkin and Goff to report the alleged abuse of D.P. The J.A.P. parties do not dispute the application of the professional services exclusion to Durkin, a counselor, with a master's degree in social work. However, the J.A.P. parties argue that the exclusion does not bar coverage for their claim regarding Goff, an aide with a high school education, because he was not a professional and, also, because the duty to report abuse is shared by all persons and does not implicate professional services.

The CGL Policy does not define professional services. The J.A.P. parties contend that the parameters of the exclusion are dictated by the definition used in N.E.R.I. Corp. v. N.J. Highway Auth., 147 N.J. 223, 237-38 (1996). However, N.E.R.I. did not consider the scope of the term "professional services" within the context of interpreting an insurance policy. Rather, the Court considered the term in addressing and rejecting the Highway Authority's argument that the award of towing contracts was not subject to public bidding under the New Jersey Highway Authority Act, N.J.S.A. 27:12B-1 to -26, because the towing contract fell within the exemption for "services of a professional nature." Id. at 237. As that term was undefined in the Act, the Court found the definition provided by the Local Public Contracts Law, N.J.S.A. 40A:11-2(6), helpful to its analysis because the Legislature consistently used that definition when defining professional services in other statutes. Ibid. Because the issue here is not one of statutory construction but rather the interpretation of an insurance contract, the definition employed in N.E.R.I. does not control our analysis.

"[I]n determining whether the professional services clause of an insurance policy is applicable, the Court must ask 'whether a substantial nexus exists between the context in which the acts complained of occurred and the professional services [performed].'" Wimberly Allison Tong & Goo, Inc. v. Travelers Prop. Cas. Co. of Am., 559 F. Supp. 2d 504, 513 (D.N.J. 2008); (quoting Princeton Ins., supra, 151 N.J. at 97); see also Harad v. Aetna Cas. and Sur. Co., 839 F.2d 979, 984 (3d Cir. 1988) (quoting Marx v. Hartford Accident & Indemnity Co., 157 N.W.2d 870, 871-72 (1968)); Princeton Ins. Co., supra, 151 N.J. at 89; Hampton Med. Grp., P.A. v. Princeton Ins. Co., 366 N.J. Super. 165, 178 (App. Div. 2004).

Applying these principles, courts have distinguished between conduct that has a nexus to the performance of professional activities and that which relates to activities that fall outside the scope of professional services. In Records v. Aetna Life & Cas. Ins., 294 N.J. Super. 463, 465 (App. Div. 1996), certif. denied, 151 N.J. 463 (1997), a physician assaulted a nurse after learning she had transferred his patient from a nursing home to a hospital without informing him. We found a substantial nexus between that conduct and the care of his patients at the nursing home. Id. at 468-69. In contrast, in Hampton Med. Grp., supra, 366 N.J. Super. at 180, we concluded that the liability arising from improper billing practices arose from the operation of a business and not out of professional services.

Although the definition and applications generally concern the conduct of a professional, "[i]n determining whether a particular act is of a professional nature or a 'professional service' we must look not to the title or character of the party performing the act, but to the act itself." Marx, supra, 157 N.W.2d at 871-72; see also Hampton Med. Grp., supra, 366 N.J. Super. at 177. The facts and discussion in Marx highlight this point. The question involved in Marx, supra, 157 N.W.2d at 871, was whether a malpractice insurer was liable for fire damage to an insured's offices when an employee technician mistakenly poured benzine instead of water into a hot water sterilizer. No patient was present or being treated. Ibid. Considering the "precise question" to be "whether the damage arose out of the rendering or failure to render professional services[,]" the court stated:

The boiling of water for sterilization purposes alone was not an act requiring any professional knowledge or training. It was a routine equipment cleaning act which any unskilled person could perform. The act was not a part of any patient's treatment per se any more than any other routine cleaning or arranging procedure incidental to the proper general operations of the plaintiffs' offices. It was no more of a "professional service" than the routine activity of a housewife engaged in sterilizing baby bottles or canning jars. We come to the conclusion that the negligent act performed here required no special training or professional skill and in no sense constituted the "rendering or failing to render professional services." [Id. at 872.]

Significantly, the Marx court's conclusion rested exclusively on the nature of the act, giving no consideration to the fact that the negligent act was committed by an employee technician rather than by the physician. In contrast, the conduct of Goff complained of relates directly to the mental health services provided to D.P. Goff was an aide to Durkin, a professional engaged in providing mental health services to D.P. His observations and notations in the records and the alleged failure to report abuse are all conduct related to the services provided to D.P.

Further, although the J.A.P. parties now argue that the duty breached was one owed by "any person" and not explicitly related to the mental health services provided, the allegations asserted in the complaint are so related. The first count, alleging negligence, described Goff as "an employee and professional mental health care provider" of CCGC. It alleges that he, along with other CCGC employees, was "responsible for the custodial care of John Doe Offender during the time period he was under the care of said defendants[;]" "[that] John Doe Offender was in the custody and care of the defendants, having been referred for out-patient evaluation and therapy[;]" and that Goff and the other defendants "were negligent in failing to provide acceptable custodial care and psychological counseling[.]" The second count, alleging negligent supervision and training against defendant Hovermann, asserts "John Doe Offender reported the incidents of sexual and physical abuse to his counselors, Walter Goff and Carmelie Durkin, who made notations of said assault in John Doe Offender's file, but failed to notify John Doe Offender's parents." The third count alleges that Goff and other CCGC employees "breached their fiduciary duty" to the J.A.P. parties. The fourth count alleges that Goff and the other CCGC employees "failed to inform plaintiffs of the physical and psychological risks associated with defendants' negligent failure to notify them of the sexual assault and physical abuse committed upon John Doe Offender by his peers while in the custody of the" CCGC, violating the doctrine of "informed consent" under the Prudent Patient Standard. The last count alleges a loss of consortium caused by defendants' negligence.

None of the allegations rest upon the breach of a duty imposed upon "any person" by the reporting requirement of N.J.S.A. 9:6-8.10. All of the claims assert that Goff, along with the other CCGC employees, breached a duty inherent to the "the rendering or failure to render any professional service." We are satisfied that the trial court properly concluded that the professional services exclusion of the CGL Policy applied.

VII

Our conclusions that no coverage is provided by either the PL Policy or the CGL Policy does not, in and of itself, resolve the question whether Scottsdale had a duty to defend the CCGC employees. An insurer's duty to defend is broader than its duty to indemnify. Polarome, supra, 404 N.J. Super. at 272. The insurer's contractual obligation is triggered by a complaint alleging a covered claim and extends to provide a sufficient defense against all actions covered by the insurance policy.

Id. at 272-73; see also Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 173 (1992); Hartford Accident & Indemn. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. 18, 22 (1984). The nature of the claim, and not its merit, dictates whether there is an obligation to defend. Voorhees, supra, 128 N.J. at 174. If the complaint alleges "'multiple alternative causes of action,'" some of which are not covered by the policy, the insurer's duty to defend continues "'until every covered claim is eliminated.'" Sahli v. Woodbine Bd. of Educ., 193 N.J. 309, 322 (2008) (quoting Voorhees, supra, 128 N.J. at 174).

The duty to defend also extends to claims that are only "potentially coverable." Abouzaid v. Mansard Gardens Assocs., LLC, 207 N.J. 67, 79-81 (2011); see also Stafford v. T.H.E. Ins. Co., 309 N.J. Super. 97, 103 (App. Div. 1998). "[W]hen the third party's pleadings are ambiguous in regard to either the possible theories of liability or some fact that is central to the existence of coverage[,]" such ambiguity indicates "a possibility of liability" that gives rise to a duty to defend. Abouzaid, supra, 207 N.J. at 80 (quoting Robert R. Keaton & Alan L. Widiss, Insurance Law, A Guide to Fundamental Principles, Legal Doctrines and Commercial Practices 1020-21 (1988)). When, however, the claim is one that "even if successful, would not be within the policy coverage," there is no duty to defend. Danek v. Hommer, 28 N.J. Super. 68, 77 (App. Div. 1953), aff'd, o.b., 15 N.J. 573 (1954); see also Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 389 (1970); Polarome, supra, 404 N.J. Super. at 273.

Because the duty to defend is generally determined by the language of the policy, Sahli, supra, 193 N.J. at 322, a resolution of the issue requires a comparison of the allegations in the complaint with the policy provisions. Abouzaid, supra, 207 N.J. at 80.

[T]he complaint should be laid alongside the policy and a determination made as to whether, if the allegations are sustained, the insurer will be required to pay the resulting judgment, and in reaching a conclusion, doubts should be resolved in favor of the insured. [Danek, supra, 28 N.J. Super. at 77.]

Here, there is no ambiguity in the allegations "either [as to] the possible theories of liability or some fact that is central to the existence of coverage." Abouzaid, supra, 207 N.J. at 80. As noted, the complaint alleges that the CCGC employees breached a duty to the J.A.P. parties based upon their failure to report the alleged abuse of D.P. in April 1985. No services were provided to D.P. after April 1985 until his return after his release. Because the wrongful act was committed "in the furnishing of professional health care services," the professional services exclusion of the CGL Policy bars coverage. And, as it was "committed" prior to the retroactive period that commenced in July 1986, the claims are not covered under the PL Policy. As a result, we are satisfied there was no duty to defend.

In sum, we reverse the trial court's decision that there was coverage under the PL Policy, affirm the trial court's decision that there was no coverage under the CGL Policy, and reverse the decision that Scottsdale had a duty to defend the CCGC employees on the claims asserted in the complaint. In light of these determinations, it is unnecessary for us to consider the remaining arguments in the appeal and cross-appeal.

Affirmed in part and reversed in part.


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