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Memorial Properties, LLC and Mount Hebron Cemetery Association, Inc. v. Zurich American Insurance Co. D/B/A Zurich North America; Assurance

June 28, 2012

MEMORIAL PROPERTIES, LLC AND MOUNT HEBRON CEMETERY ASSOCIATION, INC. D/B/A LIBERTY GROVE MEMORIAL PARK, PLAINTIFFS-APPELLANTS,
v.
ZURICH AMERICAN INSURANCE CO. D/B/A ZURICH NORTH AMERICA; ASSURANCE COMPANY OF AMERICA; AND MARYLAND CASUALTY COMPANY, DEFENDANTS-RESPONDENTS.



The opinion of the court was delivered by: Justice Patterson

SYLLABUS

(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.)

Memorial Properties, LLC v. Zurich American Insurance Co.

(A-119-10) (067913)

Argued January 30, 2012 -- Decided June 28, 2012

PATTERSON, J., writing for a unanimous Court.

This insurance coverage dispute requires the Court to construe two insurance policies in litigation arising from the illegal harvesting of human remains.

Plaintiffs Memorial Properties, LLC (Memorial) and Mount Hebron Cemetery Association (Mt. Hebron) are respectively the manager and owner of Liberty Grove Memorial Gardens (Liberty Grove), a New Jersey cemetery and crematory. Mt. Hebron was sued in 2007 and 2008 in seven lawsuits in the Superior Court of New Jersey and the Supreme Court of New York by family members of decedents whose remains were sent by funeral directors to Liberty Grove for cremation in 2003, 2004 and 2005. The New Jersey and New York plaintiffs alleged that prior to being sent to Liberty Grove, the decedents' bodies were unlawfully dissected, and that tissue, bone and organs were removed for commercial sale. The families contend that they did not discover the illegal harvesting scheme until 2006, when law enforcement officials who investigated and prosecuted the perpetrators advised them that their relatives' body parts had been illegally harvested. Memorial and Mt. Hebron contend that they received the decedents' remains in closed containers and were unaware that the remains had been tampered with before being turned over to the crematory. Memorial and Mt. Hebron were not prosecuted as a result of the criminal investigation of the illegal harvesting.

This appeal arises from Memorial's and Mt. Hebron's pursuit of a defense and indemnification with respect to the New Jersey and New York litigation, under two insurance policies. The first policy, issued by Assurance Company of America (Assurance), provided coverage for the year 2003 for claims arising from damage to human remains and bodily injury, including mental anguish. The second, issued by Maryland Casualty Company (Maryland), provided analogous coverage for the year 2006, but contained an "improper handling" exclusionary clause, barring coverage for bodily injury or property damage arising from specified acts and omissions including "[f]ailure to bury, cremate or properly dispose of a 'deceased body.'" In 2008, Memorial and Mt. Hebron demanded that Assurance and Maryland defend and indemnify them. Assurance declined coverage on the ground that the occurrences were outside of the policy period, invoking plaintiffs' claims that they learned of the harvesting scheme in 2006. Maryland declined coverage, citing the "improper handling" exclusionary clause in its 2006 policy.

Memorial and Mt. Hebron filed a declaratory judgment action on May 14, 2008, naming as defendants Assurance, Maryland and Zurich North American Insurance Company (Zurich), and demanding defense and indemnification. Following the removal of the case to the United States District Court for the District of New Jersey and a subsequent remand from the District Court to the Superior Court of New Jersey, Law Division, Memorial and Mt. Hebron filed a motion for summary judgment, contending that as a matter of law the Assurance and Maryland policies provided coverage for the claims. Assurance and Maryland cross-moved for summary judgment. The trial court denied the summary judgment motion filed by Memorial and Mt. Hebron, but granted defendant insurers' cross-motion for summary judgment, identifying the year 2006 as the time frame of the "occurrence" in the two cases for which the insureds sought coverage.

Memorial and Mt. Hebron filed a second motion for summary judgment, and filed a Second Amended Complaint in the trial court seeking a declaratory judgment ordering Maryland to defend and indemnify them. Defendants again cross-moved for summary judgment. The trial court ruled that although Memorial and Mt. Hebron were not alleged to have conducted the illegal harvesting, they were alleged to have "negligently cared for corpses [and] conducted negligent cremation of corpses." The trial court considered this conduct to constitute a "failure to bury, cremate or properly dispose of a deceased body" within the meaning of the exclusionary clause. It accordingly denied the motion for summary judgment filed by Memorial and Mt. Hebron and granted the insurer-defendants' cross-motion for summary judgment.

The Appellate Division affirmed both of the trial court's orders granting the summary judgment motions filed by Assurance and Maryland. The panel held that Memorial and Mt. Hebron were not covered by the Assurance policy because the "occurrence" for purposes of the policy "is not the time the wrongful act was committed but the time when the complaining party was actually damaged," in this case 2006 -- outside of the policy period governing the Assurance policy. The Appellate Division panel also affirmed the trial court's grant of summary judgment with respect to the Maryland policy. It found the New Jersey and New York claims brought by the family members of decedents to "stem[] directly" from conduct described in the "improper handling" exclusionary clause in the Maryland policy, and that the trial court properly held that Memorial and Mt. Hebron were not covered by the Maryland policy.

The Supreme Court granted plaintiffs' petition for certification. 207 N.J. 188 (2011).

HELD: Neither the Assurance policy nor the Maryland policy requires the insurer to defend or indemnify Memorial and Mt. Hebron for claims asserted in the New Jersey and New York litigation, arising from the illegal harvesting of human remains.

1. Insurance policies are construed in accordance with principles that govern the interpretation of contracts; the parties' agreement "will be enforced as written when its terms are clear in order that the expectations of the parties will be fulfilled." Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010). The terms of insurance contracts are given their "'plain and ordinary meaning,'" with ambiguities resolved in favor of the insured. Ibid. When parties dispute the identity of the operative "occurrence" for purposes of coverage, the actual damage to the party asserting the claim, not the wrongful act that precipitated that damage, triggers the "occurrence." In the New Jersey case in which the harvesting took place in 2003, the "occurrence" was the plaintiff-spouse's alleged emotional distress upon discovery of the harvesting scheme in a 2006 conversation with law enforcement, and her claim falls outside of the policy period set forth in the Assurance policy. The claims brought by two New York families whose decedents' remains were illegally dissected in 2003 also fall outside the Assurance policy period. The damages claimed derive from the survivors' belated discovery, in 2006, of the harvesting activity that had occurred years before, and their emotional distress as a result of that discovery. The "occurrence" relating to the New Jersey and New York plaintiffs' causes of action took place when they learned of the harvesting of their decedents' body parts in 2006, not in 2003 when that harvesting took place. Accordingly, the trial court properly determined that Memorial and Mt. Hebron were not entitled to coverage under the Assurance policy. (pp. 14-18)

2. The Maryland policy, in effect in 2006, raises a separate issue. Its exclusionary clause disclaimed coverage for claims based upon such activities conducted "by any insured or anyone for whom the insured is legally responsible" including "disarticulation" of body parts from a deceased body, "distribution, sale, loaning, donating or giving away" parts of a deceased body, and any criminal act. Exclusionary clauses are presumed valid if they are "'specific, plain, clear, prominent and not contrary to public policy.'" Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997). They are typically construed narrowly with the onus "'on the insurer to bring the case within the exclusion.'" Flomerfelt, supra, 202 N.J. at 442. If the terms used in an exclusionary clause are ambiguous, "courts apply the meaning that supports coverage rather than the one that limits it." Ibid. However, "[i]f the words used in an exclusionary clause are clear and unambiguous, 'a court should not engage in a strained construction to support the imposition of liability.'" Ibid. The exclusionary clause in this case plainly encompasses all of the claims asserted against Memorial and Mt. Hebron. The conduct of which Mt. Hebron and Liberty Grove are accused ---participation in a common undertaking to dissect and remove body parts from the decedents without legal authorization --- falls squarely within the parameters of the clause. Accordingly, all of these plaintiffs' causes of action are within the parameters of the exclusionary clause, and Maryland had neither a duty to defend nor a duty to indemnify in this case. (pp. 19-22)

The judgment of the Appellate Division is AFFIRMED.

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, HOENS, and JUDGE WEFING (temporarily assigned) join in JUSTICE PATTERSON's opinion.

Argued January 30, 2012

On certification to the Superior Court, Appellate Division.

JUSTICE PATTERSON delivered the opinion of the Court.

This insurance coverage dispute requires the Court to construe two insurance policies in litigation arising from the illegal harvesting of human remains. Plaintiffs Memorial Properties, LLC (Memorial) and Mount Hebron Cemetery Association (Mt. Hebron) are respectively the manager and owner of Liberty Grove Memorial Gardens (Liberty Grove), a New Jersey cemetery and crematory. Mt. Hebron was sued in 2007 and 2008 in seven lawsuits in the Superior Court of New Jersey and the Supreme Court of New York by family members of decedents whose remains were sent by funeral directors to Liberty Grove for cremation in 2003, 2004 and 2005. The New Jersey and New York plaintiffs alleged that prior to being sent to Liberty Grove, the decedents' bodies were unlawfully dissected, and that tissue, bone and organs were removed for commercial sale. The families contend that they did not discover the illegal harvesting scheme until 2006, when law enforcement officials who investigated and prosecuted the perpetrators advised them that their relatives' body parts had been illegally harvested.

Memorial and Mt. Hebron contend that they received the decedents' remains in closed containers and were unaware that the remains had been tampered with before being turned over to the crematory. Memorial and Mt. Hebron were not prosecuted as a result of the criminal investigation of the illegal harvesting, and the claims against them in some of the cases brought by the decedents' families have been dismissed. However, they have incurred defense costs in the New Jersey and New York litigation.

This appeal arises from Memorial's and Mt. Hebron's pursuit of a defense and indemnification with respect to the New Jersey and New York litigation, under two insurance policies. The first policy, issued by Assurance Company of America (Assurance), provided coverage for the year 2003 for claims arising from damage to human remains and bodily injury, including mental anguish. The second, issued by Maryland Casualty Company (Maryland), provided analogous coverage for the year 2006, but contained an "improper handling" exclusionary clause, barring coverage for bodily injury or property damage arising from specified acts and omissions including "[f]ailure to bury, cremate or properly dispose of a 'deceased body.'" The insureds sought a declaratory judgment requiring Assurance and Maryland to defend and indemnify them in the New Jersey and New York lawsuits. The trial court granted summary judgment in favor of the defendant insurers, holding that neither insurance policy provided the coverage sought, and the Appellate Division affirmed.

We granted certification and now affirm. We hold that neither policy covers the claims asserted in the New Jersey and New York litigation against Memorial and Mt. Hebron. The Assurance policy does not cover the claims at issue because the New Jersey and New York plaintiffs seek damages for emotional distress resulting from their discovery in 2006 that their relatives' body parts had been illegally harvested. Accordingly, the relevant "occurrence" took place in 2006, outside of the policy period during which Assurance provided coverage to Memorial and Mt. Hebron. Additionally, the Maryland policy, which did provide coverage for 2006, included an "improper handling" exclusionary clause that clearly encompassed the relevant claims. Accordingly, the declaratory judgment action brought by Memorial and Mt. Hebron was properly dismissed by the trial court.

I.

The medical procedure known as allograft --- the harvesting of human tissue, bone and organs from human bodies for transplant into living patients --- may be conducted lawfully in New Jersey pursuant to the Revised Uniform Anatomical Gift Act, N.J.S.A. 26:6-77 to -96, and, prior to 2008, pursuant to the Uniform Anatomical Gift Act, N.J.S.A. 26:6-57 to -65 (repealed 2008).*fn1 The coverage issue before the Court arose from a scheme to harvest tissue, bones and organs from deceased individuals without the authorization required by law.

According to complaints filed by New Jersey and New York families of decedents whose remains were harvested, Michael Mastromarino, a New Jersey dentist, and Joseph Nicelli, a New Jersey "master embalmer," developed their plan to illegally obtain and sell body parts in about 2000. The plaintiffs allege that Mastromarino, Nicelli and their business, Biomedical Tissue Services, Ltd. (BMS), worked in conjunction with funeral homes and crematories to obtain access to human remains in those entities' custody. The families allege that following the deaths of their relatives on various dates in 2003, 2004 and 2005, Mastromarino and Nicelli extracted tissue, bones and organs from the remains without authorization, sometimes replacing harvested bone with polyvinyl chloride (PVC) piping so that the bodies would appear intact. They contend that Mastromarino and Nicelli ...


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