eNotes: Liability – September 2022 – New Jersey

SIGNIFICANT CASE SUMMARIES

NJ CASE SUMMARY

Norman Int’l, Inc. v. Admiral Ins. Co.
New Jersey Supreme Court
No. A-24-21 (086155), ___ N.J. ____ (2022)

Decided: August 10, 2022

New Jersey Supreme Court upholds a policy exclusion which excludes claims in any way connected with particular counties listed in the policy.

Background

This appeal to the New Jersey Supreme Court concerns an exclusionary clause in a commercial general liability insurance policy issued by Admiral Insurance Company to Richfield Window Coverings. The clause states that the policy does not cover any liability “arising out of, related to, caused by, contributed to by, or in any way connected with . . . [a]ny operations or activities performed by or on behalf of any insured” in certain counties in New York, including the county involved here, Nassau County.

Richfield sells window coverage products, including blinds, to national retailers, including Home Depot, and provides retailers with machines to cut the blinds to meet the specifications of the retailers’ customers. Richfield also provides a user manual for retailers’ employees to learn how to use the cutting machine and conducts onsite training for employees. The field sales representative in this case visited the Home Depot store at issue every two to three weeks. Colleen Lorito, an employee of a Home Depot located in Nassau County, was injured while operating the blind cutting machine. She and her husband filed a civil action against Richfield, asserting claims for product liability, among others. Admiral denied any obligation to defend or indemnify, asserting the claims were not covered under the policy based on the “Designated New York Counties Exclusion” in its policy issued to Richfield.

Richfield filed a declaratory judgment action seeking to compel Admiral to defend it in the Lorito case and, if necessary, indemnify it against any monetary damages awarded to the Plaintiffs. The Superior Court of New Jersey, Law Division granted summary judgment in favor of Admiral. The Appellate Division reversed, finding that “Richfield’s limited activities and operations [in the excluded county] have no causal relationship to the causes of action or allegations” and therefore the Designated Counties Exclusion should not apply to bar coverage.

Holding

The Supreme Court found that the policy’s broad and unambiguous language made clear that a causal relationship is not required in order for the exclusionary clause to apply; rather, any claim “in any way connected with” the insured’s operations or activities in a county identified in the exclusionary clause is not covered under the policy. Richfield’s operations in an excluded county were alleged to be connected with the injuries for which recovery was sought, so the exclusion applied. Further, Admiral had no duty to defend a claim that it is not contractually obligated to indemnify.

The Supreme Court noted that generally, to ascertain whether there is a duty to defend, the 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, with any doubts resolved in favor of the insured. There are times, however, when comparing the causes of action in the complaint to the exclusionary clause will not provide an answer as to whether there is a potentially covered claim. That situation occurs “when coverage, i.e., the duty to pay, depends upon a factual issue which will not be resolved by the trial.” Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 388 (1970). In such cases, “the duty to defend may depend upon the actual facts and not upon the allegations in the complaint.”

In this case, the threshold question was whether the claims asserted by Plaintiff were covered by the Admiral policy, whereas the underlying issues in the complaint would require the factfinder to decide whether there was a manufacturing defect, design defect, or a failure to provide adequate warnings, and whether Richfield was negligent in causing Lorito’s injuries. None of those underlying issues would require the factfinder to address the applicability of the policy exclusion. The Appellate Division did not cite Burd in its analysis, instead setting forth the general standard that a “complaint should be laid alongside the policy” to determine a duty to defend. The Supreme Court urged that going forward, in similar situations, courts should indicate when an issue requires consideration of facts beyond the Complaint.

Here, there was no dispute that Plaintiff Lorito was injured in Nassau County, one of the counties listed in the exclusionary clause. Therefore, the relevant issue was whether Richfield’s activities at the store were sufficient to trigger the exclusion – that is, did they “actually or allegedly aris[e] out of, [or are they] related to, caused by, contributed to by, or in any way connected with” the activities of Richfield or “on behalf of” Richfield? The Court found that to focus on a causal relationship reads key language out of the policy, because the phrases “in any way connected with” and “related to” do not require any element of causation. Plaintiff Lorito was injured while using the blind cutting machine, which was provided by Richfield. The fact that Richfield provided the machine to Home Depot was enough to trigger the exclusion because the phrase “in any way connected with” merely requires that the two are linked in some way, even if they are only tangentially connected. The Appellate Division decision, which had found that coverage and a duty to defend existed, was reversed by the Supreme Court; and, the case was remanded to the trial court to enter an order granting summary judgment to Admiral Ins. Co.

Questions about this case can be directed to Mark Sander at (856) 334-0415 ext. 8915 or msander@tthlaw.com.