The Insurable Interest is a newsletter by the attorneys of Powell & Associates, LLC.  We specialize in Insurance Defense and Insurance Coverage law in New Jersey and New York. We strive to keep ourselves informed of new developments relevant to our practice and the needs of our clients.  This newsletter is our way of sharing this valuable information with our clients and colleagues in the insurance industry. 

Governor David Patterson has signed legislation which prohibits insurers from denying coverage based on late notice of claim, unless the carrier can prove prejudice as a result of the late notice.  Under the new law if a claim is brought within two years, it is the insurer's burden to prove that the late notice "materially impaired the ability of the insurer to investigate or defend the claim."  The burden shifts to the policyholder or claimant if notice was first provided to the insurer after two years.  In addition, there is an "irrebuttable" presumption of prejudice in the event the insured's liability has been determined by a court or arbitrator, or the insured has resolved the claim by settlement.    The law also permits a claimant to file suit directly against a tortfeasor's insurer when the insurer's denial of coverage is based on late notice.  The law will take effect in 2009.
 
With this new legislation New York law will no longer be the exception when it comes to disclaimer of coverage based on late notice.  It further provides insurers and policyholders with more certainty as to the definition of "prejudice," which can be lacking in other jurisdictions where common law judicial rulings have created different standards depending on the circumstances of individual cases.
 
Click here for a complete copy of the Assembly Bill.
 

N.J. Supreme Court Holds That Intentional and Criminal Acts Exclusion Bars Coverage for All Insureds Under Homeowner's Policy
 
The New Jersey Supreme Court affirmed a lower court ruling finding that an exclusion in a homeowner's policy for "intentional or criminal acts of an insured person," bars coverage for all "insureds" under the policy and not just the insured who committed the intentional or criminal act.
 
In Villa v. Short the plaintiff filed suit against her uncle alleging that he sexually abused her between the ages of approximately five and ten.  The uncle, who may have had a mental disability, was a lifelong resident in a home owned by his parents (the plaintiff's grandparents).  The plaintiff also filed a claim for negligent supervision of the uncle against her grandparents.  The grandparents tendered the suit to their homeowner's carrier seeking a defense and indemnification for the negligence claims. The carrier declined coverage based on an intentional and criminal acts exclusion.
 
The intentional and criminal acts exclusion stated: 
 
     We do not cover any bodily injury or property damage
     which may reasonably be expected to result from the
     intentional or criminal acts of an insured person or which
     is in fact intended by an insured person.

Click here for a complete copy of the Court's opinion.

N.J. Supreme Court Holds That a "Service of Suit" Clause Does Not Operate as a "Forum Selection" Clause 

The New Jersey Supreme Court recently had the opportunity to interpret a "Service of Suit" clause, which is commonly found in certain insurance contracts.  In Chubb Custom Insurance Co. v. The Prudential Insurance Company of America, the policy in question contained a Service of Suit clause that stated that Chubb Custom Insurance Co.:
 
     at the request of the Insured, will submit to the
     jurisdiction of any court of competent jurisdiction within
     the United States of America and will comply with all
     requirements necessary to give such Court jurisdiction 
     and all matters arising hereunder shall be determined in
     accordance with the law and practice of such Court.
 
Chubb issued a $50 million professional liability policy to Prudential.  Prudential demanded indemnification from Chubb after Prudential Securities (a subsidiary) was held liable by an Ohio jury for certain unauthorized reallocations of assets in retirement accounts. Chubb declined based on an exclusion for fraudulent acts. Chubb then filed a declaratory judgment suit in its home state of New Jersey seeking to uphold the disclaimer of coverage.  Shortly thereafter, Prudential filed suit in Delaware seeking coverage under the policy.  Prudential then successfully moved to dismiss the New Jersey action.

The trial judge granted Prudential's dismissal motion based on the argument that the Service of Suit clause was a forum selection clause that gave Prudential the choice of forum in all instances.  The Appellate Court reversed and the case then came before the New Jersey Supreme Court.
The Court's opinion also provided the following brief history of the Service of Suit clause:

     Developed by Lloyd's of London, the clause was limned
     to counter competitors' arguments that Lloyd's was not 
     amenable to process in the United States and that
     potential customers thus should place their business
     with a domestic company. 
 
     Concomitantly, the clause was intended to assure potential
     insureds that if they purchased a Lloyd's policy, disputes 
     would be governed by the law of the United States and not
     the law of Britain.  The clause became a fixture in Lloyd's 
     policies and later in policies of other insurers, essentially
     operating to guarantee that the insurer would submit to the 
     insured's suit in a court of competent jurisdiction in the
     United States, thus obviating concerns over whether the 
     insurer could be held liable in a coverage action.

    
With that history as a guide, the Court held that while a Service of Suit clause is an agreement by the insurer to submit to personal jurisdiction in the court in which the insured has filed a coverage dispute, the clause also permits the insurer to institute its own suit in the first instance.  The Court further explained that the clause does not allow an insured to "trump" a suit filed by an insurer by later filing suit in an alternate forum.  In short, the clause does not give an insured the right to choose the forum where the matter will be litigated.

Since the clause was originally added to reassure insureds that their insurance company would make itself available to litigate coverage disputes, this seems to be a common sense interpretation of the policy language.  The decision, however, does have the potential to unleash a "race to the courthouse," with each side rushing to file suit first.  Accordingly insurers and insureds should remain aware of this issue.  In particular when a claim arises the parties should determine whether a lawsuit could be filed in more than one state and then conduct research regarding any differences in the applicable state laws. 

Click here for a complete copy of the Court's opinion.

Homeowner Policy Exclusion Found to Hold Automobile  Carrier Responsible For Liability Coverage

The Appellate Division of the N.J. Superior Court has ruled that liability coverage for what appeared to be a "slip & fall" on ice rests with an automobile carrier and not the insurer for the premises on which the fall occurred.
 
In Penn National Insurance Co. v. Costa, the underlying claim involved a gentleman who sustained injury due to slipping on an accumulation of ice and snow.  Due to the fall he struck his head on the top of a bumper jack being used to change a tire on a truck and suffered fairly significant injuries including a skull fracture and coma.  The injured man was on his lunch break when he approached his boss (Costa) and offered to assist him with changing a flat tire. Costa declined the offer of assistance and the slip and fall occurred almost immediately thereafter.  The incident occurred in the driveway of Costa's home, which was adjacent to his trucking business. The home was insured by Farmers Insurance Co. of Flemington.
 
The homewoner's policy expressly excluded "bodily injury . . . arising out of . . . [t]he maintenance, operation, ownership, or use (including loading or unloading) of any . . . motor vehicles . . . owned or operated by . . . any insured." Accordingly they declined coverage for the claims made by the injured man, as well as those made by his auto carrier, Penn National, which sought reimbursement for Personal Injury Protection (PIP) benefits.
 
While denying their own responsibility, Farmers sought a declaration that Costa's auto carrier, Gulf Insurance Co. owed coverage for the loss.
 
The Appellate Court found that the loss did "arise out of . . . the maintenance" of a motor vehicle, despite the fact that the incident seems to have been caused by the condition of the driveway, i.e., the ice and snow.  The Court stated that the injuries "were directly connected with the maintenance of Costa's pick-up" and not "solely related to the existence of ice and snow."
 
Accordingly, the Court found that the claim fell within the exclusionary language of the homeowner's policy and declared the automobile liability carrier (Gulf Insurance Co.) to be the appropriate entity to provide coverage.
Understandably, the insurers did not raise the issue of whether there could be coverage under both policies, and the Court used an "either/or" approach to resolve the dispute between the carriers.  In doing so the Court avoided the yet unanswered question of whether there could be coverage under both the homeowner's policy and the automobile policy.  "Overlapping or joint coverage" was previously suggested as being the appropriate result in Judge Brochin's concurring opinion in Home State Ins. Co. ex rel. Randell v. Continental Ins. Co., 313 N.J. Super. 584 (App. Div. 1998), affirmed 158 N.J. 104 (1999).  That case arose out of an assault on a school bus and there was a similar coverage dispute between the homeowner's and automobile insurance carriers.  Thus, New Jersey courts continue to hold that only one policy provides coverage where the exclusionary language of one policy matches the covering language of another.

Click here for a complete copy of the Court's opinion.