In a case of first impression, the New Jersey Supreme Court in Norman International, Inc., and Richfield Window Coverings, LLC d/b/a Niem Made (USA), Inc. v. Admiral Insurance Company, 251 NJ 538 (2022) enforced a Designated New York Counties Exclusion included in a commercial general liability insurance policy issued by Admiral Insurance Company ("Admiral"). In so holding, the Supreme Court found that the policy's broad and unambiguous language did not require a causal relationship to trigger the exclusion. Rather, any claim "in any way connected with" the insured's operations in an excluded county fell within the exclusion. Additionally, Admiral had no duty to defend a claim that it was not obligated to indemnify. The determination of whether Admiral had a duty to defend was not determined solely by the allegations of the complaint. Instead Admiral relied upon facts adduced during discovery indicating that in certain instances an insurer may use extrinsic evidence to deny a defense to its insured. The Supreme Court recommended that going forward, in similar situations, courts should indicate when an issue requires consideration of facts beyond the complaint.
In Norman, Colleen Lorito, an employee of Home Depot in Nassau County, New York, severed parts of her fingers, while operating a blind cutting machine during the course of her employment with Home Depot. Richfield Window Coverings, LLC, d/b/a Niem Made (USA), Inc. ("Richfield), a seller of window coverings, blinds and shutters, supplied the blind cutting machine. Richfield is headquartered in California and sells its products to national retailers such as Home Depot. It provides a user manual for operation of the machine and onsite employee training. Additionally, Richfield's field representatives regularly visit the various retailers to service and repair the blind cutting machines. A Richfield field representative visited the Nassau County Home Depot every 2-3 weeks.
Lorito claimed the cutting machine did not have a safety guard at the time of the accident. As a result of the incident, Lorito and her husband, filed a civil action against Richfield alleging, in relevant part, negligent design, breach of express warranty, breach of implied warranty, failure to warn, strict liability for manufacturing defect, strict liability for design defect and loss of spousal support ("Lorito litigation").
Richfield provided notice of the lawsuit to Admiral pursuant to a general liability insurance policy issued by Admiral to Richfield. Admiral denied coverage based on a Designated New York Counties Exclusion in the policy that provides, in relevant part:
This insurance does not apply to "bodily injury," "property damage" or "personal and advertising injury", including costs or expenses, actually or allegedly arising out of, related to, caused by, contributed to by, or in any way connected with:
(1) Any operations or activities performed by or on behalf of any insured in the Counties shown in the Schedule above; or
(2) Any premises, site or location owned, leased, occupied, maintained or used by or on behalf of any insured in the Counties shown on the Schedule above.
We shall have no duty to investigate, defend or indemnify any insured against any loss, claim, "suit", demand, fine or other proceeding alleging injury or damages of any kind, to include but not limited to "bodily injury", "property damage," or "personal and advertising injury" to which this endorsement applies.
Lorito's accident occurred in the Home Depot in Nassau County, New York. Nassau County was listed as an excluded county in the policy's Designated New York Counties Exclusion. Based on the exclusion, Admiral denied coverage asserting that it was not contractually obligated to assign counsel to defend Richfield in the Lorito litigation or to indemnify Richfield against any damages awarded to Lorito.
Richfield filed a declaratory judgment action seeking to compel Admiral to defend and indemnify it in the Lorito litigation. Richfield argued that the policy terms "operations" and "activities" in the policy's Designated New York Counties Exclusion were ambiguous and thus must be construed in favor of the insured. Admiral sought a judicial declaration that it did not have to defend and indemnify Richfield. The parties filed cross-motions for summary judgment. The motion judge enforced the Admiral exclusion finding that allegations of "bodily injury" that are "merely" 'related to' or 'in any way connected with" Richfield's activities or operations within the Home Depot store are sufficient to trigger the Admiral policy New York Counties Exclusion. Plaintiffs filed an appeal.
The Appellate Division reversed finding that there was no "causal relationship" between Richfield's activities involving the blind cutting machine and the causes of action asserted in the Lorito complaint. Admiral's petition for certification was granted.
The Supreme Court reversed finding that the Appellate Division's analysis relied on too narrow a reading of the policy exclusion. Additionally, the Appellate Division failed to cite to Burd v. Sussex Mutual Insurance Co., 56 N.J. 383, 388 (1970) and give consideration to facts beyond the complaint.
Courts May Look Beyond the Complaint To Determine If There Is a Duty to Defend
In its analysis the Supreme Court's began with the recognition that to determine 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. Abouzaid v. Mansard Gardens Assocs, LLC, 207 N.J. 67 (2011). However, sometimes this analysis does not provide adequate information for determining whether there is a duty to defend under an exclusionary clause. "It may not be sufficient to look only at the complaint because the duty to defend depends on facts not relevant to the causes of action in the complaint." Burd v. Sussex Mutual Insurance Co., 56 N.J. 383, 388 (1970). In such cases, "the duty to defend may depend upon the additional facts not included in the allegations in the complaint. Id.
In Norman, the court was called on to determine whether Lorito's claims were covered by the Admiral policy. The allegations in the complaint involved product defect and negligence claims which did not involve the applicability of the exclusionary clause. Therefore, the Supreme Court indicated that the Appellate Division should have considered the connection between Lorito's injuries and Richfield's activities at the store to determine if the exclusion applies. The Supreme Court recommended that going forward, courts should indicate when an issue requires consideration of facts beyond the complaint.
Courts Review Insurance Policies Through the Lens of Traditional Contract Principles
Insurance policies are reviewed using contract principles. If the terms are clearly expressed and agreed to by the parties, the court will not alter the expectations or agreement of the parties. The court will not read a causal nexus into otherwise plain terms." Flomerfelt v. Cardiello, 202 N.J. 443 (2010). The New Jersey Supreme Court had not directly considered the meaning of the term "in any way connected with" which was included in the Admiral policy.
The Lorito accident took place in Nassau County, New York which was a county excluded from coverage under the policy. The Supreme Court held that the term "in any way connected with" does not necessitate an element of causation to trigger the exclusion. Richfield's act of giving the store the blind cutting machine was sufficient to link the two as "in any way connected with" one another. Richfield's actions were also "related to" the incident in that it regularly repaired the machines and provided employee training on their use. Because Nassau County is expressly excluded under the Admiral policy, any claim that was "in any way connected with" the insured's activities in an excluded county under the clause was sufficient to relieve the insurer of providing a duty to defend or indemnify the claim. The purposefully broad and ambiguous language makes it clear that a causal relationship was not necessary for the exclusionary clause to apply. Admiral did not have a duty to defend a claim that is not under contractual duty to indemnify.
The Supreme Court found that Richfield's activities were a sufficient basis to trigger the policy's Designated New York Counties Exclusion. Additionally, since Richfield was not entitled to coverage pursuant to the exclusionary clause, Admiral did not have a duty to defend.