I seriously don’t know why so many judges seem to have a hard time enforcing the insurance law. Don’t tell anyone, or coverage attorneys like me might have to lower our hourly rates, but the entire insurance law really boils down to four simple rules:
- Coverage provisions are supposed to give the broadest reasonable construction in the policyholder’s favour.
- Exclusions from coverage are meant to be given the narrowest possible form against the insurance company.
- Just like in baseball, ties go to the runner. The policy holder is hostile. Therefore, if there is more than a reasonable construction of a word or phrase in the policy, the policy holder wins.
- In the event of any possibility of coverage in a lawsuit, the insurance company is supposed to defend its policyholder.
Really, that’s it. I just saved you from having to read thousands of pages in Appleman on Insurance Law.
Flomerfelt v. Cardiello, 202 NJ 432 (2010) reviews the Four Simple Rules in detail, and is well worth reading about. The case involves an insurance company’s failed attempt to evade liability coverage for serious drug overdose injuries at a party. you can read it over here.
Which brings us to the latest case Port Authority vs. RLI. The port authority The case proves that even large institutions can be incinerated by judges uneasy about the four simple rules. You can read a file port authority resolution over here.
RLI has sold a liability insurance policy to a company called Techno Consult. The port authority was additionally insured under the policy. The Port Authority has hired Techno Consult to detect and report any unsafe conditions on a project at Harrison Bath Terminal. Unfortunately, Michael Veom, who was an employee of a subcontractor called Halmar, was injured when he slipped on wet ground and fell on site. Supposedly, Fiume had amassed significant compensation benefits for workers, which prevented him from suing his employer. So he filed a lawsuit against Techno Consult and the Ports Authority.
Although there are many aspects of concern in the Appeals Chamber’s opinion from the policyholder’s point of view, I want to focus on just one aspect. Some New Jersey courts seem to be doing the job of forfeiting the duty of insurers to defend policyholders under liability insurance policies, defeating the Four Simple Rules. The simple rule about the duty to defend, again, is crystal clear in 49 states: If there is a possibility to cover an underlying lawsuit, the insurance company must defend. We can see this in FLUMERFELT Also, as the New Jersey Supreme Court stated: “The [underlying] The complaint should be put together with the policy and determine whether, should the allegations continue, the insurance company will be required to pay the resulting judgment, Upon reaching a conclusion, the doubts must be resolved in favor of the insured. (emphasis mine.)
In the RLI, the definition of “additional insured” in the policy included “any person or organization you agree to in a contract or agreement that requires insurance to be included as an additional insured in this policy but only in respect of liability for “bodily injury,” “property damage” or “personal and advertising damage.” ” caused in whole or in part by you or those acting on your behalf…(emphasis mine.)
Surprisingly but perhaps not surprisingly, the court found that in view of the settlement of the Fiume case and the absence of any finding that Techno Consult had actually cause Fayumi’s physical injury, there was no port authority coverage. This part of the decision turns the defense duty on its head. Remember, if there are any Possibility Out of coverage, the duty to defend is present. Here, there was a possibility that the bodily injury had been caused by someone acting on behalf of the Port Authority.
The RLI policy contained the exclusion of “professional services”. The court also held that because of Fiume’s injuries allegedly caused by a company retained to perform “professional services”, there was no duty to defend. This part of the decision is troubling because the court does not discuss its ruling on St Hudson Engineers, Inc. v. Pennsylvania National Mutual Casualty Co., 388 NJ Super. 592, 607-08 (App. Div. 2006). In this case, which involved the failure of an engineering firm to detect and warn of defects, the court ruled that:
“Allegations of a failure by a professional to provide appropriate engineering, supervisory, inspection or architectural services or to discover or remedy a condition for which the professional services were used would necessarily fall under the exclusion as being dependent on the professional services rendered. However, Claims involving a breach of a duty to provide information about a known risk resulting from either negligence or negligence, whether based on a relationship of the parties or a legal principle, are not based on the provision of professional services. Rather, such claims arise from information already in their possession and not provided by a party obligated to disclose such information. Thus, for example, Robert Hudson’s alleged failure to inform the pier and nightclub owners that the pier was in imminent danger of collapse, after obtaining that information from Tyson, would not be discounted simply because he had previously undertaken engineering work. So too, any negligent misrepresentation regarding the condition of the pavement would be related to the proper disclosure of known information, rather than a failure to provide professional services.”
The relevant question in the case of a port authority should be: Is there any possibility That the Port Authority or Techno Consult can be held liable for failure to provide information about a known hazard, regardless of the purpose of Techno Consult’s participation? Of course there was, meaning the port authority had to get a defense.
What are the results from this? First, if you are the plaintiff’s attorney, you need to be very careful about the way your complaint is framed. Insurance is a game of words, as they used to say dragnet, Anything you say can and will be used against you in a court of law. Say something wrong, and you could lose access to insurance coverage for your client’s injury. Second, if you are a policy holder, you should also be very careful what you say when notifying your carrier of a claim. Optimally, the policy should be carefully reviewed by a coverage attorney and the claim notice should be worded in such a way that the underlying claim is within coverage, or at least does not blow up coverage. (No, this isn’t a business plug. It’s just a fact.) And third, this ruling is clearly pretty scary for policyholders. The Port Authority can have no defense of a personal injury claim. The mom and pop can shop. Unfortunately, it seems that you cannot rely on insurance, which makes risk control and measures to protect (legitimate) assets even more important.