From time to time, not only do insurance coverage decisions warrant consideration by the highest of courts, they also warrant consideration by both insurers and insureds regarding the tenets of policy drafting and interpretation. This is true of Norman International, Inc., and Richfield Window Coverings, LLC, d/b/a Nien Made (USA), Inc., v. Admiral Insurance Company.[i]
On August 10, 2022, the New Jersey Supreme Court issued an opinion regarding a geographic policy exclusion found in a commercial general liability policy issued by New Jersey-based Admiral Insurance Company (“Admiral”). The policy was issued to Richfield Window Coverings, LLC, d/b/a Nien Made (USA), Inc. (“Richfield”), a California company which sells window coverings to large, national retailers. It also provides machines to cut these window treatments to size. The high court was charged with consideration of the appellate reversal of summary judgment in favor of Admiral in a declaratory relief action brought by Richfield.
The case arose from Richfield’s tender of defense to Admiral after it was sued by a woman injured while working at a Home Depot store in Freeport, New York (Nassau County). She was injured while using a cutting machine provided by Richfield.
In response to Richfield’s tender of defense to Admiral, coverage was denied under the policy based on an exclusion for operations or activities in several New York counties, including Nassau County. The exclusion in part reads: “[t]his insurance does not apply to ‘bodily injury’ … actually or allegedly 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 the Counties shown in the Schedule above.”[ii] Notably, there was no dispute as to whether this exclusion was capable of enforcement. Instead, the question was whether it was applicable in the circumstances presented in this matter. In this case of first impression, the New Jersey Supreme Court unanimously held that the exclusion was applicable, reversing the appellate court’s decision and remanding the matter to the trial court for proceedings consistent with the opinion.
The procedural history of the case is worthy of note. At the trial court level, Richfield contended the terms “operations” and “activities” in the exclusion were ambiguous and thus had to be construed in its favor. The trial court rejected these arguments, granting summary judgment in favor of Admiral and, in turn, confirming the applicability of the exclusion.
On appeal, the Appellate Division reversed the Law Division’s decision, and did so by factoring in the issue of causation. That court found there was no causal connection between Richfield’s “activities” as they related to the blind cutting machine and the personal injuries sustained by the machine’s user. It thus held the exclusion did not apply.
After granting Admiral’s petition, the Supreme Court honed in on the Appellate Division’s undeniable focus on causation, finding it misplaced. Judge Jose Fuentes (temporarily assigned to the NJ Supreme Court) conveyed the Court’s opinion, in part, as follows:
We believe that the Appellate Division’s analysis relied on too narrow a reading of the exclusionary provision of the policy at issue. Its broad and unambiguous language makes clear that a causal relationship between Richfield’s conduct and plaintiff’s injuries is not required in order for the exclusionary clause to apply,” continued Fuentes. “[R]ather, any claim ‘in any way connected with’ Richfield’s operations or activities in a county identified in the exclusionary clause is not covered under the policy.[iii]
The high court thus reasoned that the causal connection between Richfield’s operations/activities and the injury-producing incident was not dispositive given the language of the policy – “the phrases ‘in any way connected with’ and ‘related to’ have been interpreted broadly and do not require any element of causation.”[iv]
A key component of the high court’s decision was its recognition that a determination on the applicability of the exclusion did not require factual determinations in the underlying personal injury case. Finding support from the 1970 Burd v. Sussex Mutual decision, Judge Fuentes cited to a hypothetical scenario used by Chief Justice Weintraub in identifying this threshold issue.
[I]f a policy covered a Ford but not a Chevrolet also owned by the insured, the carrier would not be obligated to defend a third party’s complaint against the insured which alleged the automobile involved was the Ford when in fact the car involved was the Chevrolet. The identity of the car, upon which coverage depends, would be irrelevant to the trial of the negligence action.[v]
Guided by Burd, the Norman International court concluded the issues to be determined at the trial of the underlying action would not bear on the application of the exclusion at issue. Instead, the Supreme Court considered the discreet, undisputed fact that the injury occurred in Nassau County, a county included in the exclusionary clause. Judge Fuentes then articulated the connection between Richfield’s activities in providing the machine to Home Depot and the injuries. “[H]ad Richfield not provided the machine to the Home Depot, (the employee) would not have been using it and would not have accidentally severed her fingers.” Id. at *11. The Court held the activity of Richfield was sufficient enough to trigger the policy’s exclusion clause.
By reaching this unanimous decision, the NJ Supreme Court certainly reinforced the methodology employed in Burd, but it also raised legitimate questions of how broad is too broad when interpreting insurance policy provisions. Does the court’s interpretation accurately reflect the agreement as contemplated by the insured and insurer? Or, did the court fail to consider the nuances of the agreed-upon policy language?
At the risk of oversimplification, the takeaway for both insureds and insurers is that unambiguous provisions in insurance contracts are not likely open to the introduction of extrinsic issues, such as causation, when such introduction is unnecessary to policy interpretation.
[i] Norman Int’l v. Admiral Ins. Co., No. A-24-21 (N.J. Aug. 10, 2022)
[ii] Norman Int’l v. Admiral Ins. Co., No. A-24-21, 11 (N.J. Aug. 10, 2022).
[iii] Norman International, Inc., and Richfield Window Coverings, LLC, d/b/a Nien Made (USA), Inc., v. Admiral Insurance Company (N.J. 2022) 2022 WL 3220868 *4.
[iv] Norman International, Inc., supra, 2022 WL 3220868 at *10.
[v] Burd v. Sussex Mutual Insurance Co., 56 N.J. 383, 388 (1970).