The New Jersey Supreme Court, in a unanimous ruling, overturned a lower court ruling and upheld an insurance company’s denial of coverage based a policy exclusion. See Norman International, Inc. v. Admiral Insurance Company, No. 086155 (N.J. Aug. 11, 2022). At issue was policy language that included an exclusion that provides the insurer will not provide coverage for any liability in certain specifically identified counties in New York. Richfield sought action against its insurer to defend and indemnify it in a personal injury action for monetary damages. The Law Division granted summary judgment in favor of the insurer, which the Appellate Division reversed. The Supreme Court overturned the Appellate Division, providing that the insurer had no duty to defend.
Richfield Window Coverings (“Richfield”) sells window covering products, including blinds, and also provides retailers with machines to cut the blinds to meet specifications of the retailers’ customers. Colleen Lorito, an employee of a Home Depot store, located in Nassau County, New York, was injured while operating a blinds cutting machine provided to Home Depot by Richfield. The employee, after suffering injury, filed suit in Nassau County against Richfield seeking recovery against its liability insurer, Admiral Insurance Company (“Admiral”). Admiral cited the policy exclusion language as defense which provided that the policy will not apply to bodily injury, property damage, or personal and advertising injury, allegedly arising out of, or related to, caused by, contributed to by, or in any way connected with operations or activities performed by or on behalf of any insured in several countries (including Nassau).
The New Jersey Appellate Division concluded that the exclusion did not apply as there was no “causal relationship” between Richfield’s activities involving the blind cutting machine and the causes of action raised in the complaint. The New Jersey Supreme Court reversed, concluding that Richfield’s activities constituted a sufficient basis to trigger the policy’s language excluding certain New York countries from coverage. What is significant is the Supreme Court’s rejection of the Appellate Division’s decision, and an erroneous duty to defend. The Supreme Court provided that, going forward, “in similar situations, courts should indicate when an issue requires consideration of facts beyond the complaint.” Thus, now an insurer may look to extrinsic evidence to determine whether they have a duty to defend, overturning the precedent created by Burd. The Court in Norman explains that if an extrinsic fact is relevant to the insurer’s determining coverage, and a duty to defend, but not related to determining an issue in the underlying action, then the insurer may use such facts to decide if it is obligated to defend.
The Court in Norman presents two important lessons: Policy language will be broadly construed in favor of the insurer and an insurer may look to extrinsic evidence in their determination of whether they have a duty to defend irrespective of whether a causal relationship exits.