New Jersey Law

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Named Insured vs. Named Insured Exclusion Held Inapplicable In Survivorship Action Against A Named Insured

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On January 22, 2019, the United States District Court for the District of New Jersey issued an opinion addressing whether the “Named Insured versus Named Insured” exclusion contained in a commercial umbrella liability policy bars coverage when a deceased employee’s estate and his widow assert claims against a Named Insured. The Court ultimately concluded, perhaps counterintuitively, that coverage is not excluded for a survivorship action where the estate of a deceased employee of a Named Insured sues another Named Insured entity under the policy. This District Court holding, if adopted by the Appellate Division and/or New Jersey Supreme Court, could have potential ramifications for the insurance industry ranging from policy drafting to underwriting to claims handling and beyond.

Brian Pancoast, an employee of Freehold Cartage, Inc., was killed during the course of his employment. As a result of this workplace accident, Dana Pancoast, widow of the decedent, and the Estate of Brian Pancoast (the “Estate”) filed a wrongful death and survivorship action against Freehold Cartage, Inc., FCI Transport, Inc., FCI Leasing, LLC and 33 East Maintenance, Inc. The claims against Freehold Cartage were voluntarily dismissed, and summary judgment was granted to FCI Leasing, LLC and 33 East Maintenance, Inc., leaving FCI Transport as the only remaining defendant.

Eventually, Dana Pancoast and the Estate entered into a settlement with FCI Leasing, LLC under which FCI Transport entered into a consent judgment in the amount of $3,750,000, and then assigned all of its rights against Gemini Insurance Company and other parties to Dana Pancoast and the Estate. FCI Transport was insured under a primary commercial general liability policy, which tendered its $1,000,000 limits, with the Estate and Dana Pancoast agreeing only to pursue the remaining $2.75 million from Gemini.

Gemini issued a commercial umbrella policy naming Freehold Cartage, Inc., FCI Transport, Inc., FCI Leasing, LLC, and 33 East Maintenance, Inc. as Named Insureds. The “Exclusions” section of the policy provided, in relevant part, as follows:

This Insurance does not apply to:
[. . .]
bb. Named Insured versus Named Insured
Any liability, costs or expenses of any Named Insured or its “employees” arising out of, caused or contributed to by any “bodily injury” or “property damage” claimed by any other Named Insured or its “employees”.

Relying upon this exclusion, Gemini denied any obligation to defend or indemnify FCI Transport because both FCI Transport and the decedent’s employer, Freehold Cartage, Inc., were Named Insureds. Gemini filed a declaratory judgment action seeking a declaration of no coverage for the underlying wrongful death and survivorship action.

As a threshold matter, the parties agreed that interpretation of the Gemini policy at issue was subject to New Jersey law, which provides that courts should seek to determine the intention of the parties from the language of the policy, giving effect to all parts in order to give a reasonable meaning to the terms. The court noted that the policy should be interpreted according to the objectively reasonable expectations of the insured. Where genuine ambiguities exist, they are to be resolved against the insurer and in favor of the insured. If exclusionary provisions are involved, the court should broadly construe coverage provisions and narrowly read exclusions. Gemini argued that the “Named Insured versus Named Insured” exclusion looks to whose injuries the Named Insured is liable for rather than who brought a claim or what theory of liability is pled. Because the bodily at issue was to Brian Pancoast, an employee of a Named Insured, Gemini argued that the exclusion should apply. The Estate and Mrs. Pancoast argued that the exclusion’s plain language unambiguously requires the court to look at who brought the claim, and is expressly limited to claims asserted directly by a Named Insured or an employee of a Named Insured.

Gemini alternatively argued that, even if the exclusion does look to who brought the claim, in this case the claims brought by the Estate and Mrs. Pancoast are the equivalent of a claim brought by the decedent “because, under New Jersey law, the Estate stands in the shoes of the decedent.” Further, “the claim and damages asserted by Dana Pancoast do not exist independent of the Estate’s Wrongful Death claim for the bodily injuries and death of” the decedent. In response, the defendants argued that even if the Estate does stand in the shoes of the decedent, the exclusion still requires a claim to be asserted by a Named Insured or its employee to be excluded.

Applying New Jersey’s well-established principles of insurance contract interpretation, the Court held that the “Named Insured versus Named Insured” exclusion was unambiguous and unequivocal, and undoubtedly revolved around who asserted the claim, not who it initially belonged to or what claim was being asserted. The plain terms of the exclusion limited it to claims asserted by a Named Insured or its employees, not by an estate or family member on behalf of a Named Insured.

Further, the Court noted that the Gemini Policy elsewhere excludes coverage for

Any loss, cost or expense arising out of any claim or “suit” by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing or in any way responding to, or assessing the effects of “pollutants”.

However, Gemini chose not ton include any such “by or on behalf of” language in the “Named Insured versus Named Insured” exclusion. The Court reiterated that it cannot make a better contract for parties than they one that they themselves agreed to – “Gemini could have written the [exclusion] to include such individuals, but it did not.”

Finally, the Court pointed out that even if a survivorship and/or wrongful death action is equivalent to and derivative of the personal injury claim asserted on behalf of the decedent, the exclusion requires a claim to be asserted by a listed Named Insured on the Gemini policy or one of its employees. Because the Estate of Brian Pancoast is not a Named Insured or employee of a Named Insured, nor is Mrs. Pancoast, the exclusion is inapplicable.

Notably, because this was a Federal District Court decision, the court was limited to determining what it believes the New Jersey courts will decide when ultimately faced with the issue. Therefore, this is still an open question under New Jersey law which may take some time to resolve.

Nevertheless, this decision reinforces what every insurer already knows – their policy language can and will be used against them whenever possible. It seems likely that when the “Named Insured versus Named Insured” exclusion was drafted, it was intended to exclude coverage for claims asserted by the estate of a named insured. However, the final language of that exclusion left just enough room for the claimant in this case to secure a multi-million dollar victory in this coverage action. Insurers should be sure to account for this type of scenario in drafting exclusions and handling claims involving survivorship actions or actions by the estate of a person qualifying as a named insured.

DiFrancesco, Bateman, Kunzman, Davis, Lehrer & Flaum PC (http://www.dbnjlawblog.com) is a full service law firm in New Jersey which provides a broad range of legal services.

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