Intentional harm lawsuits can be harrowing for employers to defend because the allegations are generally not covered under the workers’ compensation policy. This was the situation posed in Tejada v. 74 Industries, A-2643-021 (App. Div. July 12, 2024). As the readers know, there are two parts to a workers’ compensation policy. One part is the elective provisions that apply to all claim petitions filed in the Division of Workers’ Compensation. The other part is referred to as the Employer’s Liability section of the policy and pertains to civil lawsuits arising from work injuries filed by employees against their employers.
Ms. Tejada was a sewing machine operator who was hospitalized for treatment related to an infection allegedly caused by insect bites at work, leading to open sores and swelling in her right leg. She filed both workers’ compensation claims for these injuries. Ms. Tejada settled the workers’ compensation claim petition filed in the Division for $25,000 on a Section 20 basis for her physical injuries. She also filed a lawsuit against her employer for bodily injury caused by alleged acts of intentional harm concerning her insect bites and some other issues. The civil lawsuit was filed before the $25,000 Section 20 settlement took place in the Division. When the Section 20 claim was put through in the Division, there was no mention on the record or in the final papers of the pending civil lawsuit filed by Ms. Tejada against her employer alleging intentional harm.
In the civil lawsuit, Ms. Tejada alleged a breach of duty to keep the employer’s premises safe, a failure to respond to plaintiff’s complaints, and the creation of a virtual certainty of harm in allowing dangerous and hazardous conditions created by giant flying insects embedded in the fabric handled by employees. These insects were alleged to have bitten Tejada and other employees at work. She also alleged in her civil complaint that 74 Industries threatened her with adverse employment action if she had left the job site to obtain prompt medical treatment for her insect bites.
When 74 Industries received Ms. Tejada’s civil complaint, they tendered it to NJM, its workers’ compensation carrier. However, NJM declined to defend the civil complaint because of the allegations of intentional harm. 74 Industries then brought a counterclaim against NJM to compel NJM to defend the civil lawsuit filed against it under the Employer’s Liability section of the policy. The trial court ruled in favor of NJM and held that the NJM policy excluded coverage for alleged intentional wrongs. 74 Industries appealed and made three arguments:
- NJM’s duty to defend was triggered by NJM’s representation of 74 Industries in the workers’ compensation claim;
- NJM had a duty to defend because there was ambiguity in the policy;
- Public policy considerations warranted a defense by NJM.
The Appellate Division found no merit in the argument that NJM had a duty to defend simply because of the Section 20 settlement. Essentially, the Court rejected this argument because there was no mention of the pending civil lawsuit when the workers’ compensation claim was resolved in the Division. Section 20 was simply a release of all claims arising out of the formal claim petition in the Division. Furthermore, NJM or the petitioner did not express intent to resolve or defend other claims outside this claim petition.
The second argument was more complicated. The NJM workers’ compensation policy had two exclusions under C5 and C7. 74 Industries argued that they conflicted. The C5 exclusion stated that their insurance does not cover bodily injury intentionally caused or aggravated by 74 Industries. A C5 endorsement added that the insurance policy does not cover all intentional wrongs by the insured “or bodily injury resulting from an act or omission” by 74 Industries. The Court interpreted that this provision is both clear and unambiguous. However, 74 Industries argued that the C5 exclusion was undermined by the C7 exclusion, which said that “NJM will defend any claim … where bodily injury is alleged.”
The Appellate Division concluded that one must read the C7 exclusion in the context of the entire contract of insurance, which made clear that intentional harm claims alleging substantial certainty of bodily injury were excluded from coverage. The C7 exclusion ruled out coverage for:
Damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against or termination of any employee, or any personnel practices, policies, acts or omissions.
The Court also reviewed a separate C7 endorsement, which provides that NJM “will defend any claim, proceeding, or suit for damages where bodily injury is alleged.” However, the same provision also reserved NJM’s right to investigate and settle and stated that it “will not defend or continue to defend after the applicable limits of insurance have been paid.” The policy also limited any legal costs incurred by 74 Industries.
74 Industries focused on the language of the above endorsement regarding the defense of bodily injury claims. 74 Industries said this language contradicted the C5 exclusion. The Appellate Division disagreed and stated that the C7 endorsement must be read in the context of the entire insurance policy, specifically the language excluding coverage for intentional harm claims for bodily injury. The Court concluded, “Again, based on the plain language, the endorsement provides only that C7 exclusion will not be used to deny coverage for bodily injuries, such as ‘the emotional injuries accompanied by physical manifestations’ explicitly noted by the Schmidt court.” The Court added, “. . . it does not create new coverage for all bodily injuries outside C7 circumstances referenced in the exclusion.” The Court also noted that Ms. Tejada never asserted or alleged employment discrimination or retaliation, unlike the Plaintiff in Schmidt v. Smith. As for the allegation that Plaintiff was threatened with adverse employment action if she left the job site to treat, the Court found that this was equivalent to “coercion,” for which the C7 exclusion precluded coverage.
Finally, the Court flatly dismissed the public policy argument. The Court said that New Jersey courts have consistently held that exclusions for intentional wrongs in insurance policies are legally valid.
This case is significant for workers’ compensation carriers, employers, and practitioners. In reality, there has been an increase in lawsuits filed by employees in recent years against their employers under the employer’s liability portion of workers’ compensation policies (also known as Coverage B). The law has not changed much since Millison v. E. I dupont de Nemours & Co, 101 N.J. 161 (1985), which remains the leading case and creates a very high bar for plaintiffs to prove intentional harm claims and surmount the exclusive remedy contained in N.J.S.A. 34:15-8. Having said that, this does not seem to be stopping employer liability lawsuits from being filed in increasing numbers. Depending on the allegations made by the employee in the employer’s liability claim, the employer may or may not have insurance coverage. Some specific counts may be covered, as well as other counts in the complaint for which there is no coverage. However, when the allegations are pure bodily injury from alleged intentional acts, as in this case, the stakes are very high for employers since workers’ compensation policies generally exclude coverage for the alleged wrongful acts of employers.
The post Appellate Division Affirms Dismissal of Insured’s Claim Against Its Carrier for Coverage of Intentional Harm Lawsuit Alleging Bodily Injury appeared first on NJ Workers' Comp Blog.
