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Broadly-Read Insurance Policy Exclusion Allows Insurer to Deny Coverage for Pharma Company Due to Chairman’s Alleged Self-Dealing Scheme by New Jersey Supreme Court

Mist Pharmaceuticals (Mist), sought coverage from Mist’s insurer, Berkley Insurance Company (Berkley) under a Directors and Officers (D&O) policy for the damages and costs of defense arising out of two lawsuits. Those lawsuits alleged Joseph Krivulka, Mist’s Chairman, engaged in self-dealing between Mist and other entities he controlled. Berkley denied coverage to Mist, stating that coverage was not available to Mist arising out of allegations in the suits due to Krivulka’s roles with other entities. The primary question in Mist Pharms., LLC v. Berkley Ins. Co.,  2026 N.J. LEXIS 397 (2026), before the New Jersey Supreme Court was whether Berkley properly denied coverage for losses “in any way involving” wrongful acts by Krivulka serving in a capacity for any other entity than Mist.

Mist entered a D&O policy with Berkley in 2014 that covered Mist, including Krivulka in his role as Chairman, for any claims made against them for any alleged “Wrongful Act.” A “Wrongful Act” to mean any allegations of a breach of duty or neglect against either Krivulka, in his capacity as Chairman, and Mist. The policy included coverage for damages and costs of suit, but not to any claim arising out of damages not covered, or excluded, by the policy. One such exclusion, the “Capacity Exclusion,” stated that Berkley would not have to make any payments for a claim against Mist or Krivulka based upon or arising out of “or in any way involving any Wrongful Act” by Mist or Krivulka (in his capacity as Chairman).

An outside LLC filed the two lawsuits in question against Mist and Krivulka alleging that Akrimax Pharmaceuticals (Akrimax), a pharmaceutical company Krivulka formed in 2007, which he operated, and of which the LLCs were members, engaged in a scheme to divert funds from Akrimax to Mist. Akrimax was not an insured under Mist’s policy with Berkley.

Shortly after receiving the suit in late 2015, which named Mist, Krivulka, and several other Mist-related entities Berkley did not insure (including Akrimax and other entities owned or controlled by Krivulka), Mist submitted the claim to Berkley. After initially providing partial coverage, an ultimate decision by Berkley disclaimed coverage entirely. Causing Mist to file suit.

Mist advanced several claims against Berkley, primary amongst them was that Berkley misinterpreted the Capacity Exclusion. Mist argued that the D&O policy should cover “dual capacity” situations where an officer acts on behalf of both an insured and an uninsured entity. Berkley countered, arguing the plain meaning of the Capacity Exclusion barred coverage to Mist because all of the underlying allegations arose out of Krivulka’s self-dealing and misconduct as a director of Akrimax, an uninsured entity, not Mist.

The Supreme Court agreed with Berkley, finding that the underlying lawsuits fell squarely within the Capacity Exclusion. It determined that the repeated “or” in the exclusion indicated the exclusion should be read in the disjunctive, meaning that each term separated by an “or” is, on its own, sufficient to trigger the exclusion and deny coverage. That meant the phrasing “based upon” or “arising out of” or “in any way involving any Wrongful Act” should be interpreted very broadly. Here, there are allegations against multiple Krivulka-controlled entities, all of which share one common feature – Krivulka’s role as a director of an entity not insured by Berkley. Each allegation against Mist, or Krivulka as an insured through Mist, was related to his capacity as a member of an uninsured entity. Therefore, each of the allegations asserted against Krivulka, and therefore against Mist, implicate conduct outside of the scope of his covered capacity as the Chair of Mist, and thus excluded from coverage. The Court further disagreed with the “dual capacity” claim, stating that even if Krivulka was acting on behalf of Mist, the “scheme” allegations arose out of his role at Akrimax – an entity Berkley did not insure, and all of the claims against Mist or Krivulka were related to his leadership of Akrimax.

Coverage for Auto Accident Denied Because Driver Was Not Permissive User

This matter concerned a coverage dispute as to an automobile accident between plaintiff Carrie and Ka-Sandra Allen and defendant Christian Kirch.  While driving his sister-in-law’s vehicle, defendant Kirch rear ended the Allens’ vehicle.  The vehicle operated by Kirch had been insured by New Jersey Manufacturer’s Insurance Company (NJM).  The issue in Allen v. Kirch, 2026 N.J. Super. Unpub. LEXIS 578 (App. Div. Mar. 24, 2026) was whether NJM properly denied coverage for the automobile accident because Kirch lacked actual or implied permission to use his sister-in-law’s vehicle when the accident occurred.

On the day of the accident, the owner of the vehicle, Kaitlynn Doheny, drove to her then-estranged husband Sebastian Kirch’s home so their children could visit with him.  She parked in the street and, upon entering the house, she placed her keys, her phone, and her purse on the counter because that is where “everyone put their keys when they came in the house.”  Shortly after she arrived, she laid down with her son to take a nap.

Sebastian later woke her up and advised her that Christian, Sebastian’s brother who was living with him at the time, was involved in a collision while driving Kaitlynn’s car.  According to Christian, he was driving her car to buy some “stuff”, which apparently included diapers for the children, when he struck the rear of the Allens’ car, which was stopped at a yield sign.  The accident resulted in the Allens being injured.

Before taking her car, Christian stated that he called Kaitlynn but she did not answer her phone.  Christian, who was originally from Peru, explained that “in my country, if you borrow a car from a relative it won’t be an issue but since I didn’t know so I just took her car because I needed to buy some stuff.”

Kaitlynn testified in a deposition that she was “friendly” with Christian but not close and she never resided with him.  Further, Christian never drove her car previously.  She had previously driven Christian to work probably less than five times. 

After the Allens filed their personal injury lawsuit against Christian and Kaitlynn, NJM sent a letter declining coverage under Kaitlynn’s policy for Christian’s operation of Kaitlynn’s vehicle.  It cited to the exclusion for liability coverage which stated as follows:

We do not provide liability coverage for any insured:. . . using a vehicle without a reasonable belief that such insured is entitled to do so.  This Exclusion. . . does not apply to a family member using your covered auto which is owned by you.

The policy defined the term family member as “a person related to you by blood, marriage, civil union under New Jersey law or adoption who is a resident of your household.” 

Following this declination, St. Paul Protective Insurance Company (“St. Paul”), the insurer of the Allens’ vehicle, filed a declaratory judgment action against NJM, seeking a declaration that NJM was required to insure Christian in the negligence action and included the Allens, Christian, and Kaitlynn as interested party defendants.

After discovery was exchanged, both the Allens and St. Paul filed for summary judgment, arguing that Christian was a permissive user under Kaitlynn’s insurance policy and, therefore, NJM was required to defend and insure him.  NJM cross-moved for summary judgment.  It argued that it was not required to defend Christian or cover any loss resulting from his driving, relying upon the policy’s permissive use exclusion.

After hearing the arguments of counsel, the trial court denied the Allens and St. Paul’s motions and granted NJM summary judgment.  It found that NJM was not required to defend or insure for the damages resulting from the accident because Christian was not a covered user of Kaitlynn’s vehicle and “Christian had no reasonable belief Kaitlynn permitted his use of her car” on the date of the accident.

Further, the court found the “initial permission rule” inapplicable because there was no evidence that Kaitlynn had ever in the past granted Christian authorization to drive her car or established a regular arrangement by which Christian could infer standing permission.  It explained that there was no evidence to suggest that Christian could have reasonably believed he had permission and rejected his claim that Christian’s prior experience in Peru would create that reasonable impression in these circumstances.  Further, Christian did not qualify as a covered family member because he resided at a different address and was Kaitlynn’s brother-in-law.

Following this decision, the Allens appealed the summary judgment in favor of NJM, arguing that they had demonstrated that Christian had implied permission to drive the vehicle, mandating coverage under Kaitlynn’s policy.  Or, at the minimum, they argued that there were material issues of fact existing regarding the reasonableness of his belief that he was permitted to borrow her vehicle, which should have resulted in the denial of the summary judgment motion.

The Appellate Division cited to the Supreme Court’s clarification of the statutory “use” clause which requires coverage for only permissive use of an automobile.  It quoted the Supreme Court language that “if a person is given permission to use a motor vehicle in the first instance, any subsequent use short of theft or the like while it remains in his possession, though not within the contemplation of the parties is a permissive use within the terms of a standard omnibus clause in an automobile liability insurance policy.” 

Thus, the threshold permissive use inquiry evaluates whether the initial use of the vehicle was with the “consent, express or implied, of the insured.”  Permissive use may arise from “a course of conduct or relationship between the parties in which there is mutual acquiescence or lack of objection signifying consent.”  It can also be shown by “a pattern of permitted use of the vehicle, which may give rise to an inference that the owner gave his consent to use on a subsequent occasion.”

In applying this law, the Appellate Division reviewed the record and agreed with the trial court that any damage caused by Christian’s use of the vehicle was not covered under Kaitlynn’s policy.  After reviewing the record, the Court noted that there was no suggestion of Christian’s prior use of Kaitlynn’s vehicle, authorized or otherwise.  The evidence showed only that she drove him to work less than five times.  Thus, the Appellate Division found that “any argument Christian drove the vehicle subsequent to some prior expressed authorization or in continuation of initially authorized use belies the record and fails from the outset.”

Further, the Court considered the events of that day.  It concluded “no confluence of events on the day of the accident suggests Christian had implied permission to use the car.”  The Appellate Division noted the evidence that Christian took Kaitlynn’s keys from the counter without authorization.  There was no evidence that she consented or asked Christian to take her car. To the contrary, Christian admitted that he attempted to call her to ask permission to use her car, did not reach her, yet he took the car anyway.  Thus, the Court was satisfied that no jury could find these actions constituted implied permission.

Further, the Appellate Division rejected the Allens’ claim that Christian held a reasonable belief to drive the car, or, in the alternative, that he was a family member covered by the policy.  The term “family member” did not apply because Christian was not a “resident” of Kaitlynn’s household.  There was no evidence that their lives were interdependent or comingled in any significant manner.  Christian did not reside in the same household with Kaitlynn.  To the contrary, he resided with his brother, from whom Kaitlynn was separated and living apart on the day of the accident.  Therefore, the Appellate Division found that the “family member” exception did not apply.

Additionally, the Court rejected the reasonable belief argument.  It found that the record did not support a viable claim that Christian possessed the “reasonable belief” that he was free to take and operate Kaitlynn’s car that day.  The Appellate Division agreed with the trial court that Christian’s claim that in Peru, members of families freely use each other’s vehicles and that he was using the car to purchase diapers for her children, did not constitute a “reasonable belief” that he had permission to use Kaitlynn’s car.  Thus, the Court found that NJM “fairly denied coverage” for damages resulting from Christian’s driving and that summary judgment was properly entered in favor of NJM.  Hence, the Appellate Division affirmed the trial court’s decision, granting summary judgment to NJM. 

Plaintiff Unable to Collect Judgment Over Insurance Coverage Amount for Bankrupt Defendant

Plaintiff Keith Hacker was in a motor vehicle accident with defendant Carlos Jaime-Valdez on January 27, 2018.  Defendant Jaime-Valdez had $100,000 of insurance coverage each with both State Farm and Geico.  After answering the complaint, Jaime-Valdez filed for bankruptcy. The issue in Hacker v. Jaime-Valdez, 2025 N.J. Super. LEXIS 44 (App. Div. June 13, 2025) was whether the plaintiff could collect on a judgment against the bankrupt defendant in excess of the amount of available insurance coverage.

Plaintiff Hacker filed a lawsuit against Michele Donato, the owner of the vehicle, and Jaime-Valdez, who was operating the vehicle that collided with his vehicle.  Jaime-Valdez answered the complaint and participated in discovery until he filed a bankruptcy petition under Chapter 7.  This lawsuit was listed in his schedule and plaintiff was listed as a creditor.  The bankruptcy was filed on May 14, 2021.

On July 7, 2021, defendant filed a motion with the trial court for an order staying plaintiff’s lawsuit.  His defense counsel represented that defendant had recently filed for bankruptcy and, hence, sought a stay of this Law Division matter pending the outcome of the bankruptcy proceeding.

Plaintiff opposed that motion and represented to the trial court that he would be immediately filing a motion to lift the automatic stay.  Plaintiff’s counsel provided a certification that State Farm and Geico each had $100,000 in liability coverage and excess liability coverage respectively, regarding this accident.  Plaintiff’s counsel opposed the stay motion because he represented that plaintiff was seeking $200,000 to resolve this claim and nothing above the liability and excess coverage afforded to defendant.  Therefore, he argued that the resolution of this civil matter would not involve the property of the bankruptcy case.

After opposing the motion, plaintiff did move in the bankruptcy court for relief from the automatic stay.  He sought an order modifying the automatic stay, expressly to permit him to pursue the defendant’s $200,000 in insurance coverage.

The bankruptcy court conducted a hearing and granted relief from the automatic stay and permitted him to pursue his prosecution of the Law Division action to the limits of the defendant’s available liability insurance coverage.  The plaintiff’s counsel submitted that order to the Law Division judge and, hence, the trial court subsequently denied the defendant’s motion for a stay of this civil claim.

The case thereafter proceeded to trial and, on January 19, 2023, the jury awarded $1.6 million dollars to plaintiff. Previously, the plaintiff had represented to both the bankruptcy court and the Law Division judge that he was only seeking to pursue the limits of defendant’s insurance coverage.  However, he now advised the defendant that he would hold defendant directly responsible for the excess verdict and also seek a bad faith claim against defendant’s respective insurance carriers.

The defendant then moved to mold the verdict to the $200,000 coverage limit, or, in the alternative, he moved for a remittitur or a new trial.  He relied upon the bankruptcy court’s order for the motion to mold the verdict to the coverage limit.  The trial court denied that motion, ruling that the defendant needed to seek relief from the bankruptcy court.  The trial court issued an order, awarding plaintiff $1.6 million plus pre-judgment  interest and counsel fees based upon defendant’s non-acceptance of plaintiff’s offer of judgment. 

However, the trial court stayed the judgment to give defendant an opportunity to apply to the bankruptcy court.  Defendant then moved in the bankruptcy court to reopen the discharged Chapter 7 case and for an order that the judgment obtained by plaintiff was not enforceable beyond the $200,000 policy limits of his automobile insurance.  The bankruptcy court did grant defendant’s motion and found that the concept of judicial estoppel applied.

Under the doctrine of judicial estoppel, a party would be precluded from assuming an inconsistent position with one court after he’s been successful with it in another.  Following the entry of the bankruptcy court’s orders, defendant again moved in the Law Division for an order molding the judgment to $200,000.  While acknowledging the bankruptcy court’s order, the trial court nevertheless denied defendant’s motion.  This appeal ensued. 

The Appellate Division did find that judicial estoppel applied.  It noted that under this doctrine, “if a court has based a final decision, even in part, on a party’s assertion, that same party is thereafter precluded from asserting a contrary position.”  Here, the Court noted that the plaintiff had made representations in his opposition to defendant’s Law Division stay motion and in his motion in the bankruptcy court for relief from the automatic stay that he was pursuing only $200,000, which were the funds provided by defendant’s insurance coverage.  The bankruptcy court granted plaintiff’s motion based upon this representation to lift the automatic stay.

The Court further found that Plaintiff thereafter submitted this order to the Law Division in support of his opposition to defendant’s stay of the Law Division action.  Based upon those orders, plaintiff was able to proceed to trial.  It was only after the jury had rendered its verdict that plaintiff changed his position and was now asserting that he was pursuing not only the insurance proceeds but the full amount of the verdict.

The Appellate Division found that “having represented to both courts, he was pursuing a judgment limited to the amount of the insurance coverage and having received relief based on that representation, plaintiff was judicially estopped from changing his position.”  Thus, the Court concluded that the trial court made a mistake in denying defendant’s motion to mold the verdict to the $200,000 coverage limit.  It reversed the trial court decision and remanded the case back for an entry of an order, molding the verdict to the $200,000 insurance coverage limit.

Appellate Division Upholds Summary Judgment Dismissal of Suit for Plaintiff’s Failure to Maintain New Jersey Automobile Insurance

Plaintiff Ramon Hernandez claimed to have suffered injuries when his car was struck in the rear on a New Jersey road by a car being driven by defendant Hannah Kurtz and owned by co-defendant Eric Kurtz. In Hernandez v. Kurtz, 2024 N.J. Super. Unpub. LEXIS 3049 (App. Div. Dec. 17, 2024), the issue was whether plaintiff Hernandez’s failure to obtain a New Jersey automobile insurance policy at the time of the accident barred him from recovering damages for his injuries. The trial court judge relied upon a New Jersey statute which disallowed a monetary recovery when a plaintiff lacked the required New Jersey auto insurance coverage.

In this case, the plaintiff was driving his car when he met with an accident with defendants’ vehicle in New Jersey.  However, at the time of the accident, plaintiff had a driver’s license issued by the state of Maryland, and his vehicle was insured and registered in Maryland. Plaintiff sued defendants for damages from injuries he suffered as a result of the accident. Thereafter, defendants filed for a summary judgment dismissal of the lawsuit on the ground that his claim was barred because his car was considered “principally garaged” in New Jersey at the time of the accident, yet it was not insured under a New Jersey auto policy.

The Court reflected upon the applicable statutes, noting that N.J.S.A. 39:6B-1(a) mandated that every owner or registered owner of a motor vehicle, “registered or principally garaged in this State shall maintain . . . motor vehicle liability insurance coverage.” The coverage must include, a $15,000 minimum level of coverage for PIP benefits. The Court observed that, the applicable statutes did not define “principally garaged,” but case law suggested that term signified the physical location where the vehicle was primarily kept most of the time.

Defendants claimed that plaintiff’s claim was barred under N.J.S.A. 36:6A-4.5(a), which provided that an individual who failed to maintain Personal Injury Protection (PIP) coverage at the time of the accident was barred from recovering economic or non-economic losses for injuries suffered in the accident

Further, the Court noted that although the insurance statute did not provide a time interval for when a vehicle would be deemed to be principally garaged in New Jersey, the state’s motor vehicle statutes required owners of motor vehicles to get the vehicle registered in 60 days after re-locating to New Jersey. The Court clarified that the 60-day grace period was triggered not when the vehicle was principally garaged in the state, but rather, when the vehicle owner becomes a resident of the state.

Following the analysis of the applicable law, the Appellate Division observed that, in support of the motion for summary judgment, defendants relied upon plaintiff’s deposition testimony which revealed that he had moved to Maryland in 2007-2008, lived there for a few years and then moved back to NJ in 2021. It was his testimony that, at the time of his deposition, he had been living in New Jersey for about two and a half years. However, at the time of the accident, he had been living in New Jersey for about three months and had owned the subject vehicle for either two or three years. It was undisputed that, as of the time of the accident, plaintiff had not registered his car in New Jersey, nor had he procured a New Jersey auto insurance policy.

Plaintiff’s Maryland policy provided him with basic PIP coverage, mandated under Maryland law, which was only $2,500. It was undisputed that this coverage was below the $15,000 minimum PIP coverage required under New Jersey law. Thus, this policy did not comply with the requirements of a New Jersey auto insurance policy.

The Court noted that the motion judge correctly focused on the sixty-day grace period for car registration, and plaintiff’s acknowledgment that at the time of the accident he had been living in New Jersey for a longer period of “about three months, more or less.” The Appellate Division stated that the “principally garaged” provision denoted that the car owner should act promptly within a reasonable time to acquire the mandatory minimum insurance coverages and that, in this case, plaintiff failed to do so. Further, the Court noted that plaintiff presented no evidence to show that he had been living in New Jersey for less than three months before the accident and that his vehicle was garaged elsewhere.

Therefore, the Appellate Division upheld the decision of the trial court, ruling that plaintiff lacked the required New Jersey auto coverage at the time of the accident and, hence, was prohibited from recovering personal injury damages from defendants. Thus, the Court affirmed the summary judgment dismissal in favor of defendants.

Plaintiff Found to Be Eligible for PIP Benefits for Burns Suffered From Hot Tea Spilled on Her at Dunkin’ Donuts Drive-Through

Plaintiff, Shani Harrell, made a claim against her automobile insurance company, Progressive Garden State Insurance Company (“Progressive”), for personal injury protection (PIP) benefits when she suffered severe burns to her body after a restaurant employee spilled a hot beverage on her at a Dunkin’ Donuts drive-through.  She applied to Progressive for PIP benefits under her policy, which Progressive denied.  The issue in Harrell v. Mody Management, LLC d/b/a Dunkin’ Grand Group, Inc., 2024 N.J. Super. Unpub. LEXIS 2579 (App. Div. Oct. 23, 2024) was whether plaintiff was entitled to PIP benefits for her injuries.  (PIP benefits can include payment of medical bills, wage loss, and essential service benefits.)

At the trial court level, Progressive filed for summary judgment on the coverage issue.  The trial court granted summary judgment for Progressive, ruling that plaintiff was not operating her vehicle at the time she was injured and that there was no causal relationship between her use of the vehicle and her injuries. Hence, the judge found there was no coverage under her policy for PIP benefits.

This decision was appealed to the Appellate Division, which reversed. 

The Appellate Division noted that the facts showed that plaintiff was stopped in the drive-through while purchasing hot tea.  When the tea was passed to her through her window, the beverage cup and its top became dislodged, and the contents spilled into the driver’s compartment of the car onto plaintiff.  The hot tea flowed under her lap between her legs and onto the seat beneath her, burning her. 

She subsequently filed a claim for PIP benefits pursuant to her auto insurance policy.  According to her policy, PIP benefits would be paid “because of bodily injury caused by an accident and sustained by an injured person while occupying, entering into, alighting from, getting on, getting off of, loading, unloading, or using an automobile . . .”  Progressive had argued that there was no connection between the injuries claimed and her automobile.  Further, it argued that her injuries were not caused by the result of occupying, entering into, alighting from or using an automobile.

The trial court had agreed that there was no nexus between the use of the automobile and her injuries.  The Appellate Division, however, disagreed with that analysis.  It noted that the question required the court to consider whether a substantial nexus existed between the accident plaintiff suffered and the use of her car.

The Court noted that she was injured when hot tea was spilled and burned her as it was passed into her car.  She was obviously occupying her vehicle and sitting in the driver’s seat at the time she was injured.  She was clearly using her vehicle “to acquire her hot beverage from a business that expressly offers customers the option to pick up their food and drinks while remaining in their cars.”

Thus, the Court found that there was a substantial nexus between the burn incident and her vehicle use.  Therefore, the Appellate Division concluded that plaintiff was covered under her insurance policy’s PIP terms.  It reversed the order granting defendant summary judgment and remanded the matter back to the trial court.

Appellate Division Finds Coverage Under Loading and Unloading Doctrine for Donut Shop Sued in Serving Customer Hot Tea Through Drive Through Window

By: Victoria M. Adeleke, Law Clerk
Edited by: Betsy G. Ramos, Esq.

Plaintiffs Bridgewater Donuts, LLC and Tamar, Inc. filed a lawsuit against defendant Geico Indemnity Co. seeking coverage under an automobile liability policy issued to Susan Mendelsohn-Hall. Mendelsohn-Hall alleged she suffered injuries when hot tea spilled on her at the Dunkin’ Donuts drive-through, leading to a lawsuit against Plaintiffs. Plaintiffs then sought coverage under Mendelsohn-Hall’s auto policy issued by Geico, invoking the “loading and unloading” doctrine. However, Geico denied coverage, prompting this legal dispute. The issue in Bridgewater Donuts, LLC v. Geico Indemnity Co., 2024 N.J. Super. Unpub. LEXIS 1505 (App. Div.  July 9, 2024) was whether Plaintiffs qualified as additional insured under Mendelsohn-Hall’s auto policy under the loading and unloading doctrine.

Mendelsohn-Hall had a New Jersey Family Automobile Insurance policy that provided coverage for bodily injury sustained by a person arising out of the ownership, maintenance or use of the automobile. The policy defined the persons insured to include Mendelsohn-Hall and any other person using the auto with her permission.

On the day of the accident, Mendelsohn alleged she was scalded by hot tea as it was delivered to her at the drive thru window by plaintiffs’ employees and that her injuries were proximately caused by plaintiffs’ negligence.  

Plaintiffs filed a complaint against Defendant Geico, seeking a declaratory judgment that they were additional insureds under Mendelsohn-Hall’s policy. Defendant moved for summary judgment, arguing plaintiffs had not been using Mendelsohn-Hall’s vehicle when she sustained her injuries and, therefore, were not additionally insured as users of the automobile. The trial court granted Geico’s motion for summary judgment and dismissed Plaintiffs’ complaint. The trial court determined that Plaintiffs did not qualify as additional insureds under Mendelsohn-Hall’s auto policy because her injuries were not directly attributable to the loading of the tea by plaintiffs into her vehicle.

The Appellate Division reversed. The appellate court first explained that N.J.S.A. 39:6A-3 requires that automobile owners have auto insurance that covers loss arising out of the ownership, maintenance, operation and use of an automobile. The Court then explained that unloading and loading had always been a verified use of the vehicle under the statute, and implicit in this requirement is the obligation to provide omnibus liability coverage to all persons who use the named insured vehicle by participating in its loading or unloading.

The Appellate Division relied on the N.J. Supreme Court case of Penn Nat’l Ins. Co. v. Costa, where the Court found that to determine whether an injury arises out of the use of a motor vehicle thereby triggering coverage, that there must be a substantial nexus between the injury suffered and the asserted negligent use of the motor vehicle. Use of a motor vehicle has been interpreted broadly to include the acts of loading and unloading the automobile.

The Appellate Division found that in Bridgewater Donuts, LLC, the record supported a finding of the requisite substantial nexus. The Appellate Division pointed to the undisputed fact that plaintiffs’ drive-up window was available to customers to purchase and pick up their items and load the items into their car. Plaintiffs’ employee loading the hot tea she had purchased into her vehicle was integral to the completion of the transaction between Mendelsohn-Hall and plaintiffs. Therefore, the Court determined her injuries bore a substantial and not incidental nexus to Plaintiffs’ alleged negligent use during the loading process under her automobile policy.

Thus, the Court reversed the trial court’s order granting summary judgment to defendant Geico and denying Plaintiffs’ motion for summary judgment and remanded the case back to the trial court for further proceedings.

Insurance Carrier Not Estopped From Denying Coverage After Affording Defense of Its Insured From an Automobile Accident

This case involved an insurance coverage dispute from an automobile accident involving an employee of defendant Century Waste Services, LLC (“Century”).  The employee was driving a vehicle owned by a manager’s mother, which was a vehicle not covered under the insurance policy issued to Century by United Specialty Insurance Company (“USI”).  The trial court had ruled that USI was not required to indemnify Century for this accident.  In the case of United Specialty Insurance Co. v. Century Waste Services, LLC, 2023 N.J. Super. Unpub. LEXIS 2097 (App. Div. Nov. 20, 2023), the issue on appeal was whether USI was estopped from denying coverage because USI’s reservation of rights letter did not inform Century that it could accept or reject USI’s assigned counsel.

This accident happened when a manager employed by Century asked another employee to drive from Elizabeth, New Jersey to Bronx, New York to pick up a check from a Century customer.  The employee was given permission by the manager to drive a vehicle owned by the manager’s mother.  However, the employee was involved in a car accident on the way to pick up the check.

The passengers in the other vehicle sued Century, the Century employee who drove the borrowed vehicle, and the owner of the borrowed vehicle to recover damages for injuries they suffered in the car accident.  Thereafter, USI’s claim administrator sent a letter to Century advising it had retained counsel to defend Century in the underlying action.  The letter also advised Century that, if Century chose to retain its own attorney, it would be at its expense. 

GEICO was the borrowed vehicle’s insurer and assigned counsel to defendant both the vehicle’s owner and the Century employee driving the vehicle at the time of the accident.

USI wrote to Century offering to continue defend it in the underlying lawsuit, subject to a reservation of rights.  The letter stated as follows:

“If we do not hear from you to the contrary, we will assume that you consent to the retention of Meaghan Lipton, Esq., for this matter.” 

Century did not object to USI’s continued representation in the underlying action.

Thereafter, USI filed a lawsuit seeking a declaratory judgment that USI did not owe Century a defense or indemnity in the underlying lawsuit.  USI filed a motion for summary judgment in the declaratory judgment action.  Century filed a cross-motion for summary judgment, seeking to require USI to provide a defense and indemnify Century in the underlying lawsuit.  The trial court heard both motions and denied them both.

Thereafter, USI filed a second motion for summary judgment, seeking a declaratory judgment that it did not owe Century a defense or indemnity in the underlying suit.  Again, Century cross-moved for summary judgment and opposed USI’s motion.  This time, the trial court entered an order granting USI’s summary judgment motion and denying Century’s cross motion. 

In making its ruling, the trial court reasoned that there was never any coverage for Century on the underlying action under the USI policy in the first place and that Century cannot be allowed to create that coverage through estoppel.  The court made a determination that the letter from USI reserving its rights was not insufficient simply because it did not include “certain magic words.”   Further, the court determined that Century had suffered no prejudice. 

Century appealed this ruling and contended that USI should be estopped from denying coverage because the reservation of rights letter did not contain the required language “to inform Century it could accept or reject the offer of a defense,” and also because Century incurred prejudice as a result of USI’s control of the legal defense. 

The Appellate Division explained that estoppel is a doctrine applied at law and in equity for the purpose of precluding a party “from asserting rights which might perhaps have otherwise existed . . . as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worst.”  The Court also noted that the “predominant view” is that a loss which is not within the coverage of a policy cannot be bought within such coverage by invoking the principles of waiver or estoppel.

In this matter, Century did not dispute that the borrowed vehicle did not qualify as a “covered auto” under the USI policy.  Its argument rested on the principle of estoppel, which in turn hinged on whether Century was properly informed of its right to choose either to consent to legal representation by the lawyer provided by USI or to retain its own attorney at its own expense. 

The Appellate Division noted the well-settled law that “without the insured’s consent or circumstances that suggest the insured acquiesced in the insurer’s control of the defense, an insurer will be estopped from later disclaiming coverage.”  Further, the Court noted that reservation of rights letters have been regarded as “proper defense mechanisms for insurance companies.” 

In this situation, the Court found that it was dealing with a variation of acquiescence by silence.  It noted that there are no magic words that need to constitute a valid reservation of rights.  In this case, the Appellate Division was satisfied that “if we do not hear from you” language in the reservation of rights letter adequately communicated that Century had the option to reject the use of the attorney by USI.  The Court inferred that Century elected not to exercise its option to retain its own counsel when it chose not to advise USI that it did not want its interest represented by the attorney retained by USI.  Thus, the Appellate Division concluded that Century had consented to allow the attorney retained by USI to control the defense of the underlying lawsuit.

Under these circumstances, the Appellate Division found that Century failed to provide a basis upon which to apply the estoppel doctrine.  Further, the Court found that Century had not suffered any prejudice.  It was unable to show how the case would have been handled differently had it chosen to retain a different attorney at its own expense.  Thus, the Appellate Division affirmed the trial court’s ruling that USI was not estopped from denying coverage because of the lack of specific language in its reservation of rights letter.

Homeowner Did Not Have Insurance Coverage for Accident of Person Who Lived With Insured

Plaintiff Mary Ann Iaeck lived with Patricia Barnaba in a condominium owned by Defendant Barnaba.  Plaintiff fell down a flight of stairs in the condominium and sued Barnaba, claiming that Barnaba’s negligence caused her fall.  Barnaba had a homeowner’s insurance policy with personal liability coverage with Federal Insurance Company (“Federal”).  The issue in Iaeck v. Barnaba, 2023 N.J. Super. Unpub. LEXIS 1768 (App. Div. Oct. 16, 2023) was whether the Federal insurance policy provided coverage for this personal injury claim or whether the exclusion for liability to persons who live with the policyholder was triggered.

Plaintiff had lived with Barnaba in the condominium since 2008.  She had a verbal lease with Barnaba and paid Barnaba rent.  However, it was undisputed that they shared parts of the condominium, including the kitchen, the garage, the mailbox and the space where the washing machine and dryer were located.  Plaintiff used the bedroom and bathroom on the fourth floor of the condominium.

After living with Barnaba for about 11 years, plaintiff fell down the stairway in the condominium.  She claimed that she tripped because the lights were out, the handrail was loose and Barnaba had placed boxes and other things on the steps.

As a result of her fall, plaintiff suffered a fracture of her left leg and compartment syndrome. Plaintiff was required to have multiple surgeries, which left her with permanent scarring.

At the time of the accident, Barnaba had a homeowner’s insurance policy with Federal.  The policy did cover Barnaba’s home and provided her with personal liability coverage which provided coverage for damages Barnaba was legally obligated to pay for personal injuries.

However, the policy contained numerous exclusions.  The pertinent one was entitled “Covered person’s or dependent’s personal injury.”  According to that exclusion, Federal stated that it would not cover damages for personal injuries for any covered person or their dependents where the ultimate beneficiary is the offending party or defendant.  Further, the exclusion stated that Federal would not cover any damages for personal injury “for which you or a family member can be held legally liable in any way, to a spouse, a family member, a person who lives with you, or a person named in the Coverage Summary.”

After the plaintiff’s fall, counsel for plaintiff sent Federal a letter advising of the fall and asking Federal to open a bodily injury claim under its policy.  Thereafter, Federal denied any obligation to provide Barnaba with coverage for plaintiff’s injuries.  Federal advised that Barnaba’s personal liability coverage was excluded under the policy’s “Covered person’s or dependent’s personal injury exclusion.”

Thereafter, plaintiff sued Barnaba with plaintiff claiming that Barnaba was negligent in causing her injuries.  Thereafter, plaintiff amended her complaint to assert a direct claim against Federal and sought a declaratory judgment that the policy issued by Federal to Barnaba provided coverage for plaintiff’s injuries.  She also requested a default against Barnaba.  Sometime later the trial court conducted a proof hearing concerning plaintiff’s injuries, for which Barnaba did not appear.  A judgment in the amount of $766,330 was entered in favor of plaintiff against Barnaba.

Cross-motions for summary judgment were filed between Federal and plaintiff as to the coverage issue.  The trial court granted summary judgment to Federal and declared that Federal did not have any indemnity or defense obligations as to plaintiff’s personal injury claims against Barnaba and dismissed all claims against Federal with prejudice.  That order was appealed to the Appellate Division.

The issue upon appeal was whether the “Covered person’s or dependent’s personal injury” exclusion applied to plaintiff’s personal injury claims because plaintiff lived with Barnaba.  The Appellate Division noted the well settled concepts that coverage provisions are to be read broadly and exclusions are to be read narrowly with any potential ambiguities being resolved in favor of the insured. Further, the policy is to be read in a manner that fulfills the insured’s reasonable expectations.  However, if the plain language of the policy is unambiguous, the court is not to engage in a strained construction to support the imposition of liability or write a better policy for the insured than the one purchased.

In applying these principles, the Appellate Division found that the “Covered person’s or dependent’s personal injury” exclusion did apply.  The Appellate Division explained that Barnaba’s liability to plaintiff for her personal injuries was excluded under the policy because plaintiff did live with Barnaba at the time of the accident.  It found that the language was “plain and unambiguous.”  The Court found that the exclusion applied to personal injury suffered by plaintiff because plaintiff was living with Barnaba at the time of the accident.  It found no ambiguity in this exclusion, even if read narrowly, and also found that it was not contrary to public policy because “it is reasonable for an insurer to exclude coverage for liability for personal injuries to people who live with the covered person.”

One of the arguments made by plaintiff upon appeal was that the exclusion should be read to apply only to individuals who are part of the covered person’s household or who have a romantic or familial relationship with the covered person.  The Appellate Division rejected that argument as inconsistent with the plain language of the exclusion.  It noted that the exclusion did not use the term “household” members.  Rather, it stated that there was no liability coverage for personal injuries to “a person who lives with” the covered person.

Further, the Appellate Division found that if the exclusion was meant only to apply to household members or family members, there would be no need to list “a spouse, a family member or a person who lives with you.”  By separately listing “a person who lives with you,” the Court found that “Federal was clearly stating that the exclusion applied to people who are not in a familial relationship.”  There was nothing in the terms “a person who lives with you” that require that there be a romantic relationship between that person and the covered person.

The Court rejected all of the plaintiff’s other arguments and upheld the trial court’s decision. Thus, the summary judgment entered in favor of the Federal Insurance Company dismissing the case against it was affirmed. 

Employee Exclusion Bars Coverage For Injured Pool Worker Employee

Plaintiffs were a Condominium Association and a Management Corporation responsible for a condominium property whose pool was maintained by Preferred Pool Management, Inc. (“PPM”).  PPM employee James Visconti (“Visconti”) fell on Plaintiffs’ property while performing maintenance on the condominium’s pool in the course of his employment with PPM and allegedly suffered injuries.   In a state court lawsuit, Visconti asserted various tort claims (personal injury claims) against Plaintiffs, claiming that he was injured because Plaintiffs failed to keep the pool’s premises in a safe condition.  Plaintiffs joined PPM as a third-party defendant in the underlying tort action, seeking contribution and indemnification under the Pool Maintenance Contract.  The dispute in the federal court case of Harmon Cove IV Condominium Association, Inc. v. Indian Harbor Insurance Company, 2023 U.S. Dist. LEXIS 71960 (D.N.J. Apr. 25, 2023) was who should be responsible for the cost of defending Plaintiffs and any damages that might be awarded in the underlying tort action.

Defendants Indian Harbor Insurance Company (“Indian Harbor”) and Ohio Security Insurance Company (“Ohio Security”) each issued a general liability policy to PPM which had a blanket additional insured endorsement providing coverage to parties with whom PPM agreed in writing to add as additional insureds and Scottsdale issued an excess liability policy to PPM for damages covered by, but in excess of limits of, the Indian Harbor policy.  In the Pool Maintenance Contract, PPM agreed to add Plaintiffs as additional insureds to these policies.  Thus, Plaintiffs claimed that they were additional insureds under both the Indian Harbor and Ohio Security policies, as well as Scottsdale’s excess liability policy.

The issue before the court was whether Scottsdale owed coverage for the underlying tort claims. Scottsdale filed a motion before the District Court claiming that its policy did not provide coverage and the complaint should be dismissed as to it.

The Scottsdale excess policy contained an “Injury to Worker Exclusion” which excluded coverage for an injury to an “employee . . . of any insured . . . if such injury arises out of and in the course of their employment.”  This exclusion also expressly excluded from coverage any “obligation of any insured to defend, indemnify or contribute with another because of injury to  . . . [an] employee  . . . of any insured.”  As for additional insured coverage, it noted that such coverage would not be broader than coverage provided by the controlling underlying policy which, would be the Indian Harbor policy.

The District Court found that the Injury to Worker Exclusion in the Scottsdale Excess Policy unambiguously barred Plaintiffs from seeking coverage for Visconti’s injuries and Plaintiffs’ defense in the underlying tort action.  The complaint had alleged that Visconti was an employee of PPM and that, on the day he fell, PPM had directed him to perform pool service and maintenance work on the condominium’s pool.  Specifically, it alleged that Visconti was carrying a heavy bucket and containers of liquid shock while walking up wooden steps to the pool house when he suffered his injuries.

The District Court noted that the Injury to Worker Exclusion excluded from coverage any injury to an employee of any insured if such injury arose out of and in the course of their employment.  Although the Complaint alleged that Visconti was an employee of PPM, and not Plaintiffs, the Court found that the exclusion plainly applied here because it excluded coverage for employees of “any” insured, which included PPM’s employees and because the Complaint alleged that Visconti was injured in the course of his pool maintenance work for PPM.

The District Court found no ambiguity in the Injury to Worker Exclusion, nor any public policy reason for not enforcing it.  It found that it was written in plain terms and prominently featured in the policy.  Further, by plain terms, the Plaintiffs were precluded from seeking coverage that was broader than that provided to PPM.

Based upon all of these reasons, the District Court held that it must enforce the plain terms of the Injury to Worker Exclusion and dismiss Plaintiffs’ claims against Scottsdale, which had sought indemnification and defense from a party that it had no contractual obligation provide such coverage.  Hence, Scottsdale’s motion to dismiss was granted and Plaintiffs’ claims against Scottsdale were dismissed for a failure to state a claim. 

Supreme Court Finds Non-Waivable Duty on the Part of Insurance Brokers to Provide Notice of Available Coverage for LLC Members

When coverage is denied under a workers’ compensation policy for an LLC, one can be almost certain that a finger will be pointed, rightly or wrongly, at the insurance broker.  The more severe the injury, the more likely the potential for a civil suit.  This was the situation in last month’s decision in Holm v. Purdy, New Jersey Supreme Court No. A-39-21 (Dec. 13, 2022).  Brokers will be interested in this case because it is a case of first impression and will change procedures with respect to those who work with members of an LLC.

The case arose from the death of member of an LLC.  As many know, an LLC must elect to obtain coverage for its members.  Otherwise, there is no workers’ compensation coverage for the members of the LLC.  The employees of an LLC, of course, are covered under workers’ compensation.

Holmdel Nurseries LLC had two members, Robert and Walter Friedauer, brothers in the business. Robert’s sons, Michael and Christopher, became full-time employees in the business after college.

When workers’ compensation coverage first became available in New Jersey for members of an LLC, Holmdel Nurseries elected to obtain coverage for Robert and Walter. Sometime later, the LLC decided against renewal of coverage due to the cost of workers’ compensation insurance.

For many years, the brothers retained Daniel Purdy as the broker for the LLC and for themselves personally.  When the LLC decided against maintaining workers’ compensation coverage for themselves as members, the policy stated, “Workers’ Compensation Members Excluded.”

In the Spring of 2012, Michael Friedauer and Christopher Friedauer purchased Walter Friedauer’s 50% interest in Holmdel Nurseries.  The sons were no longer employees in the business but now members of the LLC.  On July 12, 2012, a company meeting took place.  Purdy said he learned for the first time that Michael and Christopher were no longer employees and had become members of the LLC.  He admitted that he did not tell the sons that they were no longer covered under workers’ compensation by changing status from employees to members.  Nor did he tell the brothers that the LLC could elect to purchase workers’ compensation insurance for them.

On February 15, 2015, tragedy struck.  Michael Friedauer encountered his brother at the nursery.  He was covered in snow and appeared not to be himself.  Christopher said he had fallen and hit his head.  Christopher told his brother than he fell so hard that he saw stars.  Michael later that day looked for his brother and found him sitting dead in a truck on work premises.  Christopher’s wife filed a dependency claim petition on her behalf and on behalf of her two children asserting that her husband’s death arose from work.  The workers’ compensation carrier denied coverage as the LLC had not elected to provide coverage for the members.

A civil suit was filed by Christopher Friedauer’s widow against the broker Purdy asserting an act of professional negligence.  Robert and Michael Friedauer asserted that they did not know that they were not covered as members for workers’ compensation purposes and said that they would have elected coverage had they known it was available.

The trial court ruled against the widow and held that the broker had no duty to inform members of their right to elect workers’ compensation coverage. The Appellate Division reversed and the Supreme Court took certification. 

The starting point for the Supreme Court was an analysis of N.J.S.A. 34:15-36:

Notwithstanding any other provision of law to the contrary, no insurer or insurance producer . . . shall be liable in an action for damages on account of the failure of a . . . limited liability company . . . to elect to obtain workers’ compensation coverage for a . . . limited liability company’s members . . . unless the insurer or insurance producer causes damage by a willful, wanton or grossly negligent act of commission or omission. . .

The Supreme agreed with the conclusion of the Appellate Division and held:  “In accordance with N.J.S.A. 34:15-36, we hold that an insurance broker for an LLC, charged by the LLC to obtain workers’ compensation coverage on its behalf, has a non-waivable duty to provide notice that such coverage is available to LLC members who can actively perform services on behalf of the LLC – but that such coverage is available only if the LLC elects the coverage when the policy is purchased or renewed. Because it is foreseeable that the failure to provide such notice may harm an LLC member’s dependents, the broker’s duty extends not only to the LLC, but also to LLC members eligible for workers’ compensation coverage under N.J.S.A. 34:15-36.”

The Supreme Court remanded the matter to the trial court to determine whether the defendant ‘caused damage by a willful, wanton, or grossly negligent act of commission or omission.’

The post Supreme Court Finds Non-Waivable Duty on the Part of Insurance Brokers to Provide Notice of Available Coverage for LLC Members appeared first on NJ Workers' Comp Blog.

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