So here’s a frustrating aspect of coverage work. The underlying plaintiff sues the policyholder based on a complaint that was inartfully drafted (which, in some instances, is a nice way of saying that the complaint looks like it was written while the lawyer was tripping on mescaline). The carrier denies coverage because nothing in the complaint seems specifically to trigger coverage. And now the policyholder is in a dogfight with the carrier.
I admire the plaintiffs’ bar. Most of them are truly terrific lawyers. But how can they draft complaints without even considering the insurance coverage aspects of what they’re saying? Are they trying to punish the defendant by making it hard to tap into applicable policies? If so, how are they complying with RPC 1.3, which requires the exercise of “reasonable diligence” in representing a client?
This issue now rears its ugly head again before the New Jersey Supreme Court. The case is Abouzaid v. Mansard Gardens Associates, and the facts are unpleasant. (By the way, I’m not suggesting that the plaintiffs’ lawyer in Abouzaid was tripping on mescaline. There was definitely a nuance of insurance law that may have been missed, though.) A pilot light in a stove ignited vapors from a paint thinner that had been applied to a kitchen floor by the underlying defendant’s employees. Three kids were horribly burned.
Count one of the underlying complaint specifically addressed the claims of the minor children only, asserting a conventional theory of negligence. Count two incorporated the allegations of the first count and also added a negligence claim under the theory of res ipsa loquitur. In count three, the plaintiffs alleged that the kids’ parents were “forced to endure emotional distress and suffering resulting from watching . . . their sons becoming engulfed by flames.”
The carrier of course denied coverage for count three, arguing that its policy provided coverage only for “bodily injury,” which under New Jersey insurance law does not include emotional distress without physical manifestations.
Later, apparently realizing the error of their ways insurance-wise, the underlying plaintiffs’ counsel amended count three to state that the adult plaintiffs “had to incur the cost of medical treatment for the physical impact caused by their emotional distress and suffering.”
In a slightly snarky opinion, the Appellate Division held that there was no duty to defend count three in the original complaint, but that there WAS (barely) a duty defend count three in the amended complaint. The panel wrote, for example:
“The third count merely recounted the adult plaintiffs’ grievance of ‘hav[ing] been forced to endure emotional distress and suffering.’ On its face, this allegation does not constitute the type of harm that triggers coverage for a ‘bodily injury, sickness or disease.’ This stands in stark contrast with the plaintiffs’ amended complaint and newly minted third count claiming that the adult plaintiffs ‘had to incur the cost of medical treatment for the physical impact caused by their emotional distress and suffering.’ Although not couched in the most graceful language, these statements were enough to impel [the carrier] to intercede and thereafter provide a defense to Mansard. The differences in language are not mere semantic nitpicking; they go to the heart of the definitional linchpin required for coverage–and a defense–under the insurance policy.”
I should note that in SL Indus., Inc. v. Am. Motorists Ins. Co., 128 N.J. 188, 198-99, 607 A.2d 1266 (1992), the New Jersey Supreme Court specifically held that the determination of the duty to defend does not depend on the writing skills of the underlying plaintiffs’ counsel. (“To allow the insurance company ‘to construct a formal fortress of the . . . pleadings and to retreat behind its walls, thereby successfully ignoring true but unpleaded facts within its knowledge that require it, under the insurance policy, to conduct the putative insured’s defense,’ would not be fair.” (internal citations omitted)).
Both sides in Abouzaid appealed to the New Jersey Supreme Court. The carrier contends that there should be no duty to defend even the amended count three, because the original complaint demonstrated that the only injuries at issue with respect to the parents were “intangible emotional injuries.” The policyholder contends that the duty to defend should relate back to the original complaint, because the emotional harm caused a physical impact, which the amended complaint merely clarified. Policyholder counsel argues that his clients suffered from post-traumatic stress disorder, which, he says, is definitely a “bodily injury.”
Arguments were held before the Supremes a couple of weeks ago. Trying to discern the eventual outcome of the case based upon oral argument is reading tea leaves, of course. But during the argument, Justice Barry Albin asked the carrier’s lawyer whether the carrier had done anything in its investigation to elicit any information about physical injuries suffered by the adult plaintiffs. “I don’t know,” said the lawyer. “I assume they did not.” Albin said that was “problematic.”