Every now and then, a business owner asks me to review his company’s coverage program to make sure that adequate protection exists. I always say the same thing. “You’re looking at this all wrong. Buying insurance isn’t about buying protection. Buying insurance is about buying a right to sue an insurance company. Once you accept that, the world becomes much clearer.”
That’s because insurance is such a word game. One word out of place – one comma out of place – and poof, the insurance company says “no soup for you.”
With that in mind, let’s revisit the case of Abouzaid v. Mansard Gardens, which I first wrote about earlier this year. The facts are horrific. Three kids are in an apartment kitchen. The pilot light on the stove ignites some paint thinner that earlier had been applied to the floor by the landlord’s worker. The kids’ mothers see them engulfed in a fireball and badly burned.
In count three of their ensuing complaint against the landlord, 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 landlord’s carrier denied coverage for count three (naturally), 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, 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.”
The Appellate Division held that there was no duty to defend count three in the original complaint, but that there WAS a duty to defend once the complaint was amended to allege “physical impact.”
The New Jersey Supreme Court, apparently beset by a bout of common sense, has now reversed and held that the duty to defend existed from the beginning. After a lengthy recap of New Jersey law regarding the duty to defend (which as some of you know, contains some frightening pitfalls for the uninitiated), Justice Long wrote: “Although [the third] count was silent regarding the existence of physical manifestations, it did not exclude the possibility that such manifestations would be proved during the course of the litigation. Accordingly, it was indefinite whether the claim was within the scope of coverage. In those circumstances, a potential for plaintiffs to prove a covered claim existed and doubts regarding the duty to defend should have been ‘resolved in favor of the insured.’” (Emphasis mine.)
This is a good decision, consistent with well-settled principles of insurance policy interpretation, and I’m hoping that all courts in New Jersey will now, finally, understand how liability insurance works. If there’s any possibility of coverage, however remote, the duty to defend exists.