Every once in awhile, we come across a case that calls to mind the formal legal term:  “Eeeeww.”  Here’s one that’s now before the New Jersey Supremes, and that (if you can get past the ghoulishness) involves two important questions:  

(1)  When does an “occurrence” take place under a liability policy? 

(2)  Can a court look past the pleadings to determine whether the duty to defend exists?

Robert and Stephanie Samanns  sued Adams-Stiefel Funeral Home, Inc., contending that the body of Robert’s deceased father had been subjected to an illegal scheme of human tissue harvesting that came to light through an investigation in New York State in 2006.  The Samannses alleged that the funeral home had “negligently and carelessly cared for, disposed of, and/or prepared the corpse… for cremation.”  According to the Samannses, the funeral home had entrusted the corpse to a cut-rate cremation service, which had allowed unsavory types to dismember the corpse.  The Samannses contended that they had suffered emotional injury as a result of the harm done to the body.

The funeral home’s general liability policies provided the standard coverage for “bodily injury” or “property damage,” but also contained an exclusion for “improper handling”, defined to encompass such acts as “[d]isarticulation of any part or parts of a ‘deceased human body’ by any insured or anyone for whom the insured is legally responsible.”

The funeral home tried to get around the “improper handling” exclusion by arguing that the allegations in the Samanns complaint really pertained to conduct by the cremation service, for which the funeral home was not “legally responsible.”  The insurance companies responded that “whether [the funeral home was] responsible for the actions of [the cremation service] ” did not matter because there were “allegations that [the funeral home]… is legally responsible…. The ultimate facts and the truth of whether they’re responsible doesn’t matter. It’s the allegations that count here and that’s why there’s no duty to defend.”  The trial court agreed with the carrier, granting summary judgment.

Under New Jersey law, the carriers’ statement of the law relating to the duty-to-defend point (and the trial court’s adoption of it) was breathtakingly wrong.  The New Jersey Supreme Court has pointedly held:  “Insureds expect their coverage and defense benefits to be determined by the nature of the claim against them, not by the fortuity of how the plaintiff, a third party, chooses to phrase the complaint against the insured.  To allow the insurance company ‘to construct a formal fortress of the third party’s 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.”  SL Industries v. American Motorists, 128 N.J. 188, 198-99 (1992) (citations omitted).  Therefore, if the policyholder could point to actual facts outside the pleadings that potentially brought the claim within coverage, the duty to defend existed.

The Appellate Division ignored the question of whether unpleaded  facts could trigger the duty-to-defend, instead writing:  “The allegations of…negligence vis-a-vis [the cremation service] fall squarely within the exclusion of coverage for bodily injury… arising out of the [f]ailure to… properly dispose of a deceased human body. When the negligence allegations against [the funeral home] are compared to the policy, the proper conclusion is that those claims originated from, grew out of, or have a substantial nexus to the failure to… properly dispose of decedent’s body. This exclusion is specific, plain, clear and prominent.”

The Appellate Division’s ruling disregarded the exception to the exclusion, which stated that the exclusion could only be applied when “the insured or anyone for whom the insured is legally responsible” committed the wrongdoing.  Why would the funeral home be “legally responsible” for criminal acts committed by the cremation service?

The next question was when the “occurrence” under the policy took place.   The Samannses’ claim was primarily for emotional distress.    The timing issue was important, because one of the carriers argued that any “damage” took place outside of its policy period, and therefore was not covered. 

The appeals court wrote:  “It is well-established that ‘the time of the ‘occurrence’ of an accident within the meaning of an indemnity policy is not the time the wrongful act was committed but the time when the complaining party was actually damaged…the important time factor, in determining insurance coverage where the basis of the claim is negligence, is the time when the damage has been suffered. Here, the ‘damage’ occurred in October 2006, when Samanns first learned of the illegal tissue harvesting from decedent’s body. The Assurance policy was in effect from December 2004 to December 2005.”

The main question for the Supremes is when the “occurrences” took place – at the time the body parts were allegedly taken, or when the families learned about the theft a few years later.  The policyholder’s attorney (George Dougherty of Katz & Dougherty in Lawrenceville) argued to the Court that the situation was analogous to that of a homeowner whose homeowner’s policy is almost ready to expire, and is asked by a neighbor going on vacation to watch over some childhood memorabilia with little or no intrinsic value but a great deal of sentimental value.  A fire in the kitchen destroys the memorabilia right before the property expires, but the neighbor does not return from vacation and discover the loss until after the policy has expired.  “The fire in the kitchen took place during the policy period,” argued Dougherty.

The problem is that the claim here isn’t really for damage to the body; it’s for the resulting emotional distress.  (Justice Albin seemed to be focused on this issue when he asked Mr. Dougherty whether a dead body has any intrinsic value.)  Can it be said that, for insurance purposes, the claim for emotional distress accrued when the body was dismembered, even though the Samannses did not know of the dismemberment until later? Stay tuned.