Insurers can turn to extrinsic evidence to deny a defense | White and Williams LLP

Last week, the New Jersey Supreme Court ruled Norman International, Inc. v. Admiral Insurance Company, No. 086155 (NJ 11 Aug 2022). This involved workers’ compensation coverage and the interpretation of a policy exclusion for operations or activities performed by an insured in certain New York counties. The case is significant from the point of view of the examination of causation for the purposes of the application of the exclusions. But the larger question has nothing to do with the scope of the exclusion.

The real story of Norman is the New Jersey High Court’s statement that an insurer, in certain circumstances, may use extrinsic evidence to deny a defense to its insured. New Jersey’s duty to uphold the law has been a jungle and needs more Supreme Court guidance.

Colleen Lorito, a Home Depot store employee in Nassau County, New York, was injured while operating a blind cutting machine supplied to The Home Depot by Richfield Window Coverings (Richfield), headquartered is in Santa Fe Springs, California.

Richfield sells window coverings to national retailers, including Home Depot. Richfield also provides retailers with machines to cut blinds to meet customer specifications. Richfield representatives visit retailers to service and repair machines and replace cutting blades.

Lorito filed a lawsuit in Nassau County against Richfield, which sought coverage from its liability insurer, Admiral. The insurer rejected a defence, citing a policy exclusion that provided, in part, that:

This insurance does not apply to “bodily injury”, “property damage” or “personal and publicity damage”, including any costs or expenses, actually or allegedly arising out of, relating to, caused by, contributed to by or relating in any way with:

(1) Any transaction or activity carried on by or on behalf of an insured in the counties listed in the above schedule; (These were several New York counties, including Nassau.)

A dispute over coverage ensued. The New Jersey Appellate Division found the exclusion did not apply because there was no “causal connection” between Richfield’s activities involving the blind cutting machine and the causes of action. raised in the complaint.

After a lengthy analysis, the New Jersey Supreme Court backtracked, concluding that Richfield’s activities provided a sufficient basis to trigger the exclusion of New York’s Designated Counties from the policy. (Again, the court’s detailed analysis of causation, for purposes of applying the exclusions, is important and will play a role in future decisions.)

But the real story in Norman is the court’s rejection of the manner in which the Appeal Division rendered its erroneous decision on the duty to defend.

The Supreme Court said that the Court of Appeal “fixed[] sets out the general standard that a “complaint must be filed alongside the policy” to determine a duty to defend. However, the High Court said: “In the future, in similar situations, courts should indicate when a matter requires consideration of facts beyond the complaint.”

It was one of those cases. However, the Appeal Division did not. The Supreme Court held that the Appellate Division, in overturning the trial court’s decision, noted that the trial court considered “facts discovered, including that Richfield employees visited the store to change machine blades, perform machine maintenance, and provide training resources to employees, each of whom was not named in the complaint.

Understanding what types of extrinsic evidence may be considered by an insurer in determining its duty to defend relates to the glory days of Burd v. Sussex (NJ 1970), which the court noted was not considered by the Appeal Division in its analysis.

Looking back Burdthe supreme court of Norman declared:

“There are times, however, when comparing the causes of action in the complaint to the disclaimer will not provide an answer as to whether there is a potentially covered claim. This situation occurs” when the coverage, i.e. the obligation to pay, depends on a factual question which will not be resolved by the trial.” Burd, 56 NJ at 388. In such cases, “the obligation to defend may depend on the actual facts and not on the allegations contained in the complaint.” Idem.

The Norman The court described the duty to defend rule as follows: “In other words, if coverage is not an issue resolved during the trial, it may not be sufficient to deal with the complaint alone. , because the duty to defend depends on facts not relevant to the causes of action in the complaint.

As an example, the court cited one provided by the Burd to research:

“[I]If the policy covered a Ford but not a Chevrolet also owned by the insured, the carrier would not be obligated to defend a third party claim against the insured alleging that the automobile involved was the Ford when in fact the car involved was the Chevrolet. The identity of the car, on which the coverage depends, would not be relevant to the negligence action trial. »

Thus, as explained by Norman court, if an extrinsic fact is relevant to determining coverage, but not for the purpose of deciding an issue in the underlying action, then it may be taken into account by an insurer in deciding whether it is obliged to defend itself.

You could say that the Norman the court did not make a new law, but simply applied it Burd. I do not address this issue here. However, even if this is the case, with Burd be 50 years old, NormanThe insurers’ reaffirmation of the decision will surely prompt insurers to consider extrinsic evidence in determining whether a defense is due.

Norman is going to play an important role in many cases where policyholders turn to their insurers and say cover me.

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