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Johnson v. Plasser Am Corp. Gives Insight into Appellate Division's Thoughts on Coverage for "Laidlow" Claims under Umbrella Policies

07.15.14

Although the Johnson v. Plasser Am Corp. is an unpublished decision and thus not precedential, it is significant nonetheless as it provides insight into the Appellate Division’s thought process on an important coverage issue. (Johnson v. Plasser Am. Corp., 2014 N.J. Super. Unpub. LEXIS 372, 25-27 (App.Div. Feb. 26, 2014) 
 
New Jersey law permits an employee to sue his employer for a work-related injury where the employer’s “intentional wrong” causes an accident. Laidlow v. Hariton Machinery Co., 170 N.J. 602, 790 A.2d 884 (2002). These “Laidlow” claims trigger a duty to defend under the employer’s liability coverage of the standard Workers Compensation and Employer’s Liability insurance policy (WC/EL policy) despite the fact that the WC/EL policy excludes coverage for “bodily injury intentionally caused or aggravated” by the employer. In the case, Charles Beseler Co. v. O'Gorman & Young, Inc., Beseler held that the exclusion did not eliminate the duty to defend because liability under Laidlow can be premised on either proof that the employer intended to cause injury or that the employer knew that the consequences of its acts were certain to cause injury. While the coverage for the former is excluded, the exclusion does not apply to claims based on the latter.
 
While Beseler addressed coverage for Laidlow claims under the standard WC/EL policy, it left unaddressed coverage for such claims under umbrella liability insurance, which commonly backstops Employer’s Liability coverage. The Appellate Division recently addressed that issue in Johnson v. Plasser Am. Corp.
 
In this matter the employee suffered a work place injury when the brakes on a piece of equipment failed and the equipment ran over his leg and crushed it. He sued his employer, alleging that the employer had been warned that the equipment’s brakes were faulty and should be replaced, but decided not to make the repair due to cost.
 
The employer’s WC/EL insurer, New Jersey Manufacturers Insurance Company (NJM), provided a defense under a reservation of rights. The employer also notified its umbrella insurer, Hartford, due to the severity of these injuries. The case was ultimately settled by NJM and Hartford for $5 million.
 
Although Hartford voluntarily contributed to the settlement, it did so only after the employer had brought an action for declaratory judgment and breach of contract claiming that Hartford had a duty to defend and indemnify. The employer claimed an entitlement to attorneys’ fees incurred in bringing the declaratory judgment action which Hartford resisted, arguing that the employer was not a successful claimant and thus was not entitled. Since the employer’s status as a “successful claimant” turned on whether Hartford owed coverage, the Court was required to determine that issue.
 
Hartford contended that umbrella policy’s intentional acts exclusion barred coverage. The employer claimed that Beseler controlled and therefore the umbrella policy’s intentional acts exclusion did not eliminate the duty to indemnify.
 
The Appellate Division held that the umbrella policy’s exclusion, which applied to bodily injury “expected or intended from the standpoint of the insured” applied to preclude coverage, distinguishing Beseler. The Court observed that Beseler was not dispositive since it involved a different exclusion from the one in the umbrella policy. 
 
The exclusion in Beseler referred only to "intentionally caused or aggravated" injuries. The umbrella policy’s exclusion referred to injuries intended or expected. The Court found no meaningful difference between (1) conduct that the employer knows is substantially certain to cause injury, which is sufficient to overcome the worker's compensation bar, and (2) conduct that the employer expects will cause injury. Otherwise stated, if an employer knew injury to an employee was substantially certain, then it “expected” the injury, even if it did not intend it.
 
The Court also rejected the employer’s contention that Beseler, requires that a policy exclusion use the precise wording "substantially certain to result in injury" in order to exclude coverage for Laidlow claims. Instead, the Court held it is sufficient to use language that unambiguously covers such conduct: 
 

We interpret "'bodily injury'… expected… from the standpoint of the insured" to unambiguously cover instances where "the employer… know[s] that his actions are substantially certain to result in injury or death to the employee." It is beyond any insured employer's reasonable understanding that he or she could know that his or her actions were substantially certain to cause injury or death, yet not expect injury or death to occur.

For more information, please contact Kenneth Portner at kportner@wglaw.com or 215.972.7921.

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