• New Jersey Appellate Court Obligates Workers' Compensation Insurer to Defend Employer in Slip-and-Fall Lawsuit
  • March 2, 2011
  • Law Firm: Wilson Elser Moskowitz Edelman & Dicker LLP - Florham Park Office
  • In an unpublished but widely circulated opinion, the New Jersey Appellate Division recently held in Ionbond, Inc. v. Valley Forge Insurance Company, New Jersey Superior Court, Appellate Division, Docket No. A-3370-09T4 (App. Div. December 6, 2010), that a workers’ compensation and employer’s liability insurer was obligated to defend its policyholder in a slip-and-fall lawsuit brought by an employee of the policyholder. The appellate court reversed summary judgment in favor of the insurer on the ground that the policy language was ambiguous.

    Policyholder and employer Ionbond was a commercial tenant in an office building when its employee slipped and fell in the parking lot of the building. The employee filed a workers’ compensation claim in connection with an injury resulting from the slip and fall and also filed a lawsuit against her employer. Valley Forge, the employer’s workers’ compensation and employer’s liability insurer, denied the tender of defense and indemnity from Ionbond on the basis of the exclusivity provision of the New Jersey Workers’ Compensation Act, N.J.S.A. 34:15-8. There was also a specific exclusion in the employer’s liability section of the policy barring coverage for any obligation imposed by a workers’ compensation statute. The employer’s commercial general liability insurer was notified of the slip-and-fall suit and defended Ionbond in the suit. 

    Ionbond filed a declaratory judgment and breach-of-contract action against Valley Forge, arguing that Valley Forge had a duty to defend and indemnify it in the slip-and-fall lawsuit. Valley Forge moved for summary judgment in the declaratory suit, contending that no coverage was owed under the employer’s liability section of the policy because the slip and fall was a compensable workers’ compensation claim and was subject to the policy exclusion barring coverage for any obligation imposed by workers’ compensation law.

    In reaching its decision, the Appellate Division recited longstanding principles of New Jersey insurance policy interpretation. The court pointed out that insurance policy exclusions must be narrowly construed and that insurance policies - if the terms of the policy are not clear - must be construed against the insurer in favor of the policyholder to give effect to the policyholder’s “reasonable expectations.” The court concluded that the policy at issue was “not crystal clear” (slip opinion at p. 9). 

    The Appellate Division found ambiguity in the grant of employer’s liability coverage obligating Valley Forge to pay damages for bodily injury to an employee arising out of, and in the course of, employment claimed against the employer “in a capacity other than as employer.” It also found ambiguity in the policy exclusion barring coverage for obligations imposed by workers’ compensation law. The court concluded that a policyholder could reasonably read these provisions as obligating the insurer to provide a defense to the employee’s lawsuit. The court reversed summary judgment in favor of the insurer and remanded the case for entry of summary judgment against the insurer, obligating the insurer to reimburse the employer for all costs of defending the slip-and-fall lawsuit.

    The Ionbond decision offers a good illustration of New Jersey’s duty-to-defend principles and a reminder of the tendency of New Jersey courts to resort to policy “ambiguity” to find coverage. The complaint filed by the employee in her slip-and-fall lawsuit alleged that the defendant was liable as a commercial tenant. The complaint made no allegation that the claimant was an employee of the defendant or that the claimant was suing her employer. The fact that the claimant was an employee of the defendant was known by all parties. In concluding that Valley Forge owed a defense to the employer in the slip-and-fall lawsuit, the court in Ionbond noted that the employee failed to mention that the defendant was her employer and instead sought to characterize the employer as a third-party “commercial tenant” in an effort to evade the exclusivity bar of the New Jersey Workers’ Compensation Act. The court further noted that this strategy would likely be unsuccessful as a matter of law because New Jersey disfavors the “dual capacity” doctrine as a means of bringing a lawsuit against an employer in workplace accidents. 

    As in many jurisdictions, New Jersey law provides that the duty to defend is determined by comparing the allegations of the complaint with the language of the insurance policy. A defense will be owed even if potentially covered allegations are patently meritless as a matter of law. An important addendum to this rule is that New Jersey requires an insurer to consider extrinsic facts brought to the insurer’s attention if those facts show that an otherwise noncovered claim (looking only at the allegations of the complaint) is a potentially covered claim. The New Jersey rule requiring consideration of extrinsic facts is a “one-way” rule; an insurer cannot deny a defense to a potentially covered allegation based on reference to facts outside the complaint.  See generally, SL Industries v. American Motorist Ins. Co., 128 N.J. 188, 207 (1992).

    Applying these principles to the employee’s complaint, the allegations triggered a duty to defend because the employer was sued by a claimant based on the alleged breach of the employer’s obligations as a commercial tenant. The complaint did not state that the claimant was an employee of the defendant and, accordingly, did not allege a basis to conclude the claim was barred by the exclusivity provision of New Jersey’s workers’ compensation law. Even though the suit against the employer was patently meritless as a matter of New Jersey law, the insurer is obligated to defend this claim. Further, the defense is owed despite the fact that the insurer and all parties knew that the claimant was an employee of the defendant. New Jersey law demands that the insurer in this circumstance ignore the extrinsic fact that the claimant was an employee of the policyholder and extend a defense to the employer in the slip-and-fall lawsuit.

    The Ionbond decision did not reach its holding based on these longstanding principles of New Jersey duty-to-defend law. Instead the court concluded that sections of the employer’s liability policy were “ambiguous,” with the result that the policyholder’s reasonable expectations of coverage compelled the insurer to defend.