LCS, INC. v. Lexington Ins. Co.

• Court: New Jersey Superior Court
• Writing for the Court: COLLESTER, J.A.D.
• Citation: LCS, INC. v. Lexington Ins. Co., 853 A.2d 974, 371 N.J.Super. 482 (N.J. Super. 2004)
• Decision Date: 02 August 2004
• Parties: L.C.S., INC. t/a D'Jais Bar, Inc., Plaintiff-Respondent/Cross-Appellant, v. LEXINGTON INSURANCE COMPANY, AIG Claim Services, Inc., Defendants-Appellants/Cross-Respondents.

853 A.2d 974

371 N.J.Super. 482

L.C.S., INC. t/a D'Jais Bar, Inc., Plaintiff-Respondent/Cross-Appellant, v. LEXINGTON INSURANCE COMPANY, AIG Claim Services, Inc., Defendants-Appellants/Cross-Respondents.

Superior Court of New Jersey, Appellate Division.

Argued February 2, 2004.

Decided August 2, 2004.

Wendy L. Mager, Princeton, argued the cause for appellants (Smith, Stratton, Wise, Heher & Brennan, attorneys; William J. Brennan, III, of counsel and on the brief).

Frank P. Arleo, Chatham, argued the cause for respondent (Arleo & Donohue, attorneys; Mr. Arleo, of counsel and on the brief).

Before Judges WEFING, COLLESTER and FUENTES.

The opinion of the court was delivered by

COLLESTER, J.A.D.

On December 23, 1996, Thomas M. Cosgrove filed a three-count complaint against D'Jais Bar, Inc., Larry R. Fore, a bouncer, and two fictitious employees, seeking damages for injuries he suffered in the early hours of July 4, 1995, while a patron at D'Jais Bar located at 18th and Ocean Avenues in Belmar. Count one alleged

5.... Defendant Fore without warning or right struck Plaintiff Cosgrove in the face with a closed fist.

6. Plaintiff Cosgrove fell to the ground and was rendered unconscious as a result of being struck by Defendant Fore.

7. Plaintiff Cosgrove suffered bodily injury as a result of being struck by Defendant Fore including a broken arm and a concussion.

8. As a direct and proximate result of the acts of defendant Fore, as aforesaid, plaintiff Thomas M. Cosgrove suffered severe and permanent injuries.

9. The act by Defendant Fore constitutes assault, contrary to N.J.S.A. 2C:12-1(b)(1).

Count two incorporated all allegations of count one and alleged

2. The acts of Defendant Fore, and John Doe I and John Doe II occurred in the negligent performance of their duties as an employee [sic] of the defendant D'Jais Bar.

Count three incorporated all allegations of counts one and two and alleged

2. The defendant D'Jais Bar was negligent in the hiring, training, employment and supervision of its "bouncers" and employees.

3. The injuries of the plaintiff, Thomas M. Cosgrove, occurred as a direct consequence of the negligence of defendants aforesaid.

On September 17, 1997, L.C.S., D'Jais' corporate parent, forwarded a copy of the Cosgrove complaint to its insurance carrier, Lexington Insurance Company. On October 22, 1997, AIG Claims Services Inc., the authorized representative of Lexington Insurance Company, notified L.C.S. and Larry Fore that coverage was disclaimed and that the company would not provide a defense to the Cosgrove complaint or indemnify for any resulting settlement, verdict or judgment. The disclaimer was based on a endorsement to the policy entitled "ASSAULT AND BATTERY EXCLUSION," which provided as follows:

This insurance does not apply to "Bodily Injury," "Property Damage," "Personal Injury," "Advertising Injury," or "Medical Expenses" arising out of assault and battery or out of any act or omission in connection with the prevention or suppression of such acts, whether caused by or at the instigation of or direction of the Insured, his employees, patrons or other persons.

The letter specified that coverage was denied as to count one because it alleged an intentional assault by Fore on Cosgrove. Coverage on count two was disclaimed on the grounds that the alleged negligence of Fore in the performance of his duties as an employee "arises from the assault and/or its prevention or suppression." As to the count three, the disclaimer letter stated that "D'Jais Bar is not afforded coverage, since the negligent hiring, training, employment or supervision of Larry Fore arises out of the assault or any act or omission in connection with the prevention or suppression of such acts." The penultimate paragraph of the disclaimer letter invited the insured to contact Lexington concerning any "additional developments" or provide any information which the insured believed rendered the disclaimer "invalid, incorrect or improper." On December 3, 1997, Kip Connor, L.C.S.'s principal, responded. He enclosed handwritten statements by D'Jais employees who were on duty on July 5, 1995, and asserted that Cosgrove groped a woman patron and then attacked Fore, who in turn struck Cosgrove in self-defense.

After reviewing Connor's letter and enclosures, Lexington responded on December 9, 1997, by reaffirming its denial of coverage. At that point L.C.S. retained counsel at its own expense to defend the Cosgrove complaint. Following discovery, trial began on June 26, 2000, and concluded on July 19, 2000, culminating in a settlement of $25,000, which was attributed by counsel to the second count of the complaint.

On March 2, 2001, L.C.S. filed a complaint against Lexington seeking damages for breach of the insurance contract and extracontractual damages based on the allegation that Lexington acted in bad faith by refusing to defend the negligence counts of the Cosgrove complaint. Cross-motions were filed for summary judgment. L.C.S. submitted the certification of its trial attorney in the Cosgrove matter in which he explained the reasons for the settlement.

Prior to the trial, I took the depositions of the plaintiff, Thomas Cosgrove. Annexed hereto are relevant portions of Mr. Cosgrove's deposition¹ testimony concerning the incident in question. Mr. Cosgrove was unable to conclusively identify at his deposition as to whether he was intentionally assaulted during the incident or was the victim of the negligent conduct of a D'Jais employee.

At trial, Mr. Cosgrove's testimony was consistent with his deposition testimony in that he did not actually state whether he was intentionally assaulted or negligently injured while being escorted from the bar.

The testimony of Mr. Cosgrove's witnesses were similarly unclear concerning the causes of injuries.

During the plaintiff's case-in-chief, this case was settled for $25,000. The case was specifically settled only on Count Two of plaintiff's Complaint, alleging negligence. The balance of plaintiff's case was dismissed by Order of the Court.

Judge Bryan D. Garutto granted partial summary judgment to L.C.S. on the breach of contract claim, concluding that the assault and battery exclusion did not bar coverage for the third count alleging negligent "hiring, training, employment and supervision of [plaintiff's] bouncers and employees." He denied reconsideration but granted Lexington's motion to dismiss the count of the complaint alleging bad faith by the insurer. Finally, by order of judgment entered on May 13, 2002, he awarded L.C.S. damages equal to the amount paid to settle the Cosgrove action, plus interest; one half of the costs of defending the Cosgrove action, plus interest; and the legal fees paid by L.C.S. in its action against Lexington, excluding those incurred in its unsuccessful effort to obtain extracontractual damages on its claim of bad faith by the insurer. Lexington appeals the judgment holding it liable for damages for failure to defend in the Cosgrove suit and the resulting award in favor of L.C.S. In turn, L.C.S. cross-appeals from that part of the order for judgment restricting recovery in the Cosgrove suit to one-half of its defense costs.

The thrust of Lexington's argument is that it was under no duty to defend the Cosgrove complaint because all three counts related to an injury "arising out of" an assault and battery. In response, L.C.S. argues that counts one and two of the Cosgrove complaint pleaded alternative theories of liability, one intentional and one negligent, while count three pleaded a negligent act independent of the assault, namely, the negligent hiring, training, employment and supervision of its employees. Accordingly, plaintiff argues that defendant had a duty to defend counts two and three of the Cosgrove complaint.

An insurer's duty to defend an action against the insured is determined by whether the allegations set forth in the complainant's pleadings fall within the purview of the policy language. Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504, 512, 210 A.2d 221, 225 (1965); Voorhees v. Preferred Mut. Ins. Co., 246 N.J.Super. 564, 569, 588 A.2d 417, 419-20 (App.Div.1991), aff'd, 128 N.J. 165, 607 A.2d 1255 (1992). It is the nature of the claim for damages, not the details of the accident or the ultimate outcome, which triggers the obligation to defend. Flanagin, supra, 44 N.J. at 512, 210 A.2d at 225. If the complaint is ambiguous, doubts are resolved in favor of the insured and therefore for coverage. Central Nat'l Ins. Co. v. Utica Nat'l Ins. Group, 232 N.J.Super. 467, 470, 557 A.2d 693, 694 (App.Div.1989). When multiple alternative courses of action are set forth, the duty to defend will continue until every covered claim is eliminated. Voorhees, supra, 128 N.J. at 174, 607 A.2d at 1259; Mt. Hope Inn v. Traveler's Indem. Co., 157 N.J.Super. 431, 440-441, 384 A.2d 1159, 1163-64 (Law Div.1978).

[T]he duty to defend comes into being when the complaint states a claim constituting a risk insured against. And the duty is not abrogated by the fact that the cause of action stated cannot be maintained against the insured either in law or in fact — in other words, because the cause is groundless, false or fraudulent. Liability of the insured to the plaintiff is not the criterion; it is the allegation in the complaint of a cause of action which, if sustained, will impose a liability covered by the policy.

So in the resolution of the problem, the complaint should be laid alongside the policy and a determination made as to whether, if the allegations are sustained, the insurer will be required to pay the resulting judgment, and in reaching a conclusion, doubts should be resolved in favor of the insured.

[Danek v. Hommer, 28 N.J.Super. 68, 77, 100 A.2d 198, 203 (App.Div.1953), aff'd o.b., 15 N.J. 573, 105 A.2d 677 (1954).]

In comparing the allegations in the complaint with the language of the policy, we are guided by basic rules of...