SL Industries v. American Motorists Ins. Co.

• Decision Date: 30 May 1991
• Docket Number: No. A-5272-89T5,A-5272-89T5
• Parties: SL INDUSTRIES, Plaintiff-Appellant, v. AMERICAN MOTORISTS INSURANCE COMPANY and Kemper Insurance Company, Defendants/Third-Party Plaintiffs-Respondents, v. FEDERAL INSURANCE COMPANY, Third-Party Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 458

248 N.J.Super. 458

591 A.2d 677

SL INDUSTRIES, Plaintiff-Appellant, v. AMERICAN MOTORISTS INSURANCE COMPANY and Kemper Insurance

Company, Defendants/Third-Party Plaintiffs-Respondents, v. FEDERAL INSURANCE COMPANY, Third-Party Defendant-Respondent.

No. A-5272-89T5

Superior Court of New Jersey Appellate Division.

Argued April 29, 1991.

Decided May 30, 1991.

Stacy L. Moore, for plaintiff-appellant SL Industries (Parker, McKay & Criscuolo, attorneys, Stacy L. Moore, of counsel, Marlton, Maryann C. O'Brien, on the brief) Burlington.

William A. Garrigle, for defendants/third-party plaintiffs-respondents American Motorists Ins. Co. and Kemper Ins. Co. (Garrigle & Palm, attorneys, William A. Garrigle, of counsel, Deborah T. Wolf, on the brief), Cherry Hill.

Shanley & Fisher, for third-party defendant-respondent Federal Ins. Co. filed a letter of non-participation (Richard E. Brennan, on the letter), Morristown.

Before Judges J.H. COLEMAN and LANDAU.

The opinion of the court was delivered by

LANDAU, J.A.D.

Plaintiff SL Industries (SL) appeals from the grant of summary judgment to defendant American Motorists Insurance Company and Kemper Insurance Group (collectively American) holding that American had no duty to defend or indemnify SL under the terms of a General Liability policy and a Comprehensive Catastrophe Liability Policy.

The facts giving rise to SL's claim of coverage are as follows. On January 23, 1986, Newell Whitcomb (Whitcomb), an employee of SL, filed a complaint in the Federal District Court of New Jersey against SL and John Instone (Instone), SL's chief executive officer. Whitcomb alleged violations of the Age Discrimination Employment Act, 29 U.S.C. § 626, the Fair Labor Standards Act of 1938, 29 U.S.C. § 211(b), §§ 216-217, and fraudulent misrepresentation. SL promptly notified American of the lawsuit by letter dated March 5, 1986. American declined coverage under the policies because "the allegations in the complaint [did] not fit the definition of bodily injury or property damage as defined in the policy."

As a result of American's refusal to defend, SL retained counsel. During the course of discovery, Whitcomb particularized the injuries he allegedly suffered in order to sustain a claim of damages. In response to interrogatory number 32, Whitcomb stated:

Since discovering that he was treated unfairly by defendants, plaintiff has suffered loss of sleep, loss of self-esteem, humiliation and irritability.

Whitcomb supplemented that response by stating that "plaintiff has received treatment for his emotional pain and suffering from Dr. Floyd S. Cornelison of Wilmington, Delaware." Whitcomb also included among his summary of damage elements a claim for pain and suffering. The Pretrial Stipulation and Order stated:

Plaintiff seeks an additional $150,000.00 to compensate him for physical and mental pain and suffering, including humiliation, loss of self-esteem, irritability and sleeplessness.

Thereafter, on July 22, 1988, SL made a second demand upon American to provide coverage. Although SL set forth Whitcomb's claim for emotional damages and provided it with the portion of the pre-trial order pertaining to that claim, American refused to defend or indemnify SL. On September 7, 1988, SL, Instone and Whitcomb entered into a settlement agreement whereby Whitcomb received $400,000.00.

On January 25, 1989, SL filed a complaint against American and Kemper seeking a declaratory judgment that the Whitcomb action was within the coverage afforded by the policies and for reimbursement of the settlement award as well as costs of defense. Cross motions for summary judgment were filed by all parties, including Instone's directors and officers liability carrier Federal Insurance Company (Federal), alleging that it was improperly made a third party. By Order dated April 27, 1990, American's motion for summary judgment was granted; SL's motion for summary judgment was denied; and Federal's motion was rendered moot since the court dismissed SL's complaint.

SL raises four issues on this appeal: 1) that American had a duty to defend based upon the allegations contained in Whitcomb's complaint; 2) that American had a duty to defend when it subsequently learned of Whitcomb's specific claim for emotional damages; 3) that emotional distress and mental anguish constitute "bodily injury", "personal injury" and an "occurrence" under the terms of each policy so as to trigger American's duty to defend; and 4) that American is liable for settlement monies paid to Whitcomb as well as attorneys' fees and costs incurred in the declaratory judgment action and this appeal.

As a general rule, an insurer's duty to defend an action will arise when allegations in the pleadings state such facts which may potentially bring the injury within coverage of the policy. Voorhees v. Preferred Mutual Ins. Co., 246 N.J.Super. 564, 570-71, 588 A.2d 417 (App.Div.1991); Hartford Ins. Group v. Marson Constr. Corp., 186 N.J.Super. 253, 257, 452 A.2d 473 (App.Div.1982), certif. denied 93 N.J. 247, 460 A.2d 656 (1985); Danek v. Hommer, 28 N.J.Super. 68, 76, 100 A.2d 198 (App.Div.1953), aff'd 15 N.J. 573, 105 A.2d 677 (1954). If the pleadings set forth facts which bring the injury within the coverage of the policy, the insurer is then obligated to defend regardless of the insured's ultimate liability to the complainant. 7C Appleman, Insurance Law and Practice § 4683, at 50 (Berdal ed. 1979). In this regard, it is "the nature of the damage claim, rather than the actual details of the accident or the ultimate liability of the insurer," which determines whether the insurer has a duty to defend. The Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504, 512, 210 A.2d 221 (1965); Hackensack Water Co. v. General Accident, etc., Ltd., 84 N.J.Super. 479, 482-83, 202 A.2d 706 (App.Div.1964); Danek, supra.

We begin our analysis with a review of the language contained in the General Liability and Comprehensive Catastrophe Liability policies. Pursuant to the terms of the General Liability Policy, American agreed to pay all sums recovered against the insured "because of bodily injury ... caused by an occurrence...." The General Liability Policy defines "Bodily Injury" as "bodily injury, sickness or disease...." "Occurrence" is defined as "an accident...."

With regard to the Comprehensive Catastrophe Liability Policy, American agreed to pay all sums recovered against the insured "because of personal injury ... caused by or arising out of an occurrence...." "Personal Injury" is defined as "(a) bodily injury, shock, sickness or disease (including death, mental anguish and mental injury resulting therefrom; ... (c) injury arising out of racial or religious discrimination ...; or (d) injury arising out of libel, slander, defamation of character, humiliation...." "Occurrence" is defined as "an accident...."

SL urges upon this court that emotional pain and suffering qualifies as "bodily injury" and "personal injury" under the terms of the policies. We first considered this issue in NPS Corp. v. Insurance Co. of North America, 213 N.J.Super. 547, 517 A.2d 1211 (App.Div.1986). Citing to a line of cases which recognized that emotional distress is just as real as physical, see Saunderlin v. E.I. DuPont Co., 102 N.J. 402, 414, 508 A.2d 1095 (1986); Portee v. Jaffee, 84 N.J. 88, 417 A.2d 521 (1980); Zahorian v. Russell Fitt Real Estate Agency, 62 N.J. 399, 301 A.2d 754 (1973), we concluded that it would be impossible "to separate a person's nerves and tensions from his body." NPS, supra, 213 N.J.Super. at 553, 517 A.2d 1211. We found that "emotional trauma can be as disabling to the body as a visible physical wound" id., and held that the term "bodily injury" encompassed claims for emotional distress arising from an assault and battery. Id. at 554, 517 A.2d 1211.

We have since revisited the issue in Lumbermen's v. United Serv. Auto., 218 N.J.Super. 492, 528 A.2d 64 (App.Div.1987) ("Bodily injury" includes mental anguish at least to the extent that the distress alleged does not constitute "parasitic" damages attached to an independent cause of action); Wolfe v. State Farm Ins. Co., 224 N.J.Super. 348, 540 A.2d 871 (App.Div.), certif. denied 111 N.J. 654, 546 A.2d 562 (1988) ("Bodily injury" in automobile policy included claims for emotional distress inflicted by trauma of watching loved one suffer, die or observing failed rescue efforts); and more recently in Voorhees, supra ("Bodily injury" as used in policy, encompasses mental and psychological sequelae arising from the torts of outrage and negligent infliction of emotional distress). Consistent with those authorities, we hold that Whitcomb's claim for mental pain and suffering qualifies as an assertion of bodily and personal injury under the General Liability and Comprehensive Catastrophe policies.

Next we consider SL's argument that Whitcomb's claim for emotional damages constitutes an "occurrence" under each policy. In opposition, American relies on our recent opinion in Atlantic Employers v. Tots & Toddlers, 239 N.J.Super. 276, 571 A.2d 300 (App.Div.), certif. denied 122 N.J. 147, 584 A.2d 218 (1990) for the proposition that damages of whatever nature flowing directly from intentional acts must be considered to be the intended and foreseeable results of such intentional acts, and thus precluded from coverage as an "occurrence". We do not read Atlantic Employers, supra,...