Trial News

A New Jersey appellate court has ruled that an insurer must defend and indemnify a residential property owner against a tenant’s claim that her apartment was negligently maintained, allowing an intruder to enter through her window and assault her. Although the policy excludes coverage for assault and battery, the tenant’s claim sounded in negligence not intentional tort, the court held. (C.M.S. Inv. Ventures, Inc. v. Am. Eur. Ins. Co., 2019 WL 2266674 (N.J. Super. Ct. App. Div. May 28, 2019).)

A.G. lived in a ground-floor apartment in Irvington, N.J., owned by C.M.S. Investment Ventures, Inc. She complained to C.M.S. management that the window in her unit did not lock properly and that no bars were installed over the window. Despite her complaints, C.M.S. did not fix the window or install bars. In March 2013, an intruder entered her apartment through the broken window and sexually assaulted her.

A.G. sued C.M.S., alleging that it failed to adequately maintain the property and take reasonable precautions to protect tenants from foreseeable criminal activity. In May 2013, C.M.S. submitted a general liability loss notice to its insurer, American European Insurance Co. (AEIC), requesting coverage for A.G.’s claim. AEIC opened the claim and, after speaking to the assigned adjuster, C.M.S. principal Robert McCoy assumed that AEIC would handle the claim. However, the adjuster denied coverage and closed the file but neglected to inform McCoy and C.M.S.

In January 2015, A.G. contacted AEIC directly to initiate a claim under C.M.S.’s policy. In April 2015, AEIC notified C.M.S. that it would not cover the claim because A.G. alleged assault and battery, which was excluded under the policy.

C.M.S. filed a complaint in Essex County Superior Court in March 2016 seeking judgment against AEIC for defense and indemnification for A.G.’s claim. The trial court found that the language of the assault and battery exclusion was “ambiguous and capable of limitless meaning” but that even if the exclusion were valid, A.G.’s claim “sounded in negligence, not assault and battery.” The trial court also found that because AEIC had waited 20 months to inform C.M.S. of its coverage decision, it was estopped from denying coverage.

On appeal, the New Jersey Appellate Division, citing a 2001 New Jersey Supreme Court decision, noted that courts give special scrutiny to insurance contracts because of “the stark imbalance between insurance companies and insureds in their respective understanding of the terms and conditions of insurance policies.” (Zacarias v. Allstate Ins. Co., 775 A.2d 1264.) Ambiguities in insurance policies should therefore be interpreted in favor of the insured, the court held.

Here, the court found that AEIC’s policy exclusion applies only when “assault and battery” forms the basis of a claim. However, A.G.’s claim was for premises liability and was based on C.M.S.’s negligent maintenance of the property. Because the claim “sounds in negligence, not intentional tort,” the court said, it “should have been covered by AEIC.” The court also noted that landlords have long been held responsible “for creating an unreasonably enhanced risk of loss resulting from foreseeable criminal conduct.”

The court then considered whether AEIC was estopped from disclaiming coverage of the claim against C.M.S. and looked to whether AEIC had acted reasonably in waiting 20 months to deny coverage. While AEIC was entitled to investigate the claim for a reasonable amount of time before making a coverage decision, AEIC had closed C.M.S.’s file without informing C.M.S. of its decision. C.M.S. therefore did not receive “fair warning [that] AEIC intended to disclaim coverage,” the court noted.

Philadelphia attorney M. Stewart Ryan, who handles these types of cases, called the decision “a huge victory for people who suffer traumatic injuries through the negligence of others in New Jersey. The court told insurance companies loud and clear that the practice of writing a vague policy with an eye toward escaping coverage when liability arises will not be tolerated.” He added that “perhaps equally important was the court’s message to insurers that they cannot escape their own misconduct when they completely fail to notify the insured that they are disclaiming coverage.”