New Jersey Appellate Division Clarifies an Insurer’s Duty to Defend and Indemnify

By:  Ethan R. Buttner, Esq.

The New Jersey Appellate Division recently issued an opinion reinforcing an insurer’s duty to defend and indemnify an insured under a liability policy.  In its decision, the Appellate Division ruled that an insurer was required to reimburse the expenses incurred by its insured in defending itself against cross-claims for defense and indemnification.
In this matter, plaintiff filed a complaint alleging that she was injured when she slipped and fell on ice in a parking lot.  Company A, which owned the parking lot, entered into a contract with Company B, wherein Company B agreed to plow and salt the subject parking lot.  Company B plowed and salted the subject parking lot one day prior to the plaintiff’s alleged slip and fall.  The services agreement provided that Company B would indemnify and hold Company A harmless for any injuries sustained arising out of or relating to Company B’s performance of its services. 
In the course of the underlying litigation, Company A filed cross-claims for defense and indemnification against Company B.  Company B’s insurer denied coverage to Company B as to the cross-claims for defense and indemnification, and recommended Company B secure personal counsel at its own expense to defend against the cross-claims.  At trial, the jury found that Company B bore no liability for plaintiff’s accident.
On appeal, the Appellate Division affirmed that Company B’s insurer was required to defend Company B against Company A’s cross-claims and reimburse Company B its defense expenses. The Appellate Division reasoned that Company B agreed to indemnify and defend Company A for injuries sustained by any third person arising out of or relating to Company B’s services, regardless of whether Company A was negligent.  The Appellate Division also provided that the insurer’s policy provided Company B with coverage in the event Company B had to indemnify Company A.  Due to the jury’s determination that plaintiff’s injuries did not arise out of nor relate to the services provided by Company B, Company A was not entitled to a defense and indemnification.  However, the Appellate Division noted that, during the pendency of the underlying litigation, the question of B’s liability was unresolved.  As a result, A’s cross-claims against B were viable, and B’s insurer was obligated to provide B with a defense in connection to the cross-claims against it.  The Appellate Division explained that, under New Jersey law, an insurer is contractually obliged to provide the insured with a defense against all actions covered by the insurance policy, and that the duty to defend is triggered by the filing of a complaint alleging a covered claim.  As a result, B’s insurer was required by its policy to defend B against A’s cross-claims. 
The Appellate Division’s decision in this matter enforces New Jersey’s jurisprudence providing that an insurer is obligated to provide its insured with a defense to a complaint which merely alleges facts within the policy’s coverage.  As a result, New Jersey insurers are exposed to potential liability for its insured’s legal expenses where a complaint merely alleges facts that fall within the policy’s coverage, even if the allegations are meritless or frivolous.