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

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.