(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued March 16, 1998 -- Decided June 15, 1998
STEIN, J., writing for a unanimous Court.
This appeal presents the issue whether an “employee exclusion” contained in a comprehensive
general liability (CGL) insurance policy precludes a corporate policyholder from securing coverage for
damages arising from a claim of wrongful termination.
Plaintiff John Picciallo worked as a salesman for LCA for over thirty years until his termination on
December 31, 1991. At the time of his dismissal, Picciallo was sixty-seven years old.
In April 1992, Picciallo filed suit against LCA, alleging that he had been harassed by company
employees for the purpose of forcing him into retirement. He further alleged that LCA violated the Law
Against Discrimination (LAD) by terminating him simply because of his age. The complaint set forth several
other causes of action, including breach of contract, negligence, and tortious interference with contract.
During discovery, Picciallo asserted that as a result of his wrongful dismissal from LCA, he suffered from
various emotional and physical ailments.
The events surrounding Picciallo's dismissal occurred at about the same time LCA changed its
insurance carrier from Michigan Mutual to American Motorists and Lumbermens Mutual, the latter of the two
belonging to the Kemper Companies and collectively referred to as “Kemper.” Both Michigan Mutual and
Kemper had issued comprehensive general liability (CGL) policies that contained a standard employee
exclusion clause, providing that the insurance did not apply to “bodily injury” to an employee of the insured
“arising out of and in the course of employment by the insured.”
Ultimately, both Michigan Mutual and Kemper were joined in the suit. Subsequently, the trial court
granted summary judgment in favor of both carriers, holding that the language of the employee exclusion was
clear and precluded coverage for Picciallo's claim.
In an unreported decision, the Appellate Division affirmed the grant of summary judgment in favor of
the carriers, but held that coverage was not precluded by the employee exclusion. Extending the reasoning of
Cairns v. City of East Orange,
267 N.J. Super. 395 (App. Div. 1993), the court determined that Picciallo's
termination did not “arise out of his employment” and concluded that the employee exclusion sufficed only to
exclude workers compensation claims. The court further determined that Picciallo's claim was an
“occurrence” within the meaning of the policies and that the occurrence (receipt of the letter of termination)
fell within the period of Michigan Mutual's coverage, but that LCA's delay of nearly two years before
notifying Michigan Mutual of the suit violated the policy's notice requirement and precluded coverage.
The Supreme Court granted LCA's petition for certification, Picciallo's petition for certification,
Kemper's cross-petition for certification, and Michigan Mutual's cross-petition for certification.
HELD: The “employee exclusion” contained in the insurers' comprehensive general liability insurance policy
precluded LCA, a corporate policyholder, from securing coverage for damages arising from Picciallo's claim
of wrongful termination.
1. The critical phrase “arising out of,” which frequently appears in insurance policies, has been interpreted
expansively by New Jersey courts in insurance coverage litigation. (p. 9)
2. Although, pursuant to Schmidt v. Smith, also decided today, LCA may have had coverage for Picciallo's
claims under the employer's liability section of its workers' compensation policy, that issue is not before the
Court and, therefore, is not addressed. (pp. 9-11)
3. Cairns is distinguishable from the issue presented by this appeal because it dealt with the interpretation of
the Workers' Compensation Act rather than the application of an employee exclusion in a CGL insurance
policy. (pp. 11-13)
4. The clear weight of authority from other jurisdictions favors enforcement of the employee exclusion to bar
coverage for claims similar to that advanced by Picciallo. (pp. 13-16)
5. In general, insurance policy exclusions must be narrowly construed, the burden to bring the case within the
exclusion resting with the insurer. Although ambiguities in policy language will be resolved in favor of the
insured in order to give effect to the insured's reasonable expectations, an insurance policy should generally
be interpreted according to its plain and ordinary meaning so as not to disregard the clear import and intent of
a policy exclusion. (pp. 16-17)
6. Whether specific acts of harassment or discrimination took place outside the workplace, such as harassing
telephone calls to Picciallo's home, is of no consequence because such conduct nevertheless would have arisen
out of the employment relationship between Picciallo and LCA. (pp. 17-18)
7. Were the employee exclusion interpreted only to bar coverage for workers' compensation claims, the
workers' compensation exclusion in LCA's CGL policy would be redundant. (pp. 18-19)
8. Because the relevant contract is a CGL policy rather than a workers' compensation policy, the public
policy considerations underlying the workers' compensation system are not implicated. (pp. 19-20)
9. The added disclaimer in Michigan Mutual's umbrella policy does not represent a concession that defeats
the plain language and intent of the CGL policy to exclude coverage. Rather, it is more likely that the added
disclaimer reflects Michigan Mutual's intention to assure that such claims would not be covered by the excess
policy. (p. 20)
The judgment of the Appellate Division is AFFIRMED as modified.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI and
COLEMAN join in JUSTICE STEIN's opinion.
SUPREME COURT OF NEW JERSEY
A-105/106/107/
108 September Term 1997
AMERICAN MOTORISTS INSURANCE
COMPANY AND LUMBERMENS MUTUAL
CASUALTY COMPANY,
Plaintiffs-Respondents
and Cross-Appellants,
v.
L-C-A SALES COMPANY, JOEL SCHWARTZ,
ELLEN SCHWARTZ and JOHN PICCIALLO,
Defendants-Appellants
and Cross-Respondents,
and
MICHIGAN MUTUAL INSURANCE COMPANY,
Defendant-Respondent
and Cross-Appellant.
JOHN PICCIALLO,
Plaintiff,
v.
L-C-A SALES COMPANY, JOEL SCHWARTZ,
ELLEN SCHWARTZ and STEVEN HALL,
Defendants.
Argued March 16, 1998 -- Decided June 15, 1998
On certification to the Superior Court,
Appellate Division.
Stacy L. Moore, Jr., argued the cause for
appellants and cross respondents L-C-A Sales
Company, Joel Schwartz and Ellen Schwartz
(Parker, McCay & Criscuolo, attorneys).
Donald A. Beshada argued the cause for
appellant and cross-respondent John Picciallo
(Cohen and Beshada, attorneys, Mr. Beshada
and Charles R. Cohen, on the briefs).
James P. Richardson argued the cause for
respondents and cross-appellants American
Motorists Insurance Company and Lumbermens
Mutual Casualty Company (Sellar Richardson,
attorneys; Mr. Richardson and Narinder S.
Parmar, on the brief).
Elliott Abrutyn argued the cause for
respondent and cross-appellant Michigan
Mutual Insurance Company (Morgan, Melhuish,
Monaghan, Arvidson, Abrutyn & Lisowski,
attorneys; Michael A. Sicola, of counsel;
Warren Usdin, on the briefs).
The opinion of the Court was delivered by
Stein, J.
Plaintiff John Picciallo brought suit against his former
employer L-C-A Sales Company (LCA) and certain individuals at
LCA, alleging wrongful termination based on a violation of New
Jersey's Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to
-49. The thrust of plaintiff's claim against LCA was that he was
forced out of his position because of his age. This appeal
presents the issue whether an "employee exclusion" contained in a
comprehensive general liability (CGL) insurance policy precludes
a corporate policyholder from securing coverage for damages
arising from a claim of wrongful termination.
According to Picciallo, Joel Schwartz, a partner at LCA, and Steven Hall, an employee, began to harass him in 1990 in an effort to force him into retirement. Picciallo alleged that a younger employee was hired in June 1991 to assume control over Picciallo's sales territory. Picciallo asserted that Hall began informing LCA customers that the new employee was replacing Picciallo because of his impending retirement. On December 17, 1991, Picciallo received a letter from Schwartz dated December 13, 1991, informing Picciallo of the termination of his employment effective two weeks after receipt of the letter. Pursuant to that letter, Picciallo's employment was terminated on December 31, 1991. At the time of his dismissal, Picciallo was sixty-seven years old.
In April 1992, Picciallo filed suit against LCA, Schwartz, Ellen Schwartz (another LCA partner), and Hall (collectively "LCA"). The gravamen of Picciallo's complaint was that LCA violated the LAD by terminating him simply because of his age.
Picciallo also alleged causes of action based on breach of contract, breach of the implied covenant of good faith, wrongful discharge, negligence, tortious interference with contract, respondeat superior, and intentional infliction of emotional distress. During discovery, Picciallo asserted that as a result of his wrongful dismissal from LCA he suffered emotional distress with resulting heart palpitations, sleepwalking, loss of libido, decrease in frequency of sex, constipation, bloating, headaches, diarrhea and stomach pains. Picciallo also complained of a loss of appetite that precipitated weight loss, indigestion and loss of cognitive skills, and alleged that he also suffered a stroke. The events surrounding Picciallo's dismissal occurred at about the same time LCA changed its insurance carrier. From December 28, 1990, to December 28, 1991, LCA was insured under CGL and umbrella liability policies issued by Michigan Mutual Insurance Company (Michigan Mutual). From December 28, 1991, to December 28, 1992, LCA was insured under a CGL policy issued by American Motorists Insurance Company (American Motorists). During that same period, LCA was also insured under a commercial catastrophe policy issued by Lumbermens Mutual Casualty Insurance Company (Lumbermens). (Because both American Motorists and Lumbermens are part of the Kemper Companies, we refer to them collectively as "Kemper.") Both CGL policies issued by Michigan Mutual and Kemper contained a standard employee exclusion clause, providing that the insurance did not apply to "bodily injury" to
"[a]n employee of the insured arising out of and in the course of
employment by the insured."
Because the involvement of LCA's insurers significantly
complicated the path of the litigation, we provide a brief
summary of the intricate procedural history. LCA filed an answer
to Picciallo's complaint in July 1992, and sought coverage and a
defense from Kemper. Kemper disclaimed coverage on several
grounds, including the employee exclusion, and filed a
declaratory judgment action seeking a determination that no
coverage was available under its policy. The Picciallo suit and
Kemper's declaratory judgment action were then consolidated for
discovery purposes.
In May 1993, LCA moved for summary judgment against Kemper
on the coverage issue, and Kemper cross-moved for summary
judgment, asserting for the first time in support of its motion
that Picciallo's dismissal occurred prior to the effective date
of its coverage. The trial court denied both motions without
prejudice, pending the completion of Picciallo's deposition.
Kemper later amended its complaint to include Michigan Mutual as
a defendant. After Picciallo's deposition, LCA filed a second
motion for summary judgment, and both Kemper and Michigan Mutual
responded with their own summary judgment motions. Reversing its
prior determination, the trial court ruled that Picciallo's cause
of action arose prior to December 31, 1991, and that both Kemper
and Michigan Mutual had a duty to defend LCA. Subsequently, the
trial court vacated that decision as well.
Ultimately, the trial court granted summary judgment to both
insurance companies, holding that the language of the employee
exclusion was clear and precluded coverage for Picciallo's claim.
On the same date, Picciallo settled with LCA for $130,000, of
which LCA agreed to pay $25,000, and LCA assigned to Picciallo
its rights, if any, to coverage for the balance of Picciallo's
claim.
In an unreported decision, the Appellate Division affirmed
the grant of summary judgment in favor of Kemper and Michigan
Mutual, but held that coverage was not precluded by the employee
exclusion. Extending the reasoning of Cairns v. City of East
Orange,
267 N.J. Super. 395 (App. Div. 1993), the court
determined that Picciallo's termination did not "arise out of his
employment" and concluded that the employee exclusion "suffices
only to exclude workers['] compensation claims." The court
determined that Picciallo's claim was an "occurrence" within the
meaning of the insurance polices, that the date of the occurrence
was the date on which Picciallo received the termination letter
(thus bringing the claim within the period of Michigan Mutual's
coverage and excluding coverage by Kemper), but that LCA's delay
of nearly two years before notifying Michigan Mutual of the suit
violated the policy's notice requirement and precluded coverage.
We granted LCA's petition for certification, Picciallo's
petition for certification, Kemper's cross-petition for
certification, and Michigan Mutual's cross-petition for
certification.
151 N.J. 468 (1997).
II
The Michigan Mutual and Kemper CGL policies each contain an exclusion for workers' compensation claims, and an employee exclusion, that state:
This insurance does not apply to:
. . . .
d. Any obligation under a workers'
compensation, disability benefits or
unemployment compensation law or any similar
law.
e. "Bodily injury" to:
(1) An employee of the insured
arising out of and in the course of
employment by the insured . . . .
Additionally, each policy provides that the employee exclusion
applies "[w]hether the insured may be liable as an employer or in
any other capacity . . . ."
The employee exclusion contained in the Kemper and Michigan
Mutual policies is the standard form of employee exclusion first
introduced by insurers in the 1970s. See Jonathan S. Reed,
Shredding the Employment Exclusion,
152 N.J.L.J. 324 (April 27,
1998). As the number of employment-related discrimination and
harassment claims has increased in recent years, the insurance
industry strengthened the employee exclusion by inserting
specific language barring coverage for injuries arising out of
discrimination, termination and harassment of employees. Ibid.
We note that that form of expanded employee exclusion clause was
used by Michigan Mutual in the umbrella policy it issued to LCA.
Insurers have also begun to offer separate Employment Practices
Liability Insurance (EPLI) policies, which provide coverage for
employment-related claims. Ibid.; see also Paul E.B. Glad &
Richard V. Rupp, Employment-Related Liability Claims and
Insurance, 716 PLI/Comm 121, 124 (1995)(describing advent of
employment exclusions and recent development of EPLI policies).
Michigan Mutual and Kemper assert that the Appellate
Division erred in finding the employee exclusion to be
inapplicable. According to the insurance companies, the facts
underlying Picciallo's complaint clearly arose out of his
employment and thus bring the claim within the plain language of
the employee exclusion. They contend that the Appellate
Division's conclusion that the employee exclusion bars coverage
only for workers' compensation claims ignores the effect of the
separate workers' compensation exclusion contained in each
policy.
Picciallo and LCA argue that because Picciallo's bodily
injury resulted not from his work for LCA, but from his wrongful
termination, his claim did not arise out of and in the course of
his employment and therefore is not subject to the exclusion.
They also note that Picciallo filed suit after his dismissal, and
therefore assert that his status as a former employee avoids the
effect of the exclusion because his claim was not brought "in the
course of his employment." They point to the availability of
insurance policies containing more specific employee exclusions,
and the presence of such an exclusion in Michigan Mutual's
umbrella policy, to bolster the argument that the employee
exclusion in Michigan Mutual's CGL policy does not apply.
The critical phrase "arising out of," which frequently
appears in insurance policies, has been interpreted expansively
by New Jersey courts in insurance coverage litigation. "The
phrase 'arising out of' has been defined broadly in other
insurance coverage decisions to mean conduct 'originating from,'
'growing out of' or having a 'substantial nexus' with the
activity for which coverage is provided." Records v. Aetna Life
& Cas. Ins.,
294 N.J. Super. 463, 468 (App. Div. 1996)(quoting
Westchester Fire Ins. Co. v. Continental Ins. Co.,
126 N.J.
Super. 29, 38 (App. Div. 1973), aff'd o.b.,
65 N.J. 152 (1974)),
certif. denied,
151 N.J. 463 (1997); see also Allstate Ins. Co.
v. Moraca,
244 N.J. Super. 5, 13 n.1 (App. Div. 1990)(noting that
exclusionary language in homeowner's policy barring coverage for
injuries "arising out of" ownership or use of motor vehicle was
enforceable if "accident or injury 'was connected with,' 'had its
origins in,' 'grew out of,' 'flowed from,' or 'was incident to'
the use of an automobile")(quoting Hogle v. Hogle,
356 A.2d 172
(Conn. 1975)).
Only one reported New Jersey decision has addressed the
"arising out of" language in the context of an employee exclusion
contained in a CGL policy. In Schmidt v. Smith,
294 N.J. Super. 569, 574-75 (App. Div. 1996), the plaintiff sued her employer,
PAV, alleging various claims relating to acts of sexual
harassment, and a jury verdict was returned in her favor. PAV
initially sought coverage under both its CGL policy (that
contained the standard employee exclusion) and under the
employer's liability section of a workers' compensation policy.
The Appellate Division agreed that coverage should not have been
afforded to PAV under the CGL policy, noting that PAV "concede[d]
in its appellate brief that, inasmuch as plaintiff's judgment
against it was based upon the jury's finding of a hostile work
environment, PAV 'does not seek coverage for the judgment under
the general liability policy.'" Id. at 580. The court also
noted that with regard to the claims asserted against PAV's
president and chief executive officer, the CGL employee exclusion
barred coverage except for pre-employment injury to the
plaintiff. Id. at 586. Although the Schmidt court noted that
coverage was not available under the CGL policy, the court found
that PAV was entitled to coverage under the employer's liability
section of its workers' compensation policy. Id. at 583. It
reasoned that an exclusion contained in the policy was not
applicable to liability for sexual harassment claims when the
liability was imposed vicariously and not directly. Ibid.
Simultaneously with the filing of this opinion, we affirmed
the judgment of the Appellate Division. Schmidt v. Smith, __
N.J. __, __ (1998)(slip op. at 2). We held that pursuant to
N.J.S.A. 34:15-72, PAV was required to obtain coverage for any
obligation incurred to compensate for an employee's bodily
injuries. Id. at __ (slip op. at 9). We determined that the
employer's liability section of the workers' compensation policy
was a "gapfiller," providing coverage for employees' job-related
bodily injuries whether or not covered under the Workers'
Compensation Act. Ibid. We concluded that "[t]o the extent [the
exclusion] would otherwise operate to deny coverage for such
[bodily] injuries, the exclusion violates the public policy
underlying the workers' compensation scheme and is therefore
void." Id. at __ (slip op. at 10). Thus, our holding in Schmidt
was based on the invalidity of an exclusion found in a workers'
compensation insurance policy that we found to be inimical to the
purposes of New Jersey's system of workers' compensation.
Pursuant to Schmidt, LCA may have had coverage for Picciallo's
claims under the employer's liability section of its workers'
compensation policy. That issue is not before us and we do not
address it.
In concluding that Picciallo's claim did not arise out of or
in the course of his employment and was therefore not precluded
from coverage by the employee exclusion, the Appellate Division
relied on Cairns, supra,
267 N.J. Super. 395. In Cairns, the
Appellate Division addressed the compensability under the
Workers' Compensation Act (Act) of an employee's psychiatric
injuries resulting from his receipt of a layoff notice. Cairns
had been employed by the City of East Orange for over thirty-three years. Shortly after the City decided to eliminate his
department, Cairns and twenty other departmental employees were
informed that their employment would be terminated the following
month. Under the Act, an employer must pay an employee
compensation for personal injuries, occupational disease, or
death "arising out of and in the course of his employment." Id.
at 399 (quoting N.J.S.A. 34:15-30 and N.J.S.A. 34:15-7). Relying
on Walck v. Johns-Manville Products Corp.,
56 N.J. 533, 556
(1970) and Goyden v. State Judiciary,
256 N.J. Super. 438, 458
(App. Div. 1991), aff'd o.b.,
128 N.J. 54 (1992), the Cairns
court determined that the meaning of the "arising out of"
language in the Act depended to a certain extent on whether the
events had some "essential relation to the work or its nature" or
were "peculiar" to the workplace. 267 N.J. Super. at 400-01.
The court held that receipt of a layoff notice was neither
peculiar to the plaintiff's employment nor essentially related to
the nature of plaintiff's work, noting that "layoff decisions and
notices related to terminations are common to all employment."
Id. at 401.
However, Cairns is distinguishable from the issue presented
by this appeal because it dealt with the interpretation of the
Workers' Compensation Act rather than the application of an
employee exclusion in a CGL insurance policy. Indeed, the
holding of Cairns was based largely on the "underlying policy
considerations rather than the clear language of the Act." Id.
at 399. The court concluded that "[t]o permit recovery in these
circumstances would place the employer in the position of being
an insurer of the general health and welfare of the employee and
unduly subject all employers to innumerable potential claims."
Id. at 406. Because Cairns, like Schmidt, supra, __ N.J. at __
(slip op. at 10), reached a result that was informed primarily by
the policies underlying the Workers' Compensation Act, it does
not govern the disposition of this appeal. Unlike the layoff in
Cairns, this was an employee-specific layoff notice allegedly
targeted at Picciallo because of his age. The Cairns reasoning
is that the general economic risks of employment termination
arising from an employer's effort to downsize do not equate with
an industrial injury. Picciallo's injuries, however, were not
the result of general economic risks.
More instructive is the clear weight of authority from other
jurisdictions that favors enforcement of the employee exclusion
to bar coverage for claims similar to that advanced by plaintiff.
In Meadowbrook v. Tower Insurance Co.,
559 N.W.2d 411, 413 n.1
(Minn. 1997), several employees filed a complaint against their
employer alleging, among other claims, sexual harassment and
wrongful termination. The policy at issue in that case contained
an employee exclusion almost identical to that found in the
Michigan Mutual and Kemper policies, providing that the insurance
was inapplicable to "bodily injury to any employee of the insured
arising out of and in the course and scope of his employment by
the insured." Id. at 418. The court noted that the phrase
"arising out of" in an insurance policy meant "causally connected
with" and not "proximately caused by." Id. at 419. Because some
of the conduct complained of took place outside the scope of
employment, including telephone calls made by the employer to one
of the plaintiffs' homes, the plaintiffs argued that the sexual
harassment claim did not fall within the scope of the employee
exclusion. Id. at 420 & n.22. The court observed that in
assessing whether an insurer has a duty to defend, the
appropriate focus must be on the essence of the cause of action
rather than on the conduct relied on in support of the claim.
Id. at 420. Noting that the plaintiffs' sexual harassment claim
in that case asserted that the plaintiffs' working environment
had become hostile, the court concluded that "[i]t is incongruous
to hold that such a claim can arise anywhere but in the course
and scope of . . . plaintiffs' employment", and found that the
exclusion applied. Ibid.
In McLeod v. Tecorp International, Ltd.,
865 P.2d 1283,
1286-87 (1993), the Supreme Court of Oregon interpreted an
insurance policy that contained workers' compensation and
employee exclusions essentially equivalent to those found in the
Michigan Mutual and Kemper policies. The corporate defendant
sought coverage for the plaintiff's claims of wrongful discharge
and intentional infliction of emotional distress stemming from
acts of sexual harassment during her employment. Observing that
even employees covered by workers' compensation may be able to
assert bodily injury claims against an employer under certain
circumstances, the court found that "[t]he manifest purpose of
[the employee exclusion] is to exclude from coverage bodily
injury claims of employees that arise out of and in the course of
their employment, but that are not workers' compensation claims,
unemployment compensation claims, disability claims, or claims
under similar laws." Id. at 1287. Because the plaintiff's
allegations concerned events taking place only during her
employment and while she was at work, the court concluded that
the employee exclusion barred coverage for the claims. Id. at
1287-88.
Other federal and state courts that have addressed this
issue have reached the same conclusion. See, e.g., Western
Heritage Ins. Co. v. Magic Years Learning Ctrs. & Child Care,
Inc.,
45 F.3d 85, 90 (5th Cir. 1995)(holding employee exclusion
barred coverage for former employee's sexual harassment claims
because "the claims arose out of the course of [employee's]
employment"); Jefferson-Pilot Fire & Cas. Co. v. Sunbelt Beer
Distr., Inc.,
839 F. Supp. 376, 380 (D.S.C. 1993)(noting that
employee exclusion barred coverage for racial discrimination
action "[b]ecause [employee's] action arose out of her employment
. . . ."); West Am. Ins. Co. v. Bank of Isle of Wight,
673 F.
Supp. 760, 766 (E.D. Va. 1987)(noting in wrongful termination
action that plain language of employee exclusion precluded
coverage where "[e]ach of the events which gave rise to [the
employee's] termination took place during the period of his
employment . . . ."); Omark Indus. v. Safeco Ins. Co. of Am.,
590 F. Supp. 114, 120 (D. Or. 1984)(finding employee exclusion
unambiguous and precluding coverage in sex discrimination case);
Watson v. Town of Arcadia,
542 So.2d 1168, 1171 (La. Ct. App.)
(applying employee exclusion and noting "[d]amages for an alleged
wrongful discharge clearly arise out of and in the course of
one's employment"), writ denied,
548 So.2d 1234 (La. 1989); Board
of Educ. v. Continental Ins. Co.,
604 N.Y.S.2d 399, 400 (App.
Div. 1993)(finding teacher's sexual harassment and retaliatory
discharge action arose out of employment and coverage was barred
by employee exclusion, even though "some of the alleged acts of
sexual harassment [took place] away from the school . . . .");
Aberdeen Ins. Co. v. Bovee,
777 S.W.2d 442, 444 (Tex. Ct. App.
1989) (enforcing plain language of employee exclusion in
liability policy to deny coverage for sexual harassment claim,
noting that employee's action "was against her employer for acts
arising out of her employment").
We have observed that "[i]n general, insurance policy exclusions must be narrowly construed; the burden is on the insurer to bring the case within the exclusion." Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997). We also have held that ambiguities in policy language will be resolved in favor of the insured in order to give effect to the insured's reasonable expectations. Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992); DiOrio v. New Jersey Mfrs. Ins. Co., 79 N.J. 257, 269 (1979). Under certain circumstances, even the plain meaning of policy language may be overcome if it conflicts with the reasonable expectations of the insured. Werner Indus., Inc. v. First State Ins. Co., 112 N.J. 30, 35-36 (1988). Nevertheless,
we adhere to the principle that an insurance policy should
generally be interpreted "according to its plain and ordinary
meaning," Voorhees, supra, 128 N.J. at 175 (citing Longobardi v.
Chubb Ins. Co.,
121 N.J. 530, 537 (1990)), so as not to disregard
the "clear import and intent" of a policy exclusion. Westchester
Fire Ins. Co., supra, 126 N.J. Super. at 41. We are persuaded
that the "arising out of and in the course of employment"
language of the CGL policy employee exclusion is clear and
unambiguous, and that it precludes coverage for Picciallo's
wrongful discharge claim.
Picciallo's amended complaint alleged that in 1990, Joel
Schwartz, Steven Hall and LCA began harassing him to induce him
to retire, harassment that was "motivated by an intention to
create an environment under which plaintiff would not continue to
work and would be forced to resign . . . ." Discovery revealed
that the facts alleged by plaintiff in support of his claim
included humiliation of Picciallo at a June 1990 sales meeting,
frequent inquiries by supervisory personnel about when Picciallo
would retire, harassing telephone calls, and LCA's hiring of a
young employee who was introduced to customers as Picciallo's
"replacement" while Picciallo was still on the job. As the
record demonstrates, Picciallo's cause of action for wrongful
termination based on age discrimination unquestionably arose out
of and in the course of his employment, as did the essential
factual allegations on which the cause of action was predicated.
We agree with the Minnesota Supreme Court's observation that it
would be "incongruous to hold that such a claim can arise
anywhere but in the course and scope" of employment.
Meadowbrook, supra, 559 N.W.
2d at 420.
We note that whether specific acts of harassment or
discrimination took place outside the workplace, such as
harassing telephone calls to Picciallo's home, is of no
consequence because such conduct nevertheless would have arisen
out of the employment relationship between Picciallo and LCA.
See ibid. (noting that acts occurring outside the workplace did
not change nature of claim for hostile work environment);
Continental Ins. Co., supra, 604 N.Y.S.
2d at 400 (applying
employee exclusion although some alleged acts of harassment
occurred outside workplace). We also reject the argument that
because Picciallo is a former employee, the "in the course of
employment" language of the employee exclusion renders the
exclusion inapplicable.
Aside from the plain language of the employee exclusion, the
presence of the workers' compensation exclusion immediately
preceding the employee exclusion demonstrates that the objective
of the CGL policy was to exclude from coverage all claims -
whether falling within or beyond the workers' compensation system
-- "arising out of and in the course of" Picciallo's employment.
Were the employee exclusion interpreted only to bar coverage for
workers' compensation claims, the workers' compensation exclusion
in LCA's CGL policy would be redundant. See Omark Indus., supra,
590 F. Supp. at 120 (disputing notion that "underlying claims
must be covered under workers' compensation in order to fall
within an employee exclusion clause"); Meadowbrook, supra, 559
N.W.
2d at 420 n.21 (finding separate workers' compensation
exclusion defeats argument that employee exclusion precludes only
workers' compensation claims); Fieldcrest Cannon, Inc. v.
Fireman's Fund Ins. Co.,
477 S.E.2d 59, 71 (N.C. Ct. App.
1996)(noting that workers' compensation and employee exclusions
"in tandem" preclude liability for all injuries arising out of
and in the course of employment); McLeod, supra, 865 P.
2d at 1287
(noting that presence of workers' compensation and employee
exclusion "exclude[s] from liability insurance coverage all
bodily injury claims of employees that arise from their
employment"). We also note that coverage for claims analogous to
those asserted by Picciallo is now specifically provided by EPLI
policies that are available to employers. See Glad & Rupp,
supra, 716 PLI/Comm at 124; see also Nancy Ritter, Employer
Liability: The Rush is on for Insurance, N.J. Law., Feb. 2, 1998,
at 1 (stating that number of companies in New Jersey purchasing
EPLI polices has "exploded" in past year).
We emphasize that because the relevant contract is a CGL
policy rather than a workers' compensation policy, the public
policy considerations underlying the workers' compensation system
are not implicated. See Schmidt, supra, __ N.J. at __ (slip op.
at 10). We reject LCA's claim that because Michigan Mutual's
umbrella policy contained the more recent and more specific
employee-exclusion language, Michigan Mutual should have
anticipated that Picciallo's claim would be covered by its CGL
policy. We are unpersuaded that the added disclaimer in the
umbrella policy represents a concession that defeats the plain
language and intent of the CGL policy. More likely, the added
disclaimer reflects Michigan Mutual's intention to assure that
such claims would not be covered by the excess policy.
Our resolution of the applicability of the employee
exclusion is dispositive of this appeal. Therefore, we decline
to address the remaining issues concerning the date of the
occurrence, whether Kemper's delay in raising the date of the
occurrence estops it from denying coverage on that basis, and
whether LCA's delay in notifying Michigan Mutual of Picciallo's
claim bars LCA from seeking coverage from Michigan Mutual.
IV
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, O'HERN,
GARIBALDI, and COLEMAN join in JUSTICE STEIN's opinion.
NO. A-105/6/7/8 SEPTEMBER TERM 1997
ON APPEAL FROM Appellate Division, Superior Court
ON CERTIFICATION TO
AMERICAN MOTORISTS INSURANCE COMPANY AND
LUMBERMENS MUTUAL CASUALTY COMPANY,
Plaintiffs-Respondents and Cross-Appellants,
v.
L-C-A SALES COMPANY, JOEL SCHWARTZ, et al.,
Defendants-Appellants and Cross-Respondents,
and
MICHIGAN MUTUAL INSURANCE COMPANY,
Defendant-Respondent and Cross-Appellant.
DECIDED June 15, 1998
Chief Justice Poritz PRESIDING
OPINION BY Justice Stein
CONCURRING OPINION BY
DISSENTING OPINION BY
AFFIRM
CHIEF JUSTICE PORITZ X JUSTICE HANDLER X JUSTICE POLLOCK X JUSTICE O'HERN X JUSTICE GARIBALDI X JUSTICE STEIN X JUSTICE COLEMAN X