Villa v. Short

Justice LONG,

dissenting.

Joseph and Elsie Short purchased a homeowner’s insurance policy from Allstate that contained an exclusion for the intentional acts of “an insured.” Thereafter, their son John, who suffers from a mild mental disability and who was also insured under the policy, sexually abused his niece, the Shorts’ minor granddaughter, Danielle. Danielle sued the Shorts and John. John was not covered by the policy because of the exclusion for intentional acts. However, the Shorts sought coverage from Allstate in connection with Danielle’s claim that she was injured as a result of their *29negligent supervision. Allstate disclaimed on the basis of the intentional acts exclusion although Danielle had only claimed that the Shorts were careless. Thus, the Shorts filed a declaratory action for coverage. They were unsuccessful in the trial court and in the Appellate Division. The majority now affirms on the ground that the intentional acts exclusion is clear and applies to the Shorts.

I cannot subscribe to that conclusion because the language of the policy does not unambiguously exclude from coverage the unintentional acts of the Shorts and because the Shorts’ reading of the policy was an entirely reasonable one. Therefore, I respectfully dissent.

I

The legal framework under which courts interpret insurance policy provisions is well-established. Exclusions are to be narrowly construed; the insurer has the burden of proving the applicability of the exclusion. Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 329, 712 A.2d 1116 (1998); Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 399, 267 A.2d 7 (1970). To glean the meaning of a particular provision, the plain language of the policy is the starting point. If that language is clear and unambiguous, the inquiry is concluded. Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 272-73, 765 A.2d 195 (2001). However, when a policy is unclear, ambiguities ordinarily are resolved in favor of the insured “even if a close reading of the written text reveals a contrary meaning.” Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc., 181 N.J. 245, 269, 854 A.2d 378 (2004) (quoting Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595, 775 A.2d 1262 (2001)). “[Bjecause of the complexity of insurance contracts and the expertise of insurance companies, it is the obligation of those companies to draft clear and unambiguous contracts.” Meier v. N.J. Life Ins. Co., 101 N.J. 597, 622, 503 A.2d 862 (1986). Except where the language is clear and unambiguous, the insurance contract will be construed against the insurer under the doctrine of contra proferentem. Pacifico v. *30Pacifico, 190 N.J. 258, 267, 920 A.2d 73 (2007) (“When a contract term is ambiguous, that rule of contract interpretation requires a court to adopt the meaning that is most favorable to the non-drafting party.”); see also 5 Corbin on Contracts § 24.27 (Perillo ed., rev. ed. 1998).

Relevant to the insurer’s obligation of clarity, we have explained that “when a court construes an ambiguous clause in an insurance policy, it should consider whether more precise language by the insurer, had such language been included in the policy, would have put the matter beyond reasonable question.” Auto Lenders, supra, 181 N.J. at 270, 854 A.2d 378 (citations and quotations omitted). In addition, where a clause in an insurance contract is open to more than one interpretation, it is proper to choose the reading that “comport[s] with the reasonable expectations of the insured.” Zacarias, supra, 168 N.J. at 595, 775 A.2d 1262. The present case involves an issue of pure interpretation to be resolved under those principles.

II

When John committed his acts against Danielle, the Shorts were insured under a homeowner’s policy reflected in two similar though not identical Allstate policy documents. The initial policy form, AU429, provided that:

We will pay all sums arising from the same loss which an insured person becomes legally obligated to pay as damages because of bodily injury or property damage covered by this part of the policy.

The policy also provided the following exclusion:

We do not cover any bodily injury or property damage which may reasonably be expected to result from the intentional or criminal acts of an insured person or which is in fact intended by an insured person.

In reaching its conclusion that the exclusion clearly applies to the Shorts’ negligent acts, the majority equates the words “an” and “any” in that clause and holds that it prevents recovery by “any” insured person if “any” other insured person commits an intentional act. In support, it cites two Appellate Division decisions that have adopted the same rather convoluted interpretation. *31Argent v. Brady, 386 N.J.Super. 343, 901 A.2d 419 (App.Div.2006); J.C. v. N.B., 335 N.J.Super. 503, 762 A.2d 1062 (App.Div.2000), certif. denied, 168 N.J. 294, 773 A.2d 1157 (2001).

Even if that is one reasonable interpretation of the exclusion, it is not the only one. See, e.g., McFarland v. Utica Fire Ins. Co., 814 F.Supp. 518, 525-26 (S.D.Miss.1992), aff'd, 14 F.3d 55 (5th Cir.1994) (holding “an insured” and “any insured” can reasonably be interpreted as meaning different things so use of “an insured” is ambiguous); Brumley v. Lee, 265 Kan. 810, 963 P.2d 1224, 1227 (1998) (holding words like “an” and “any” in insurance policy “inherently indefinite and ambiguous”).

Indeed the exclusion plainly admits of another equally reasonable interpretation: that coverage is excluded in respect of an insured only when that insured commits an intentional act. In other words, a negligent insured is not barred from coverage because of the intentional acts of a co-insured.

That interpretation of the exclusion is supported by the wording of the original severability-of-interest section:

This insurance applies separately to each insured person. Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under the Family Liability Protection coverage for damages resulting from one loss will not exceed the limit shown on the declarations page. All bodily injury and property damage resulting from one accident or from continuous or repeated exposure to the same general conditions is considered the result of one loss. Our total liability under the Guest Medical Protection coverage for all medical expense payable for bodily injury to any one person shall not exceed the “each person” limit shown on the declarations page. Our total liability for all medical expenses payable for bodily injury, regardless of the number of persons injured in one loss, shall not exceed the “each accident” limit shown on the declarations page.

That clause provides that each insured essentially has a separately determinable interest up to the coverage limits, and that the coverage limits are absolute regardless of the number of insureds. The first sentence literally supports the Shorts’ claim that they were entitled to a coverage analysis separate from the one that addressed coverage for John.

*32With respect to that language, one commentator has specifically noted that although there are differences of opinion over whether negligent supervision claims fall within the intentional acts exclusion, “[u]nder a policy stating ‘this insurance applies separately to each insured’ or employing a like phrase, a claim for negligent supervision of the insured intentional tortfeasor is covered.” 7A Couch on Insurance § 103:31 (3d ed. 2005); see also Nw. Nat’l Ins. Co. v. Nemetz, 135 Wis.2d 245, 400 N.W.2d 33, 37 (App.1986) (holding severability-of interest clause renders ambiguous exclusion for acts “expected or intended by an insured”); Catholic Diocese of Dodge City v. Raymer, 16 Kan.App.2d 488, 825 P.2d 1144, 1151, aff'd, 251 Kan. 689, 840 P.2d 456 (1992) (holding severability-of-interest clause makes ambiguous exclusion for injury caused “intentionally or at the direction of an insured”) (emphasis added). I make those points not to suggest that they are dispositive as to meaning but only to conclude that the language is ambiguous and, reading the policy as a whole, the Shorts reasonably could have expected coverage for their own negligent acts.

Apparently Allstate felt the same way. Thus it removed the first sentence of the severability-of-interest clause in the later version of the policy (AU9601) and added the following language:

The terms of this policy impose joint obligations on persons defined as an insured person. This means that the responsibilities, acts and failures to act of a person defined as an insured person will be binding upon another person defined as an insured person.

That language was obviously intended to address the ambiguity in this case. Thus, we know that there is precise language that the insurer could have used to put this matter to rest. Having failed to do so, the exclusion should be construed against Allstate.

In reaching a contrary conclusion, the majority engages in the kind of “close reading” that we have said we do not expect of insureds. Auto Lenders, supra, 181 N.J. at 269-70, 854 A.2d 378. Indeed, words are to be given their ordinary meaning in an insurance policy, and we do not require the insurance-buying public to be lexicographers or wordsmiths in order to understand *33their coverage. It falls to the insurer to do that job. In this case, the insurer fell short.

Because the language of the intentional acts exclusion must be narrowly construed; because it is not clear and unambiguous; and because an ordinary person, unschooled in the minutiae of insurance law interpretation, could reasonably have concluded that coverage would exist in the absence of intentional wrongdoing, I respectfully dissent.

Justice HOENS joins in this opinion. For Justice RABNER and Justices LaVECCHIA, WALLACE, and For LONG and