NJ Supreme Court Unanimous in Affirming That Carriers Have No Duty to Defend Negligence Claims Under NJ Workers’ Compensation Policies, and the “Intentional Wrong” Exclusion in NJ Employers’ Liability Policies Is Enforceable and Consistent With Public Policy
On December 12, 2024, the New Jersey Supreme Court in Dionicio Rodriguez v. Shelbourne Spring, LLC, 259 N.J. 385 (2024) issued a unanimous decision (with Justice Hoffman not participating) finding there is no duty to defend negligence claims under a Workers Compensation and Employers Liability policy and rejecting a challenge to the enforceability of the “intentional wrongs” exclusions that are standard components of Employers Liability insurance policies issued within the State of New Jersey. In this significant ruling, the Court held there is no duty to defend claims seeking damages for an employer’s alleged intentionally caused injury as well as injury the employer knew or should have known was “substantially certain” to cause injury.
The dispute arose when an employee of SIR Electric LLC (“SIR”) was injured in the course of his employment. The injured employee filed a petition for worker’s compensation benefits under SIR’s Workers’ Compensation and Employers’ Liability Policy through Hartford Underwriters Insurance Company (“Hartford”) and, after receiving benefits under the policy, subsequently also filed a personal injury action against SIR seeking recovery for injuries the employee sustained due to SIR’s alleged negligence, gross negligence, recklessness, and intentional wrongdoing. SIR tendered its defense of the complaint to Hartford, who disclaimed any obligation to provide a defense. SIR filed a third-party complaint against Hartford, claiming Hartford wrongfully denied SIR a defense to the employee’s action.
Upon Hartford’s motion, the trial court dismissed SIR’s third-party complaint, concluding in part that the Hartford policy’s original C5 exclusion and the 2007 amendment to the exclusion (also referred to as the “enhanced intentional injury exclusion” (the “EII Exclusion”)) expressly excluded intent-based claims from coverage. SIR moved for reconsideration and also filed a motion to amend its third-party complaint, contending for the first time that these “intentional wrongs” exclusions were void as against public policy. The trial judge denied both motions, concluding that the Hartford Policy excluded coverage for the alleged intentional conduct by SIR and that amendment of SIR’s third-party complaint would be futile.
On appeal, the New Jersey Supreme Court sided with Hartford, rejecting SIR’s claims and holding that Hartford owed no duty to defend SIR against the injured employee’s negligence-based or intent-based claims. The Court noted the “historic trade-off” between employers and employees under the New Jersey Workers’ Compensation Act, whereby employees relinquish the right to pursue common-law remedies for workplace injuries in exchange for automatic entitlement to certain benefits when an employee sustains injury on account of an accident arising out of and in the course of employment. The Court explained that, ordinarily, Workers’ Compensation Act benefits are the exclusive remedy for an injured worker who qualifies under the Act. The Court further noted the sole exception to this exclusive remedy, which bars common law claims against the employer, is where an injury is caused by an employer’s “intentional wrong.” In such cases, an employee may seek redress under the common law, as detailed in the Court’s decision in Laidlow v. Hariton Machinery Co., Inc., 170 N.J. 602 (2002) (“Laidlow claims”). Such claims include both subjective intent to cause injury and injury that the employer knew or should have known was “substantially certain” to result in injury.
Upon these bedrock principles, the Court noted that SIR’s employee alleged claims based on negligence, gross negligence, and recklessness on the one hand, and Laidlow “intentional wrong” claims on the other. As to the former, the Court explained that Hartford was not obligated to defend SIR against the employee’s negligence, gross negligence, and recklessness based claims, as those claims do not fall within coverage under the Workers’ Compensation coverage part as “[m]oney damages for negligence-based tort claims do not fall under the policy language, ‘benefits … required by workers’ compensation law.” Indeed, the employee had already received workers compensation benefits under the Hartford Policy.
The Court also held that the Laidlow claims were excluded under the plain language of the C5 and EII Exclusions, preventing a duty to defend those claims. The Court evaluated whether the employee’s Laidlow claims, which asserted that SIR knew or should have known its conduct was “substantially certain” to cause injury, were excluded by the C5 and EII Exclusions. The original Exclusion C5 states there is no coverage for “[b]odily injury intentionally caused or aggravated” by a covered employer, and the EII Exclusion states, in relevant part, that, “[w]ith respect to Exclusion C5, this insurance does not cover any and all intentional wrongs within the exception allowed by N.J.S.A. 34:15-8 including … an act or omission by you or your employees, which is substantially certain to result in injury.” The Court held that, “[t]he Laidlow claims of intentional wrongdoing in the complaint are expressly excluded under the plain language of” the exclusions.
Finally, the Court affirmed the lower court’s denial of SIR’s motion to amend its third-party complaint to contend that the EII Exclusion violated public policy, finding in accordance with the trial court that SIR’s proposed amendment would have been futile. Rejecting SIR’s belated contention that the EII Exclusion violated public policy, the Court noted that, generally, policy exclusions for intentional acts are commonplace, and that, in fact, the Court’s prior jurisprudence has repeatedly upheld the validity of exclusions for coverage for intentional wrongs.
More specifically, the Court stated, “[c]ontrary to SIR’s contention, the EII Exclusion does not violate public policy.” The Court explained that its prior jurisprudence plainly supported the enforceability of the EII Exclusions. The Court also noted that the New Jersey Compensation Rating and Inspection Bureau, pursuant to its authority to change the approved policy forms set forth in the New Jersey Workers Compensation Act and Employers’ Liability Insurance Manual, N.J.S.A. 34:15-90.2(i) (the “Manual”), issued a Bulletin that included the EII Exclusion endorsement and, on May 23, 2007, the Department of Banking and Insurance approved the EII Exclusion for inclusion in the Manual as a mandatory part of any Workers Compensation and Employers Liability policies issued in the state of New Jersey. This action was taken in response to the decisions in Charles Beseler Co. v. O’Gorman & Young, Inc., 188 N.J. 542 (2006) and N.J. Mfrs. Ins. Co. v. Delta Plastics, 188 N.J. 583 (2006), wherein the Court found the original C5 Exclusion was ambiguous regarding claims of “substantially certain” injury and construed it in favor of coverage. The EII Exclusion was meant “to restore the C5 intentional wrong exclusion while conforming with our [the Supreme Court’s] directive that such an exclusion must be unambiguous.” The Court found that the EII Exclusion language “complies with our holding in Beseler by including ‘express language excluding conduct substantially certain to result in injury.’” Accordingly, the Court held that the EII Exclusion was unambiguous, not void as against public policy, and applied to prevent coverage for the intentional wrong claims asserted against SIR.
The decision is available here.
If you have any questions about this Alert, please contact any member of the Insurance Group below.
Brian E. O'Donnell
Michael P. O'Mullan
Anthony J. Zarillo, Jr.
Tracey K. Wishert
Michael J. Rossignol
Maura C. Smith
Jeffrey M. Beyer
Peter M. Perkowski, Jr.
Jeffrey A. Beer Jr.
Robert P. Vacchiano
Anne M. Mohan
Marcia Miller Wefelmeier
Casey A. Boyle
Christen Rafuse
Lucas D. Katzenmeier
