Insurance is a business, and like any business, the ultimate goal of the insurance companies is to make money, not to spend it. This automatically places an insured in an adversarial position to an insurance company when a claim is made. Given this dynamic, it is not surprising that the insurance company is going to use any avenue to avoid having to pay money. The most likely scenario is that an insurance company will interpret policy language or exclusions in a way that turns an otherwise covered claim into one that is not. However, contrary to what many insured's may think, this does not mean the insurance company's interpretation is the only one, or even the right one.
 

In essence, an insurance company is gambling when it issues a coverage denial letter. It is betting that the insured will take its policy interpretation and carefully crafted denial letter at face value and will fold his or her hand. Luckily, however, the law in New Jersey allows insureds to call the insurance company's bluff. Through a Declaratory Judgment action, an insured can make an application to the Court to have a judge review the contract of insurance, in light of the facts of the case, and make a judicial determination as to whether coverage exists.  Better yet, New Jersey Courts have held that any policy provision which is found to be "ambiguous" is to be resolved in favor of the insured.
 

The Declaratory Judgment action may be just what an insured needs to resolve a coverage dispute with an insurance company. This is especially true if the implications of the coverage denial could have drastic financial effects for the insured in the long term. Declaratory Judgment actions can be useful in establishing an indemnification obligation in a first party insurance claim and may be useful in establishing a defense and/or indemnification obligation in a third party insurance claim. Further, in a third party claim it is not necessary for the insured to wait until after it receives a judgment against it to file a Declaratory Judgment action. Therefore, a favorable determination could potentially save the insured from having to pay tens of thousands of dollars in defense costs out of pocket to fight the underlying lawsuit. In addition, a successful insured in a Declaratory Judgment action based on a third party lawsuit can recover the costs of instituting the Declaratory Judgment action from the insurance company.
 

While some insurance companies will take it upon themselves to file Declaratory Judgment actions where they feel their rights and obligations to an insured are questionable, in the event that they issue a coverage denial letter without taking this prudent step, it can be a powerful mechanism for insureds to utilize as well. Although an insured may be wary of taking on the task of getting the Courts involved, when the alternative is having no coverage available for a claim, it may be the best option available.  Before taking this step, it is important to have a qualified coverage attorney review your insurance policy and evaluate the strength of your coverage claims so you can make the most informed decision possible.  Know your rights and take steps to avail yourself of the all that is available to you.

Tara Speer is a member of  Stark & Stark’s Insurance Coverage & Liability Group in the Lawrenceville, New Jersey office. For questions, please contact Ms. Speer. 

Unfortunately, in many cases, the Courts have not made the daunting task of policy interpretation any easier for the lay person.  Insurance policy terms are generally interpreted by the Courts in  favor of the insured, where a fair interpretation, based upon the policy language, may be made, in accordance with the reasonable expectations of a policy-holder.  However, as is evidenced by two recent Appellate Division decisions, it isn’t always that easy. Despite the tendency of most Courts to favor policy-holder friendly interpretations, legal principals often dictate a different result which may have significant effects for both the insured and any third parties seeking indemnification from an insured. 
 

The New Jersey Appellate Division recently reaffirmed the finding that an “occurrence” does  not actually take place when a wrongful act is committed, but, rather, when the complaining party is damaged.  Often times these may not be one and the same.  On the surface, this tends to defy logic, since many insureds may assume that an “occurrence” takes place (or “occurs”) when the offending party does something wrong, thereby causing harm.  However, in legal terms, the resulting damage is the basis for a recovery, and, hence, that is what ultimately matters.  This principal is evident in instances where a party is not actually damaged until he or she learns of the wrongful act and/or its effects.  Unfortunately, since this may be weeks, months or even years later, there can be substantial insurance coverage implications as a result.
 

The importance of damages was the focus of two rather morbid cases recently reviewed by the Appellate Division involving schemes to pilfer tissue and bone from corpses. In both Adams-Stiefel Funeral Home v. Zurich American Insurance Company, No. A-0829-09 (March 10, 2011) and  Memorial Properties LLC v. Zurich American Insurance Co. No. A-0109-09 (March 10, 2011) the aggrieved family members were not alerted to the wrongdoing until years after it took place. Suits were ultimately filed, seeking damages for mental anguish and intentional and negligent infliction of emotional distress, among other things. 
 

Both funeral homes had different insurance policies in effect when the wrongdoing occurred, as compared with when the family members ultimately found out about the wrongdoing.  In the end, the Court held that the insurance policies that were in effect when the wrongdoing occurred were not implicated, even though there likely would have been coverage available under those policies, because the damage or harm (mental anguish/emotional distress, etc.) did not occur until the family members became aware of what had happened. 

The Court also determined that the policies that were in effect when the family members were notified, although implicated, were not obligated to respond to cover the claims or offer defenses to the insured because of relevant policy exclusions. Ultimately, the accused parties were found to have had no insurance coverage to pay the claims and the victims thereby lost a viable source of recovery. 
 

It is impossible for the eventual victims of wrongdoing to anticipate every possible action of those with whom they conduct business.  Requiring proof of insurance coverage from parties with whom you do business and consulting an attorney to review contracts and explain your rights is prudent advice and may save you time and frustration down the road.  Additionally, insureds should make every effort to understand the terms of the insurance policies they purchase and should be mindful of coverage exclusions which could leave them footing the bill in the event of a loss or lawsuit. It is always good practice to have a professional review your policies and explain your rights.