Very few things in life are “cut and dried” and the interpretation of words used in insurance policies is certainly no exception. Insurance policies can be difficult to read and interpret, even for the most skilled reviewer. To make matters worse, even a diligent attempt to decipher the policy’s ever alluring “definitions” section may often prove a frustrating exercise.  Yet, despite the convoluted terms and phrases, like it or not, insurance is something most of us cannot afford to ignore or live without.  The question becomes, how do we manage our affairs in reliance upon what is a “covered” claim?

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.