C L A I M D E N I E D August 2003 A publication of the Lowenstein Sandler Insurance Law Practice Group New York Governor Proposes to Broaden Civil Authority Coverage By: Alexander J. Anglim, Esq. T he terrorist attacks on the were unique and unprecedented; ness interruption policies, only to World Trade Center and they affected the country in ways realize that these coverages can be Pentagon on September 11, 2001 few could have imagined only a few surprisingly narrow. days earlier. In addition to the loss Most civil authority provisions Inside of life, the financial consequences require that the following elements of the attacks were severe and far- SUPREME COURT be present in order to trigger cover- ranging. The combination of DECISIONS MAY LEAVE age: (i) a suspension of the unique facts and devastating finan- CLAIMS BY WORKERS insured’s operations, (ii) which cial losses has shone new light on WITHOUT INSURANCE results from an order of civil what is and is not covered under COVERAGE authority that prevents access to commercial first-party property — the insured’s premises and (iii) insurance policies. COURT FINDS INSURER which order results from physical MUST DEFEND CELL One notable example of the damage to property (even if it is not PHONE CASE unique factual issues raised by the the insured’s property). The — disaster was the FAA’s decision to ingress/egress coverage extension is COMMON SENSE ground all domestic air traffic in similar in scope, but omits the INTERPRETATIONS OF the wake of the disaster. The air “civil authority” requirement. “ABSOLUTE POLLUTION traffic shutdown cost businesses all These coverages present some EXCLUSION CLAUSE” over the country millions of dollars tricky issues for policyholders. For BROADEN CGL COVERAGE of revenue. Many of these busi- example, where a variety of factors FOR POLICYHOLDER nesses sought coverage under the — leads an agency to issue an order civil authority or ingress-egress www.insurance-lowenstein.com prohibiting access to a particular coverage extensions in their busi- area, what is the “cause” of that This document is published by Lowenstein Sandler PC to keep clients informed about current issues. It is intended to provide general information only. A L D
order? Likewise, what does it mean resolved, as there is little, if any, negotiate aggressively to get their to “prevent” access to a facility — controlling case law on point. insurers to put the broadest possible must all access be prohibited, or is language in their polices. The Moreover, some policies contain it enough that the most expedient, insertion of a minor change by an wording even narrower than that practical, or important means of insurer — such as requiring that which is highlighted above. For access is unavailable? There is something be a direct result rather example, while some policies pending litigation involving both than simply a result, can have require that the order be a “result” of of these questions. Notably, as to major impact when a claim arises. property damage, other policies SUPREME COURT require that it be a “direct result.” In response to the prob- DECISIONS MAY LEAVE Note how much more difficult it lems caused by the CLAIMS BY WORKERS might be for a policyholder to estab- narrow wording of these WITHOUT INSURANCE lish that the FAA’s order was a direct policies, New York’s COVERAGE result or property damage, rather Governor Pataki has than simply having to prove that it By: Jennifer A. Lopez, Esq. proposed legislation that was a result of such damage. would eliminate the “phys- The New Jersey Supreme Court In response to the problems ical damage” requirement has recently decided three workers’ caused by the narrow wording of in the civil authority compensation cases that addressed these policies, New York’s coverage extension. the issue of whether intentional Governor Pataki has proposed leg- wrongdoing by the employer islation that would eliminate the allowed the injured worker directly the first issue, some insurers have “physical damage” requirement in to sue the employer. Generally, taken the position that civil the civil authority coverage exten- under the New Jersey Workers’ authority coverage does not apply sion. This would eliminate the Compensation Act (the “Act”), an to the FAA’s grounding order. need to determine the cause — employee who suffers a workplace They argue that the FAA ground- direct or otherwise — of the partic- injury is required to apply for work- ed air traffic because it feared addi- ular order at issue. It will be inter- ers’ compensation benefits as the tional hijackings, not because of esting to see if the industry follows exclusive remedy against the the property damage at the World Governor Pataki’s lead and employer for that injury. However, Trade Center and Pentagon. By responds by introducing new policy the Act does permit an employee to contrast, policyholders have forms for use outside New York. pursue alternative or additional argued that the fact that the FAA remedies when a workplace injury One key lesson to draw from the has never before responded to a is caused by “intentional” employer 9/11 airport cases is that risk man- hijacking by grounding all air traf- misconduct. The new decisions agers and brokers must recognize fic establishes that the unique fea- provide a roadmap on how to plead that policy language is paramount. ture of these highjackings — prop- intentional wrongdoing in order to What may seem like minor differ- erty damage — was in fact the avoid dismissal on summary judg- ences in language could have enor- cause the FAA’s order. It is not ment. This means that employers mous impact on the breadth of clear how these cases will be who are sued will face substantial their coverage. As such, they must
transaction costs, along with addi- consumer product rather than an that the insurer will defend until a tional pressure to settle rather than industrial machine ). court determines that the insured risk a runaway jury. Moreover, the employer did act intentionally. In Crippen v. Central Jersey employer may not have any insur- Similar provisions exist in other Concrete Pipe Company , 2003 N.J. ance coverage. Since the predicate types of policies, including employ- LEXIS 562 (May 22, 2003), the for these actions is an allegation of ment practices liability insurance court held that the employee’s intentional wrongdoing, the com- (“EPLI”). workplace injury was intentionally plaint may not trigger any coverage. COURT FINDS caused because it was related to the INSURER MUST The determination of whether employer’s deception of OSHA DEFEND CELL an employee’s workplace injury is inspectors about the actual condition PHONE CASE caused by intentional employer and operation of the machine . In that misconduct will be based on “all case, OSHA had ordered the By: Priya R. Masilamani, Esq. the facts and circumstances.” employer to correct several viola- However, in three recent cases, the In Northern Insurance Co. of Supreme Court of New Jersey set New York v. Baltimore Business The determination of forth the key factors in making the Communications, Inc ., No. 02-1358, whether an employee’s determination. 2003 WL 21404703 (4th Cir. June workplace injury is 19, 2003), the United States Court caused by intentional In Mull v. Zeta Consumer of Appeals for the Fourth Circuit employer misconduct will Products et al ., 2003 N.J. LEXIS 561 ordered an insurer to pay defense be based on “all the facts (May 22, 2003), the Court held costs for a case in which the plain- and circumstances.” that the employee’s workplace tiffs alleged they were exposed to injury was attributable to the employ- dangerous levels of radiation emit- er’s alteration of the machine’s safety ted by cell phones. The Fourth tions and in fact “[misled] OSHA devices and was, therefore, inten- Circuit rejected the insurance com- into believing that the violations tionally caused. In that case, an pany’s assertion that the requested had been corrected.” The expert in expert’s report concluded that the relief - the cost of purchasing head- the case concluded that the employer had altered the machine sets - sought merely to prevent employer’s failure to correct the in a manner that enhanced produc- future injuries, placing the claim violations in a timely manner cre- tivity, but created substantial risk of outside the scope of bodily injury ated a substantial certainty that an employee injury. Further, the coverage. injury or death would result. employer did not place warnings to inform employees of the alter- The plaintiffs sued several cell Insurance professionals should ations. See also Tomeo v. Thomas phone manufacturers and distribu- develop new products to alleviate Whitesell Construction Company , tors for failure to warn, defective the pressure on the employer of 2003 N.J. LEXIS 560 (May 22, design, consumer protection law defending these suits. Brokers 2003) (injuries caused by a snow violations, implied warranty viola- should investigate whether they blower were not intentionally tions, negligence, fraud, and civil can obtain a workers’ compensa- caused because the snow blower is a conspiracy. On each cause of tion policy endorsement providing
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