Designated Counties Exclusion Leads to Coverage Denial in Product Liability Claim

Colleen Lorito worked at a Home Depot store in Freeport, New York, in Nassau County. She suffered a severe hand injury while working with a cutting machine designed to cut pre-made window blinds to meet the specifications of Home Depot’s customers. The blinds and cutting machines were marketed by Richland Window Coverings, LLC, doing business as Nien Made (America), headquartered in California. When Colleen and her husband filed a product-liability lawsuit against Richland in Nassau County, Richland’s insurer, Admiral Insurance Company, disclaimed coverage. Richland sued Admiral in its home state of New Jersey for a declaratory judgment that it owed coverage. On appeal, the New Jersey Supreme Court sided with Admiral. Here’s why.

The Admiral policy contains a “Designated New York Counties” Exclusion, listing the five counties that make up New York City, two nearby upstate counties, and the counties of Long Island – Nassau and Sussex. There would be no coverage for Richland for any liability “arising out of, related to, caused by, or in any way connected with . . . [any] operations or activities performed by [Richland]” in any of the designated counties. Admiral asserted that Richland’s activities at the Freeport Home Depot, in Nassau County, triggered the Exclusion, denying coverage to Richland for Colleen’s accident claim.

(Why all those counties? Five of those nine counties are actually defendants’ venues – especially Nassau and Suffolk.)

Richland argued before the New Jersey courts that it sold blinds and cutting machines to Home Depot, not to any specific store location. The Supreme Court looked beyond the four corners of the complaint to review all background facts, to determine that Colleen’s injuries were “connected with” and “related to” Richland’s operations and activities at the Home Depot in Nassau County. The allegations of the complaint alone were insufficient to answer the coverage question.

The Court gleaned from the record that Richland sells Nien Made window covering products to national retailers such as Home Depot. It also provides the cutting machines to cut the blinds to customers’ specifications, and a user manual for the retailers’ employees to learn how to use the cutting machines. Its representatives visit the stores, train employees on the machines and answer questions about the blinds and machines. They maintain and repair the machines, and replace cutting blades as needed, on site. All those activities occurred at the Freeport Home Depot store where Colleen was injured.

The Supreme Court found that Richland was more than a distant marketer. Its activities in Nassau County were sufficient to conclude that Colleen’s injuries were “connected with” and “related to” Richland’s operations and activities in Nassau County. The Exclusion was upheld, and Richland was denied liability coverage for Colleen’s Nassau County lawsuit.

For insurance-law purists, neither the Supreme Court nor the Appellate Division, below, explained why New Jersey insurance law governed the outcome. True, Admiral is a New Jersey-based insurer. But Richland is headquartered in California, where the policy was presumably delivered. Colleen is a New York resident, where she sustained her injury. A choice-of-law discussion is absent from the Supreme Court’s opinion. Nor is there any discussion of the purpose or enforceability of the Exclusion.

For insureds, you may be well advised to review your policies when issued, unless you have absolute confidence in your insurance broker to do so on your behalf. Here, Colleen’s lawsuit will proceed, but Richland will not have the benefit – or comfort – of coverage under the Admiral policy. That matters.