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.

The New Jersey Arbitration Act Applies “Automatically”

A void was left when the Supreme Court of the United States held last year in New Prime v. Oliveira that the Federal Arbitration Act does not apply to a dispute involving a transportation worker’s contract, even if the worker is an independent contractor. The holding rested on an exemption found in Section 1 of the FAA for “contracts of employment” for transportation workers. But that is not the end of the story. The Court left open the use of state arbitration acts for parties and disputes exempted from the federal law. New Jersey stepped up to fill the void in a decision by the state’s Supreme Court in two companion cases, Arafa v. Health Express Corporation and Colon v. Strategic Delivery Solutions, LLC, decided July 14, 2020.

Both plaintiffs are delivery truck drivers whose industries arguably involve interstate commerce. Each signed a contract containing an arbitration clause to be governed “by the FAA.” They sued under wage and hour laws, among others, alleging they were not paid in accordance with those laws. Since the FAA does not apply under New Prime, the plaintiffs argued that there was no meeting of the minds to arbitrate, because the contracts failed to invoke the New Jersey Arbitration Act expressly, as an alternative. The New Jersey Supreme Court disagreed: “[T]he NJAA will apply unless preempted even without being explicitly referenced in an arbitration agreement; no express mention of the NJAA is required to establish a meeting of the minds that it will apply inasmuch as its application is automatic.”

Like the FAA, the New Jersey Arbitration Act provides that a written agreement to arbitrate a dispute shall be valid, irrevocable and enforceable. The two acts operate in the background. The FAA has wide preemptive application to contracts involving international or interstate commerce. But where the FAA does not apply, the New Jersey act steps up “automatically” to fill the void and compel arbitration.

We look forward to more states following New Jersey to apply their own arbitration acts to contracts, such as contracts of employment of transportation workers, to validate and enforce arbitration agreements.

Of Course Unreimbursed Medical Expenses are Recoverable…Aren’t They?

Traditionally, New Jersey’s no-fault statute was interpreted to allow a plaintiff in a personal injury suit to recover unreimbursed medical expenses that exceeded his PIP coverage.  This was not an issue when all policies carried a required $250,000 in PIP coverage.  Over the years, however, the state legislature tweaked the PIP requirements, allowing insureds to purchase automobile liability policies with lower PIP limits to combat the rising cost of policy premiums.  Today, insureds can designate their health insurer as their primary PIP carrier, or purchase auto policies with PIP coverage as low as $15,000.  The courts, however, continued to view any medical expenses exceeding an insured’s PIP coverage recoverable, except where those expenses were paid by a private health insurer.            

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