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February 26, 2014


Argued September 17, 2013 Decided


Before Judges Reisner and Ostrer.


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket Nos. L-8522-08 and L-4421-11.


Victor A. Rotolo argued the cause for appellant (The Rotolo Law Firm, attorneys; Mr. Rotolo, of counsel; Haekyoung Suh, on the briefs).


Gerald D. Wixted argued the cause for respondent (Smith, Stratton, Wise, Heher & Brennan, LLP, attorneys; Mr. Wixted, of counsel and on the brief).


This case involves a claim for attorney's fees pursuant to Rule 4:42-9(a)(6), which permits the court to award fees to a "successful claimant" in an action on an indemnity policy. T. Glennon, Inc. (TGI) appeals from the trial court's order granting summary judgment dismissing its declaratory judgment coverage action against its excess insurance carrier, The Hartford Casualty Insurance Company (Hartford). Hartford contributed $4 million the policy limit to settle a TGI employee's workplace personal injury suit against TGI. The employee alleged TGI committed an "intentional wrong," N.J.S.A. 34:15-8, thereby placing it outside the workers' compensation system. TGI's workers' compensation and employer's liability insurer, New Jersey Manufacturers Insurance Company (NJM), contributed $1 million the limit of its employer's liability coverage toward the settlement. Notwithstanding Hartford's payment, it previously denied that it owed TGI a duty to defend or indemnify, and it resisted TGI's separate declaratory judgment action to establish coverage.

Hartford's contribution to the settlement of the underlying tort action, standing alone, did not render TGI a "successful claimant." See Transamerica Ins. Co. v. Nat'l Roofing, Inc., 108 N.J. 59, 65 (1987). Instead, to decide whether TGI was eligible to seek fees under Rule 4:42-9(a)(6), we must determine whether coverage existed under the policy. Ibid. Having carefully examined the terms of Hartford's policy in light of the undisputed facts, we conclude, as did the trial court, that there was no coverage and, hence, Hartford had no duty to defend or indemnify. Therefore, the trial court correctly dismissed TGI's declaratory judgment action and its claim for fees.


TGI employee Charles Johnson suffered significant personal injuries performing railroad maintenance and repair work for TGI in October 2006. Johnson was using a jackhammer to remove railroad ties when the hydraulic line of a nearby tamping machine burst, disabling its brakes. Johnson's back was turned to the machine, and he wore sound-deadening headphones, so he did not see or hear the machine coming. The machine struck Johnson and crushed his legs, causing permanent disabling injuries.

Johnson sued TGI almost two years later.1 His first amended complaint also named as defendants: the machine's manufacturer, Plasser American Corporation (Plasser); the servicer hired by TGI, Eddie A. Jalshgari; and Jalshgari's company, EAJ. Johnson alleged TGI "intentionally, recklessly, carelessly and/or negligently inspect[ed], maintain[ed] and/or repair[ed]" the machine, causing his injury. In support of Johnson's claim, witnesses alleged that Tony Glennon, TGI's owner, knew the tamping machine was in disrepair, and its brakes had previously malfunctioned. Jalshgari testified that Glennon refused to make recommended repairs, notwithstanding Jalshgari's warnings that it was dangerous for Glennon to refuse. Johnson's counsel argued that TGI's actions met the standard for intentional wrong under N.J.S.A. 34:15-8 established in Laidlow v. Hariton Machinery Co., 170 N.J. 602 (2002).

After an investigation following Johnson's injury, the United States Occupational Safety and Health Administration (OSHA) imposed a $1500 penalty against TGI for failing to provide a safe workplace. However, the OSHA citation did not address maintenance of the machine. Rather, it faulted TGI for failing to establish safe operating procedures, including "precautions for employees working in close proximity of the tamper [machine]."

NJM provided counsel to defend TGI (defense counsel) in Johnson's suit, subject to a reservation of rights. As previously noted, NJM furnished TGI workers' compensation coverage, as well as $1 million in employer's liability coverage. NJM asserted that its policy exclusion of "bodily injury intentionally caused or aggravated" by TGI excluded coverage for injuries that TGI subjectively intended to cause. NJM conceded that the exclusion did not bar coverage for bodily injuries that TGI knew were substantially certain to result from its actions.2 In defense of Johnson's claims, Glennon denied ignoring warnings to repair the machine, and other witnesses had no knowledge as to whether it was defective. As a legal matter, TGI contended that Johnson's claims were barred by the exclusive remedy provision of the Workers' Compensation Act (Act), N.J.S.A. 34:15-8. Nonetheless, it was undisputed that Johnson's injuries were substantial. By January 2012, after multiple surgeries, Johnson's medical expenses alone exceeded $1.4 million.

TGI had two insurance policies with Hartford: (1) a separate commercial general liability policy with a $1 million limit per claim (CGL policy) and (2) a $4 million umbrella liability policy (umbrella policy) that identified the NJM policy as primary or underlying coverage. Among other things, the CGL policy specifically excluded on-the-job injuries to TGI's employees.

The umbrella policy provided excess coverage, but its coverage was subject to three exclusions relevant to this case. First, the policy excluded claims for "'[b]odily injury' or 'property damage' expected or intended from the standpoint of the insured" unless the bodily injury or property damage resulted from the use of reasonable force to protect persons or property (expected-or-intended exclusion).3 Second, the policy excluded "[a]ny obligation of the insured under a workers' compensation, disability benefits or unemployment compensation law or any similar law" (workers' compensation exclusion).

The third exclusion was itself subject to an exception. The policy excluded bodily injury to the insured's employee arising out of and in the course of employment or "[p]erforming duties related to the conduct of the insured's business" as well as bodily injury to certain relatives of the employee as a consequence of the employee's injury (employer's liability exclusion). However, that exclusion did not apply in cases in which "underlying insurance," described in a "Schedule of Underlying Insurance Policies," provided coverage for such liability with minimum limits. The NJM policy was included in such a schedule.

In late January or early February 2009, after TGI forwarded a copy of the Johnsons' complaint to its insurance broker, the broker notified Hartford of the claim pursuant to the CGL policy, identifying it by the policy number. The notice did not refer to or identify the umbrella policy.4

An apparent claims administrator for Hartford, Specialty Risk Services (SRS), responded on February 16, 2009, that Hartford had no duty to defend or indemnify. SRS's letter expressly referred only to the CGL policy, and identified it by its policy number. TGI did not dispute Hartford's February 2009 response, nor did it communicate with Hartford for over two years. Meanwhile, the Johnson case proceeded through discovery.

On March 28, 2011, TGI's defense counsel wrote to Hartford to explain the status of the underlying suit and "to request that Hartford provide coverage to [TGI] under the commercial umbrella policy." Defense counsel explained that Johnson alleged an intentional wrong to avoid workers' compensation exclusivity. Defense counsel acknowledged that Hartford denied a defense and coverage under the CGL policy in 2009, but noted that Hartford did not address coverage under the umbrella policy. He advised Hartford that the Johnson plaintiffs had filed a motion seeking to further amend their complaint to name Hartford as a direct defendant.

In support of his request for coverage, defense counsel noted the employer liability exception in the umbrella policy did not apply if "'underlying insurance' is maintained providing coverage for such liability with minimum underlying limits, as described in the Schedule of Underlying Insurance Policies." Defense counsel added that NJM's policy was listed as underlying insurance. He also noted that NJM already had a workers' compensation lien of over $1 million.

Defense counsel did not address the impact of the expected-or-intended exception. Nor did defense counsel expressly ask Hartford to provide a defense to TGI.

Hartford did not respond to defense counsel's letter. However, on May 10, 2011, the Johnson plaintiffs filed a second amended complaint asserting that they were third-party beneficiaries of the umbrella policy, and seeking a declaratory judgment that the umbrella policy covered Johnson's accident. Thereafter, on June 16, 2011, TGI filed a separate four-count coverage action. In count one, TGI sought a declaratory judgment that Hartford was obliged under both the CGL and umbrella policies to defend it in the Johnson action, and to indemnify it against any claims in the action. TGI alleged breach of its insurance contracts in count two, and breach of the covenant of good faith and fair dealing and bad faith in count three. TGI based those claims on Hartford's decision to decline coverage and a defense under the CGL policy, and its refusal to provide TGI with its position regarding coverage under the umbrella policy. TGI also alleged, in count four, that Hartford was estopped from denying coverage under the umbrella policy because it allegedly refused to provide TGI with its coverage position within a reasonable time period.

The next month, Hartford removed the coverage action to federal court and filed an answer raising "applicable coverage defenses."5 The federal court ultimately granted TGI's motion for remand, but denied TGI's motion for fees. The coverage action was then consolidated with the Johnson action. Hartford unsuccessfully moved to dismiss two times between July 2011 and February 2012. Hartford also unsuccessfully moved to sever the Johnson third-party-beneficiary claim.

A mediation occurred early in 2012, but did not resolve the Johnson action. In a Rova Farms6 demand letter sent March 14, 2012, counsel for the Johnson plaintiffs demanded $5 million to settle the underlying lawsuit. The demand was sent to TGI's defense counsel, Hartford's counsel and TGI's coverage counsel. The demand imposed an April 16, 2012 deadline. Defense counsel responded favorably, referring to a position he took in an unsuccessful mediation. However, counsel sought an extension of time for a response.7

On June 14, 2012, at 12:38 p.m., Hartford's counsel transmitted a letter to TGI's defense counsel and coverage counsel, stating that Hartford "[would] agree to contribute $4 million to settle" the underlying case "on behalf of its insured, [TGI]." Hartford's counsel stated that he intended to notify counsel for the Johnson plaintiffs by the end of business that day. Counsel expressed his expectation that NJM would contribute $1 million and "secure the release of all claims brought by plaintiff against [TGI]." Counsel then addressed the issue of fees, stating:

Hartford trusts that [TGI] will have no objection to Hartford settling the case on its behalf and, to the extent Hartford is successful in obtaining a full release of all claims by plaintiff against [TGI], Hartford requests that [TGI] agree in turn to release Hartford from all corresponding claims for coverage. Please let me know in writing as soon as possible if NJM and [TGI] agree to these terms.


Before receiving a written response from TGI's coverage counsel, Hartford's counsel wrote to the Johnson plaintiffs' counsel, accepting their settlement offer. He wrote, "On behalf of its insured [TGI], Hartford . . . accepts the offer that you have made to settle the claims that your client has asserted in this action. Accordingly, upon receipt of an appropriate release and settlement agreement, Hartford will tender the $4,000,000 limit of its umbrella policy." The letter was sent at 4:38 p.m., with copies to TGI's coverage counsel and defense counsel as well as the other defendants' attorneys.

Thirty-three minutes later, TGI's coverage counsel transmitted a letter to Hartford's counsel stating that TGI expected Hartford to reimburse its fees, which then exceeded $71,000:

[TGI] has no objection to Hartford settling the case on its behalf for the insurance policy limits. We expect, not only a full release of all claims by plaintiff against [TGI], but also reimbursement for all counsel fees incurred in connection with the coverage action, which [TGI] would not have had to incur but for Hartford's denial of coverage.


Hartford's counsel responded the next day. He rejected coverage counsel's request for fee reimbursement, and asserted that TGI was not a "successful claimant" under Rule 4:42-9(a)(6). He explained:

The parties could not definitively resolve the relevant coverage issues before the expiration of the plaintiffs' Rova Farms demand. Hartford decided that it would settle the case rather than subject [TGI] to the risk of an excess verdict. Hartford's decision to settle was not an admission of coverage, just as [TGI's] decision to settle was not an admission of liability.


Hartford reserved "its right to seek recoupment from [TGI] of the $4 million in uncovered expenses that Hartford ha[d] paid on [TGI's] behalf" if TGI persisted in litigating coverage and counsel fees. Coverage counsel replied that TGI would continue to seek its fees by filing a summary judgment motion in the coverage action.

Hartford, TGI and the Johnson plaintiffs executed a formal settlement agreement and release, in September and October 2012, which expressly excluded the issue of fees. The agreement stated:

[TGI] and Hartford do not by execution of this Agreement release claims related to Hartford's alleged insurance coverage obligations, including [TGI's] pending claim for reimbursement of counsel fees and costs, as alleged in T. Glennon, Inc. v. The Hartford Casualty Insurance Company, Docket No. MID-L-4421-11 (the "Coverage Action"). Nothing in this Agreement shall be construed as a waiver of any claim by [TGI] against Hartford, or Hartford against [TGI].


Once the $5 million settlement was paid, TGI filed its motion for summary judgment on count one, declaratory judgment, and count three, breach of the covenant of good faith and fair dealing. TGI also sought fees under Rule 4:42-9(a)(6). Hartford cross-moved to dismiss all TGI's claims.

After oral argument, the court denied TGI's motion and granted Hartford's cross-motion. In a written decision, the court held that Hartford had no duty to defend under the umbrella policy based on a provision in the policy that conditioned Hartford's duty on the exhaustion of underlying insurance. The court held that the NJM policy was not exhausted until NJM paid the full policy limit to settle the Johnson action. Finding no evidence "that coverage exist[ed]," the Court also concluded Hartford had no duty to indemnify. However, it rejected the suggestion that the expected-or-intended exclusion necessarily barred coverage, to the extent TGI may have been "substantially certain" to cause Johnson's injury. Finally, citing Pickett v. Lloyd's, 131 N.J. 457, 473 (1993), the court held that there was no basis for TGI's bad faith claim, as Hartford had a "'fairly debatable'" basis for denying coverage.

This appeal followed. Focusing solely on its rights under the umbrella policy, TGI argues that Hartford had a duty to defend and to indemnify it for Johnson's claims.8 TGI also argues that Hartford exercised bad faith by failing to convey its position on coverage under the umbrella policy. TGI thus claims it is entitled to fees.


We review the trial court's grant of summary judgment de novo, applying the same standard that governs the trial court. Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010). "[T]he appellate court should first decide whether there was a genuine issue of material fact, and if none exists, then decide whether the trial court's ruling on the law was correct." Ibid. We extend no special deference to the trial court's legal determinations. Ibid. (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)). Consequently, we also exercise de novo review of the court's interpretation of insurance contracts, which raises issues of law. Selective Ins. Co. of Am. v. Hudson E. Pain Mgmt. Osteopathic Med. & Physical Therapy, 210 N.J. 597, 605 (2012).

As we noted above, Hartford's contribution to the settlement of the Johnson action did not automatically render TGI a "successful claimant" in its coverage action, making it eligible to recover fees under Rule 4:42-9(a)(6). See Transamerica, supra, 108 N.J. at 65. To determine the insured's eligibility for fees when the insurer has contributed to settlement of the underlying action, the court must determine whether the insured was entitled to coverage. As the Court in Transamerica observed, "To some extent, requiring determination of coverage in order to determine the insured's entitlement to counsel fees from the insurer is a case of 'the tail wagging the dog.' Nonetheless, we fail to perceive how that entitlement can be determined without first resolving the question of coverage." Ibid.


We first reject TGI's argument that it was entitled to a defense from Hartford under the umbrella policy. The language of the policy predicates a defense on the exhaustion, by payment, of the underlying coverage. The provision states that Hartford agreed to defend a suit, including groundless, false or fraudulent suits, for covered bodily injury, if: (1) "no coverage is provided under any 'underlying insurance'" or (2) "the underlying limits of any 'underlying insurance' policy have been exhausted solely by payments of 'damages' because of 'occurrences' during the 'policy period.'" We confine our discussion to the second category.

Based on its plain language, the umbrella policy required full payment of the underlying NJM policy limit before Hartford's defense obligation would be triggered. NJM's policy placed a $1 million limit on its employer liability coverage. There was no dollar limit on the payment of workers' compensation benefits.

The umbrella policy's provision avoids duplicative defense costs. Until NJM exhausted its limits, it retained the obligation to defend TGI, and did in fact defend TGI. NJM's defense duty was also tied to payment. Its policy states, "We have no duty to defend or continue defending after we have paid our applicable limit of liability under this insurance." (emphasis added).

We recognize that generally, the duty to defend is broader than the duty to indemnify. An insurer must defend if the underlying suit "states a claim constituting a risk insured against." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 173 (1992) (internal citation and quotation marks omitted). Consistent with this principle, the umbrella policy obliges Hartford to defend "groundless, false or fraudulent" suits.

However, the obligation of an excess carrier to provide a defense is also predicated on the exhaustion of underlying coverage, and therefore, the termination of the duty to defend by the underlying carrier. "Generally, the primary insurer must pay its policy limits toward the satisfaction or settlement of the claim or judgment against the insured for an excess insurer to have any obligation to its insured. A primary insurer that properly pays its policy limits is said to have 'exhausted' its limits." 4 Douglas R. Richmond, Appleman on Insurance 24.06 (2013). See also 1 Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes 6.03 (15th ed. 2011) (stating majority view that "an excess insurer is not required to contribute to the defense of the insured" as long as "the primary insurer is required to defend"); ibid. (noting that an excess insurer's defense coverage is triggered when the "primary indemnity limits have been exhausted and the primary insurer has refused to continue the defense").

We are unconvinced by TGI's argument that Hartford's duty to defend was triggered when NJM's limits were "functionally exhausted," because NJM expressed the willingness to pay its policy limits. The only record support we discern for the assertion that NJM was prepared to pay $1 million to settle was defense counsel's response to the Johnson plaintiffs' Rova Farms letter. In that response, counsel referred to his position in the mediation, which occurred in early 2012. Yet, even if NJM were willing to enter into a settlement, no settlement was reached in the mediation. Consequently, NJM remained obliged under its own policy terms to defend TGI.9

We also reject TGI's argument that Hartford had a duty to defend because exhaustion was "inevitable." TGI relies on the fact that Johnson incurred over $1 million in medical expenses. Yet, the $1 million in medical payments would only trigger the exhaustion of the NJM policy limits if coverage were provided under the portion of the policy covering employer liability, as opposed to workers' compensation.

We also find unpersuasive or distinguishable the out-of-state authority TGI cites for the proposition that an excess carrier may be obliged to provide a defense before the underlying insurer pays the limits of its coverage. For example, Zeig v. Mass. Bonding & Ins. Co., 23 F.2d 665 (2d Cir. 1928), is distinguishable on multiple grounds. It involved payment of indemnification benefits, not the provision of a defense. Id. at 666. Also, the underlying insurer reached a settlement agreement and obtained a discharge. Ibid. Construing policy language requiring that underlying coverage be "'exhausted in the payment of claims to the full amount of the expressed limits,'" the court held that "payment" does not relate only to cash payment, but may also refer to "the satisfaction of a claim by compromise, or in other ways." Ibid. Even if one accepts the Zeig interpretation, here, there was neither an enforceable agreement binding NJM, nor a discharge of its obligations. Other cases TGI cites that refer to binding settlements by the underlying insurer are likewise inapplicable. Cf. Waste Mgmt. of Minn., Inc. v. Transcon. Ins. Co., 502 F.3d 769 (8th Cir. 2007); E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 853 F. Supp. 98 (S.D.N.Y. 1994).

Moreover, the crux of the issue in Zeig was whether the excess carrier could deny coverage if the insured settled with its underlying carrier for coverage below its limits. The court held that the excess carrier could not, but it would receive a credit for the difference between what the underlying carrier agreed to pay, and the underlying policy limits. "Only such portion of the loss as exceeded, not the cash settlement, but the limits of these policies, is covered by the excess policy." Zeig, supra, 23 F.2d at 666. However, this principle, although widely accepted, is not relevant to the issue presented here.10

Significantly, NJM's policy provided that its duty to defend TGI would expire "after we have paid our applicable limit of liability under this insurance." Thus, NJM's offer to pay $1 million as opposed to actual payment did not terminate its duty to defend. As a public policy matter, we discern no compelling ground to interpret the insurance provisions to require the excess carrier to provide a defense when the underlying insurer remains obliged to provide one.


We next consider TGI's argument that it was entitled to indemnification under the umbrella policy. An analysis of an insurer's duty to indemnify, like its duty to defend, "turns on the particular language of the policy that defines the coverage and the exclusion." Flomerfelt v. Cardiello, 202 N.J. 432, 451 (2010).

As we noted above, the policy contains three exclusions of coverage: the workers' compensation exclusion; the expected-or-intended exclusion; and the employer's liability exclusion. The combination of the first two exclusions defeats TGI's claim for indemnity coverage for damages suffered by an employee covered under workers' compensation.

The workers' compensation provision excluded "[a]ny obligation of the insured under workers' compensation, disability benefits or unemployment compensation law or any similar law." Thus, to the extent the Johnson plaintiffs were limited to recovery under N.J.S.A. 34:15-8, umbrella policy coverage was excluded.

TGI does not dispute that under Van Dunk v. Reckson Associates Realty Corp., 210 N.J. 449 (2012), Johnson would have been unable to vault the workers' compensation bar even if he could have proven that Glennon recklessly and intentionally refused to repair the tamping machine. Instead, TGI argues that the trial court, and we, should determine coverage based on the state of the law at the time TGI made its demand, and follow the appellate decision in Van Dunk, notwithstanding that the Supreme Court had reversed before the trial court addressed the instant motions. First, we find no support for the proposition that the trial court, or we, are obliged to ignore an intervening decision of our Court, clarifying the law relevant to an issue before us, absent an indication by the Court that its decision was limited to some defined prospective effect. Second, the Supreme Court's decision in Van Dunk was consistent with prior precedent; the Court applied the principles in Laidlow, supra, and Millison v. E.I. du Pont de Nemours & Co., 101 N.J. 161 (1985). Id. at 468-72.

Moreover, to the extent the Johnson plaintiffs might have avoided the workers' compensation bar by satisfying the intentional wrong exception, the expected-or-intended exclusion barred coverage. TGI argues that the umbrella policy's exclusion of "'bodily injury' . . . expected or intended from the standpoint of the 'insured'" did not exclude coverage of Johnson's claim, which rested on the allegation that TGI engaged in conduct substantially certain to cause Johnson injury. TGI relies on Beseler, supra. We are unpersuaded.

The Beseler Court interpreted a policy provision that excluded coverage for "'bodily injury intentionally caused or aggravated'" by the employer. Beseler, supra, 188 N.J. at 545. The insurer argued that this exclusion barred coverage for liability for an "intentional wrong" that fell outside the exclusive realm of the worker's compensation system under N.J.S.A. 34:15-8. Ibid. The Court disagreed.

Summarizing its holdings in Millison, supra, and Laidlow, supra, the Court held that an "intentional wrong" under N.J.S.A. 34:15-8 may be established two ways: by proving that the employer subjectively intended to cause injury, and by proving that "'an employer knows that the consequences of [its] acts are substantially certain to result in such harm.'" Id. at 546 (quoting Laidlow, supra, 170 N.J. at 613). The Court then held that the policy exclusion of "bodily injuries 'intentionally caused or aggravated by' the employer" encompassed only the subjectively intended prong of the Millison and Laidlow tests, and not the "substantial certainty" prong.

The C.5. exclusion precludes coverage for bodily injuries "intentionally caused or aggravated by" the employer. That language clearly excludes only injuries that result from a subjective intent to injure. However, once Laidlow was decided, it became clear that there are alternative methods of proving an intentional wrong and avoiding the exclusivity of the workers' compensation remedy. The substantial-certainty method of proof is distinct, but also will demonstrate an "intentional wrong." C.5.'s language does not unambiguously exclude such claims from coverage.


[Id. at 548.]


We do not find Beseler's analysis dispositive, as that case involved a different exclusion from the one before us. The exclusion in Beseler referred only to "intentionally caused or aggravated" injuries. By contrast, the umbrella policy's exclusion refers to injuries intended or expected. We discern no meaningful difference between (1) conduct that the employer knows is substantially certain to cause injury, which is sufficient to vault the worker's compensation bar under Millison, Laidlow, and Van Dunk, and (2) conduct that the employer expects will cause injury. In short, if TGI knew injury to Johnson was substantially certain, then TGI must have expected the injury, even if it did not intend it. See Wedge Prods., Inc. v. Hartford Equity Sales Co., 509 N.E.2d 74, 75-76 (Ohio 1987) ("More importantly, we are unable to see how [the employer] could have committed any acts with the belief that [its employees] were substantially certain to be injured, yet not have 'expected' such injuries to occur."). See also Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 52 Cal. Rptr. 2d 690, 722 (Ct. App. 1996) (equating "expected" injuries with injuries that are "substantially certain" to occur).

We do not read Beseler, as TGI urges, to require that a policy exclusion use the precise wording "substantially certain to result in injury" in order to exclude claims based on such conduct. Cf. Beseler, supra, 188 N.J. at 548 ("In sum, due to its lack of express language excluding conduct substantially certain to result in injury, we find C.5.'s exclusion to be ambiguous and construe it, as we must, in favor of the insured."). It is sufficient to use language that unambiguously covers such conduct. We interpret "'bodily injury' . . . expected . . . from the standpoint of the insured" to unambiguously cover instances where "the employer . . . know[s] that his actions are substantially certain to result in injury or death to the employee." Laidlow, supra, 170 617. It is beyond any insured employer's reasonable understanding that he or she could know that his or her actions were substantially certain to cause injury or death, yet not expect injury or death to occur.


Finally, we find no error in the court's order dismissing TGI's claims of bad faith and breach of the covenant of good faith and fair dealing. TGI does not argue bad faith in settlement. Hartford contributed $4 million its umbrella policy limit toward settlement of the Johnson action. In so doing, Hartford shielded TGI from a potential judgment exceeding its coverage. Hartford also shielded itself from a possible Rova Farms bad faith claim that it exercised bad faith in refusing to settle.11

TGI focuses on Hartford's delay in providing it with its position regarding TGI's request for a defense and indemnification under the umbrella policy. In short, it alleges bad faith processing of its claim. See Pickett, supra, 131 N.J. at 466-68. It also alleges that Hartford's delay forced it to retain coverage counsel to ascertain its rights to coverage. Hartford thereafter resisted TGI's declaratory judgment action. As a consequence, TGI incurred damages, consisting of its legal fees.

TGI asserts inconsistent positions. It argues that Hartford failed to provide it with a decision as to coverage under the umbrella policy, forcing it to file the coverage action. Yet, TGI also claims it assumed that SRS's February 2009 letter denying defense and coverage pertained to the umbrella policy as well. That may explain why TGI had no communications with Hartford for over two years.

We recognize that Hartford did not timely respond to defense counsel's March 2011 letter, inquiring as to Hartford's position regarding coverage under the umbrella policy. At that point, defense counsel discerned that TGI's broker's demand was limited to the CGL Policy and that TGI had neither sought nor obtained a definitive decision from Hartford regarding the umbrella policy.

We do not condone Hartford's failure to respond. Absent Hartford's admission of coverage, the Johnson plaintiffs filed suit against Hartford on May 10, 2012. TGI followed on June 16, 2012. Hartford removed TGI's action in July, along with an answer that interposed coverage defenses, thus alerting TGI that Hartford contested coverage.

An insurer owes a duty of good faith in processing an insured's claim. Pickett, supra, 131 N.J. at 467. However, the standard applies to inattention to an uncontested claim. Id. at 473 (addressing "standard . . . when the issue involves not a denial or refusal to pay a claim but, as here, inattention to payment of a valid, uncontested claim"). See also 1 Gerald P. Dwyer, Jr., Appleman on Insurance 4.07 (2013) (noting that only a minority view supports a cause of action for "harm to the insured by the handling of an uncovered claim," and stating the majority view is that "a covered claim is a sine qua non to maintaining a claim-handling claim") (emphasis omitted). TGI's claim was contested, and as we have discussed, lacked merit.

Moreover, Hartford's mere failure to issue a timely response to defense counsel's letter is insufficient to establish bad faith. Simple negligence is not enough. Pickett, supra, 131 N.J. at 481. When a case involves a processing delay:

[B]ad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay. In either case (denial or delay), liability may be imposed for consequential economic losses that are fairly within the contemplation of the insurance company.



TGI, through defense counsel, made its first written demand for coverage under the umbrella policy almost two-and-a-half years after the Johnson action began. By contrast, the umbrella policy included standard provisions requiring the insured to notify the insurer "as soon as practicable" of a claim "under this policy." We have no doubt that if TGI's broker had included the umbrella policy in its claim form, TGI would have received a coverage position with respect to that policy in early 2009.

After defense counsel failed to receive a prompt response to its March 28, 2011 letter, the record indicates that neither defense counsel nor TGI followed up with additional inquiries. There is also no evidence that TGI or its broker submitted a standard claim form pertaining to the umbrella policy. Additionally, neither TGI nor its broker apparently contacted SRS, which conveyed the February 2009 coverage decision, to inquire whether Hartford's position was the same with respect to the umbrella policy.

In sum, we discern no error in the court's order dismissing TGI's bad faith claim.

Any remaining arguments of TGI that we may not have addressed lack sufficient merit to warrant discussion in a written opinion. Rule 2:11-3(e)(1)(E).


1 Johnson's wife also asserted a per quod claim. We refer to them collectively as "the Johnson plaintiffs."

2 NJM explained that the distinction between the two forms of conduct was based on Charles Beseler Co. v. O'Gorman & Young, Inc., 188 N.J. 542 (2006), which we discuss below.

3 By contrast, the NJM policy excluded coverage for "bodily injury intentionally caused or aggravated" by TGI.

4 The record contains two notices, one dated in January and the other dated in February. Both reference only the CGL policy. It is unclear whether both were sent and received.

5 Hartford's answer is not included in the record.

6 Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 496 (1974) (discussing insurer's obligation to negotiate a settlement within the policy limits).

7 The record does not reflect the Johnson plaintiffs' response to the extension request.

8 Although TGI originally sought a defense and coverage under the CGL policy as well, it abandoned that claim before the trial court and does not assert it before us.

9 Also implicit in TGI's "functional exhaustion" argument is the concession that until NJM offered to settle and "functionally exhausted" its policy, Hartford had no duty to defend. Yet, TGI claimed in its coverage action in 2011 that Hartford had wrongfully violated its duty to defend.

10 See 1 Benedict M. Lenhart et al., Appelman on Insurance 7.02 (noting that Zeig sets forth the majority rule); see also Carpenter Tech. Corp. v. Admiral Ins. Co., 172 N.J. 504, 517-18 (2002) (stating that an excess liability carrier is entitled to a credit equal to a settling insurer's policy limits, as opposed to the settlement amount).

11 As counsel conceded in argument before the trial court, Hartford would have been unlikely to settle had the Supreme Court ruled in Van Dunk sooner.