WARE INDUSTRIES, INC., Plaintiff–Appellant, v. WAUSAU UNDERWRITERS INSURANCE COMPANY and LIBERTY MUTUAL INSURANCE COMPANY, Defendants–Respondents.
DOCKET NO. A–3522–11T1
-- October 24, 2013
Barry J. Muller argued the cause for appellant (Fox Rothschild LLP, attorneys; Mr. Muller and Jeffrey M. Pollock, of counsel and on the briefs).Dana C. Argeris argued the cause for respondents (Marshall, Dennehey, Warner, Coleman & Goggin, attorneys; Ms. Argeris and Michael A. Gorokhovich, on the brief).
This appeal requires us to determine the scope of an insurer's duty to defend an insured under Indiana law. An employee of plaintiff Ware Industries, Inc. (Ware) was injured on the job at a Ware facility in Indiana. Defendant Wausau Underwriters Company (Wausau), which provided worker's compensation and employer liability insurance to Ware, paid worker's compensation benefits to Enrique Herrera, Jr. Herrera then filed a complaint in Indiana against Ware, alleging Ware failed to train him properly, knowingly provided him with inappropriate equipment, and deliberately intended or knew injury was certain to occur. After Wausau refused to defend, Ware filed its complaint in New Jersey, seeking a declaratory judgment that Wausau had a duty to defend and indemnify.1 The trial court granted Wausau's motion for summary judgment based on the policy exclusion of intentional conduct. Having considered Ware's arguments in light of the undisputed facts and governing Indiana law, we affirm in part and dismiss in part for mootness.
The Wausau policy covers Ware and numerous Ware entities in at least thirteen states, including Indiana, but apparently not New Jersey. The policy covers bodily injury caused by accident or disease.
Part One of the policy provides worker's compensation insurance as required by each of the states. It “applies to bodily injury by accident or bodily injury by disease.” The policy provides, “We will pay promptly when due the benefits required of you by the workers compensation law.” The accompanying duty to defend excluded uncovered claims, stating:
We have the right and duty to defend at our expense any claim, proceeding or suit against you for benefits payable by this Insurance. We have the right to investigate and settle these claims, proceedings or suits.
We have no duty to defend a claim, proceeding or suit that is not covered by this Insurance.
Part Two of the policy provides employer's liability insurance. It also “applies to bodily injury by accident or bodily injury by disease,” provided, among other things, the “bodily injury must arise out of and in the course of the injured employee's employment by you.” Part Two insures Ware against any “sums [it] legally must pay as damages because of bodily injury to [its] employees, provided the bodily injury is covered by this Employers Liability Insurance.” Payable damages included damages to third parties as a result of injury to a Ware employee. However, the policy excluded coverage for the following: “any obligation imposed by a workers compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law,” and “bodily injury intentionally caused or aggravated by you.”
The duty to defend under Part Two closely tracks the comparable Part One provision, stating:
We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for benefits payable by this Insurance. We have the right to investigate and settle these claims, proceedings and suits.
We have no duty to defend a claim, proceeding or suit that is not covered by this Insurance. We have no duty to defend or continue defending after we have paid our applicable limit of liability under this Insurance.
Herrera's January 2010 application for worker's compensation benefits from Ware alleged that on May 31, 2008, he suffered a fractured pelvis and other significant injuries when he was crushed by a steel coil.2 Herrera was operating a forklift. He alleged Ware was grossly negligent in providing him “an unsafe forklift” and “by failing to properly train employees.” Herrera was found to have suffered sixty percent whole person permanent partial impairment. Wausau paid Herrera's worker's compensation benefits, including over $727,000 in medical expenses, plus a weekly benefit of $330.
Herrera then filed a civil action against Ware that was ultimately removed to the United States District Court for the Northern District of Indiana. In an effort to avoid the worker's compensation bar, Herrera alleged that Ware intentionally caused him injury, or acted with knowledge of certain injury. Herrera also recounted the circumstances of his injury, including allegations that Ware failed to train him properly, and required him to use unsafe equipment. Specifically, Herrera complained that
6․ [Ware] failed to properly train [Herrera] for the job of fork lift operator and further failed to train [Herrera] and his co-workers on critical job safety practices.
7․ [Herrera] was required to utilize an unsafe fork lift․
9. [Ware] was fully aware that the forklift described herein was not the correct type of fork lift for [Herrera] to use ․ and, by requiring him to use said fork lift, deliberately intended to inflict injury and/or knew that injury was certain to occur. This deliberate act on the part of [Ware] vests jurisdiction in this Court as a matter of law and takes this cause of action beyond the scope of the Indiana Workers Compensation Act.
10. [Ware's] failure to provide specific job and safety training further evidences that [Ware] knew, or should have known, that [Herrera] would be severely injured by being forced to use the unsafe forklift.
[ (Emphasis added).]
On July 30, 2010, Wausau — by a letter from Liberty Mutual Group — acknowledged its receipt of the complaint, declined to provide a defense, and disclaimed liability to indemnify. Wausau stated that “the allegations in the complaint do not create a potential of coverage under the policy.” Wausau reasoned that there was no coverage, and, therefore, no duty to defend under Part One because Herrera was not seeking worker's compensation benefits.
As to Part Two, Wausau denied a duty to defend, stating, “The policy applies only to bodily injury by accident or bodily injury by disease. The plaintiff does not allege bodily injury by accident.” The letter added that even if Herrera's injuries were deemed accidental, the policy denies coverage “for any bodily injury intentionally caused or aggravated by you. The plaintiff alleges his injuries were intentionally caused by [Ware].”
The federal district court ultimately granted summary judgment, dismissing Herrera's suit as barred by the Indiana Worker's Compensation Act (Indiana Act), Ind.Code § 22–3–2–6 (2013).3 Herrera v. Marinoware Indus., Civ. No. 2:10cv–311, 2011 U.S. Dist. LEXIS 122468 (N.D.Ind. Oct. 21, 2011). The magistrate judge explained that Indiana's courts have recognized an exception to the exclusive remedy provision of the Indiana Act “to encompass intentional torts committed by the employer.” Id. at *11 (citing Baker v. Westinghouse Elec. Corp., 637 N.E.2d 1271, 1273 (Ind.1994)).
Indiana has expanded the exceptions to the exclusive remedy provision of the Workers' Compensation Act to encompass intentional torts committed by the employer. This is because the Act is limited to injuries that occurred by accident, and intentional acts exceed its scope. To meet this exception, the employer itself must have intended the injury or had actual knowledge that an injury was certain to occur. This condition is not satisfied if the intent was on behalf of a supervisor, manager, or foreman. The plaintiff must show that the corporation was the tortfeasor's alter ego, that the corporation substituted its will for that of the individual who committed the tortious acts, or that the injuries were an intended product of corporate policy. Negligence, gross negligence, or recklessness on the employer's behalf is insufficient. “The employer that acts in the belief that it is causing an appreciate risk of harm to another may be negligent, and if the risk is great its conduct may be characterized as reckless or wanton, but it is not an intentional wrong ․ nothing short of deliberate intent to inflict an injury, or actual knowledge that an injury is certain to occur, will suffice.”
[Id. at *11–12 (quoting Baker, supra, 637 N.E.2d at 1273, 1275; citing Foshee v. Shoney's, Inc., 637 N.E.2d 1277, 1281 (Ind.1994)).]
Herrera alleged conduct sufficient to surmount the worker's compensation bar. The Indiana Supreme Court requires “nothing short of deliberate intent to inflict an injury, or actual knowledge that an injury is certain to occur,” Baker, supra, 637 N.E.2d at 1275; and Herrera alleged Ware “deliberately intended to inflict injury and/or knew that injury was certain to occur,” which he alleged took the case “beyond the scope of the Indiana Workers Compensation Act.”
However, the district court found that Herrera's proofs were wanting, stating:
Although Marinoware may not have shown much regard for its employees' safety, requiring its employees to operate with improper equipment, this does not prove that Marinoware intended to injure its employees. At best, Herrera established that Marinoware knew that a dangerous condition existed. Marinoware knew that the forklift it provided was not sufficient to move the coils, knew that coils often fell off the forklift, and knew the manner in which unraveled coils were fixed. While the court does not doubt that this created a dangerous environment, knowledge of a dangerous work environment does not give rise to the type of intent to injure that removes a claim from the Workers' Compensation Act. Nothing in the record shows that Marinoware maintained its policies with the intent to cause injury.
[Herrera, supra, 2011 U.S. Dist. LEXIS 122468, at *15–16 (citation omitted).]
While Herrera's suit was pending in federal court, ten months before Ware obtained summary judgment, Ware filed its complaint in New Jersey in December 2010, seeking a declaratory judgment that Wausau was obliged to defend and, if necessary, indemnify Ware for any liability arising out of Herrera's suit. Eventually, Ware filed a motion for partial summary judgment, seeking an order declaring Wausau's duty to defend. Defendants cross-moved for summary judgment dismissing the complaint in its entirety.
Judge Joseph Rea granted defendants' motion and denied plaintiff's motion on October 21, 2011. Ware moved for reconsideration on November 10, 2011. The court denied that motion on February 6, 2012. Ware then filed its notice of appeal on March 21, 2012.
We review the trial court's grant of summary judgment de novo, Lapidoth v. Telcordia Techs., Inc., 420 N.J.Super. 411, 417 (App.Div.), certif. denied, 208 N.J. 600 (2011), and apply the same standard as the trial court. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J.Super. 162, 167 (App.Div.), certif. denied, 154 N.J. 608 (1998). We also consider issues of law de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). However, we review for an abuse of discretion a trial court's order denying a motion for reconsideration. Fusco v. Bd. of Educ. of City of Newark, 349 N.J.Super. 455, 461–62 (App.Div.), certif. denied, 174 N.J. 544 (2002). Ware's March 21, 2012 notice of appeal was untimely as to the court's October 21, 2011 order. Consequently, only the appeal from the order denying the motion for reconsideration is properly before us.
As a threshold matter, we conclude that Indiana law governs Wausau's duty to defend. As the parties agree on that point, we need only briefly address the issue. As the forum state, we apply our choice of law principles. Rowe v. Hoffman–La Roche, Inc., 189 N.J. 615, 621 (2007). Although Ware is a New Jersey corporation with facilities or offices in New Jersey, and Ware purchased its insurance policy through a New Jersey-based producer, the place of contract is not determinative. State Farm Mut. Auto Ins. Co. v. Estate of Simmons, 84 N.J. 28, 36–37 (1980). Rather, applying a flexible approach, we focus “on the state that has the most significant connections with the parties and the transaction,” and “apply the law of the state with the greatest interest in resolving the particular issue that is raised.” Pfizer, Inc. v. Emp'rs Ins. of Wausau, 154 N.J. 187, 192–93 (1998). In an insurance dispute, we attach weight to parties' “justified expectations and their needs for predictability of result.” Id. at 199.
The multi-state policy at hand incorporates thirteen states' laws by undertaking to pay those benefits due under the respective worker's compensation laws. The policy also includes numerous state-specific endorsements, presumably mandated by state law. Notably, although Ware is located in New Jersey, the policy apparently did not provide coverage of New Jersey claims.
We have no doubt that, applying our choice of law principles, Indiana law should govern. Indiana is the site of the risk, the injury, the lawsuit, the plaintiff, and the defendant-insured. Also, the law governing the insured's underlying liability is determined according to the Indiana Act and Indiana case law. No impact is felt in New Jersey save for the indirect financial impact on the New Jersey-based corporate affiliate of the Indiana defendant-insured. See N.J. Mfrs. Ins. Co. v. MacVicar, 307 N.J.Super. 507, 513–14 (App.Div.) (citing Restatement (Second) of Conflicts of Laws § 193 (1971)) (finding that Pennsylvania law applied to an insurance coverage dispute because it was “the principal location of the risk,” “[t]he insureds all resided there” and New Jersey's relationship to the policy was “tangential”), certif. denied, 156 N.J. 381 (1998); Restatement (Second) of Conflicts of Laws § 193 (1971).4
We turn to the issue on appeal: whether the trial court erred in denying Ware's motion for reconsideration of the court's order dismissing Ware's claim for a defense and coverage.
As Ware succeeded in securing dismissal of Herrera's suit, we conclude Ware's appeal is moot in part; specifically, we deem moot the appeal from the order denying reconsideration of that part of the summary judgment order dismissing Ware's claim for a declaration that Wausau had a duty to indemnify. See Greenfield v. N.J. Dep't of Corrs., 382 N.J.Super. 254, 257–58 (App.Div.2006) (“An issue is ‘moot’ when the decision sought in a matter, when rendered, can have no practical effect on the existing controversy.” (internal quotation marks and citation omitted)). Therefore, we consider only the duty to defend, which was the subject of both Ware's motion for partial summary judgment, and Wausau's motion for summary judgment.
Indiana courts accept the general principle that the duty to defend is broader than the duty to indemnify. Seymour Manuf. Co., Inc. v. Commercial Union Ins. Co., 665 N.E.2d 891, 892 (Ind.1996). However, “this principle applies when the risk is insured against.” Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 42–43 n.6 (Ind.2002). The duty to defend includes a duty “to defend unfounded, false or fraudulent suits based upon risks it has insured.” Cincinnati Ins. Co. v. Mallon, 409 N.E.2d 1100, 1105 (Ind.Ct.App.1980). The duty to defend exists even if only some of the claims implicate covered risks. “If the policy is otherwise applicable, the insurance company is required to defend even though it may not be responsible for all of the damages assessed.” Ind. Farmers Mut. Ins. Co. v. N. Vernon Drop Forge, Inc., 917 N.E.2d 1258, 1267 (Ind.Ct.App.), transfer denied, 929 N.E.2d 766 (Ind.2010).
To ascertain whether there is a duty to defend, the Indiana Supreme Court stated in Transamerica Insurance Services v. Kopko, 570 N.E.2d 1283, 1285 (Ind.1991), “The duty to defend is determined solely by the nature of the complaint.” The parties dispute whether Kopko meant that a court is confined to the “the eight corners” of the complaint and the policy. The court in Indiana Farmers Mutual addressed the uncertainty, stating:
Some courts still cite Kopko as representing the current state of Indiana law. See, e.g., Ace Rent–A–Car v. Empire Fire & Marine Ins. Co., 580 F.Supp.2d 678, 689 (N.D.Ill.2008) (“[T]he Seventh Circuit has held that it remains bound to Kopko until the Indiana Supreme Court holds otherwise, which it has not done.”). But several Indiana Court of Appeals panels have decried Kopko and declined to follow it. See, e.g., Wayne Twp. Bd. of Sch. Comm'rs v. Ind. Ins. Co., 650 N.E.2d 1205, 1208 (Ind.Ct.App.1995) (“[I]n evaluating the factual basis of a claim and the insurer's concomitant duty to defend, this court may properly consider the evidentiary materials offered by the parties to show coverage.” (citing Trisler v. Ind. Ins. Co., 575 N.E.2d 1021, 1023 (Ind.Ct.App.1991))), reh'g denied, trans. denied.
[Supra, 917 N.E.2d at 1268.]
See also Huntzinger v. Hastings Mut. Ins. Co., 143 F.3d 302, 308–09 n.8 (7th Cir.1998) (following Kopko but acknowledging that decisions of the Indiana Court of Appeals have been “inconsistent” with Kopko 's restriction to the “nature of the complaint,” by permitting consideration of facts upon investigation).
We are persuaded that Kopko does not bar a party from looking beyond the face of the complaint. See Freidline, supra, 774 N.E.2d at 42–43 n.6. As the court in Indiana Farmers Mutual, supra, stated:
In any event, our Supreme Court has more recently entertained extrinsic, designated evidence when assessing an insurer's duty to defend. See Auto–Owners Ins. Co. v. Harvey, 842 N.E.2d 1279, 1291 (Ind.2006).
The Supreme Court thus looked beyond the “eight corners” of the insurance policy and third-party complaint in determining the extent of the insured's defense coverage. We understand Harvey to permit consideration of evidence extrinsic to the underlying complaint when assessing an insurer's duty to defend.
[Ind. Farmers Mut. Ins. Co., supra, 917 N.E.2d at 1268–69.]
Thus, even if a plaintiff has not clearly alleged a claim against an insured that is covered, an investigation may demonstrate that the underlying facts could fall within an insured risk. Monroe Guar. Ins. Co. v. Monroe, 677 N.E.2d 620, 623 (Ind.Ct.App.), transfer denied, 690 N.E.2d 1190 (Ind.1997). In Monroe, the plaintiff-employee alleged intentional wrongdoing by his employer, which was not an insured risk, but the employer argued its conduct was unintentional and fell within the scope of the coverage. Id. at 621–22. The court held that the insurer had “a duty to conduct a reasonable investigation into the facts underlying the complaint.” Id. at 624.
Likewise, an insurer may refuse a defense, notwithstanding a covered claim is alleged on the face of the complaint, if an investigation demonstrates no conceivable basis for coverage. The Indiana Supreme Court in Freidline, supra, stated: “Where an insurer's independent investigation of the facts underlying a complaint against its insured reveals a claim is patently outside of the risk covered by the policy, the insurer may properly refuse to defend.” 774 N.E.2d at 43 n.6 (emphasis added) (citations omitted); see also Mallon, supra, 409 N.E.2d at 1105 (“The insurance company may go beyond the face of the complaint, and refuse to defend based upon the factual underpinnings of the claim.”). As the Mallon court explained, “[W]hen the underlying factual basis of the complaint, even if proved true, would not result in liability under the insurance policy, the insurance company can properly refuse to defend. In other words, it is the nature of the claim and not its merits that determines the duty to defend.” Supra, 409 N.E.2d at 1105 (citation omitted). Nonetheless, as the Freidline court warned, an insurer that refuses to defend based on its investigation, without seeking a declaratory judgment or choosing to defend pursuant to a reservation of rights, “does so at its own peril.” Supra, 774 N.E.2d at 43 n.6.
Although Ware vigorously argues that a party is not confined to the “eight corners” of the complaint and policy, Ware nonetheless focusses on the face of Herrera's complaint as the basis for finding a duty to defend. Ware isolates allegations in the Indiana complaint that appear to sound in negligence, such as: “As a direct and proximate result of the Defendant's breach of the duty of care owed to the Plaintiff,” he used an ill-suited forklift; Herrera suffered injuries “caused by the Defendant's breach of duty”; and he suffered injuries and damages as a proximate result of Defendant's “acts or omissions.”
Plaintiff thus argues that Herrera sued in negligence. Concededly, a claim for accidental injury resulting from negligence is barred by the Indiana Act's exclusivity provision. Ind.Code § 22–3–2–6 (2013). However, Ware argues, the frivolous nature of the claim is of no moment, because it is a covered risk, as it alleges a non-intentional injury.
We disagree. First, although Herrera's complaint is far from a model of clarity, we think it evident that Herrera alleged a non-accidental injury — one caused with deliberate intent, or with knowledge of certain injury. He did so in an express effort to satisfy the test in Baker for vaulting the worker's compensation bar. The language of the complaint, not coincidentally, tracks the language in Baker. We read the allegations of breach of duty and omissions as context setting.
Under our law, there exists a narrow band of cases that do not rise to the level of intentional harm, but still avoid the worker's compensation bar. See Van Dunk v. Reckson Assocs. Realty Corp., 210 N.J. 449, 453, 460–65 (2013) (reviewing the doctrine that worker's compensation bar does not apply where plaintiff shows employer was aware of a “substantial certainty” that injury would result). In Indiana, there is a dichotomy: on one side, there are accidental injuries, which are subject to the worker's compensation bar; and on the other side, there are non-accidental injuries, which are defined as injuries caused by “a deliberate intent to inflict an injury” or “knowledge that an injury is certain to occur.” See Baker, supra, 637 N.E.2d at 1275. Arguably, an action with knowledge of certain injury, as Herrera alleged, does not qualify as a “bodily injury intentionally caused or aggravated,” as set forth in the policy's Part Two exclusion. However, an action with knowledge of certain injury is nonetheless not an accident. Part Two provides coverage only for “bodily injury by accident or bodily injury by disease.” Thus, the allegation in the complaint does not assert a covered claim, even if the facts are taken as true.5 Therefore, under Indiana law, Wausau was not obliged to defend.6
Moreover, even if one views Herrera's complaint as stating a claim based in negligence, there was no conceivable basis for recovery under the policy, and therefore, no duty to defend. If Herrera proved his factual allegations that Ware acted negligently, under Baker, it would trigger only an obligation by Ware to pay worker's compensation benefits. Those benefits had already been paid. Thus, there was no basis for recovery under Part One. Moreover, there was no basis for recovery under Part Two, which excludes claims payable under a worker's compensation law. Consequently, even if facts of negligence were proved true, the claim would not result in liability under the subject insurance policy.
Looking beyond the complaint, as Freidline permits, Wausau's declination of a defense was justified because “the claim was patently outside of the risk covered by the policy.” Freidline, supra, 774 N.E.2d at 43 n.6. Wausau's investigation led to its payment of worker's compensation benefits, based on a finding of accidental injury. The federal court agreed that there was nothing more. Herrera, supra, 2011 U.S. Dist. LEXIS, at *16.
In sum, the trial court appropriately exercised its discretion to deny Ware's motion for reconsideration. The court correctly denied reconsideration of the order denying plaintiff's motion for partial summary judgment, and affirming defendants' motion as it pertained to the duty to defend. As we have noted, we deem moot Ware's appeal from the order denying reconsideration of the order granting defendants summary judgment dismissing Ware's claim for a declaration that defendants were obliged to indemnify Ware.
Affirmed in part; dismissed as moot in part.
1. FN1. Plaintiff also named Liberty Mutual Insurance Company, and alleged Wausau was a wholly-owned subsidiary.
2. FN2. Herrera named “MarinoWare” as his employer. Included among the insured Ware entities is “Marino/Ware Design Group LLC”. We presume they are the same, and will refer to MarinoWare as Ware.
3. FN3. The Indiana Act states, “The rights and remedies granted to an employee ․ on account of personal injury or death by accident shall exclude all other rights and remedies of such employee․” Ind.Code § 22–3–2–6 (2013).
4. FN4. The Restatement provides:The validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship ․ to the transaction and the parties, in which event the local law of the other state will be applied.[Restatement (Second) of Conflicts of Laws § 193 (1971).]
5. FN5. Ware argues that by this reading, Part Two of the policy provides no coverage at all, suggesting that such a reading should be avoided. However, the policy form applies to multiple states and conceivably, Part Two may provide more substantive coverage in those states.
6. FN6. Citing Eichstadt v. Frisch's Restaurants, Inc., 879 N.E.2d 1207 (Ind.Ct.App.2008), Ware posits potential scenarios in which Herrera could have suffered from an injury by accident, without being subject to the Baker “deliberate intent” standard. In that case, a restaurant manager deliberately struck and injured an employee with a clipboard. Id. at 1209. Although the plaintiff suffered an intentional injury, the court found it was still an accident under Baker unless the plaintiff could show that the manager was the alter ego of the employer. Id. at 1212. Ware argues that such alter-ego-based liability, if proved in Herrera's case, would not be excluded from Part Two coverage. We are unpersuaded. First, Herrera did not allege such alter-ego-based liability, nor are we presented with facts in support of such an assertion. Second, if Ware were liable under such a theory, then the imputedly intentional behavior of Ware would fall within the policy exclusion.
The opinion of the court was delivered by OSTRER, J.A.D.