The premature termination of Justice Wallace’s distinguished judicial career has temporarily reduced the total number of Justices to six and raised questions about the future composition of the Supreme Court. It does not appear that the Senate will act on the Governor’s nominee to replace Justice Wallace for another two years. Only three members of the bench presently have tenure: Justice Albin, Justice Long and Justice LaVecchia. Justice Long will retire in 2012. Three other Justices are up for reappointment in the next four years: Chief Justice Rabner, 2014; Justice Rivera-Soto, 2011; and Justice Hoens, 2013. Recent events will undoubtedly weigh heavily on each one.
Justice Wallace was clearly entitled to reappointment on the merits. He served with distinction as a trial judge for nearly eight years in the Civil and Criminal Division as well as the Family Part. He was an Appellate Division judge for 11 years before ascending to the High Court in 2003. Justice Wallace wrote over 80 opinions and over 80 published Appellate Division decisions. Justice Wallace was a moderate voice on the Court, carefully approaching each case on its merits and deciding each dispute within the constraints provided by the record below. He was never an ideologue. The Justice wrote a number of opinions in cases involving complex insurance issues and was a major voice in the restrictive interpretation of the Torts Claims Act. Justice Wallace always displayed a seriousness of purpose, pursued a careful, methodical approach to deciding cases and exhibited a sincere humility about his responsibilities. The memory of Justice Wallace’s outstanding judicial career will long outlive the brief but painful controversy surrounding his early exit.
The political considerations that will factor into future appointments to the Court are not likely to be influenced by recent decisions in the field of tort. The Supreme Court has been on a moderate path for several years. The High Court’s Liberal Era featuring trail-blazing decisions expanding the rights of plaintiffs in products liability, toxic torts, medical malpractice and other fields of tort law is no more.
In the current term, the High Court refused to expand the responsibilities of real estate brokers toward their customers, despite its earlier ground-breaking decision first establishing the duty of reasonable care. The Justices also handed down a decision restricting the right to sue under a statute passed during tort reform. In a shocking deviation from traditional norms, the High Court sustained a wavier form discharging a commercial entity from any legal responsibility for its negligent acts. On the other hand, the Supreme Court continued its efforts to control the impact of the Affidavit of Merit Statute which infringed on the prerogative of the courts to set the standards for the admissibility of expert testimony. The Supreme Court also focused its attention on long-arm jurisdiction, evidential questions and the scope of insurance coverage.
The Supreme Court is at a crossroad. The composition of the court and the future direction of its decisions may depend on political events and personalities over which it has no control.
In Hopkins v. Fox & Lazo Realtors, 132 N.J. 426 (1993),the Supreme Court held that real estate brokers conducting open houses have a duty to perform a reasonable inspection of the premises and warn visitors of dangerous conditions. A broker’s duty of due care was expressly limited to open houses and has not been expanded over the years. Rogers v. Bree, 329 N.J. Super. 197 (App. Div. 2000).
The question of whether or not to broaden a real estate broker’s duty came before the High Court this term in Reyes v. Egner, 201 N.J. 417 (2010).A family rented a summer home at the Jersey Shore for two weeks through a broker. The vacationers included the lessee’s elderly parents. The rent was $4,000 plus a $500 security deposit. The owner purchased the summer rental property approximately six months before the premises were rented out to the family. The owner had a written agreement with the broker to list the property and collect rent. The broker earned a 12 percent commission of $486, the broker did a “walk-through” of the property before the beginning of the season and did not notice any “glaring” safety problems. The new owner never performed an inspection of the home before the summer season.
The master bedroom had a door leading to an outdoor deck. Anyone heading outside from this room had to step down seven inches to a platform and then proceed down a six-and-a-half inch drop to the deck. This exit was not equipped with handrails and no warnings were posted.
Approximately nine days after occupying the home, the elderly father went out to the deck from the bedroom for the first time. He lost his balance when he could not navigate the steps down to the deck and was seriously injured.
The injured plaintiff filed a lawsuit against the owner and the broker claiming that the exit to the deck was hazardous because the uneven surfaces were not apparent to a user and lacked handrails in violation of the New Jersey Uniform Construction Code. Plaintiff retained a real estate professional as an expert who opined that the broker failed to conduct a reasonable inspection of the premises to identify this dangerous condition and warn renters about the problem. The broker’s expert testified that the real estate agent was under no obligation to inspect the home for safety hazards but only to confirm the physical condition of the premises.
The trial court dismissed plaintiff’s complaint against both defendants on summary judgment. The trial judge believed a lessor was not liable for injuries to a guest caused by a latent defect unless there was a “fraudulent concealment” of the defect under Patton v. Texas Co., 13 N.J. Super. 42, 47 (App. Div. 1951). The trial judge also ruled that the broker had no duty to inspect the property or conduct repairs because it had not contracted to do so.
The Appellate Division reinstated the plaintiff’s claim against the owner, concluding that there were issues of fact concerning whether or not defendant knew or should have known of the dangerous condition and whether the lessee did not know or have reason to know of the condition or risk involved. The appellate court rejected Patton as precedent in favor of the more liberal principles set forth in the Restatement (Second) of Torts , Section 356.
The three-judge panel sustained the trial court’s decision to dismiss the broker from the case as the broker did not have a duty to inspect a rental property for safety defects. The lower courts noted that they did not have the authority to broaden the parameters of the broker’s legal responsibility enunciated in Hopkins. The plaintiff’s petition for certification was granted by the Supreme Court to assess whether or not the broker should be held accountable for inspecting rental properties and warning of hazardous conditions. The high-stakes shootout, and its potential impact on the real estate industry, drew the participation of the New Jersey Association of Realtors as amicus.
A split decision amongst six Justices sustained the summary judgment for the broker. The prevailing opinion, written by Justice LaVecchia, was joined by Chief Justice Rabner and Justice Rivera-Soto. Justice Albin led the dissenters: Justices Long and Wallace . Justice LaVecchia and her two colleagues were dissuaded from expanding the law in this case because the plaintiff had ample opportunity to discover the defect in the nine days he occupied the premises. Unlike the visitors to the open house in Hopkins , the occupants had the opportunity to acquire “intimate knowledge of the property” from residing in it . Justice LaVecchia concluded that the “facts of this case simply do not compel an extension of the Hopkins duty of care to plaintiff’s cause of action.” While the plaintiff’s opportunity to discover the risk is not a conceptual obstacle to imposing a duty on the defendant, these three Justices were not going to plow a new path in tort law on the soft ground provided by these facts. These three Justices also expressed a concern that an ill-advised extension of the law might have an adverse impact on the cost of short-term rentals. The concurring opinion was careful to point out that these three Justices may be willing to extend Hopkins if the factual scenario provided firmer footing for trail-blazing.
The dissenting judges believed a duty should exist because there was a “cognizable relationship” between the broker and the renters, the broker “received a direct economic benefit” from the renters, and the broker had the “opportunity and ability to exercise care.” Justice Albin and his two colleagues were motivated to impose additional responsibilities on brokers to provide an incentive to protect shortterm renters from harm caused by dangerous conditions of property. The Justice deployed a literary flourish to emphasize his point: “Our tort jurisprudence now demands that a broker at an open house say, ‘buyer watch your step,’ but allows a broker with full knowledge of a dangerous condition to remain mute to a short-term lessee, and by his silence say, ‘renter be damned.’” Hopkins was a 6-1 decision written by Justice Handler for the liberal Wilentz Court. Justice Albin chided his reluctant colleagues for taking “a pass on the Appellate Division’s invitation to refine our developing common law.”
The battle over the duties of brokers will continue in the future as emerging fact patterns will challenge the present limitations of common-law principles. This close call will no doubt cause brokers’ lawyers to draft strong indemnity clauses to protect their clients from future changes in the law.
Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., WL 2470997 (2010), presents the kind of evidential puzzle that ends up as a question on a bar examination or civil trial certification test. Nick crashed his vintage sports car into an underpass. Shortly thereafter, the police responded to the scene and Nick told the investigating officer that “a blue Corvette traveling in the same direction cut him off” and then “he lost control of his vehicle and struck the underpass wall.”
Nick was taken by ambulance to a trauma center. When the patient was questioned about his history by medical personnel, the following statement was recorded in the medical chart: “[he] was driving a sport car, was cut off, was forced to make a left turn and crashed into a bridge”. The next day while Nick was still hospitalized, he told a psychologist that “he was in an auto accident yesterday and was cut off by another car and has multiple injuries.”
After being discharged from the hospital, Nick went to stay with family in Florida and continued his medical and psychological treatment. Nick advised a treating physician that he had been “involved in an automobile accident . . . He was run off the road and hit a cement barrier.”
A UM claim was made under Nick’s automobile insurance policy. In a form submitted to the insurance agent shortly after the accident, the event is described as occurring because the “accelerator stuck and insured hit the divider”. There was no reference to a phantom vehicle. The document was not signed and the source of information was not set forth on the record.
Nick returned to New Jersey and resumed treatment with his psychologist. Nick was described by the therapist as depressed and feeling hopeless about his future. Approximately five weeks after the accident, Nick committed suicide. No statement under oath was ever taken. About a year-and-a-half later, the estate instituted suit against Nick’s automobile carrier seeking UM benefits for decedent’s lifetime pain and suffering.
Q: Are any of the statements admissible?
Q: What rules of evidence apply?
The carrier sought summary judgment on grounds that there was no competent evidence of involvement of a phantom vehicle in the accident. The estate cross-moved for a summary judgment. The record before the trial court included decedent’s statements in the police report, the excerpt of the hospital record, the report of the treating physician in Florida and the notes from the treating psychologist.
The trial judge issued a written opinion holding that none of the statements were admissible under the excited utterance exception, N.J.R.E. 803(c)(2),the business record exception, N.J.R.E. 803(c)(6),or statements made for purpose of medical diagnosis or treatment, N.J.R.E. 803(c)(4).The parties tacitly agreed that the police report was a business record and argued about whether or not the decedent’s statement had an independent basis for admission into evidence. The portions of a patient’s statement in medical records that describe the cause of an accident to a health care provider are not generally admissible under N.J.R.E. 803(c)(4). Dintner v. Sears Roebuck & Co., 252 N.J. Super 84, 92 (App. Div. 1991 ). The police officer was not deposed and there was no specific information in the moving papers as to how much time elapsed between the accident and the statement. This may explain why the driver’s statement to the police officer did not qualify as an excited utterance under Lieberman v. Saley, 94 N.J. Super 156, 161 (App. Div. 1967).
The trial court also considered whether the statement to the police officer was admissible under N.J.R.E. 804 (b)(6) Hearsay Exceptions: Declarant Unavailable, Trustworthy Statements by Deceased Declarants: In a civil proceeding, a statement made by a person unavailable as a witness because of death if the statement was made in good faith upon declarant’s personal knowledge in circumstances indicating that it is trustworthy.
Q: What criteria does a statement have to meet for admissibility under this Rule?
Q: Does the statement to the police officer meet the requirements for admissibility?
When a party offers a statement from a deceased witness into evidence under N.J.R.E. 804 (b)(6), a trial judge must make specific findings about whether the statement was made in good faith and under circumstances indicating that it was trustworthy. Devito v. Sheeran, 165 N.J. 167, 194 (2000 ) . In Estate of Hanges , the trial judge believed that decedent had “reason to not be forthcoming in this situation” and “under the circumstances which the statement was made, there is great incentive for a driver to skew the facts in his favor.”The court granted the defendant’s application for summary judgment and dismissed plaintiff’s complaint.
Plaintiff appealed. The Appellate Division reviewed the record and found that plaintiff’s proffer of the driver’s statement in the police report met the requirements of N.J.R.E. 804(b)(6).There was no dispute that declarant was deceased and had personal knowledge of the facts. Good faith has not been satisfactorily defined in the case law andthe appellate opinions in this case do not attempt to do so.It appears that good faith reflects proof that the declarant’s motives were likely to have been honest and sincere and the statement was not made for a nefarious motive . Courts often lump the concepts of good faith and trustworthiness together. A party does not meet the requirement by simply establishing that the statement was not given in bad faith. Ayala v. Lincoln, 147 N.J. Super. 304, 307 (App. Div. 1977). Trustworthiness requires the court to analyze the following factors: whether the statement was made under oath; the duration of the time between the event and the statement; whether the declarant had first-hand knowledge; and the credibility of the declarant. According to the appellate judges, there was a probability that the statement was made in good faith and under trustworthy circumstances because it was made after the accident to the police officer and there was no evidence of any motive the driver had to fabricate his account of what happened. Plaintiff did not have to prove that the statement was absolutely trustworthy. Whether or not the statement was credible was ultimately up to a jury.
The Supreme Court granted defendant’s petition for certification solely to review whether or not the decedent’s statement in the police report was admissible under N.J.R.E. 804 (b)(6). The Supreme Court affirmed the Appellate Division’s reversal of the trial courts’ grant of summary judgment for the defendant in a unanimous opinion authored by Justice Rivera-Soto.
Q: What is the appellate standard of review of the trial court’s decision?
The first issue the Supreme Court had to tackle was to identify the appropriate standard for reviewing the trial court’s decision. Defendant argued that an appellate court was limited to an assessment of whether or not the trial court’s decision on a matter of admissibility of evidence was an abuse of discretion. Plaintiff contended that the appellate courts were reviewing a legal conclusion from a summary judgment decision and should conduct a de novo plenary appellate review. The Appellate Division did not address this issue. Writing for a unanimous court, Justice Rivera-Soto analyzed the problem and concluded that this case was a hybrid, “an evidentiary decision (which is subject to the abuse of discretion standard of review) made within the context of a summary judgment application (which produced a legal conclusion itself subject to a plenary de novo review).” The Justices did not see a conflict between the two tests and resolved to use them in a logical sequence. The evidence question would first be determined by the abuse of discretion standard and then the legal conclusions forming the basis of the summary judgment motion would be examined on a plenary de novo basis.
Q: How should a trial court resolve the question of admissibility under N.J.R.E. 804(b(6)?
In reading between the lines of the decision, it is readily apparent that the Justices were not entirely satisfied with the quality of the record before it. The parties made a practical, strategic decision to present the motion to the trial court based entirely on a police report and medical records without requesting a plenary hearing. This barren paper record made it difficult for the appellate courts to wrestle with the subjective factors set forth in the rule. The gold standard is to present relevant testimony in a N.J.R.E. 104 a hearing. Jeter v. Stevenson, 284 N.J. Super. 229, 234 (App. Div. 1995). At oral argument, the Justices were openly critical of the failure of the parties and the trial court to conduct a plenary hearing. In fairness to the trial court, judges must deal with a heavy volume of motions on alternate Fridays and it was the lawyers who decided how to construct the record and present the application.
Q: How did the Supreme Court rule?
Q: Are the other inadmissible statements relevant to the decision-making process?
The Supreme Court upheld the decision of the Appellate Division and ruled that the plaintiff had met the requirements for admissibility of the statement made by the driver to the police officer. The High Court agreed with the Appellate Division that the statement of the driver to a police officer after the accident met the benchmarks of good faith and trustworthiness. This conclusion was also buttressed by the other similar inadmissible statements made by the driver to his health care providers after the accident “where candor is at a premium and entirely consistent with the declarant’s goals.” According to Justice Rivera-Soto, these statements should have been considered by the trial court “in determining the preliminary question of the admissibility of decedent’s statement to the police.”The other inadmissible statements could be considered, because the rules of evidence are not strictly applied in a 104 hearing, and they rebutted a claim of recent fabrication. Using the other statements as a tool was a practical solution to a thorny problem. Good faith and trustworthiness in this specific case boiled down to an assessment as to whether or not they had a sufficient “ring of truth” to justify admission into evidence. As Justice Rivera- Soto stated at oral argument, short of a séance, the only way to approach the problem was to compare the driver’s multiple statements about the accident. The weight accorded to the contradictory account of the accident contained in the form submitted to the insurance agent was not a factor because “its author is undisclosed and the source of the information . . is unknown.”
The Justices also believed that the trial judge’s decision to exclude the statement to the police officer was rooted in his view that all drivers in single vehicle accidents have a motive to lie so all such statements should be looked at with a jaundiced eye. This was an abuse of discretion because it was a product of intuition and not based on concrete facts in the record.
The trial judge’s failure to identify the statement in the police report as competent evidence undermined the validity of the trial court’s legal conclusion on the summary judgment and the order of dismissal was vacated.
No matter how you characterize it, N.J.R.E. 804(b)(6),involves the administration of a judicial smell test that entails a subjective analysis of the credibility of statements that cannot be judged in a customary fashion. The Annotated New Jersey Rules of Evidence notes that “this Rule reflects the judgment that if a statement is trustworthy and the declarant cannot be called because of his death, the gain of evidential value of the statement outweighs the loss of ability to cross-examine.” The Justices were keenly aware that an adverse ruling on the issue of evidence would terminate the estate’s cause of action.The judicial consensus was that the preferable course of action was to admit the statement, let the lawyers battle over its veracity at trial and leave the ultimate judgment on the credibility of the statement to the jury.
Affidavit of Merit: Last Chance
The Affidavit of Merit Statute has not deterred patients from suing their doctors as its supporters had hoped. Instead, the law has spawned an enormous volume of time-consuming and expensive litigation over how the law should be applied.
Under N.J.S.A2A:53A-27, a plaintiff must file an affidavit of merit within sixty days from the date defendant files an answer. Thereafter, a plaintiff may serve the affidavit of merit between 61 and 120 days for good cause shown. The defendant is entitled to a dismissal with prejudice if the plaintiff fails to file a timely affidavit. The dismissal may be without prejudice only where there are extraordinary circumstances. An attorney’s carelessness may constitute good cause, but not extraordinary circumstances. Burns v. Belasfsky, 166 N.J. 466 477-78 (2001); Palanque v. Lambert-Wooley 168 N.J. 398, 405 (2001).
In Ferreira v. Rancocas Orthopedic Assocs., 178 N.J. 144 (2003) , the Supreme Court required that courts conduct a case management conference within 90 days of the service of an answer in malpractice cases to determine if there are any issues regarding the sufficiency or service of the affidavit of merit. When a plaintiff has supplied the affidavit of merit and the defendants waive any objections to its adequacy, the conference need not be held. “Waiver of Affidavit of Merit Conference,” 176 N.J.L.J. 1006 (2004). At the conference, defense counsel is required to advise the court if they have any objection to the affidavit. If there is a defect in the document, plaintiff has until the end of the 120-day time period to fix it. The Ferreira system has worked reasonably well. It has served as a useful prod to plaintiff’s counsel to “get their house in order” and has compelled defendant’s counsel to raise their objections early in the litigation.
A problem arises when the scheduling of the conference falls through the cracks and is not held. Does this oversight toll the running of the clock and prevent dismissal of the plaintiff’s complaint for failing to comply with the AOM statute? In Saunders v. Capital Health Sys. at Mercer, 398 N.J. Super. 500 (App. Div. 2008), the appellate court held that a complaint cannot be dismissed for failing to serve an affidavit of merit unless a Ferreira conferencehas been held.
A different appellate panel came to the opposite conclusion. Paragon Contractors, Inc v. Peachtree Condo. Assoc., 406 N.J.Super. 568 (App. Div. 2009).In Paragon, a contractor sued a condominium association for failing to pay for construction work. The defendant filed a third-party complaint against an engineering company contending it had not properly performed the design of the project. The third-party plaintiff failed to file an affidavit of merit against the engineering firm. The existence of the malpractice component of the third-party pleading was not picked up by the court’s computer tracking system and no case management conference was held. After 120 days had elapsed, the defendant filed a motion to dismiss the third-party complaint with prejudice for failing to comply with the Affidavit of Merit Statute. The lawyer for the third party plaintiff attempted unsuccessfully to fend off disaster by arguing that the failure to conduct the Ferreira conference tolled the requirement. The trial court granted the application and dismissed the third-party complaint. (See Bennett J. Wasserman and Krishna J. Shah, Legal Ethics & Malpractice ).
Plaintiff’s motion for leave to appeal to the Appellate Division in Paragon Contractors was denied, but the Supreme Court granted the application and remanded the case to the Appellate Division for a decision on the merits. The appellate court upheld the trial court’s decision to dismiss the complaint because Judges Fisher, Miniman and Baxter to did not believe that failing to hold a Ferreira conference excused a party’s failure to comply with the requirements of the AOM statute. This panel boldly pronounced its disagreement with the holding in Saunders.
The Supreme Court granted certification to consider whether or not the failure to conduct an early case management conference tolls the deadlines in the Affidavit of Merit Statute. Shortly after appellant’s counsel stepped to the podium at the Richard J Hughes Justice Center for oral argument, the Justices made it very clear that the “case management tool” crafted in Ferriera did not create any “vested rights” in litigants. The Justices unanimously rejected the proposition that the failure to hold a case management conference would toll the time provisions of the AOM statute. In the Supreme Court opinion, Paragon Contractors v. Peachtree Condo. Assoc., Paragon Contractors v. Peachtree Condo. Assoc., WL 2553869(2010), Justice Long may have written the shortest answer to any question ever considered by the Supreme Court:
Q: At issue here is what effect the failure to hold a Ferreira conference will have on the time limits prescribed in the statute.
A: The answer is none.
Justice Long described Ferriera as a “tickler system” that did not trump the statute.
In oral argument, Justice Long threw appellant’s counsel a life line and when the opinion was published, it was delivered. Noting that the “divergence” in the appellate court opinions may have created some “confusion,” the Court stated that there would be “lenience in this case.” The Justices allowed the case to go forward. But it will never happen again. Here it is, delivered right from Justice Long to you: “lawyers and litigants should understand that, going forward, reliance on the scheduling of a Ferreira conference to avoid the strictures of the Affidavit of Merit statue is entirely unwarranted and will not serve to toll the statutory time frames.”
Justice Rivera-Soto filed a concurring opinion where he called for the elimination of Ferreira conferences which he characterized as an “example of well-intentioned but fundamental judicial tinkering.” This Justice believes that the AOM Statute sets forth very simple, straightforward legislative requirements for plaintiff to follow in medical malpractice litigation. Frustrated with the continuing stream of litigation over the statute, Justice Rivera-Soto blames a minority of lawyers, “the wayward few,” for the Court’s continuing efforts “to protect the less-than-competent from what may be a well-earned malpractice claim.” Justice Rivera-Soto concludes by stating that “our citizenry is entitled to a continually improving system of justice, and not some ersatz construct where judges are diverted from their duties to baby-sit and spoon-feed those either too lazy or too unwilling to comply with their clearly defined obligations.”
When a patient sues a board-certified physician for an alleged deviation from the standard of care in his specialty, the plaintiff must supply an affidavit of merit executed by an expert with the same credentials. N.J.S.A.2A:53A-41(a). A plaintiff may obtain a waiver of this statutory requirement from the court if she can demonstrate “that a good faith effort has been made to identify an expert in the same specialty or subspecialty,” and that the expert proffered “possesses sufficient training, experience and knowledge to provide the testimony as a result of active involvement in, or full-time teaching of, medicine in the applicable area of practice or a related field of medicine.” N.J.S.A. 2A: 53A-41(c).
In Ryan v. Renny, WL 2851288 (2010), the Supreme Court defined the terms “good faith effort” and “active involvement.” Plaintiff underwent a colonoscopy performed by a board-certified internist and gastroenterologist and suffered a perforated colon. Plaintiff offered an affidavit of merit from a board-certified surgeon within 60 days after filing the complaint. The surgeon had performed over one hundred colonoscopies, but had not done any in several years. The surgeon was diagnosing and treating diseases of the bowel. Defense counsel made a timely objection to the affidavit because its author was not a board-certified gastroenterologist and also attempted to press the issue at a Ferreira conference without any success.
After the 120–day deadline elapsed, defendant moved for a dismissal of the complaint with prejudice because plaintiff had not complied with the Affidavit of Merit Statute. Plaintiff cross-moved for a waiver of the requirements on the grounds that an unsuccessful “good faith effort” had been made to secure a board certified gastroenterologist and that the expert offered by the plaintiff has sufficient “background, training, experience and knowledge” to qualify. Plaintiff’s counsel supplied a certification stating that he had solicited three different board-certified gastroenterologists in different areas of the state recommended by three different plaintiff’s malpractice lawyers. According to the certification, plaintiff’s counsel “contacted each of the physicians, and generally outlined the facts relating to the case in question, and each of them declined to provide an opinion relating to the actions of defendant.” Plaintiff’s counsel also supplied the surgeon’s curriculum vitae and portions of a deposition the expert had given in another case in 2004 to the court. Defense counsel opposed the motion for a waiver, positing that plaintiff’s counsel had not set forth the reasons why the board-certified experts declined the requests to offer opinions in the case which was essential to the court’s analysis of “good faith.” Defendant also argued that the surgeon was not qualified under the statute to offer his opinion because he was not “actively involved” in performing colonoscopies at the time that defendant treated the plaintiff. The trial judge granted plaintiff’s cross-motion after finding that plaintiff’s counsel had made a good faith effort to locate a properly credentialed expert and that the surgeon had sufficient credentials in the applicable area of the practice to testify.
Defendant obtained leave to appeal. In a published opinion, the Appellate Division reversed, Ryan v. Renny, 408 N.J. Super 590 (App. Div. 2009). The three-judge panel, Judges Stern, Rodriguez and Waugh, found that the failure of plaintiff’s counsel to articulate why the three board-certified gastroenterologists declined to serve as a plaintiff’s expert was fatal to the application for a waiver. Good faith cannot be judicially determined in the absence of an explanation by counsel as to why the experts declined to offer an opinion against the defendant. Examples of adequate reasons that would have cleared the hurdle included a conflict with the parties or counsel, or the physician’s unwillingness to participate in litigation or the unwillingness to engage in activities outside his geographical area. The appellate court did not reach the issue of whether or not the surgeon was qualified to offer an opinion on the standard of care.
The Supreme Court granted plaintiff’s petition for certification to explore whether or not a “good faith effort” delineated in the AOM Statute required an articulation of the reasons why the board-certified experts declined to offer plaintiff an opinion. The Justices also decided to resolve whether or not the expert selected by the plaintiff needed to have been “actively involved” in performing the same procedure as the defendant at the time of the alleged malpractice in order to provide an affidavit of merit and serve as an expert. The critical importance of these issues in medical malpractice litigation attracted as amicus, the New Jersey Association for Justice on behalf of the plaintiff and the Medical Society of New Jersey in support of the physician.
Plaintiff argued that the plain language of N.J.S.A. 2A:53A-41(c) did not require an explanation of the reasons why the board-certified experts solicited by plaintiff’s counsel would not participate in the lawsuit. He also contended that the phrase “active involvement” did not require that an expert be engaged in the very same procedure that the defendant was performing at the time in question. The expert’s past experience with the procedure and his continued participation in the diagnosis and treatment of diseases in the same general area was sufficient. The stakes were high. Plaintiffs’ lawyers recognized that a lenient interpretation of the exception would allow plaintiffs to circle around one of the more onerous expert requirements in the AOM Statute.
The physician’s attorney argued that the plaintiff was required to reveal the reasons why the board-certified experts turned the plaintiff down because it left open the possibility that the experts concluded that the case lacked merit. Defense counsel also contended that the plain meaning of “active involvement” was that the expert selected by the plaintiff needed to have been engaged in performing colonoscopies at the time of the alleged malpractice. One of the main purposes of the statute was to prohibit expert witnesses in medical malpractice cases who do not have the exact same experience as the treating physician. To defense lawyers, the facts in this case posed a classic example of the kind of case that the AOM Statute was designed to shut down. From the physician’s perspective, perforation is a recognized complication of colonoscopies, not malpractice. Defense counsel asked the court to read between the lines of the certification of plaintiff’s counsel and observe that he had shopped the case to board-certified physicians with a history of doing plaintiff’s work who were unwilling to offer the opinion the plaintiff needed to make out a case. Plaintiff’s counsel had simply retained an expert who would give the favorable opinion that was required to proceed.
Six Justices sided with the plaintiff. Justice Long’s opinion resolved the issue of what constitutes a “good faith effort” by focusing on the plain language of the statute. The Statute refers only to the effort expended by the plaintiff’s lawyer. This requires the court to inquire into such factors as “the number of experts in the field; the number of experts the moving party contacted; whether and where he expanded his search geographically when his efforts were stymied; the person or organizations to whom he resorted for help in obtaining an appropriate expert; and any case-specific roadblocks he encountered.” The reasons why the experts declined to participate was not relevant to this calculation. Justice Long also pointed out that R. 4:10-2(d)(3) severely restricts the circumstances under which a party may be required to reveal the findings of an expert consulted in anticipation of litigation. The Justices believed that the actions of the plaintiff’s lawyer were sufficient to meet the statutory requirement.
The High Court also rejected defendant’s position that the expert selected could not be used because he was not performing colonoscopies at the time that the plaintiff was treated. The rationale for the decision was the absence of any temporal requirements concerning the expert’s experience in the provisions of the statute concerning the waiver. The expert’s lack of experience in performing the procedure during the relevant time period may be relevant if there had been significant changes in how the procedure was performed. There was no evidence in the record to support this concern in this case.
The real motive for the decision is contained in Justice Long’s observation that the wavier provision is the “last chance” to meet the affidavit of merit requirement and “avoid dismissal.” In order to provide the plaintiff this opportunity, the qualifications issue must be approached “expansively” to permit as many experts as possible to participate.” During the pendency of the appeal, the defendant had filed a motion to expand the record to include supplemental information on the credentials of the plaintiff’s expert which was denied. The Court remanded the case to the trial court for further consideration of the expert’s qualifications in light of the Court’s opinion and allowed defendant to offer further relevant evidence on the subject.
This is a significant victory for plaintiffs in medical malpractice litigation. The various provisions in the AOM Statute were designed to prescribe as many obstacles as possible to filing medical malpractice claims. The Supreme Court reacted to this legislative invasion of the court’s domain by cutting through the barbed wire perimeter erected by the law to allow plaintiffs continued access to the courts. The waiver provision has now been interpreted in such a way to allow plaintiff an escape from one of the more onerous provisions in the Statute limiting the credentials of the expert the plaintiff can utilize.
Justice Rivera-Soto dissented largely on procedural grounds. Under the terms of the AOM Statute, plaintiff had to file a motion within the 60-day time period to obtain the waiver. In this case, the plaintiff did not seek leave of court until after 120 days had elapsed and then, only in response to the defendant’s motion to dismiss. The majority of Justices refused to consider this issue because it had not been raised by defendant in the courts below. Once again, Justice Rivera-Soto protested against prior Supreme Court’s rulings on the AOM Statute causing the provisions of the law to become “judicially neutered scarecrows, providing a warning heeded by the diligent but having no lingering effect on the scavengers.”
As the tidal wave of tort reform began to recede, small industry groups hired lobbyists and pressed legislators to adopt immunity laws for the benefit of members. Professional political operatives on West State Street marketed these tort reform products aggressively. One of these statutes, The Equine Activities Liability Act, N.J.S.A. 5 : 15-1 to 12, was passed to protect commercial horse riding businesses from an irrational fear of a liability crisis that existed only in the figments of their imagination. When the law was winding its way through the Legislature, its proponents could never cite to a single verdict against any of its equine business as an example of a malady that required a legislative fix. It was an appealing product and the industry wanted it.
Sections of the equine statute were drafted to immunize defendants against lawsuits arising out of injuries to riders caused by “inherent risks of equine animal activity,” including the animal’s behavior, their sudden reactions to sounds and movement, and the failure of the rider to control his mount. N.J.S.A.5:15-2. Lengthy examples of activities were provided that would not be actionable. Riders assumed such risks as weather conditions, conditions of trails, riding rings, training tracks and all other inherent conditions. N.J.S.A. 5:15-3.
Opponents of the legislation engaged in a clever but time-honored tactic. When the momentum behind a bill appears to be unstoppable, fall back, use your imagination, and load the text with seemingly innocuous amendments that neutralize its most damaging features. Compromise is encouraged because reasonable accommodations reached between opposing parties grease the skids for passage and keep constituent groups happy. The opposition, including the organized Bar, focused their efforts on constructing and/or strengthening a series of loopholes to limit the scope of the immunity in a separate section of the law called “Exception to limitations on operator liability.” N.J.S.A. 5:15-9. One such exception was for “known dangerous latent conditions on property.” Another was for faulty equipment. The most significant paragraph preserved liability for an “Act or omission on the part of the operator that constitutes negligent disregard for the participant’s safety,” which would include all risks within control of the operator. The text of the law that was passed was bipolar. The first few sections trumpeted widescale immunity and the last section significantly limited it. Legislators were occupied with more serious concerns and did not know or care what they were voting on. All that mattered was that everyone appeared to be satisfied.
With very few lawsuits coming into the pipeline, the appellate courts were not pressed into action to try to make sense of the glaring internal inconsistencies in the Equine Act. It took almost 13 years for the Supreme Court to confront this poorly written statute in Huber v. Spring Valley Equestrian Center, WL 2925021 (2010).
The plaintiff in Huber, a novice rider, was injured at defendant’s equestrian center when she lost control of a horse in a riding ring being used for a training exercise. Riders and their mounts were traversing wooden blocks placed on the ground called cavaletti, to mimic conditions on a trail. Mrs. Huber’s horse turned away, moved backwards toward the cavaaletti and tripped on the blocks, throwing plaintiff off the saddle onto a set of steps used to mount the rides. Plaintiff’s expert stated in his report that defendant was negligent because the cavaletti had been set up too close to the mounting area and had not been properly secured. The expert also opined that the steps used for mounting the horse had been left in the wrong location, causing plaintiff more serious injuries when she landed on it. Defendant strenuously disagreed with this interpretation of the facts.
Defendant obtained summary judgment when the trial court ruled that plaintiff was injured by the inherent risks of activities immunized by the Equine Act, i.e., unpredictable animal behavior. Plaintiff had argued that he was entitled to invoke the faulty equipment exception based on the opinion of plaintiff’s expert. The trial court was not swayed because there was nothing wrong with the cavaletti. It was just a part of the riding ring being used for a training exercise.
The Appellate Division reversed, Huber v. Spring Valley Equestrian Center, 408 N.J. Super 626 (App. Div. 2009). The appellate court’s reading of the statute caused the judges to conclude that the law did not foreclose every danger on a riding track. It did not include dangerous conditions that the operators could remedy. Based on the expert report , there was a factual issueas to whether or notone of the exceptions, the unsafe premises and/or faulty equipment provision, or the operator negligence section, applied. N.J.S.A. 5:15-9.The Supreme Court granted defendant’s petition for certification and reversed.
Defendant argued that the accident was caused by one of the inherent risks of equine activity, unpredictable animal behavior. There was nothing wrong with the blocks in the riding ring which were simply props in a training exercise. According to defense counsel, this was just the kind of situation the statute meant to immunize. Plaintiff contended that the expert report put the case squarely into the statutory exceptions.
The Court had a dilemma. Both sides appeared to be right and could cite line and verse from the Equine Act to support their positions. At oral argument, the Justices picked up on the structural problem in the statute right away. Defense counsel had an understandably difficult time trying to reconcile the different parts of the law. As the plaintiff’s lawyer was making his presentation on the exception section to make his case, Justice Rivera-Soto stated to the plaintiff’s lawyer that if his interpretation was correct, “the exception would swallow the rule.” The author of the unanimous Supreme Court opinion, Justice Hoens, noted: “Although the words used by the Legislature in each part of the Equine Act appear plain, the manner in which they operate as a unified whole is not immediately apparent.” Justice Hoens also observed that the “negligent operation section”, “might operate to effectively swallow the Act’s protections entirely.” Of course, limiting the scope of the law’s immunities was exactly what the Act’s opponents were trying to accomplish in the exception section. The Appellate Division was comfortable reconciling the separate sections but the Supreme Court was not.
Justice Hoens deployed a novel methodology to resolve the case which could be called the ” Preponderance of the Text Rule .” If the greater weight of the words and phrases comprising the statute point to immunity, then you interpret them expansively to overcome the limitations posed by the exceptions which constitute a relatively minor section of the law.
Once the careful weighing of the words had been parsed out, you can saddle up and ride right over the cavaletti scattered throughout this poorly written statute. The Supreme Court concluded that cavaletti were not faulty equipment simply because they were not secured. The blocks were in good working order and were being used for their designed purpose. Liability could not be based upon “negligent disregard for the participants’ safety” because this allegation was based on the placement of the cavaletti. There was nothing wrong with the location of the blocks because it was part and parcel of equipment to be used for training riders in a riding ring. The injury was caused by the inherently unpredictable behavior of the animal moving backwards and tripping on the blocks. This is part of the inherent risk of riding immunized by the statute. If the greater weight of the statute points toward immunity, this is what the defendant gets. The equestrian center won.
The last two decades of our courts’ experience with tort reform statutes have amply demonstrated that these legislative creations are a poor substitute for the time-tested logic and flexibility provided by common-law principles. Poorly drafted legislation may satisfy special political interests, but the courts are then saddled with the unenviable task of trying to apply poorly drafted laws to the cases in the system. As this Supreme Court term demonstrates, too much valuable time and energy has been expended on this task. If this horse tort case had been tried on common-law principles, it would have been resolved in a short and simple trial. Instead, the parties engaged in time-consuming motions and appeals involving the expenditure of enormous judicial resources. This is the legacy of junk laws like the Equine Act.
Freedom To Contract
The plaintiff in Stelluti v. Casapenn Enterprises , WL303384 ( 2010), a 39-year old waitress, joined defendant’s health club and was required to execute a preprinted form with clauses providing that members assumed all risks of injury, illness and death and releasing the business from any liability for an incident occurring on the premises. The waiver clauses were not explained to the plaintiff by the management of the business. Right after signing up, plaintiff attended her first spinning class. The instructor helped the new member onto the stationary bike, secured her feet onto the pedals and adjusted the seat. During the class, the instructor told all the riders, including the plaintiff, to rise to a standing position while pedaling. The handlebars on plaintiff’s bike came off. She fell forward with her feet still attached to the pedals, suffering physical injuries.
Plaintiff’s complaint alleged that the club did not maintain the bicycle, and failed to give plaintiff proper instructions and supervision. Plaintiff had an expert that opined that defendant’s failures were a departure from the standard of care.
The defendant filed an application for summary judgment solely on grounds that plaintiff’s cause of action was barred by the waiver provisions in the contract. The trial judge found that the exculpatory agreement was valid because the club was under no statutory duty to exercise reasonable care, the document was not unconscionable, the plaintiff had read and understood the document and the terms were broad enough to exclude claims of negligence and gross negligence.
The Appellate Division upheld the trial court decision. While the appellate panel found that the document was a contract of adhesion, the judges also concluded that the agreement was not unconscionable and was enforceable. The appellate judges would not go so far as to sanction immunity for recklessness or gross negligence by defendant, but upheld the dismissal because the defendant’s malfeasance did not rise to this level.
Plaintiff’s petition for certification was granted. Plaintiff’s counsel made all the right arguments: the language of the waiver was ambiguous; the document was an unconscionable contract of adhesion; and that enforcing it would violate ancient tenets of the common law requiring business owners to exercise reasonable care. Defense counsel laid it out short and sweet, a contract is a contract. Defendant also argued that the Appellate Division’s decision to exclude willful, reckless conduct was an error. For lawyers who follow the Supreme Court’s decisions closely, the result was stunning. The majority decision authored by Justice LaVecchia, and joined in by the Chief Justice, Justices Wallace, Rivera Sotto and Hoens, upheld the dismissal of the plaintiff’s complaint and placed its imprimatur on the defendant’s exculpatory agreement.
The analysis started out with the Court’s acknowledgement that the form signed by the plaintiff was a contract of adhesion, presented on a “take it or leave it” basis. However, in the majority’ view, plaintiff was not in a “classic position of unequal bargaining power.” After all, she could have taken her business elsewhere or found another way to exercise. The overarching principle at stake was that “contracting parties are afforded the liberty to bind themselves as they see fit.”
The Court believed the terms of the contract were clear and its provisions on waiver were explicit and set forth prominently in the document. While no explanation of the form may have been given by the management and plaintiff testified that she did not know what she was signing, it was still reasonable for the trial court to presume that she understood it and in the Supreme Court’s view, “the finding to that effect is unassailable.”
Even contracts with exculpatory clauses are enforced unless the terms are contrary to the public interest. A majority of Justices did not see any detrimental impact arising from enforcement of the terms of this agreement. While business owners may have a broad duty to maintain their premises in a safe condition, this does not necessarily preclude the right of a commercial entity to require the customer to sign these legal protections away. In cold, hard rhetoric, Justice LaVecchia defined the issue in the following way:
We must take into account, in this private setting, both the extant common law duties and the right to freely agree to a waiver of a right to sue, which is part and parcel to the freedom to contract. . . The mere existence of a common law duty does not mean that there is no room for an exculpatory agreement. … public policy does not demand a per se ban against enforcement of an exculpatory agreement based on the mere existence of a duty recognized in the common law in respect of premises liability.
Counterbalanced against this common-law duty is the promotion of vigorous physical activity. Exercise injuries may be caused by faulty equipment, inadequate instruction or overdoing it. Exculpatory agreements have a “positive social value” in allowing gyms to limit their liability. This is subject to some minor limitations. If the club knew that the equipment was defective and failed to take action, then the agreement would not hold. The agreement could not immunize gross or reckless conduct. This was not the case here. According to the majority, the decision “places in fair and proper balance the respective public-policy interests in permitting parties to freely contract in this context” subject only to not engaging in reckless or gross negligence.
A dissent authored by Justice Albin, joined in by Justice Long, did not mince words and struck hard at the majority’s sharp deviation from its common law past:
Today the Court has abandoned its traditional role as the steward of the common law. For the first time in its modern history, the Court upholds a contract of adhesion with an exculpatory clause that will allow a commercial, profit-making company to operate negligently—injuring, maiming, and perhaps killing one of its consumer-patrons—without consequence.
The dissenting opinion cites case after case where our courts have refused to sustain exculpatory clauses that violated public policy set forth in the common law and statutes where there was unequal bargaining power between the parties to the agreement. There were no such citations in the majority opinion. As Justice Albin points out: “Never before in the modern era has this Court upheld an exculpatory clause in which a commercial enterprise protects itself against its own negligence at the expense of a consumer, who had no bargaining power to alter the terms of the contract.”
Justice Albin saw a whole different set of consequences flowing from this decision. The health club industry in New Jersey will universally adopt these ironclad guarantees against accountability and they will become license for operators to avoid their obligation to provide a safe environment for customers. The victims of the business’s negligence will have no recourse for injuries resulting from the health club’s failure to comply with the standard of care. This decision will be trumpeted high and low by other industries that are going to adopt these clauses with reckless abandon. Other businesses will then flock to the court brandishing their preprinted forms signed by customers seeking immunity. After all, almost any business can articulate why their activities are just as important to the public interest as exercise.
Justice Albin’s final lament is that the decision “relegates the common law to second-class status, allowing a contract of adhesion to eviscerate protections intended to safeguard the health and lives of consumers.”
It is one thing to close the courthouse door to injured plaintiffs because our legislature has passed a statute limiting the scope of an industry’s legal duties. It is quite another matter to delegate this power to private parties to deprive their unsophisticated consumers of cherished legal rights in the service of the mythical freedom to enter into adhesion contracts. Welcome to the wave of the future.
De Minumus Contacts
The reach of “Long Arm Jurisdiction” has expanded with the times. This term, the New Jersey Justices debated the boundaries of the “stream of commerce theory” in Nicastro v. McIntyre Machinery America Ltd, 201 N.J. 48 (2010) . The plaintiff was injured in a New Jersey factory on an industrial machine manufactured overseas by a British corporation, shipped to an Ohio distributor who then sold it to plaintiff’s employer in this state. Plaintiff filed a products liability action in Superior Court against the manufacturer alleging that the product was defective because it lacked a safety guard. The distributor was a bankrupt company, leaving the manufacturer as the only viable defendant. In a “do or die” situation, plaintiff’s counsel undertook jurisdictional discovery of the manufacturer in the hopes of developing the facts needed to establish in personam jurisdiction. (See Arthur L. Raynes, Commercial Law, 201 N.J.L.J. 774).
The High Court specifically adopted the late Justice Brennan’s approach to the “stream of commerce theory”: a foreign manufacturer that places a defective product in the stream of commerce through a distribution scheme that targets a national market, which includes New Jersey may be subject to the in personam jurisdiction of a New Jersey court in a product-liability action.
In order for any manufacturer that uses a national distribution system to market products in all fifty states to avoid jurisdiction in New Jersey, “it must take some reasonable step to prevent the distribution of its products in this State.”
A strong policy reason articulated by the Court to support its decision was the State’s interest in protecting its citizens from defective products and providing a forum to redress the harm.
Due to the fact that the manufacturer used a distributor to market its products in all fifty states, it knew or should have known that its distribution system extended to the entire U.S.A. A critical fact motivating the Court to invoke jurisdiction was the attendance of defendant’s employees at trade shows in this country. It was one of these ventures that resulted in the sale of the defendant’s machine to the plaintiff’s employer. The High Court did not believe that the manufacturer made a compelling argument that defending a products liability case in New Jersey would offend “traditional notions of fair play and substantial justice.” The opinion makes clear that its analysis applies in a products liability case but may not be appropriate in contract or other types of litigation.
Justice Hoens wrote a vigorous and lengthy dissent joined by Justice Rivera-Soto. The dissenting Justice excoriated the majority for using “soaring language about the realities of the global marketplace” in place of the disciplined analytical approach required to determine whether a foreign manufacturer should be compelled to defend a lawsuit here. According to Justice Hoens, the linchpin in the analysis is proof of defendant’s expectation of purchase of its product in this state. This requires evidence that the manufacturer purposefully availed itself of the market in New Jersey. Evidence that would meet constitutional benchmarks included the examples provided by Justice O’Connor in Asahi :designing the product for the forum state’s market, advertising here, establishing channels for providing regular advice to customers in the forum state, or marketing the product through a distributor that has agreed to serve as the sales agent here. Even if one used the Brennan formulation, “awareness” required regularity of sales to the forum state and evidence of defendant’s expectation that the product would be purchased here. Justice Hoens found no evidence of purposeful availment or awareness in the record before the Court. Justice Hoen’s believed that the majority simply exercised jurisdiction over the defendant simply because it placed its product into the stream of commerce and it ended up here. The majority “embarked on a path that stretch[ed] our notion about due process, and about what is fundamentally fair, beyond the breaking point.” In Justice Hoen’s view, this was motivated by the majority’s sentimental concern about providing a local forum for an injured plaintiff.
Justice Hoens correctly observed that the standard of “fair play and substantial justice” has become a soft, malleable concept susceptible to reaching almost any result a policy-driven court wishes to reach. The cause is the massive changes in the political economy of the country which no longer recognizes boundaries of states or regions as a significant factor in business operations.
The impediments to filing suit here against foreign corporations will continue to crumble as the global marketplace grows by leaps and bounds in the Internet age. The principles of due process will continue to erode as emerging fact patterns from the Internet age challenge the limitations imposed by twentieth-century case law. De minimus contacts will gradually morph into virtual contacts.
In Flomerfelt v. Cardiello , WL 261573 (2010), defendant’s parents made the mistake of going away for the weekend and leaving their 21-year-old son home alone. A wild party ensued where the under-age plaintiff overdosed on alcohol and drugs. The complaint alleged that the host was responsible for the harm because he provided plaintiff with alcohol and drugs, served her alcohol when she was visibly intoxicated, and failed to summon help in a timely fashion.
The parents called upon their home-owner’s carrier, Pennsylvania General Insurance Company, to defend and indemnify their son. The carrier refused, citing policy language that excluded claims “arising out of the use, sale, manufacture, delivery, transfer or possession by any person of a controlled dangerous substance.” The carrier did provide coverage to the parents who were defendants in the same lawsuit because the exclusion did not apply when the insureds did not have knowledge of the drug use.
Medical evidence produced during discovery identified alcohol, marijuana, opiates and cocaine in plaintiff’s system. Plaintiff’s medical expert opined that alcohol and drugs were a cause of plaintiff’s medical problems and that the injuries were enhanced by the delay in summoning help. The expert could not state the extent to which the various drugs ingested or the consumption of alcohol was responsible for the plaintiff’s injuries. The medical expert retained by defendant’s parents concluded that alcohol and drugs may have been involved in some of plaintiff’s injuries, that the medical problems may have been associated with plaintiff’s prior drug use, and that any delay in obtaining medical assistance did not have any impact on the consequences.
The son’s declaratory judgment action seeking a defense and indemnification from the homeowner’s carrier was consolidated with the personal injury case. Both parties filed motions for summary judgment. The homeowner’s carrier argued that “arising out of” language in the “controlled substances” exclusion did not provide for a causation analysis to ascertain if it applied. The language simply called for a narrow, focused evaluation as to whether or not the events in question were “incident to” or “in connection with” drugs. Since all of the allegations in plaintiff’s complaint were intimately connected to illegal drugs, there was no coverage under the controlled substances exclusion. The tortfeasor advanced the position that the “arising out of” language in the policy was ambiguous. Defendant argued that the language required a causation analysis and the plaintiff’s injuries had multiple causes, including alcohol and defendant’s failure to call 9-1-1 promptly. According to defendant, the lack of clarity in the policy provision warranted an interpretation that there was coverage for any allegations that did not relate solely to ingestion of drugs. A defense should be provided until such time as a fact-finder found that drugs were the sole proximate cause of plaintiff’s harm.
Exclusionary clauses are enforced if they are “specific, plain, clear, prominent, and not contrary to public policy.” Doto v. Russo, 140 N.J. 544, 559 (1995). It is the insurer’s burden to bring a claim within the purview of an exclusion and these clauses are narrowly construed. Burd v. Sussex Mut. Ins, Co., 56 N.J. 383, 399 (1970).If the language is ambiguous, and there is more than one interpretation possible, the courts will apply a meaning that supports coverage. Cobra Prods. Inc. v. Federal Ins. Co., 317 N.J. Super. 392, 401 (App. Div. 1998).
The trial court ruled in defendant’s favor because the carrier did not meet its burden of establishing that the exclusionary clause applied. The trial judge applied a causation analysis and concluded that the experts’ opinions implicated both drugs and alcohol. Defendant was entitled to an inference that plaintiff’s injuries were caused by a covered risk. Therefore, the son was entitled to coverage.
The Appellate Division reversed on interlocutory appeal . Flomerfelt v. Cardiello, WL 13668 (2009 ) . The three-judge panel relied heavily on Prudential Prop. & Cas. Ins. Co. v Brenner, 350 N.J. Super 316 (App. Div. 2002),where coverage was denied to a defendant who was alleged to have been involved in the shooting of a drug dealer. This policy provision “exclude[ed] coverage for injuries which arise out of, are connected with, or are incident to the use and possession of illicit drugs.” The appellate judges found a “substantial nexus” between the attempt to obtain illegal drugs and the death of the plaintiff.
In Flomerfelt, the three-judge panel believed the “arising out of” language should be viewed “expansively.” It applied the “substantial nexus” test and concluded that the plaintiff’s injuries were “sufficiently connected” to illicit drugs to trigger the exclusion. The mere fact that alcohol may also have been involved did not preclude the application of the “controlled substances” exclusion.
The Supreme Court granted the tortfeasor’s motion for leave to appeal. Justice Hoens wrote a lengthy opinion that contains a comprehensive summary of the applicable legal principles and an exhaustive analysis of the issues. This opinion is a great starting point for any lawyer handling a similar coverage case. The Justices evaluated the issue of indemnity and the duty to defend separately. The duty to defend an insured is broader, and may have to be determined before the issue of indemnity can be conclusively established. A carrier’s obligation to defend is determined by comparing the allegations in the complaint against the language of the policy. It is the nature of the allegations in the pleading that govern the decision and not the actual details of the event that the court’s decision is based on. When a complaint contains alternative counts, an insurance company must defend if any single allegation is a covered claim until the validity of each covered claim has been resolved. Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 173-174 (1992).
Casting a giant shadow over the Supreme Court’s deliberations was its prior decision in Salem Group v. Oliver, 128 N.J. 1 (1992). The majority opinion in Salem Group held that the phrase “arising out of” in a homeowner’s policy required a concurrent causation test to resolve the issue of the carrier’s duty to defend. The minor plaintiff was injured while operating an ATV after imbibing alcohol served by the insured. One count in the complaint alleged social host liability. A policy provision excluded coverage for “bodily injury arising out of operation, ownership or use of motor vehicles owned by an insured.” The Court concluded that the homeowner’s carrier had a duty to defend “because the alcohol and the ATV allegedly were concurrent causes of [the plaintiff's] accident.” Discussion of this precedent did not appear in the Appellate Division decision.
In Flomerfelt, Justice Hoens focused on the phrase “arising out of,” and analyzed what analytical framework should be used to resolve the problem. “Arising out of means ‘originating from,’, ‘growing out of’ or ‘having a substantial nexus.’” This is not the same as proximate cause as it has a weaker connection. However, the Justices were troubled by the failure of the “controlled substances” exclusion to use clarifying language regarding concurrent causes. At oral argument, Chief Justice Rabner referred the carrier’s attorney to an exclusion clause in the property damage section of the same policy which modified “arising out of” with the phrase “regardless of any other cause or event contributing concurrently” as an example of the kind of specificity that would have clearly spelled out the solution to this problem. The failure to include this same phraseology in the “controlled substances” exclusion led the Justices to conclude that the provision was ambiguous. Thus, the Supreme Court rejected the carrier’s argument that the exclusion should be interpreted broadly to include in its sweep any activity “incident to” or “in connection with.”
The factual record from the summary judgment motion was too unsettled to resolve the issue of coverage. There was insufficient evidence as to exactly what caused plaintiff’s injuries or what the chronology of events was. This would have to be resolved by a trial on the merits.
By comparing the plaintiff’s complaint to the policy language, it was clear that plaintiff’s allegations regarding injuries caused by alcohol, social guest liability or the failure to call for prompt help were covered events. The duty to defend comes into play because there are potentially covered claims set forth in the pleading. The carrier had a duty to defend.
The Salem Group decision has been criticized over the years, but has never been overruled. The majority opinion in Flomerfelt acknowledged the precedent, but did not fully embrace it. The concurring opinion in Flomerfelt authored by Justice LaVecchia, joined in by Justice Rivera-Soto, felt compelled to find coverage because Salem Group and its progeny held that “an insurance policy must unambiguously state than an exclusion will operate notwithstanding any concurrent or sequential causation issues even when the policy’s exclusion is otherwise clear and specific.” Justice LaVecchia also pointed out that this analysis only applied to the duty to defend. While acknowledging the existence of the precedent, Justice LaVecchia also expressed her disagreement with the holding.
Welcome to New Jersey
In Zabilowicz v Kelsey, 200 N.J. 507 (2010) , an out-of-state resident tested the hospitality of our court system and won. After two residents of the Keystone State drove across the Delaware to Atlantic County, one rear-ended the other. Both parties had automobile liability policies issued in the State of Pennsylvania. Plaintiff was insured by State Farm, which is licensed to do business in New Jersey, but defendant was covered by an out-of-state carrier that was not qualified to write coverage here. Plaintiff had selected the Limitation on Lawsuit threshold in his own automobile policy. He enjoyed his visit here so much that he decided to file his personal injury lawsuit in Superior Court, Atlantic County. The injured plaintiff had soft-tissue injuries which both parties agreed would not meet the requirements of the Limitation on Lawsuit Threshold.
Defendant moved for summary judgment, arguing that plaintiff had a verbal threshold imposed by the Deemer Statute, N.J.S.A. 17:28-1.4.This law requires carriers licensed in New Jersey to provide the same benefits to out-of-state residents involved in accidents here that New Jersey residents are eligible for. In addition to providing benefits like PIP, the Deemer Statute requires the injured out-of-state driver to bear the burden of the verbal threshold.
Plaintiff contended that Title 39 does not impose the threshold on an injured plaintiff unless the defendant’s policy is required to provide it’s insured with PIP. N.J.S.A. 39:6A-8(a). Plaintiff argued that defendant was not entitled to invoke the threshold because his carrier was not required to provide him with PIP since it was not licensed to do business here.
The lower courts agreed with the defendant’s argument: the trial court granted the summary judgment, and it was upheld on appeal. In a heart-warming show of hospitality to a citizen of a sister state, the Supreme Court granted plaintiff’s petition for certification.
A unanimous Supreme Court reversed the lower court and held that plaintiff was permitted to proceed with his claim for pain and suffering. The rationale for the decision was the plain language of N.J.S.A. 39:6A-8(a),which established thata defendant is not entitled to the protection of the threshold when its policy was not required to provide it’s insured with New Jersey’s PIP benefits. The defendant’s carrier did not have to provide it’s insured with this benefit because it was not licensed to do business here. According to the Justices, the Pennsylvania plaintiff is entitled to all the benefits of N.J.S.A. 39:6A-8(a) under the Deemer Statute. In this case, no threshold.
Grayzel is a certified trial attorney and a partner with Levinson Axelrod of Edison.