The New Jersey Appellate Division recently decided that Executive Risk Indemnity, Inc. (“Executive”), the insurer issuing a Directors and Officers liability policy (“D&O policy”) to Somerset Medical Center (“Somerset”), could not assert the “bodily injury” exclusion when the claims giving rise to the instant litigation were based upon the alleged negligent acts of Somerset in hiring and supervising convicted serial killer Charles Cullen, not Cullen’s homicidal acts themselves. In Somerset Medical Center v. Executive Risk Indemnity, Inc., No. A-6214-08T2 (App. Div. March 22, 2010), the families of Cullen’s victims asserted that Somerset was negligent for its decision to hire and failure to properly supervise Cullen while he worked at its facility as a nurse. In a prior separate suit, the families of other victims alleged that Warren Hospital (“Warren”), another employer of Cullen’s insured by Executive, was similarly negligent. Executive initially denied coverage to Warren, as it did with Somerset, based upon the “bodily injury” exclusion in the policy, but the matter settled via a joint stipulated dismissal, with prejudice, prior to the start of litigation.
After the conviction of Cullen and the institution of various law suits by the families of his victims, Somerset sought coverage under its D&O policy with Executive. Executive denied coverage based upon the “bodily injury” exclusion in the policy, as it had when Warren previously sought coverage, and further argued that Somerset’s claims were barred by the equitable remedy of collateral estoppel due to the outcome of the Warren litigation. Somerset filed a declaratory judgment action seeking coverage from Executive. The court decided that neither collateral estoppel nor the “bodily injury” exclusion barred Somerset from bringing suit for coverage and granted the motion. Executive appealed.
The Appellate Division addressed two issues prior to rendering a holding: (1) whether collateral estoppel barred Somerset’s claims against Executive; and (2) whether the “bodily injury” exclusion in Executive’s D&O policy was sufficient to deny coverage regardless of the collateral estoppel issue. The Appellate court analyzed the coverage action Warren brought against Executive and held that the prior similar suit filed by Warren against Executive, which resulted in a settlement and a joint stipulation of dismissal, with prejudice, did not amount to a final judgment, and collateral estoppel did not apply. Further, it reasoned, the equitable nature of the remedy favored allowing Somerset to bring suit.
In its analysis of the “bodily injury” exclusion, the Appellate Division evaluated the policy language and found it to conflict with the purpose and intent of the D&O policy to provide coverage for “wrongful acts.” The Court discussed and analyzed case law regarding Errors and Omissions policies (“E&O policies”), which protect insureds from claims of professional negligence, similar to the subject D&O policy. The Appellate Division reasoned that both E&O and D&O policies were created to provide coverage for insureds for acts of professional negligence, even though such policies may contain “bodily injury” exclusions. The claims regarding Somerset’s negligence arose from its alleged acts of professional negligence, not Cullen’s actions in harming patients, and as such Executive’s exclusionary language was not a proper basis for denying coverage to Somerset.
This decision indicates that Courts in coverage actions will examine not only exclusionary language contained in the policy, but also other conflicting language in the policy, and the proximate cause of the damages as pled in the complaint giving rise to the coverage action. Although insurers may not be able to anticipate unusual circumstances such as those giving rise to the Somerset coverage action, they can review and analyze their own policies to avoid possible conflicting language which may nullify an exclusion.

Kurt J. Trinter, Esq.