In CMS Investment Ventures, Inc. et al. v American European Insurance Company et al., the New Jersey Appellate Division examined a trial court’s granting of declaratory judgment in favor of an insured. The insured landlord filed a claim for defense and indemnification after a tenant who was sexually assaulted in her apartment filed suit under a theory of premises liability. The insurer denied coverage under the Assault and Battery Exclusion of the policy. The trial court found in favor of the insured, holding that the Exclusion was ambiguous and that the insurer was estopped from denying coverage due to a lengthy delay in reaching a coverage determination. The Appellate Division examined the language of the Exclusion and the history of the adjustment process and agreed with the trial court that the insured was owed a defense and indemnification.
The insured’s tenant had previously complained to the landlord about a non-functioning lock on one of the apartment’s windows. The landlord failed to repair the window and the tenant was sexually assaulted after an intruder broke in through the defective window. The policy had an Assault and Battery Exclusion that excluded coverage for “any claim, demand or suit based on Assault and Battery.” The insurer denied coverage on the basis that the tenant’s lawsuit was based on an allegation of assault and battery. The trial court analyzed the language of the Exclusion and determined that the phrase “based on assault and battery” was ambiguous and capable of limitless meaning. In addition, the trial court noted that the Exclusion came under the heading “Liquor Liability Coverage Part,” even though the policy insured a residential building where no alcohol was served. Alternatively, the court found that even if the Exclusion was not ambiguous, the insured would still be obligated to cover the landlord’s claim because the allegations of the Complaint also sounded in negligence and not just assault and battery.
In affirming the trial court, the Appellate Division examined the “based on assault and battery” language of the Exclusion and held that the term “based” was a transitive verb meaning “to make, form or serve as the foundation of any claim, demand or suit.” The court found that the use of the preposition “on” placed a limit on possible claims, demands, or suits subject to the exclusion so that it only applied to suits where Assault and Battery formed or served as the claim’s foundation. The court also agreed that the tenant’s claim also sounded in negligence, which was covered under the policy. Notably, the court distinguished other cases enforcing Assault and Battery Exclusions, as the language in those policies used the phrase “arising out of,” which has a broad definition, as opposed to the term “based on.” The court also agreed that the insurer was estopped from denying coverage because it acted unreasonably by waiting twenty months to disclaim coverage.
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