New Jersey Appellate Court Holds In Favor of Policyholder in Negligent Hiring Case

In a recent New Jersey appellate decision entitled Somerset Med. Ctr. v. Exec. Risk Indem., Inc., 2010 N.J. Super. Unpub. LEXIS 605, A-6214-08T2 (App.Div. Mar. 22, 2010), the court was faced with the question of whether a bodily injury exclusion in Somerset Medical Center’s directors and officers liability insurance policy excluded coverage for the negligent hiring and supervision of a nurse who pled guilty to committing numerous murders while in the employ of Somerset.  More specifically, nurse Charles Cullen pled guilty to approximately twenty-nine murders (and six attempted murders) of patients at various health care facilities, including the Somerset facility.  Lawsuits against Somerset and its officers then followed, alleging “negligent hiring, negligent supervision and entrustment, negligent reporting, and negligent continuation of employment.”  Id. at *2.

The insurer sought to avoid coverage pursuant to an exclusion in the policy for claims “based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any actual or alleged bodily injury…disease or death of any person….”  Id. at *5.   According to the insurer, phrases such as “arising out of” and “in any way involving” are so broad that they necessarily encompassed the underlying claim, insofar as the claim related to the murders of Somerset’s patients. 

However, the court rejected the insurer’s argument, stating as follows:

 “[T]he origin of the underlying lawsuits as they relate to Somerset is not the death or physical injury of patients placed in Cullen’s care while a nurse at Somerset. Instead, it is the acts and omissions of Somerset’s officers that resulted in the allegations of negligence.”

Id. at *19.

This decision serves as a key reminder that underlying allegations need to be carefully analyzed when determining the application of an exclusion—and that exclusionary phrases often relied on by insurers, such as “arising out of” and “in any way involving,” must be construed narrowly.  While the opinion is not for publication, it contains an informative analysis of New Jersey case law supporting the result.