Unreasonable Expectations: New Jersey Appellate Court Rejects Commercial Insured’s Reliance Solely on Policy’s Declarations Page

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Key Takeaways:

  1. New Jersey courts have been increasingly reluctant to extend the protections of the reasonable expectations doctrine to commercial insureds
  2. In addition to making the usual policy-based arguments, an insurer facing a coverage action in New Jersey based on the reasonable expectations doctrine should be sure to challenge the sufficiency (or lack) of evidence presented by the insured with respect to its actual expectations of coverage
  3. New Jersey courts will consider extrinsic evidence to assess whether an insured’s claimed expectations are objectively reasonable

Further restricting a commercial insured’s reliance on the “reasonable expectations” doctrine, the New Jersey Appellate Division has rejected an insured landowner’s claim that he was misled by the description of the liability limits on the policy’s declarations page. Arguing that the declarations did not expressly state that the policy imposed a “per occurrence” limit of one million dollars, the insured convinced the trial court that he had a reasonable expectation of coverage up to the policy’s two million dollar aggregate for a fire incident resulting in multiple deaths. The appellate division, however, did not agree, finding that the insured was only entitled to the policy’s one million dollar per-occurrence limit because the declarations page contained an explicit warning that directed the insured to the policy’s terms.[1]

The coverage action arose out of an underlying liability lawsuit brought on behalf of several individuals who were killed in a fire at an apartment building owned by the insured. Kookmin Best Insurance Company, Ltd. (KBIC) issued a business owners policy to the insured covering the apartment building. The declarations page contained a schedule listing the applicable limits of liability as “$1,000,000 / $2,000,000” but did not expressly indicate that the one million dollars was a “per occurrence” limit or that the two million dollars was an aggregate annual coverage limit. The trial court found that the insured had a reasonable expectation of two million dollars in coverage for the liability suit based on the purportedly ambiguous declarations page.

On appeal, the appellate division reversed, finding that the insured was only entitled to one million dollars in coverage for all claims arising out of the fire. While acknowledging that an ambiguity may arise where the coverage is defined one way in the declarations page and another way in the body of the policy, the court found no such ambiguity in the KBIC policy because the limits listed on the declarations page were preceded by an explicit warning, referring the insured to the specific paragraphs in the policy that crystalized the per-occurrence limit. The court further explained that the reasonable expectations doctrine is “less applicable” to commercial policies, but even assuming the doctrine applied to the business owners policy, the insured in this matter still failed to establish that he had a reasonable expectation of two million dollars in coverage–highlighting the absence of any certifications from the insured evidencing his actual expectations. Notably, the court also looked to extrinsic evidence to reach its decision, finding that the insured “got what he expected” where his insurance application plainly sought one million dollars per-occurrence and two million dollars aggregate limits.

[1] See Elmita Louis v. City of Newark, et al., No. A-2172-18, 2019 WL 4700363 (App. Div. Sept. 26, 2019).