NJ Supreme Court Decision Disregards Contract Language Of Workers' Comp Policy, Says AIA

N/A Jersey Supreme Court handed down an adverse decision in Schmidt v. Smith on June 15th, in a ruling that the <%=company%> (AIA) calls disappointing. The case involved coverage for sexual harassment claims that result in bodily injury under an employer's workers' compensation policy.

"The Supreme Court affirmed the lower court decision, which held that the insurance carrier had the duty to defend and indemnify the employer for a workplace sexual harassment claim despite an express exclusion in the employer's workers' compensation policy against such claims," said Laura Kersey, counsel, AIA.

The Supreme Court held that to the extent that the exclusion operates to deny coverage for emotional injuries accompanied by physical manifestations, the exclusion violates the public policy underlying the workers' compensation scheme and is therefore void.

The American Insurance Association filed an amicus brief in the Schmidt case arguing that the exclusion was clear and unambiguous and must be given effect. The brief also argued that the risk of defending sexual harassment and discrimination claims under the employer's workers' compensation policy was a risk that the policy was never intended to cover.

"What is particularly troubling about this decision is that the New Jersey Supreme Court has acted to disregard express contract language. This puts both insurers and their policyholders in a terrible position because the carriers will be forced to pay losses for which they have neither predicted nor reserved funds," said Ms. Kersey.

Headquartered in Washington, DC, the American Insurance Association represents more than 300 property-casualty insurance companies.