Do You Know What Your NJ Insurance Policy Actually Provides Should Tragedy Strike?

The New Jersey Appellate Court recently upheld a limited coverage provision in an insurance contract, despite the fact that the declaration page (generally a one page summary of the policy limits) differed from the language in the policy itself. An apartment building caught fire, which tragically led to the death of several occupants. Nayyar Ahmed (“Ahmed”) was the owner of the insured apartment building at the time of the fire, and he was sued by the decedent’s estates and some of the survivors. Ahmed’s insurance policy was issued by Kookmin Best Insurance Company (KBIC) and provided limited coverage for bodily injury liability.

After Ahmed was sued, he filed an action with the court, asking for $2 million in coverage from KBIC. Ahmed claimed he was entitled to $2 million in coverage for two reasons. First, the declaration page did not expressly limit coverage to $1 million “per occurrence.” Second, his coverage expectation was reasonable based on the language contained in the declaration page of his insurance policy with KBIC.

NJ courts rely on the “rules of construction” when handling general contract disputes. These rules apply to insurance policies as they are a type of contract. The rules state that if there is no ambiguity in the language or construction of the document, then the court will uphold the policy as written. However, if genuine ambiguity exists, the ambiguous provisions will be interpreted in favor of the insured.

The courts also recognize that insureds may rely on the declaration page of an insurance policy for guidance without carefully reading all of the details covered in the policy. Therefore, ambiguity may exist in an insurance policy if the declaration page explains coverage in a different way than the actual policy language.

In this case, Ahmed argued that the declaration page did not specify that KBIC would limit liability and medical expenses to $1 million “per occurrence.” However, KBIC did include an “explicit warning” on the declaration page before the policy coverages and limits, directing Ahmed to Paragraph D of the policy, which explained the “per occurrence” coverage.

Even though the declaration page did not expressly state that the liability coverage was limited to $1 million per occurrence, it did direct Ahmed to the section of the policy which explained this in further detail. Furthermore, the court rejected Ahmed’s “reasonable expectations” argument because it was not objectively reasonable for him to rely on the declaration page when there was a clear warning directing him to the policy language contained within. Because both of Ahmed’s arguments were rejected, the Appellate Court held there was no ambiguity and enforced the policy as written.

Although insurance providers are required to draft their policies in a clear and concise manner, the courts also expect insureds to read their policies carefully and heed explicit language contained on the declaration page. If you need assistance with insurance policy interpretation, have more questions about this case, or have any other legal matters to discuss, please contact Ward, Shindle & Hall.