In Berardi v. FMI Insurance Co., a panel of New Jersey’s Superior Court, Appellate Decision, affirmed a lower court’s ruling, which ordered a primary home insurer to defend its insured in a dog bite lawsuit, stemming from alleged injuries sustained by a house cleaner at the insured’s secondary home.

Background and Underlying Action

The plaintiffs, Anthony and Janet Berardi, own a primary residence in Sparta, New York, along with a second home in Montauk, New York. The Berardis’ dog attacked a house cleaner at their Montauk residence, allegedly causing injury.

Franklin Mutual Insurance Co. issued a homeowners insurance policy for the Sparta property, which provided for coverage for liability to others, limited to $1 million, and medical payments to others, limited to $10,000. Also included in the policy was a $5 million “personal excess liability umbrella coverage” endorsement.

Scottsdale Insurance Co. issued a homeowners insurance policy for the Montauk property, which had a $1 million personal liability limit and a medical payments to others limit of $5,000. The Scottsdale policy also had a “limited animal liability coverage form” which limits its liability for dog bites to $10,000.

In July and December 2021, respectively, FMI denied coverage for the dog bite incident under its main liability coverages and its excess umbrella coverage.

In October 2021, the house cleaner filed a lawsuit against the Berardis in the Supreme Court of New York, seeking damages for pain and suffering, lost wages, and medical expenses.

Scottsdale agreed to defend the Berardis subject to a reservation of rights. In May 2022, the Berardis filed a declaratory judgment complaint against FMI in New Jersey Superior Court, alleging that FMI breached the insurance contract by refusing to defend and indemnify them in the underlying action. Both parties moved for summary judgment.

The court granted the Berardis’ motion for summary judgment, and ordered FMI to defend them in the lawsuit and to reimburse them for defense costs not covered by any other insurance policy. FMI filed a motion for leave to appeal the order, which was granted by the Superior Court of New Jersey, Appellate Division.

Ruling of the Court of Appeals

The appeals court affirmed the ruling of the lower court. In addressing FMI’s contention that the motion judge erred in finding its policy covered the dog bite incident at the Montauk property, the appeals court looked to the “plain and ordinary meaning” of the insurance policy. The court also stated that any ambiguity would be construed in accordance with “the reasonable expectations of the insured.” “Coverage E” of FMI’s policy provides for coverage for bodily injury caused by an occurrence. The court found that there clearly was an occurrence (the dog bite). The next step was to look at the “locations not insured exclusion” portion of the policy, which stated that “we do cover bodily injury to a residence employee while performing such duties at other premises.” The court found that this portion of the policy makes it clear that coverage is extended to injuries sustained by a residence employee while performing duties at another premises besides the Sparta property, which is exactly what happened in the instant case.

FMI’s second contention was that the motion judge erred in relying on the “Coverage F” portion of the policy, which is the section concerning medical payments to others. The appeals court ruled that this section clearly provides for payment of medical expenses stemming from an accident away from an insured premises if the accident is caused by animals owned by or in the care of an insured.

FMI’s final contention was that the FMI umbrella endorsement only provides coverage for claims that exceed $1 million. FMI argued that this provision of the policy means it is only responsible for umbrella coverage that is in excess of the overarching maximum limit of primary liability coverage, which is $1 million. The Berardis argued that FMI is responsible for providing umbrella coverage when the covered damages exceed any of the sublimits specified in the policy, such as the $10,000 limit for medical payments made to others.

The appeals court found that the plain text of the umbrella coverage endorsement did not explicitly refer to sublimits, and therefore is ambiguous and could support either party’s position. However, as stated earlier, the court reasoned that any ambiguity in the policy would be construed in favor of the insured, and therefore the interpretation sustaining coverage must be applied. The court further stated that if FMI did not want the umbrella coverage to apply to sublimits, it should have drafted the policy to make that clear.