Plaintiffs Memorial Properties, LLC (Memorial) and Mount Hebron Cemetery Association (Mt. Hebron) are the manager and owner of Liberty Grove Memorial Gardens (Liberty Grove). In this suit, Plaintiffs brought a declaratory judgment action against two of their insurers (one past, one present), seeking defense and indemnification under two separate policies of insurance.
The underlying actions, for which Plaintiffs sought coverage, were brought by families of decedents whose bodies were in Plaintiffs’ possession between 2003 and 2005. According to the Complaints, a New Jersey dentist and master embalmer devised a scheme where they would illegally extract tissue, bones and organs for commercial sale without the appropriate authorization. Plaintiffs were accused of participating in the scheme by allowing access to bodies in their possession. Although the bodies were sent to Plaintiffs in 2003, 2004 and 2005, the illegal harvesting scheme was not discovered until 2006. Families of the deceased claimed to have suffered emotional distress when informed of the illegal activities by law enforcement in 2006.
While Memorial and Mt. Hebron were not prosecuted as a result of the criminal investigation, and both contended they received the remains in closed containers and were unaware of the tampering, they incurred significant costs in defending civil litigation. The first policy, issued by Assurance Insurance Company in 2003, covered claims for damage to human remains and bodily injury, including mental anguish. The second policy, issued by Maryland Casualty Company, provided coverage for 2006, but excluded any bodily injury from “improper handling”, including illegal harvesting.
In reviewing the Assurance policy, the New Jersey Supreme Court found that although the alleged improper acts took place during the policy’s coverage in 2003, the actual damage did not occur until 2006, after the policy had expired. The Court found that an “occurrence” under the policy was not when the wrongful act occurred, but at the time when the complaining party was damaged. Therefore, the Court held that the Assurance policy did not provide coverage because the mental anguish suffered by the family members did not occur until 2006, when they were advised of the activities by law enforcement.
The policy issued by Maryland Casualty Company for 2006 specifically excluded “‘disarticulation’ of body parts from a deceased body ‘distribution, sale, loaning, donating or giving away’ parts of a deceased body, and any criminal act.” The Court found the conduct the insureds were being accused of, taking place in a scheme to dissect and remove body parts without authorization, was clearly excluded by the terms of the policy.
The ruling by the New Jersey Supreme Court provides an important lesson on why professionals, and business owners in general, need to read and comprehend exclusions in new insurance policies, not only to learn what will be covered moving forward, but also to understand what past acts might be excluded if not discovered until a later date. As the factual context above demonstrates, new policies may be determinative in deciding whether a defense and/or indemnity will be provided for acts that took place before the policy became effective, but whose damages are not realized until after the prior policy lapsed. This is especially true if a professional is aware of conduct which may be the subject of future litigation.
By Larry Hall