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Schmidt v. Smith6/15/1998
Argued November 3, 1997
On certification to the Superior Court, Appellate Division, whose opinion is reported at 294 N.J. Super. 569 (1996).
The primary question in this appeal is whether insurance coverage exists under the employers liability section of a workers' compensation policy for claims of workplace sexual harassment when the harassment results in bodily injury. The specific question is whether the policy's exclusion of coverage for damages arising out of harassment (among other things) is effective to deny such coverage. We find that to the extent the exclusion would deny coverage for bodily injury caused by acts of sexual harassment in the workplace, the exclusion would prevent an employer from complying with N.J.S.A. 34:15-71, which requires employers to "make sufficient provision for the complete payment of any obligation [the employer] may incur to an injured employee." Accordingly, we affirm the judgment of the Appellate Division, which is reported at 294 N.J. Super. 569 (1996). In American Motorists Insurance Co. v. L-C-A Sales Co., ___ N.J. ___ (1998), also decided today, we examine whether the "employee exclusion" of an employer's comprehensive general liability policy bars coverage of an employee's claim of age discrimination.
Lisa M. Schmidt filed a complaint in September 1991 against her employer, Personalized Audio Visual, Inc. (PAV) and Dennis Smith (Smith), the president of PAV. (Because of the similarity of the names (Schmidt and Smith), we shall refer to plaintiff as "Lisa.") PAV ran the business center at the Somerset Hilton Hotel. In her initial complaint, Lisa alleged that Smith committed hostile work environment sexual harassment in violation of New Jersey's Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -42, assault, battery, invasion of privacy and intentional infliction of emotional distress. She alleged that Smith demanded that she have sex with him, that he attempted to force "his tongue down her throat," and that he fondled Lisa's buttocks and breasts. Lisa alleged that these acts took place between January 2, 1991 and February 19, 1991, during and immediately prior to her employment by PAV. Two years later, in July 1993, Lisa filed an amended complaint that alleged for the first time that PAV and Smith were liable to Lisa under negligence theories, namely, that Smith had negligently inflicted emotional distress and that PAV had negligently failed to train or supervise her superior.
PAV and Smith (as an employee of PAV) demanded defense and indemnification in the lawsuit from United States Fidelity & Guaranty Company (USF&G;, initially under a comprehensive general liability (CGL) policy and later under the employer's liability portion of a Workers' Compensation and Employers' Liability policy (Workers' Compensation policy). USF&G;denied coverage under both policies. PAV and Smith instituted a third-party declaratory judgment action against USF&G;on the coverage issue. The trial court accepted USF&G;s argument that Lisa's case should be tried before the coverage action. The trial court urged USF&G;to participate in that trial, but USF&G;declined to do so.
In the trial of Lisa's claims against PAV and Smith, the jury found Smith liable to Lisa for hostile work environment sexual harassment, assault, assault and battery, and intentional infliction of emotional distress. PAV was held liable for the hostile work environment sexual harassment alone. The jury was not asked whether PAV's liability was direct or vicarious, and it was not asked whether PAV could be vicariously liable for the intentional torts Smith had committed. The jury awarded compensatory damages of $80,000 to Lisa but did
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