...Covered "Money Damages," "Loss".
On June 21, 2011 the Supreme Court of New Jersey decided that "the value of a settlement" is not covered "money damages" unless it involves the payment of money and thus is not a covered "Loss" defined in a standard Insurance Policy Definition in Download Passaic Valley Sewerage Commissioners v. St. Paul Fire and Marine Insurance Co. (N.J. Opinion Filed June 21, 2011) PUBLIC ACCESS, also published as 2011 WL 2450937 *1 (N.J. June 21, 2011)(authorized password required to access Westlaw).
In a common arrangement, the Insured in that case reached a Settlement Agreement in an Underlying Case. The Insured agreed, in the settlement of the Underlying Case, "among other things, to provide in-kind services and forbear from pursuing alleged regulatory violations". Id. at *1. Alternatively put, the Underlying Settlement Agreement provided for the Insured to "provide services" and to "surrender assets" all "in lieu of cash payments" [emphasis added], and it was the value of this agreement for which the Insured sought indemnity Coverage. Id.
In this straight-forward decision, the New Jersey Supreme Court as expected affirmed the New Jersey Superior Court Appellate Division and held that this common form of settlement agreement does not qualify as "money damages" nor as a covered "loss". If this decision is followed outside of New Jersey, its teaching seems clear: Include covered money damages in a settlement for which your client may seek Indemnity Coverage as a covered "Loss" under a standard Insurance Policy, or if you represent the Insurance Company be sure to contest settlement arrangements on behalf of Insurance Companies where the settlement arrangements arguably do not include covered money damages and thus no covered "Loss".
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