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Claims Practices

No Insurance Policy Covers Every Possible Eventuality

Barry Zalma | October 6, 2017

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Rear doors of an ambulance

Everyone who buys insurance wants it to cover every possible eventuality where a suit may be brought against it. Of course, that belief is as accurate as the claim that Elvis Presley lives as an old man in Las Vegas. A recent case exemplifies this: Aaron Ambulance Med. Transp., Inc. v. Certain Underwriters at Lloyd's, No. 16-cv-04564, 2017 U.S. Dist. LEXIS 149409 (U.S. Dist. App. N.J. Sept. 14, 2017).

In this case, Aaron Ambulance attempted to obtain defense and indemnity from its professional liability insurer for actions that had nothing to do with the professional services of the ambulance company and that were clearly and unambiguously excluded.

Facts of the Case

Plaintiffs were sued in relation to alleged sexual harassment and discrimination. The claimant/plaintiff in the underlying action was employed by the ambulance company plaintiffs from August 2013 to May 2014 as a receptionist and administrative assistant after which time she "was forced to resign" because "she was subjected to continuous sexual harassment and abuse at the Hackensack and Lyndhurst office by" the plaintiffs. She also alleged that "sexually offensive conduct and remarks were made to ridicule and to humiliate [her] and to cause her infliction of emotional distress."

The claimant in the underlying action thereby asserted numerous counts concerning or claiming, inter alia, "sexual harassment and discrimination[,]" "verbal and physical assaults and batteries and offensive physical contact[,]" "intentional and/or negligent infliction of emotional distress[,]" a "hostile work environment[,]" and constructive discharge.

The defendant insurer refused to defend since it stated there was no coverage for the claim and/or that such coverage as might otherwise be available was precluded by operation of the terms and provisions of the policy. It moved for judgment on the pleadings, arguing that because the plaintiffs purchased a professional services liability policy that covered claims arising from the performance of ambulance services, there was no coverage for suits concerning sexual harassment in the workplace. In opposition, the plaintiffs cited the separately purchased Endorsement 7 as providing the basis for coverage of the underlying action and otherwise maintained that the language of Endorsement 7 created a reasonable expectation of coverage and that it creates ambiguity such that it should be construed in the plaintiffs' favor.

The Relevant Policy Language

The insuring agreement provided: "Underwriters will pay on behalf of the Insured all Damages and Claim Expenses in excess of the Deductible and subject to the applicable Limit of Liability that the Insured becomes legally obligated to pay as a result of any covered Claim.…"

The policy sets forth certain exclusions: "This Policy does not apply to any Claim: * * * E. based upon or arising out of any sexual misconduct, sexual abuse, and/or child abuse; * * * I. brought by one Insured or Affiliate against another Insured or Affiliate[.]" And, of particular import here, Endorsement 7 provided coverage for sexual harassment while acting in its professional capacity.

Basic Rules of Contract Interpretation

Since the parties concurred that New Jersey law governed the motion, a few well-established principles informed the court's analysis. First, the scope of an insurance contract's coverage is a question of law properly decided by the court. The court accordingly compared the allegations in the complaint with the language of the insurance policy and was guided by the plain language of the policy such that, if the terms were clear, they were given their plain, ordinary meaning.

Importantly, the court should interpret the policy as written and avoid writing a better insurance policy than the one purchased. When there is ambiguity in an insurance contract, courts interpret the contract to comport with the reasonable expectations of the insured, even if a close reading of the written text reveals a contrary meaning. And a genuine ambiguity only exists where the phrasing of the policy is so confusing that an average policyholder cannot make out the boundaries of coverage.

The Court's Analysis

The court understood the plaintiffs' concern for clarity in reading the policy, particularly regarding the role of endorsements in modifying the main body of the policy. However, the court concluded that a plain reading of the policy did give the same interpretation offered by the defendants.

When read in conjunction, the insuring agreement, exclusions, and definitions clearly demonstrate the following: the policy insured plaintiffs as well as their former employee, the claimant in the underlying action. In addition, the policy covered wrongful acts committed in the performance of professional services, with coverage excluded for such acts as sexual misconduct, discrimination, bodily injury (including mental anguish and emotional distress), and those claims arising between insureds. Thus, because the underlying action presented claims brought by one insured against another premised on sexual assault, discrimination, emotional distress, and wrongful termination, the policy plainly disclaimed the coverage sought by the plaintiffs.

Moreover, there was no basis in the policy terms to conclude that the actions alleged in the underlying complaint occurred in the performance of emergency/nonemergency services as an ambulance. Rather, the underlying events allegedly occurred between employees in company offices.

On this point, the court endorsed the defendant's distinction that the policy was one that provided professional liability insurance, as opposed to employment practices liability insurance, and that the underlying allegations did not arise out of the rendering of professional services. New Jersey law distinguishes professional liability policies from other policies because, for example, professional services that entail specialized learning specific to a profession are distinguishable from business or commercial activities, such as billing practices.

Critically, insofar as Endorsement 7 deleted the exclusion of claims arising out of "sexual misconduct, sexual abuse, and/or child abuse," there was no language to negate the other clear disclaimers of coverage because the terms of Endorsement 7 made clear only that, absent express reference to other provisions of the policy, the court was disinclined to construe the policy as expansively as plaintiffs suggested.

The court said it would be a generous interpretation indeed to read Endorsement 7 to expand coverage beyond professional services and into the realm of sexual harassment and discrimination—all without using or defining such terms or referring to related definitions, declarations, or exclusions.

Further, a plain reading, rather, recognized that the policy said what it meant through well-defined and consistently employed terms. Such a reading also supported the conclusion that defendant sexual misconduct is insured against not in the sense of sexual harassment or in the context of an office environment but simply in rendering professional ambulatory services—a situation not raised by the allegations of the underlying complaint.

The plaintiffs availed themselves of an insurance broker to insure a commercial enterprise and secured insurance coverage for clearly defined circumstances. They did not secure coverage for every eventuality, however, as the policy unambiguously excluded coverage for claims presented in the underlying complaint.


Employment liability insurance is available in the marketplace. A professional liability policy clearly provides insurance for breach of the professional obligation of an ambulance service. It doesn't apply to sexual harassment of an employee in the company's offices. The ambulance company decided not to buy that coverage and, by its suit, attempted to change a professional policy into something the insurer did not agree to insure.

© 2017 Barry Zalma, Esq., CFE

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