On April 25, 2007, the New Jersey Appellate Division, in the matter New Jersey Manufacturers Insurance Company (NJM) v. Oscar Vizcaino, (Docket No. A-2018-06T3), re-affirmed what has been known as the Burd rule. That is, in cases where an underlying plaintiff makes both intentional tort and negligence claims, it is the insured and not the insurer who must initially assume the entire costs of defense. This rule was initially created by the New Jersey Supreme Court in Burd v. Sussex Mutual Insurance Co., 56 N.J. 383 (1970).
In Burd, an insured filed an action against his liability insurer for reimbursement of defense costs and payment of the judgment in an underlying action, which had been brought against the insured with claims of both intentional tort and negligence. The insurer had originally refused to defend the action, stating that the insurance policy did not cover intentional torts. The insured defended the action using its own counsel, and eventually at trial, the jury reached a verdict against the insured that did not determine whether the tort had been intentional or negligent. Initially, the trial court found for the insured. It held that since the insurer refused to defend the underlying action, the insurer was precluded from defending the coverage action by raising the issue of whether the act was an intentional tort. The Supreme Court reversed and remanded the case for the trial court to determine whether the underlying act was an intentional tort. In reaching its decision, the Supreme Court stated that it is in the best interest of the insured to allow him/her to control his/her own defense, because where an underlying plaintiff makes both intentional tort and negligence claims, an insurer who is defending the action could be inclined to defend the intentional claims with less conviction then the negligence claims.
The Burd rule in New Jersey differs from the majority rule in other jurisdictions for handling cases where an underlying plaintiff brings an action against an insured alleging some claims that are covered by the policy and some claims that are not. In most other jurisdictions, when faced with a case where the plaintiff sets forth both intentional tort claims and negligence claims, the insurer must provide a complete defense on behalf of the insured to all claims set forth in the action until all covered claims are dismissed. If there was any doubt in New Jersey whether the courts follow the Burd rule or the majority rule, those doubts have been eliminated by the Appellate Division’s decision in Vizcaino.
In Vizcaino, the underlying plaintiff brought a personal injury action against the insured, Oscar Vizcaino, for injuries sustained in a physical altercation at a bar. The plaintiff included both intentional tort and negligence counts in his complaint against the insured. Vizcaino requested that his homeowners insurer, NJM, defend him in the action, but NJM denied coverage for the intentional tort claim. Interestingly, NJM agreed to provide a defense for Vizcaino with regard to the negligence claim. NJM brought a declaratory judgment action against Vizcaino to resolve the issue of defense with regard to the intentional tort claim. The trial court ruled that NJM must provide Vizcaino with a defense against all the claims, including the intentional tort claims, until the negligence claim is eliminated from the action. The Appellate Division overturned the trial court based upon the Burd rule. The Appellate Division held that Burd remains the controlling authority in duty to defend cases where an underlying plaintiff alleges both covered and non-covered claims against an insured. In New Jersey, if there is a split between covered and uncovered claims in an underlying action, insurance carriers can in good faith refuse to defend the entire action.