## Facts

- SL Industries, Inc. (SLI) purchased commercial general liability policies from American Motorists Insurance Company and Kemper Group Insurance Company (American), including bodily-injury and personal-injury coverages.
- SLI’s senior executive, Newell E. Whitcomb, alleged SLI misrepresented that his position would be eliminated and fraudulently induced him to accept an early-retirement plan.
- After SLI hired another executive before Whitcomb’s retirement, Whitcomb claimed the “elimination” rationale was a pretext.
- In 1986, Whitcomb sued SLI and its CEO in federal court alleging willful age discrimination under the ADEA and related intentional tort theories, including fraudulent inducement.
- Whitcomb sought damages for emotional and psychological harms (e.g., humiliation, loss of self-esteem, sleeplessness, irritability) without alleging a distinct physical injury.
- SLI requested a defense from American; American denied coverage, asserting the allegations did not fall within bodily-injury or personal-injury coverage and did not involve a covered “occurrence.”
- The underlying action settled for $430,000; SLI incurred about $100,000 in defense costs.
- SLI filed a declaratory judgment action seeking coverage, reimbursement of defense and settlement amounts, and additional damages and fees.
- The trial court granted summary judgment to American; the Appellate Division reversed; the New Jersey Supreme Court granted review.

## Issues

1. Whether the duty to defend is determined solely from the complaint’s allegations or may be triggered by extrinsic facts communicated to the insurer during the underlying litigation, and what duties the insured has to provide such information promptly.
2. Whether emotional distress without physical manifestations constitutes “bodily injury” under standard bodily-injury coverage.
3. Whether the alleged age discrimination and fraudulent inducement fall within enumerated “personal injury” offenses.
4. Whether intentional discrimination and intentional deception can qualify as an “occurrence” (accident) under occurrence-based liability policies.
5. How defense and settlement costs should be allocated between potentially covered and non-covered claims in a mixed-action case.

## Decision

- The New Jersey Supreme Court modified the Appellate Division’s coverage ruling and limited American’s obligations.
- The Court held that the duty to defend is not confined to the complaint’s four corners; extrinsic facts may trigger a defense, but the insured must promptly supply relevant information or risk losing reimbursement for defense costs incurred during nondisclosure.
- The Court held that emotional distress unaccompanied by physical manifestations is not “bodily injury” within the meaning of standard CGL bodily-injury language.
- The Court held that the pleaded age discrimination and fraudulent inducement theories did not fall within the policy’s enumerated personal-injury offenses.
- The Court held that claims grounded in intentional discrimination and intentional misrepresentation were not caused by an “occurrence” because they were not accidental from the insured’s standpoint as alleged.
- The Court required reasonable allocation of defense and settlement costs between covered and non-covered components rather than automatic full reimbursement in mixed-claim litigation.

## Legal Principles

- An insurer’s duty to defend arises when the claim is potentially covered; that potential may be shown by the complaint and by extrinsic facts known to the insurer.
- When the insured relies on extrinsic facts to establish a defense obligation, the insured must provide the insurer relevant information promptly; delay can bar recovery of defense costs for the period before notice.
- “Bodily injury” in standard CGL policies ordinarily requires physical injury, sickness, or disease; emotional distress alone does not satisfy that term absent policy language extending coverage.
- “Personal injury” coverage is offense-based and depends on the enumerated offenses in the policy; dignitary or emotional harms are not covered unless they fit within a listed offense.
- Occurrence-based liability coverage generally does not extend to liability theories that require intentional discrimination or intentional deception, because such conduct is not an accident as alleged.
- In suits combining covered and non-covered claims, defense and settlement costs should be allocated on a reasonable basis to the covered portions; the insured bears responsibility to support a workable allocation.

## Conclusion

The court limited liability coverage for an executive’s age-discrimination and fraudulent-inducement suit, holding that emotional distress without physical manifestations was not “bodily injury,” the allegations did not fit enumerated “personal injury” offenses, intentional discrimination was not an “occurrence,” and any defense-cost obligation in a mixed-claim case requires reasonable allocation informed by timely notice of relevant extrinsic facts.


SL Industries, Inc. v. Am. Motorists Ins. Co., 128 N.J. 188, 607 A.2d 1266 (N.J. 1992)