A New Jersey intermediate court of appeals has vacated and remanded a case in which the trial court held that an insurer had no duty to defend based on a breach of contract exclusion, because the appellate court could not determine whether the exclusion applied without a choice of law analysis. Pharmacy & Healthcare Commc’ns, LLC v. Nat’l Cas. Co., 2015 WL 10793944 (N.J. Super. Ct. App. Div. May 11, 2016).

The policyholders, a marketing company and a publishing company with common ownership, were hired by a pharmaceutical company and its advertising agency to fax advertisements about a drug to 250 pharmacies. The policyholders apparently indicated they had specific permission to send faxes to these pharmacies and that the fax advertising services complied with all applicable federal and state laws. After one pharmacy sued the pharmaceutical company and advertising agency, the advertising agency filed a third-party complaint against the policyholder that provided marketing services. The complaint alleged breach of contract, intentional misrepresentation, negligent misrepresentation and promissory estoppel.

The policyholders sought coverage under a business and management indemnity policy, and the insurer denied coverage based on the D&O coverage part’s professional services and breach of contract exclusions. The policyholders retained defense counsel and incurred $588,724.68 in defense and $400,000 to settle the suit, then filed a declaratory judgment action against the insurer. The trial court concluded that the breach of contract exclusion applied, and declined to rule on the application of the professional services exclusion. The policyholder appealed.

The appellate court vacated and remanded, holding that, while the breach of contract exclusion barred coverage for the breach of contract claim, it could not determine whether the exclusion barred coverage for the other claims asserted in the third-party complaint. The record below did not show which state’s laws the insurer applied in analyzing coverage, so the appellate court could not determine whether the non-contract counts could be asserted independent from the contract between the parties, and in turn, whether the breach of contract exclusion also applied to bar coverage for the additional causes of action. The court therefore remanded for consideration of whether the law of the jurisdiction the insurer applied in reaching its coverage determination supports that determination, as well as whether the insurer’s application of the laws of that jurisdiction was appropriate.