Opinion ID: 780514
Heading Depth: 3
Heading Rank: 2

Heading: Scottsdale's Duty to Reimburse Freddie Mac for Defense Costs

Text: 81 The district court properly concluded that Scottsdale had a duty to defend, and thus to pay the defense costs incurred by Freddie Mac. In Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 607 A.2d 1255 (1992), the New Jersey Supreme Court set out a simple test for determining when the duty to defend arises: 82 [T]he duty to defend comes into being when the complaint states a claim constituting a risk insured against. ... Whether an insurer has a duty to defend is determined by comparing the allegations in the complaint with the language of the policy. When the two correspond, the duty to defend arises, irrespective of the claim's actual merit.... If the complaint is ambiguous, doubts should be resolved in favor of the insured and thus in favor of coverage. 83 Id. at 1259 (citation omitted). The court further explained [t]hat the claims are poorly developed and almost sure to fail is irrelevant to the insurance company's initial duty to defend.... `Liability of the insured ... is not the criterion; it is the allegation ... of a cause of action which, if sustained, will impose a liability covered by the policy.' Id. (citation omitted). 84 We have concluded that district court properly applied the clear test enunciated in Voorhees. The underlying complaints all contained allegations that would, if sustained, impose liability for activities within the coverage of the policy. 85 Scottsdale's arguments to the contrary are without merit. In part, Scottsdale claims that certain of the underlying complaints did not allege any negligent behavior by T & R; and in any event, T & R did not commit a negligent act or omission that led to the injuries alleged in the underlying complaints (or at least, did not do so until Freddie Mac filed its third-party complaint against T & R). But these arguments miss the point of Voorhees : allegations, even if meritless, trigger the insurer's duty to defend if they constitute claims relating to a risk against which the policy insures. 86 In this case, the risk insured against was any damage resulting from problems with the fire and smoke alarm systems provided by T & R and T & R's services related to those systems. The underlying complaints involved claims relating to this risk. 87 Thus, the district court did not err in holding that Scottsdale owed a duty to reimburse Freddie Mac for the costs of defense. 88