997 A.2d 991 (2010) 202 N.J. 432

Wendy M. FLOMERFELT, Plaintiff,
v.
Matthew P. CARDIELLO, Gary P. Cardiello, and Janet Cardiello, Defendants.
Matthew P. Cardiello, Plaintiff-Appellant,
v.
Pennsylvania General Insurance Company, Defendant-Respondent, and
New Jersey Skylands Insurance Companies, Gary P. Cardiello, and Janet Cardiello, Defendants.

A-4 September Term 2009.

Supreme Court of New Jersey.

Argued November 9, 2009. Decided July 7, 2010.

*993 Anthony V. D'Elia, Secaucus, argued the cause for appellant (Chasan Leyner & Lamparello, attorneys).

Vincent E. Reilly, Morristown, argued the cause for respondent (Coughlin Duffy, attorneys).

Justice HOENS delivered the opinion of the Court.

Plaintiff Wendy Flomerfelt sustained temporary and permanent injuries after she overdosed on alcohol and drugs during a party hosted by defendant Matthew Cardiello at his parents' home while they were out of town. Plaintiff has little recollection of what she drank or ingested either before she arrived or during the party itself. Her complaint, however, asserted that her injuries were caused by defendant, who provided her with drugs and alcohol, served her alcohol when she was visibly intoxicated, and failed to promptly summon the rescue squad when she was found, unconscious, on the porch the next day.

Defendant turned to Pennsylvania General Insurance Company, his parents' homeowners' insurer, tendering to it the defense of Flomerfelt's complaint and seeking indemnification under the terms of the policy. Pennsylvania General, in response, declined either to provide a defense against the claim or to indemnify him, pointing to the language of its policy that excluded claims "[a]rising out of the use, ... transfer or possession" of controlled dangerous substances.

The parties dispute the meaning of that language and the scope of the exclusion as it bears on both the insurer's duty to defend and its obligation to indemnify. Accordingly, this appeal requires us to consider the insurer's duties to defend and indemnify when the precise manner in which the injury was caused is in dispute and when the parties disagree about the role that controlled dangerous substances, *994 for which the policy excludes coverage, played in bringing about plaintiff's injury.

I.

Plaintiff was a guest at a Saturday evening party hosted by defendant Matthew Cardiello while his parents,^[1] the owners of the home, were out of town. At the time, Flomerfelt was twenty-one years old. Cardiello, who was only twenty years old, admitted that he provided his guests with beer, that he was aware that a variety of drugs were being used at the event, and that during the party he saw Flomerfelt ingest cocaine. Although he denied providing plaintiff with drugs, he admitted that he took "Ultracet," a prescription medication, and that empty individual-dose packets of that drug were found in the household trash after the party.

Flomerfelt has little recollection of the party. She concedes that prior to arriving at defendant's home she may have smoked marijuana, but cannot recall what else she might have ingested either before or during the party. In her complaint, however, plaintiff alleged that defendant provided her with alcohol and drugs, including the prescription drug "Ultracet,"^[2] which contains opiates. Each of those allegations is connected to a toxicology report that identified traces of numerous substances in her urine.

Late Saturday evening or early Sunday morning, Flomerfelt became ill and unresponsive, although precisely when that occurred is unclear from the record. Defendant denies that he was aware of Flomerfelt's plight prior to Sunday afternoon when finally awoke for the day. According to several of the party-goers, it was not until then that defendant and others found plaintiff on the porch and were unable to rouse her. Defendant admits that he first tried to have plaintiff's sister come to the house and transport her to the hospital. Only after that effort failed did he summon rescue personnel, who took her to the emergency room. Plaintiff contends that defendant delayed calling for help because he was afraid that the police would discover the illegal drugs in the house and because he did not want his parents to learn about the party he had hosted in their absence.

Plaintiff was treated in the Emergency Room and in the Intensive Care Unit for kidney and liver failure. A toxicology report identified alcohol, marijuana, opiates and cocaine in plaintiff's system and her hospital discharge summary included an initial diagnosis of numerous conditions "probably secondary to drug overdose." When plaintiff was released from the hospital, she had recovered from the effects of the acute liver and kidney conditions but she contends that she suffers from permanent partial hearing loss.

During discovery, two experts provided opinions concerning the cause of plaintiff's injuries, both temporary and permanent. Plaintiff's expert, Dr. Michael Buccigrossi, concluded that her injuries were caused by the ingestion of multiple drugs and alcohol, and that the injuries were exacerbated by a delay in receiving medical attention. He did not attempt to quantify the amounts of each of the substances found in her system or to determine when each substance may have been ingested. Rather, he based his conclusions on reports identifying each of *995 the substances, that is drugs or alcohol ingestion alone, as the potential causative agent for each of plaintiff's injuries.

Defendant offered the expert opinion of Dr. James Cinberg, who concluded that "[t]he toxins found in Wendy Flomerfelt's urine have been associated with rapid and irreversible high frequency loss of hearing and with tinnitus." Dr. Cinberg suggested that plaintiff's injuries might have resulted from prior drug abuse, pointing to a reported case history in which hearing loss was linked to regular marijuana use and other drug ingestion that preceded an overdose. He also noted the possibility that Flomerfelt had a genetic predisposition to hearing loss that contributed to her injury. Finally, Dr. Cinberg rejected plaintiff's assertion that defendant's delay in summoning aid had caused or contributed to her injuries. He opined that "[t]reatment that might have been instituted hours earlier would not be expected to have improved her current status."

II.

Following the service of plaintiff's complaint, defendant tendered the defense and sought indemnification for plaintiff's claims to Pennsylvania General, his parents' homeowners' insurer. Pennsylvania General declined to defend or indemnify, pointing to the exclusion in the policy for claims "[a]rising out of the use, ... transfer or possession" of controlled dangerous substances. In April 2007, defendant filed a declaratory judgment action, seeking a declaration that Pennsylvania General was obligated both to defend and to indemnify him. That complaint was consolidated with plaintiff's pending personal injury action for discovery and trial.

Early in 2008, Pennsylvania General and defendant cross-moved for summary judgment on the issues raised in the declaratory judgment aspect of the litigation. The insurer argued that the "arising out of" language is unrelated to causation, but instead equates with concepts such as "incident to" or "in connection with." Asserting that all of the evidence ties plaintiff's injuries at least in part to her ingestion of illegal drugs at the party, the insurer argued that it had neither a duty to defend nor a duty to indemnify.

Defendant opposed that motion, arguing that the "arising out of" language is ambiguous. He asserted that because the complaint also alleged that the injuries were caused by alcohol or by the failure to promptly summon assistance, judgment could not be entered in favor of the insurer. Based upon the ambiguity in the phrase, defendant argued that the insurer was obligated to provide him with a defense unless and until it could be proven that alcohol was neither the sole nor a contributing cause and, depending on the outcome of the trial of plaintiff's complaint, that it was obligated to indemnify him as well.

The trial court denied the insurer's motion and granted defendant's, directing Pennsylvania General to provide both a defense and indemnity pursuant to the policy. In a brief statement of reasons, the court explained that the insurer has the burden of proving that the exclusion applies and that in the context of a summary judgment motion, defendant was entitled to the benefit of factual inferences in his favor. The court then commented that the insurer could not rely on the exclusion because the experts were not able to specifically attribute plaintiff's injuries to either the drugs or the alcohol. The court reasoned that although plaintiff's complaint referred to both drugs and alcohol, defendant was entitled to the benefit of an inference that the injuries were caused by a covered, as opposed to an excluded, risk. The court therefore concluded that the *996 insurer was required to defend and indemnify defendant.

The Appellate Division, in an interlocutory appeal, reversed the trial court's denial of Pennsylvania General's motion and its grant of relief in favor of defendant. In doing so, the panel employed a broad interpretation of the phrase "arising out of" as it was used in the policy's exclusion and utilized a substantial nexus test for purposes of evaluating the indemnification question. Following that logic, the panel concluded that because the expert proofs linked plaintiff's injuries to both drugs and alcohol, those injuries "arose out of" the excluded acts of "use, ... transfer or possession" of illegal drugs. The panel did not engage in a separate analysis of the duty to defend, because it concluded that the exclusion barred coverage under any circumstances. The panel therefore directed that judgment be entered in favor of Pennsylvania General.

We granted defendant's motion for leave to appeal, 200 N.J. 203, 976 A.2d 381 (2009), and we reverse.

III.

We begin by reciting briefly some familiar principles that bear upon the question before this Court. An insurance policy is a contract that will be enforced as written when its terms are clear in order that the expectations of the parties will be fulfilled. Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43, 161 A.2d 717 (1960); Scarfi v. Aetna Cas. & Sur. Co., 233 N.J.Super. 509, 514, 559 A.2d 459 (App.Div.1989). In considering the meaning of an insurance policy, we interpret the language "according to its plain and ordinary meaning." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175, 607 A.2d 1255 (1992) (citing Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537, 582 A.2d 1257 (1990)).

If the terms are not clear, but instead are ambiguous, they are construed against the insurer and in favor of the insured, in order to give effect to the insured's reasonable expectations. Doto v. Russo, 140 N.J. 544, 556, 659 A.2d 1371 (1995); Voorhees, supra, 128 N.J. at 175, 607 A.2d 1255. This is so even if a "close reading" might yield a different outcome, Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595, 775 A.2d 1262 (2001), or if a "painstaking" analysis would have alerted the insured that there would be no coverage, Sparks v. St. Paul Ins. Co., 100 N.J. 325, 338-39, 495 A.2d 406 (1985) (citation omitted). Even so, when considering ambiguities and construing a policy, courts cannot "write for the insured a better policy of insurance than the one purchased." Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529, 562 A.2d 208 (1989); see Kampf, supra, 33 N.J. at 43, 161 A.2d 717.

Exclusionary clauses are presumptively valid and are enforced if they are "specific, plain, clear, prominent, and not contrary to public policy." Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95, 698 A.2d 9 (1997) (quoting Doto, supra, 140 N.J. at 559, 659 A.2d 1371); see Zacarias, supra, 168 N.J. at 601-02, 775 A.2d 1262 (holding that intra-family exclusion in boatowners' policy precluded coverage); Boddy v. Cigna Prop. & Cas. Cos., 334 N.J.Super. 649, 659-60, 760 A.2d 823 (App.Div.2000) (enforcing homeowners' policy exclusion for "motorized land vehicles"). If the words used in an exclusionary clause are clear and unambiguous, "a court should not engage in a strained construction to support the imposition of liability." Longobardi, supra, 121 N.J. at 537, 582 A.2d 1257; see Cobra Prods., Inc. v. Fed. Ins. Co., 317 N.J.Super. 392, 400-01, 722 A.2d 545 (App.Div.1998), certif. denied, 160 N.J. 89, 733 A.2d 494 (1999).

We have observed that "[i]n general, insurance policy exclusions must be *997 narrowly construed; the burden is on the insurer to bring the case within the exclusion." Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 41, 713 A.2d 1007 (1998) (quoting Chunmuang, supra, 151 N.J. at 95, 698 A.2d 9). As a result, exclusions are ordinarily strictly construed against the insurer, Aetna Ins. Co. v. Weiss, 174 N.J.Super. 292, 296, 416 A.2d 426 (App.Div.), certif. denied, 85 N.J. 127, 425 A.2d 284 (1980), and if there is more than one possible interpretation of the language, courts apply the meaning that supports coverage rather than the one that limits it, Cobra Prods., supra, 317 N.J.Super. at 401, 722 A.2d 545.

Nonetheless, courts must be careful not to disregard the "clear import and intent" of a policy's exclusion, Westchester Fire Ins. Co. v. Cont'l Ins. Cos., 126 N.J.Super. 29, 41, 312 A.2d 664 (App.Div. 1973), aff'd o.b., 65 N.J. 152, 319 A.2d 732 (1974), and we do not suggest that "any far-fetched interpretation of a policy exclusion will be sufficient to create an ambiguity requiring coverage," Stafford v. T.H.E. Ins. Co., 309 N.J.Super. 97, 105, 706 A.2d 785 (App.Div.1998). Rather, courts must evaluate whether, utilizing a "fair interpretation" of the language, it is ambiguous. Ibid.

If the language of an exclusion requires a causal link, courts must consider its nature and extent because evaluating that link will determine the meaning and application of the exclusion. See, e.g., Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 170 A.2d 22 (1961) (considering exclusion in accident insurance policy for losses "resulting from or contributed to by any disease or ailment"); cf. Mahon v. Am. Cas. Co., 65 N.J.Super. 148, 167 A.2d 191 (App.Div.) (considering applicability of policy that insured against accidental injury resulting "directly and independently" of all other causes to plaintiff with pre-existing abnormality), certif. denied, 34 N.J. 472, 169 A.2d 746 (1961).

On the other hand, if the exclusion uses terms that make it plain that coverage is unrelated to any causal link, it will be applied as written. Thus, an exclusion for damage to an aircraft while it was being "operated in flight by a pilot who is not approved" barred coverage for damage sustained while an unapproved pilot was in control, even though the damage itself was caused by a mechanical failure and through no fault of the pilot. See Aviation Charters, Inc. v. Avemco Ins. Co., 335 N.J.Super. 591, 593, 763 A.2d 312 (App. Div.2000), aff'd, 170 N.J. 76, 784 A.2d 712 (2001). The exclusion applied because, by definition, it included no causal element. Id. at 600-01, 763 A.2d 312.

In similar circumstances, courts have not read a causal nexus into the otherwise plain terms. See, e.g., Rutgers Cas. Ins. Co. v. Collins, 158 N.J. 542, 730 A.2d 833 (1999) (considering automobile policy exclusion for non-permitted drivers); Ryan v. LCS, Inc., 311 N.J.Super. 618, 710 A.2d 1050 (App.Div.1998), aff'd o.b., 157 N.J. 251, 723 A.2d 975 (1999) (same); Campbell v. Lion Ins. Co., 311 N.J.Super. 498, 710 A.2d 576 (App.Div.1998) (enforcing exclusion from uninsured or underinsured motorist coverage for vehicle used to carry property for fee); Saliba v. Am. Policyholders Ins. Co., 158 N.J.Super. 48, 385 A.2d 328 (Law Div.1976) (applying exclusion in aircraft policy for rentals), aff'd o.b., 157 N.J.Super. 476, 385 A.2d 239 (App.Div.), certif. denied, 76 N.J. 242, 386 A.2d 867 (1978).

A.

In addition to those basic tenets of construction, this matter requires an evaluation of the principles governing the insurer's duties to defend and to indemnify. Those duties are neither identical nor *998 coextensive, and therefore must be analyzed separately. Although a definitive conclusion that a policy by its terms affords no coverage, and therefore that there is no duty of indemnification, also means that there is no duty to defend, coverage questions may not have clear answers in advance of discovery or trial. As a result, courts are often required to evaluate whether the insurer owes its insured a duty to defend in advance of a conclusive decision about coverage. In those circumstances, the separate principles that govern the duty to defend must be considered and applied.

An insurer's duty to defend an action brought against its insured depends upon a comparison between the allegations set forth in the complainant's pleading and the language of the insurance policy. Voorhees, supra, 128 N.J. at 173, 607 A.2d 1255; Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504, 512, 210 A.2d 221 (1965); L.C.S., Inc. v. Lexington Ins. Co., 371 N.J.Super. 482, 490, 853 A.2d 974 (App.Div.2004). In making that comparison, it is the nature of the claim asserted, rather than the specific details of the incident or the litigation's possible outcome, that governs the insurer's obligation. Flanagin, supra, 44 N.J. at 512, 210 A.2d 221.

In evaluating the complaint for this purpose, doubts are resolved in favor of the insured and, therefore, in favor of reading claims that are ambiguously pleaded, but potentially covered, in a manner that obligates the insurer to provide a defense. Cent. Nat'l Ins. Co. v. Utica Nat'l Ins. Group, 232 N.J.Super. 467, 470, 557 A.2d 693 (App.Div.1989). Similarly, if a complaint includes multiple or alternative causes of action, the duty to defend will attach as long as any of them would be a covered claim and it continues until all of the covered claims have been resolved. Voorhees, supra, 128 N.J. at 174, 607 A.2d 1255 (citing Mt. Hope Inn v. Travelers Indem. Co., 157 N.J.Super. 431, 440-41, 384 A.2d 1159 (Law Div.1978)).

A vivid and useful depiction of the method to be utilized in evaluating an insurer's duty to defend is found in our Appellate Division's direction that "the complaint should be laid alongside the policy and a determination made as to whether, if the allegations are sustained, the insurer will be required to pay the resulting judgment, and in reaching a conclusion, doubts should be resolved in favor of the insured." Danek v. Hommer, 28 N.J.Super. 68, 77, 100 A.2d 198 (App.Div.1953), aff'd o.b., 15 N.J. 573, 105 A.2d 677 (1954). The image of laying the complaint and the policy side-by-side for a comparison remains both an apt and vibrant description today.

The analysis of the duty to defend is more complex if there are multiple theories of recovery or claims, some of which would be or arguably would be covered and others of which certainly would not. This Court first addressed this question in the context of a post-verdict dispute over coverage for defense costs and indemnification after a jury returned a verdict adverse to the insured that did not identify whether it was based on a covered or an excluded theory of liability. See Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 267 A.2d 7 (1970). In Burd, the insured was sued for injuries sustained in a shooting incident by a plaintiff who asserted, in separate counts of the complaint, both intentional and negligent acts of the insured. Id. at 386-87, 267 A.2d 7. Because only the latter claim would have been covered, the insurer declined to defend or indemnify. Id. at 387, 267 A.2d 7. Following the verdict against the insured that did not reveal which theory the jury had found was proven, the insured sought to recover its defense costs and the full amount of the verdict from the insurer. Ibid.

*999 Interpreting how the duty to defend is analyzed when there are questions about coverage, Chief Justice Weintraub, writing for the Court, first recognized that although the duty to defend arises because of an underlying obligation to pay the claim, the insurer may not refuse to provide a defense merely because it believes the claim is weak or not likely to succeed. Id. at 389, 267 A.2d 7. However, the Court recognized that if there are multiple theories of liability, only some of which would be covered, the interests of the insured and insurer may not coincide. Id. at 389-90, 267 A.2d 7. In an effort to fashion a practical remedy, and aware of the implications that arise because of the insurer's divided loyalties, the Court concluded that the insurer had two options. That is, the insurer could assume the defense if the insured agreed, with a reservation of its right to dispute coverage, or it could refuse to defend and dispute its obligations thereafter, so as to "translate its obligation into one to reimburse the insured if it is later adjudged that the claim was one within the policy covenant to pay." Id. at 390, 267 A.2d 7.

This Court subsequently read Burd to mean that if a factual dispute central to deciding whether a policy provides coverage cannot be decided absent a trial, "an insured must initially assume the costs of defense ... subject to reimbursement by the insurer if [the insured] prevails on the coverage question." Hartford Accident & Indem. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. 18, 24 n. 3, 483 A.2d 402 (1984); see also Rutgers v. Liberty Mut. Ins. Co., 277 N.J.Super. 571, 577-81, 649 A.2d 1362 (App.Div.1994). That does not mean, however, that factual disputes will always require the insured to assume the defense initially; on the contrary, in Burd itself the Court recognized that it might be appropriate to decide the coverage question, and thus the insurer's duty to defend, before trial of the underlying claim. In Chief Justice Weintraub's words:

Whenever the carrier's position so diverges from the insured's that the carrier cannot defend the action with complete fidelity to the insured, there must be a proceeding in which the carrier and the insured, represented by counsel of their own choice, may fight out their differences. That action may, as here, follow the trial of the third party's suit against the insured. Or, unless for special reasons it would be unfair to do so, a declaratory judgment proceeding may be brought in advance of that trial by the carrier or the insured, to the end that the third-party suit may be defended by the party ultimately liable.

[Burd, supra, 56 N.J. at 391, 267 A.2d 7].

In short, in circumstances in which the underlying coverage question cannot be decided from the face of the complaint, the insurer is obligated to provide a defense until all potentially covered claims are resolved, but the resolution may be through adjudication of the complaint or in a separate proceeding between insured and insurer either before or after that decision is reached.

B.

Complaints resting on multiple claimed causes present additional challenges for courts considering an insurer's duty to defend or indemnify. New Jersey courts have generally considered questions about how to evaluate multiple or concurrent causes of damages only in the context of first-party claims against insurers for coverage. Because the nature of first-party coverage and the applicable policy provisions are different from the "arising out of" language that is central to this appeal, those decisions are of limited relevance.

*1000 The first-party coverage decisions do, however, yield two generally applicable rules. In situations in which multiple events, one of which is covered, occur sequentially in a chain of causation to produce a loss, we have adopted the approach known as "Appleman's rule," pursuant to which the loss is covered if a covered cause starts or ends the sequence of events leading to the loss. See, e.g., Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc., 181 N.J. 245, 257, 854 A.2d 378 (2004) (quoting 5 Appleman, Insurance Law & Practice § 3083 at 309-11 (1970)); Stone v. Royal Ins. Co.,