In Schmidt v. Smith, the New Jersey Supreme Court caught more than a few observers by surprise. New Jersey courts have generally issued opinions regarded as pro-claimant and pro-policyholders. But everyone's taste for recompense and coverage has limits.
In Schmidt, the court exceeded those limits for many observers by holding that despite what it regarded as clear contract language in an exclusion, an insurer providing Employers’ Liability (“EL”) coverage along with Workers' Compensation (“WC”) insurance for the employer was required to provide coverage in a case of blatant sexual harassment bordering on criminal assault. In doing so, the Schmidt court, however laudable its motives, pushed doctrines of reasonable expectations of coverage, public policy, and statutory interpretation further than was necessary or wise.
Although the net result of the decision may be salutary to the degree it provides greater recompense for victims of sexual harassment and other discriminatory injury in the workplace, Schmidt v. Smith remains a troubling episode of judicial enthusiasm for mandated coverage. Although the workers' compensation realm of law imposes more coverage responsibilities upon employers and insurers, the nature of the underlying claim and the clarity of the exclusion should have received greater attention by the court. Notwithstanding the statutory framework of the workers' compensation law, the Schmidt v. Smith decision was not as compelled as the court suggests. Certainly, traditional means of contract and statutory construction do not support mandating coverage and it is by no means clear that mandated coverage is the public policy “answer” to the dilemma faced by the Schmidt court.
21 W. New Eng. L. Rev. 283 (1999).
Stempel, Jeffrey W., "Judge-Made Insurance That Was Not on the Menu: Schmidt v. Smith and the Confluence of Text, Expectation, and Public Policy in the Realm of Employment Practices Liability" (1999). Scholarly Works. Paper 213.