On appeal from Superior Court, Law Division Essex County.
Seidman, Michels and Devine. The opinion of the court was delivered by Seidman, P.J.A.D.
Howard Lieberman, a physician, instituted a suit for damages against Employers Insurance of Wausau (Employers), from whom he had obtained a professional liability insurance policy, and Robert McDonough, an attorney retained by the insurance company to represent him in the defense of a medical malpractice action. He charged that the insurer breached the contract by settling the malpractice claim without his consent and that the attorney violated the attorney-client relationship by participating in the settlement with knowledge that plaintiff wished the matter to go to trial. He sought the recovery of insurance premium surcharges assessed against him allegedly as the result of the settlement.
The trial judge, sitting without a jury, granted the insurance company's motion for involuntary dismissal of the action at the close of plaintiff's evidence, but denied that made on behalf of the attorney. At the conclusion of the entire case, he found in favor of plaintiff and entered judgment against the attorney in
the sum of $27,762 plus costs. The attorney appealed. Plaintiff cross-appealed from the dismissal of his action against the insurance company.
The questions on appeal are whether an insured under a professional liability policy may withdraw his previously given written consent (required by the policy) to a settlement of a malpractice claim; whether the attorney retained by the insurer to represent the insured breached the duty owed by him to the latter and, if plaintiff is entitled to recover against either or both defendants, how damages are to be measured.
Employers first issued a professional liability policy to Dr. Lieberman in 1968, insuring him against medical malpractice claims. The policy was renewed annually thereafter until 1971, when another company took over the coverage. A clause in the policy empowered the insurer in the matter of claims to
During the times here involved an insurance premium surcharge program was in effect by agreement among the carriers, the broker and the New Jersey Medical Society, and with the approval of the Commissioner of Insurance. Under the program an insured physician who acquired two chargeable claims within a stated period, the length of which depended upon the type of practice, would be subject to the assessment of a 50% premium surcharge. A third chargeable claim within that period would result in a 150% surcharge. All surcharges were to remain in effect for three years. A claim would be deemed chargeable if (a) the Society's medical review and advisory committee determined that the claim was indefensible, or (b) the claim was settled for an amount in excess of $3,500, or (c) a judgment of more than that amount was entered against the insured physician. In case a claim was successfully defended or the amount ultimately paid by settlement or to satisfy a judgment did not
exceed $3,500, any surcharge imposed by reason of a committee determination of indefensibility would be refunded.
A former patient sued Dr. Lieberman and his associate for malpractice, in 1970, alleging that an arteriogram had been negligently administered during the course of treatment, resulting in the loss of use of his hands. The suit papers were forwarded to Employers. McDonough was retained by the carrier to defend the lawsuit and the physicians were notified of the assignment. Subsequently, a medical review and advisory committee determined that the claim was not defensible. A representative of Employers called upon Dr. Lieberman and his associate, advised them of the determination and obtained their written consent authorizing the insurance company to settle the claim within the limits of the policy. McDonough was informed of the action taken.
Sometime later, Dr. Lieberman received information from other physicians, one of whom was treating the same patient for an unrelated illness, that the patient appeared to be using his hands quite normally. Dr. Lieberman called the claims department of Employers and suggested that in light of evidence that the claimant might be malingering the case should go to trial. This was followed, in October 1972, according to Dr. Lieberman, by a letter in which he withdrew the settlement authorization. The insurer undertook an undercover investigation of the claimant and also authorized McDonough to go to the Mayo Clinic in Minnesota, where the claimant had been a patient, and confer with the treating physicians there. McDonough's report to Employers led it to conclude that "There was going to be a credibility question here, we could not establish the fact that he was malingering."
Dr. Lieberman said at trial that he called Employers again in January 1973, reiterating his demand that the case go to trial. He was told of the possibility that the claim could be settled below the surcharge threshold. He wrote to Employers that "no ...