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Historic Smithville Development Co. v. Chelsea Title & Guaranty Co.

Decided: July 27, 1983.

HISTORIC SMITHVILLE DEVELOPMENT CO., A NEW JERSEY GENERAL PARTNERSHIP, PLAINTIFF-APPELLANT,
v.
CHELSEA TITLE & GUARANTY COMPANY, A NEW JERSEY CORPORATION, DEFENDANT-RESPONDENT CROSS APPELLANT



On appeal from interlocutory order dated March 16, 1981 of the Chancery Division, Atlantic County, whose opinion is reported at 184 N.J. Super. 282 (Ch. Div. 1982) and interlocutory order of the Chancery Division dated February 22, 1983.

Matthews, Antell and Francis. The opinion of the court was delivered by Antell, J.A.D.

Antell

[190 NJSuper Page 568] On November 17, 1977 suit was brought by the Attorney General of the State of New Jersey, in an action entitled Hyland v. Burgess, against Chelsea Title and Guaranty Company, defendant

herein, Historic Smithville Inns, Inc., a corporate subsidiary of ABC Leisure Attractions, Inc., and others, challenging, among other things, Smithville Inns' title to approximately 300 acres of land in Galloway Township and the City of Port Republic in Atlantic County. The suit was based upon claims that the lands had been fraudulently acquired some 15-20 years earlier by Chelsea, acting in concert with others, and thereafter conveyed to Smithville Inns.

Because title to the lands was insured under a title insurance policy issued by Chelsea on August 30, 1974 Smithville Inns called upon Chelsea to provide a defense. In an exchange of correspondence during December of 1977 it was agreed that owing to the uniqueness of the circumstances arising from Chelsea's presence as a defendant in the action Smithville would engage as its independent counsel the firm of Hannoch, Weisman, Stern and Besser and that Smithville Inns' expenses therefor would be reimbursed by Chelsea. Acting on behalf of Smithville Inns, the Hannoch firm filed in February 1978 its answer to the Attorney General's complaint and included therein a cross-claim against Chelsea for its "alleged fraud", seeking compensatory and punitive damages, attorney's fees and costs. The cross-claim was amended on August 8, 1980 by enlarging upon the allegations of fraud.

On May 14, 1979 Historic Smithville Development Co., a general partnership, plaintiff herein, acquired the capital stock of Smithville Inns, thereafter liquidated that corporation's assets by distributing them to itself and took title by separate deed to the lands aforesaid.

The arrangement with respect to the payment of the Hannoch firm's fees continued until January 1979 when Chelsea refused to continue the payments. Various reasons were given for its refusal and this suit was brought by plaintiff on August 6, 1980 to compel payment of the fees. Essentially, the defenses were that plaintiff was not an "insured" under the terms of the title policy and that the Hannoch firm had placed itself in a position

of conflicting interests by pursuing the cross-claim alleging fraud on behalf of plaintiff. By order dated March 16, 1981 partial summary judgment was entered determining plaintiff to be an insured under the title policy and striking defendant's claim to the contrary as a defense. Defendant cross appeals from that order. The issue remaining in the case focuses on whether the Hannoch firm is carrying on a dual representation of rival interests.

Plaintiff appeals herein from an order of the Chancery Division dated February 22, 1983 granting broad discovery into the nature and extent of the services rendered plaintiff by the Hannoch firm. Without detailing the character of the information ordered disclosed, there is no doubt that it would ordinarily be protected by the attorney-client privilege and the work product rule. Chelsea, however, argues that the information was properly ordered disclosed for the reason that the Hannoch firm was retained to represent with undivided loyalty the interests of the insured and the insurer, and because of the dual representation and the conflict resulting therefrom the privilege is inapplicable. The source of Chelsea's rationale is to be found in the following language of Lieberman v. Employers Insurance of Wausau, 171 N.J. Super. 39, 49-50 (App.Div.1979), aff'd as modified, 84 N.J. 325, 339 (1980):

An attorney provided by an insurance company to represent an insured defendant owes that person the same unswerving allegiance that he would if he were retained and paid by the defendant himself. Newcomb v. Meiss, 263 Minn. 315, 116 N.W. 2d 593, 598 (Sup.Ct.1962); Jackson v. Trapier, 42 Misc. 2d 139, 247 N.Y.S. 2d 315, 316 (Sup.Ct.1964). While he owes to both a duty of good faith and due diligence in the discharge of his duties, the rights of one cannot be subordinated to those of the other. Imperiali v. Pica, 338 Mass. 494, 156 N.E. 2d 44, 47 (Sup.Jud.Ct.1959). Consequently, whenever counsel in such case has reason to believe that the discharge of his duty to the insured would conflict with the discharge of his duty to the insurance carrier, he cannot continue to represent both.

See also Bartels v. Romano, 171 N.J. Super. 23, 29 (App.Div.1979); Longo v. American Policyholders' Ins. Co., 181 N.J. ...


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