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Guarantee Insurance Co. v. Saltman

Decided: May 21, 1987.


King, Deighan and Havey. The opinion of the court was delivered by Deighan, J.A.D.


Defendants David A. Saltman and Newman, Herman, Saltman, Levitt & Feinson, P.A., the insureds under a professional liability policy issued by plaintiff Guarantee Insurance Company (Guarantee) appeal from an order awarding them partial counsel fees and costs in the sum of $11,248.80 out of a total demand of $30,422.80. The trial judge awarded legal fees and costs relating to defense of the litigation on the claim by John Frederick, Esther Fausti and Gail Meszaros, former clients of defendants. R. 4:42-9(a)(6). On appeal defendants maintain that the counsel fees should be awarded, not only for defense of the negligence action, but also for defense of the present action concerning the coverage issues under the professional liability policy. They argue that the proceedings in the present action were upon a liability or indemnity policy pursuant to R. 4:42-9(a)(6) and that, in any event, pursuant to R. 1:1-2, the Rule governing the allowance of counsel fees should be relaxed so as to permit counsel fees incurred in defending the present action.

Guarantee maintains that the trial court was not compelled to award defendants any counsel fees under the law and facts of this matter; that the claim of Guarantee in this action for damages was in effect an action for deceit for which no counsel fees may be awarded, and that defendants, having executed

upon and obtained full satisfaction for the $11,248.80 judgment are estopped from seeking further fees.

In July 1977, defendant St. Paul Fire & Marine Insurance Company (St. Paul) issued a professional liability insurance policy to defendant law firm with annual renewals thereafter. In 1982, while the St. Paul coverage was still in effect, Jay Newman, managing partner of defendant law firm, arranged for coverage through plaintiff Guarantee. After receiving a confirming letter from Guarantee acknowledging coverage of the firm as of May 1, 1982, Newman sent a letter dated May 18, 1982, to the agent of St. Paul requesting cancellation of the St. Paul policy effective May 1, 1982. In a bench trial, Judge Fox found that the St. Paul policy was cancelled effective that date. His finding is supported by substantial credible evidence in the record as a whole. Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 484 (1974).

On June 7, 1982 defendant Saltman was advised by telephone that a malpractice action was to be filed against him. The complaint, In the Matter of John Frederick, Esther Fausti and Gail Meszaros v. David Saltman, Docket No. L-58227-81, was filed in June 1982 and forwarded to Saltman by letter dated June 23, 1982. Saltman forwarded the summons and complaint to both Guarantee and St. Paul. St. Paul declined coverage because the policy had been cancelled as of May 1, 1982.

By letter dated August 10, 1982, Guarantee agreed to undertake the defense of the case but reserved its right to investigate any misrepresentation by the law firm when it applied for coverage. On September 29, 1983, Whiting National Service, Inc., an investigatory agency ostensibly employed by Guarantee, advised Saltman that it had completed its investigation and concluded that Saltman did not have prior knowledge of the malpractice claim.

Although Guarantee continued to defend the action against defendants, in February 1984, it again disclaimed coverage on the ground of newly discovered evidence. On March 23, 1984,

Guarantee filed a complaint in the present matter alleging that defendants fraudulently misrepresented and intentionally withheld information concerning the claim against them by Frederick, Fausti and Meszaros. Guarantee sought a judgment rescinding the insurance policy; determining that the parties "be returned to the status quo prior to the application"; directing that defendants take over and assume the defense of the action against them; adjudging that the policy of insurance be reformed to except the claim from coverage, and directing that defendant Saltman reimburse plaintiff "for any and all costs and expenses incurred by plaintiff in the defense of the pending [malpractice] civil action." Alternatively, Guarantee sought judgment declaring St. Paul to be a primary co-insurer of the defendants and adjudging St. Paul to be responsible for 50% of all costs and expenses, including any judgments rendered in favor of defendants Frederick, Fausti and Meszaros. Defendant attorneys filed a counterclaim to determine that Guarantee insured them for the claims of Frederick, Fausti and Meszaros; that Guarantee owed them an obligation to defend the action against them, and for reimbursement for legal fees incurred in the defense not only of the underlying malpractice action but also the present action by Guarantee denying coverage.

On August 14, 1984, Judge Long, citing Merchants Indem. Corp. v. Eggleston, 37 N.J. 114 (1962), granted defendants a partial summary judgment determining that Guarantee had waived any right to rescind its insurance policy. An order was entered declaring that Guarantee's policy was in effect and fully afforded defendants their rights thereunder and requiring Guarantee to defend and indemnify defendants for liability incurred in the underlying malpractice action. The issue of whether defendants had perpetrated a fraud was scheduled for trial and, since the issue concerning defendant's alleged fraud had not yet been determined, Judge Long held that defendants' request for counsel fees was premature.

On September 18, 1984, the underlying malpractice action was settled by Guarantee for a total sum of ...

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