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Wolpaw v. General Accident Insurance Company

March 25, 1994

KARANNE WOLPAW, PLAINTIFF-RESPONDENT,
v.
GENERAL ACCIDENT INSURANCE COMPANY, DEFENDANT/THIRD-PARTY PLAINTIFF/APPELLANT,
v.
PARKER, MCCAY & CRISCUOLO, THIRD-PARTY DEFENDANT/RESPONDENT.



Judges Brody, Stern and Keefe.

The opinion of the court was delivered by: Brody, P.J.A.D.

Argued February 1, 1994

[1] Defendant issued a homeowners' policy to Saranne Frew. Other members of Frew's household covered by the policy were plaintiff, who is Frew's sister, and plaintiff's son Heath. All three were sued in a personal-injury action for their allegedly negligent conduct during the term of the policy. Defendant assigned the same firm of attorneys, third-party defendants Parker, McCay and Criscuolo, Esqs., to represent the three insureds even though their interests as defendants in that action were in conflict. Plaintiff brought this action to compel defendant to pay the substantial portion of the negligence-action judgment entered against her that exceeds the policy limit. We agree with the trial judge that defendant breached the policy by assigning a single firm of attorneys to represent insureds having conflicting interests. We disagree, however, with the judge's conclusion that defendant is thereby liable for the entire negligence-action judgment. Defendant's liability is limited to the portion of plaintiff's actual loss attributable to the breach.

On January 9, 1986, plaintiff's eleven-year-old son Heath accidently fired a BB from an air rifle that put out an eye of his playmate and neighbor Michael Heim. Plaintiff was divorced from Heath's father Ivan Wolpaw at the time and lived with Heath in the home of her sister Saranne Frew. Plaintiff, her sister and Heath were covered for the accident under a $50,000 homeowners' policy that defendant General Accident Insurance Company had issued to Frew. Michael and his parents brought an action for the ensuing damages against plaintiff, Heath, Frew, Ivan, the rifle's manufacturer, and the store where Ivan had purchased the rifle as a gift for his son. Defendant immediately deposited in court the $50,000 limit of its policy in offer of settlement. The Heims rejected the offer. A jury awarded the Heims damages totaling $502,000 after finding plaintiff 50% negligent, Ivan 30% negligent and Heath 20% negligent. The jury absolved the manufacturer and the store. The claims against Frew had been dismissed before trial on her motion for a partial summary judgment.

In this action, the trial judge held, on plaintiff's motion for summary judgment, that defendant had breached its policy by providing a single firm of attorneys to represent insureds having conflicting interests and thereby became liable to pay the full amount of the Heim judgment, including prejudgment and post-judgment interest. The judge accordingly entered partial summary judgment against defendant in the amount of $709,964.20 and certified it as final, thus enabling defendant to take this appeal. R. 4:42-2. Defendant's third-party indemnification claims against the law firm, against whom plaintiff has made no claims, remain to be tried.

[2][3] A liability insurer that insures co-defendants whose interests conflict with one another must retain separate and independent counsel for each insured or permit each insured to do so at the insurer's expense. See Yeomans v. Allstate Insurance Company, 130 N.J.Super. 48, 54, 324 A.2d 906 (App.Div.1974). That was the case here. The three insureds had the common interests of minimizing the amount of the Heims's judgment and maximizing the percentage of fault attributable to the other defendants. However, their interests in maximizing the percentage of the other insureds' fault and minimizing their own were clearly in conflict. For instance, it was in plaintiff's interest to argue that she adequately had secured the rifle from Heath's unattended use and had carefully instructed him in its safe use, which he negligently disregarded; on the other hand, it was in Heath's interest to argue that plaintiff negligently failed to secure the rifle, and that he was not negligent in view of his mother's negligence and his youth.

[4] With the general abolition of parental immunity, Foldi v. Jeffries, 93 N.J. 533, 461 A.2d 1145 (1983), and in the absence of sufficient liability insurance coverage, separate attorneys representing plaintiff and Heath might well have asserted cross-claims for contribution against the other's client. That was not done here. It was also in plaintiff's interest to assert a cross-claim against her sister and that she remain a co-defendant to share the liability burden. Yet the single firm of attorneys, discharging its duty to her sister, not only did not file a cross-claim for contribution on plaintiff's behalf, but successfully moved to have Frew dismissed from the case. A trial is not necessary to determine the obvious. Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 110 A.2d 24 (1954). Defendant violated its contractual duty to provide plaintiff with counsel who were free of conflicting interests.

Where conflicting interests impose on a liability insurer the duty to provide multiple insureds with separate counsel, it may be that in a particular case the separate attorneys would manage the case the same way as one attorney representing all insureds. Even so, where there is the risk of a judgment that will exceed the policy limit, separate independent counsel for each insured must be employed to decide whether and how to act in light of the conflict.

A conflict that forms the basis of an insurer's breach, however, does not establish that compensatory damages are to be awarded against the insurer if the breach did not cause the insured an actual loss. The trial judge awarded plaintiff the full amount of the Heim judgment, many times more than the policy limit, after concluding that there is no way to calculate how much of the Heim judgment was caused by defendant's breach. He concluded that because it was impossible to measure plaintiff's loss by retrying the Heim case with separate counsel for each insured, defendant must pay the whole judgment. We disagree.

[5][6] The object in awarding compensatory damages for a breach of contract is to put the injured party in as good a position as he or she would have been if performance had been rendered as promised. 525 Main Street Corp. v. Eagle Roofing Co., 34 N.J. 251, 254, 168 A.2d 33 (1961). That objective is not achieved by using the same approach in every type of case. "The answer rests in good sense rather than in a mechanical application of a single formula." Id. at 255, 168 A.2d 33. Nor must the formula yield an exact figure:

While the damages flowing from defendant's breach of contract are not ascertainable with exactitude, such is not a bar to relief. Where a wrong has been committed, and it is certain that damages have resulted, mere uncertainty as to the amount will not preclude recovery--courts will fashion a remedy even though the proof on damages is inexact. [Kozlowski v. Kozlowski, 80 N.J. 378, 388, 403 A.2d 902 (1979).]

Although it may not be certain that an injured party sustained damages from a breach, where the breach itself destroys the injured party's ability to prove damages with exactitude, the proof may be inexact. This tolerant approach has been applied to the proof of damages where, as here, a liability insurer breached its policy. Lieberman v. Employers Ins. of Wausau, 84 N.J. 325, 419 A.2d 417 (1980) (more fully discussed below).

[7][8] The trial judge correctly identified the problem. To take an accurate measure of what plaintiff lost requires the impossible: retrying the Heim case with each insured having separate counsel. A retrial cannot even be approximated as might be done had the flaw been with a plaintiff's attorney and not a defendant's attorney. In such a case damages in a legal malpractice action can often be approximated by having the successor plaintiff's attorney recreate or create a defective or time-barred tort trial by conducting a "suit within a suit" in which the flawed attorney plays the role of the tort defendant. See Gautam v. De Luca, 215 N.J.Super. 388, 397-98, 521 A.2d 1343 (App.Div.1987). However, where the flawed attorney had represented a defendant, as here, there is no one to play the role of the tort plaintiff making claims to which the successor defense attorney may respond.

In Lieberman, supra, the insured was a medical doctor who had been sued for malpractice. His insurer and the attorney furnished by the insurer to represent him settled the malpractice action over the doctor's objection, a breach of the policy and of the attorney's duty to put the insured's interests above those of the insurer. The doctor sued the insurer and the attorney. Damages sought included the amount of a substantial increase in the insurance premium on renewal of the policy because the settlement exceeded $3,500. To ...


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