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Charter Oak Fire Insurance Company v. State Farm Mutual Automobile Insurance Company

October 17, 2001

CHARTER OAK FIRE INSURANCE COMPANY, PLAINTIFF-APPELLANT
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, SIEGEL & SIEGEL, P.C.; SIEGEL AND SIEGEL, A PARTNERSHIP; GERALD D. SIEGEL; SEYMOUR SIEGEL, AND WILLIAM L. PATRICK AS ADMINISTRATOR OF THE ESTATE OF WILLIAM PATRICK, DEFENDANTS-RESPONDENTS



On appeal from the Superior Court of New Jersey, Law Division, Morris County, L-3463-95.

Before Judges Pressler, Wefing and Lesemann.

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

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 25, 2001

Defendant State Farm Automobile Insurance Company was Ronald Hatt's primary automobile liability insurer. Plaintiff Charter Oak Fire Insurance Company, a subsidiary of the Travelers Insurance Companies (Charter Oak), was the excess insurer. Following a liability trial in the underlying consolidated negligence action, the jury determined that Ronald Hatt was sixty percent negligent in causing a four-car automobile accident, rendering him fully liable for the entire assessed damages pursuant to N.J.S.A. 2A:15-5.3a. Prior to the damages trial, the damages issues were settled, State Farm paying its policy limit of $300,000 and Charter Oak paying the total excess of $782,000. Charter Oak thereafter commenced this action to recover that sum from both State Farm and the attorneys it had appointed to represent Hatt, defendants Siegel & Siegel and its associate. It claimed bad faith in State Farm's dealings with its insured and with it as the excess carrier, and it asserted a right of equitable subrogation to what it believed to be State Farm's right of action against the attorneys for malpractice. The trial judge granted the summary judgment motions of all defendants and dismissed the complaint in its entirety. Charter Oak appeals. We affirm.

The underlying accident occurred on September 14, 1992. Hatt was traveling south on Route 35 and stopped in order to make a left turn into a parking lot. While he was waiting to make his turn, with his left-turn directional signal properly activated, he was struck in the rear by an automobile driven by Henry Gotell. After striking the Hatt vehicle, Gotell crossed into the northbound lane and struck, head-on, a vehicle operated by Parinda Desai. He then struck a third vehicle operated by Joseph Long. As a result of the collision, Parinda Desai was severely injured, and her eighteen-month old child, who had been in the back seat of the car in the lap of Madhu Desai, Parinda Desai's mother-in-law, died. Long and his passenger, his wife Helen Long, were also injured. Joseph Long filed suit against Hatt, Gotell, and Parinda Desai, and Long's wife sued those three drivers as well as Long. The Desais sued Hatt and Gotell. The actions were ultimately consolidated, and Gotell's carrier, who covered him with a $15,000/$30,000 policy, paid the full amount into court. Hatt was insured by State Farm, which retained the Siegel firm to represent him, and the Siegel firm assigned its associate William Patrick to the case.

It was not until some two years after the negligence actions had been commenced that Charter Oak was noticed of the pendency of that litigation. At the time of the accident Hatt was in the course of his employment. Charter Oak was his employer's automobile liability carrier, and pursuant to the "other insurance" clause of its policy, was liable as an excess insurer. State Farm asserted that it did not learn of the availability of that excess insurance until Hatt was deposed and that it acted promptly thereafter in notifying Charter Oak's insured. That notice was given in March 1991, about a year before trial. Charter Oak's senior technical advisor, Laraine Muller, whose duties included the handling of excess claims, then opened a claim file and retained counsel, Thomas E. Lenahan, to represent its interests by monitoring the pending litigation, making reports and recommendations to her, communicating with State Farm's attorneys, and evaluating the company's excess exposure.

By the time Charter Oak had retained its counsel, there had already been an arbitration proceeding pursuant to R. 4:21A. The award, from which a trial de novo had been demanded, concluded that Gotell had been one hundred percent responsible and that Hatt was not liable at all. Hatt had also been acquitted by the Law Division on a trial de novo of a charge of making an illegal left turn, the Law Division judge having concluded that a no-turn sign on the highway a quarter of a mile north of Hatt's attempted left turn did not constitute reasonable notice to him that a left turn was not permitted at that point. Based on the foregoing, State Farm was of the view that as to Hatt, this was a no-pay case and that if he were to be found liable at all, it would be to a minimal extent since co-defendant Gotell was clearly most, if not exclusively, responsible for the accident. Consequently no settlement offer was made in view of the magnitude of the plaintiffs' damages which would have made a nominal offer patently unacceptable. Moreover, when Lenahan evaluated Charter Oak's exposure, he too concluded, based on the police reports, depositions and interrogatories as well as his conversations with Patrick, that Hatt's liability, if he was liable at all, was in the neighborhood of ten percent.

The liability trial first commenced on March 13, 1992. The trial judge had granted Hatt's unopposed in limine motion to bar evidence of the no-turn sign. However, after two witnesses had testified, the court reversed that ruling and declared a mistrial. Trial recommenced on March 16, 1992. Evidence of the no-turn sign was admitted. The jury unexpectedly returned a liability verdict finding Hatt sixty percent liable and Gotell forty percent liable.

Hatt's attorney timely filed a motion for a new trial supported by a brief pointing out asserted trial errors that appeared to have merit. Indeed, as later developed, Charter Oak's attorney was of the view that there was a substantial likelihood that Hatt's motion for a new trial would be granted and that if it were not, there would likely be an appellate reversal and remand. The return date of the motion was adjourned, principally at Charter Oak's request, to permit settlement negotiations to go forward. After various communications between the two carriers, Charter Oak advised State Farm that it would be taking over the settlement negotiations and requested that State Farm withdraw its new trial motion and tender the full $300,000 of its coverage. State Farm complied. A settlement was then reached with all plaintiffs, and Charter Oak paid the excess over the amount of State Farm's coverage as required by the settlement agreement, namely $750,000 to the Desais and $32,000 to the Longs.

Charter Oak then brought this action claiming a right to recover its payments, asserting a bad faith failure to settle on the part of State Farm and malpractice on the part of Siegel & Siegel. As to Siegel & Siegel, it predicated its cause of action on both its asserted third-party beneficiary status and on its right to be equitably subrogated to State Farm's alleged malpractice claim against its own attorneys. We consider first the claim against Siegel & Siegel.

We are satisfied that although the trial judge rejected both theories, we need not address either the question of whether there is an equitable right to subrogation in these circumstances*fn1 or whether there was a third-party beneficiary relationship between the primary carrier's attorney and the excess insurer.*fn2 We reach this conclusion because we are persuaded that the facts in this record could not support a finding that there was malpractice for the reasons State Farm asserts. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). The basis of the malpractice claim is Siegel & Siegel's failure to have counterclaimed against Parinda Desai, the infant's mother; its failure to have impleaded Madhu Desai, the infant's grandmother; and its failure to have retained the services of a so-called seat-belt expert. Charter Oak's position in this regard is based on the fact that although the child had been restrained in an appropriate car seat, just before the accident she had become restive and her grandmother had removed her from it, apparently with her mother's acquiescence, to calm her down. Thus, Charter Oak asserts, both were negligent. It appears that while Charter Oak's claims supervisor had raised these questions with Siegel & Siegel, its attorney, Lenahan, at no time requested or suggested any such amendment of the pleadings.

We note first that the so-called seat belt defense goes to damages and not to liability. Waterson v. General Motors Corp., 111 N.J. 238, 268-270 (1988); Statham v. Bush, 253 N.J. Super. 607, 614 (App. Div. 1992). There is therefore substantial doubt as to whether any evidence of seatbelt use by any passenger would even have been admissible at a bifurcated liability trial, and hence the failure to introduce such evidence was immaterial to the jury's apparently skewed liability verdict. More to the point, however, having reviewed the record by the same standard applicable to the trial court, see Affiliated FM Ins. Co. v. State, 338 N.J. Super. 540, 557 (App. Div. 2001), we are persuaded that as a matter of law applied to the undisputed facts of record, the failure of State Farm's attorneys to have joined the injured and bereaved mother and grandmother could not have been found by a reasonable trier of the facts to have constituted malpractice.

The standard of performance by a lawyer is clear. An attorney "is obligated to exercise that degree of reasonable knowledge, and skill that lawyers of ordinary ability and skill possess and exercise." St. Pius X House of Retreats v. Camden Dioc., 88 N.J. 571, 588 (1982). That standard requires the attorney, among other obligations, to formulate a reasonable legal strategy. Ziegelheim v. Apollo, 128 N.J. 250, 261 (1992). As we explained in Spaulding v. Hussain, 229 N.J. Super. 430, 442 (App. Div. 1988), the obligation to formulate a legal ...


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