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Hebela v. Healthcare Insurance Co.

June 28, 2004


On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. ESXL-13020-97.

Before Judges Skillman, Wells and C.S. Fisher.

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


Argued January 30, 2004

In this insurance coverage dispute, we are required to determine whether there exists a public policy which precludes an insurer from providing coverage to one insured when sued by another insured, and to explore the manner in which a court should apportion counsel fees when they have been incurred by an insured both in defending a covered claim and in prosecuting his own uncovered claim.


Plaintiff Mohamed Hebela filed a complaint against defendant Hospital Center at Orange (the hospital) alleging he was terminated, in April 1997, in violation of both the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -8, and the Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -42. The hospital filed a counterclaim on March 2, 1998, alleging that plaintiff breached his"duties of competence, diligence, responsibility, good faith and loyalty," and was otherwise negligent in the performance of his duties as the hospital's chief financial officer. When Healthcare Insurance Company (Healthcare) failed to provide a defense to this counterclaim, plaintiff obtained leave to file an amended complaint seeking a determination that Healthcare was so obligated and an award of consequential damages.

On November 2, 2001, the trial judge granted plaintiff's motion for summary judgment and dismissed the counterclaim, holding, in part:

If there were a viable cause of action in law to recover from an employee for negligence it certainly could not stand on equitable grounds in this case. Any negligence preceded [the hospital's] positive treatment of [plaintiff] including but not limited to the offer made and accepted by [plaintiff] to stay rather than accept the new position.

No appeal was filed with regard to this order.

On January 25, 2002, the trial judge found that Healthcare owed plaintiff a duty to defend against the hospital's counterclaim. Later, plaintiff sought $154,061.50 in counsel fees in defending the counterclaim.*fn1 In a written opinion dated August 21, 2002, the judge stated that she could not determine what part of those fees may have also related to plaintiff's affirmative claims and awarded the entire amount to plaintiff. We affirm the finding that the policy required Healthcare to provide a defense to the counterclaim, but reverse the judge's award of damages.


Healthcare issued a directors' and officers' liability insurance policy to the hospital for the period between January 1, 1998 and January 1, 1999. The insuring clause obligated Healthcare to"pay on behalf of an'insured person''loss' because of any'claim' made against an'insured person' for a'wrongful act' during the'policy period.'" The policy defined a"wrongful act" as"any actual or alleged error or misstatement or misleading statement or act or omission or neglect or breach of duty... by an'insured person.'" The term"insured person" is defined as including any"past, present or future director, officer or trustee" of the hospital,"who was such at the time the act" complained of was committed. The policy also excluded claims"made against any director, officer or trustee by any other director, officer or trustee whether directly or derivatively."

Because the parties' arguments turn on the meaning of the policy's provisions and whether there is a public policy which limits their scope, the trial judge rightfully decided the coverage dispute by way of summary judgment. See Nat'l Union Fire Ins. Co. v. Transp. Ins. Co., 336 N.J. Super. 437, 443 (App. Div. 2001). Healthcare does not dispute that the matter was ripe for summary judgment but instead argues that the judge's decision was erroneous as a matter of law. We disagree.

The general approach requires that an insurer defend an insured when"the complaint states a claim constituting a risk insured against." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 173 (1992) (quoting Danek v. Hommer, 28 N.J. Super. 68, 77 (App. Div. 1953), aff'd o.b., 15 N.J. 573 (1954)). In most instances, the obligation to defend is fixed when a complaint is filed against the insured since, as a general matter, the duty to defend is ascertained by comparing the allegations in the complaint with the language of the policy. When"the two correspond, the duty to defend arises, irrespective of the claim's actual merit," Voorhees, supra, 128 N.J. at 173, even if the claim is"groundless, false or fraudulent," Danek, supra, 28 N.J. Super. at 76-77. A later determination that the claim against the insured is without merit, as here, is irrelevant."Liability of the insured to the plaintiff is not the criterion; it is the allegation in the complaint of a cause of action which, if sustained, will impose a liability covered by the policy." Voorhees, supra, 128 N.J. at 174; see also Rosario v. Haywood, 351 N.J. Super. 521, 534 (App. Div. 2002). Accordingly, an insured need only show that the claim falls within the policy's coverage to demonstrate the insurer's duty to defend.

We are satisfied that the language of the policy's insuring clause, quoted above, more than amply encompasses the counterclaim asserted against plaintiff and that the policy does not exclude a claim brought against a director or officer by the corporation, as here, although it does exclude claims brought against a director or officer by another director or officer. In concluding that the counterclaim falls within the insuring clause, we observe that plaintiff was an officer of the hospital when the alleged"wrongful acts" occurred, the hospital alleged it sustained a"loss," the counterclaim constituted a"legal proceeding," which was instituted against an"insured," and, thus, constituted a"claim" covered by the policy. Indeed, Healthcare does not appear to argue to the contrary. Instead of quarreling with the literal scope of its policy, Healthcare claims that an extrinsic public policy precludes coverage in this instance.

When an insurance policy is clear and unambiguous, as here,

[T]he court is bound to enforce the policy as it is written. It is not the function of the court to make a better contract for the parties than they themselves have seen fit to enter into or to alter it for the ...

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