On appeal from Superior Court of New Jersey, Law Division, Essex County, L-37621-03.
The opinion of the court was delivered by: Payne, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 13, 2005
Before Judges Skillman, Axelrad and Payne.
Princeton Insurance Company appeals from an order of summary judgment against it, holding it liable for the entire amount of a judgment of $5,400,000, plus pre-and post-judgment interest, entered on a jury verdict in a medical malpractice action in favor of Sherrance Henderson and against Princeton's insureds Shams Qureshi, M.D. and his two wholly-owned professional corporations, Spine Orthopedic & Sports Rehabilitation Center and Pain Center of North Jersey a/k/a Pain Center of NJ, jointly, severally and in the alternative. The summary judgment was based upon a finding by the motion judge, Stephen Bernstein, that Princeton had exercised bad faith in refusing to accept Henderson's offer to settle her claims against the Pain Center for the one million dollar policy limit of Princeton's coverage of that entity. We affirm, premising our conclusion on Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474 (1974).
In 2001, Henderson filed suit against Qureshi, Spine Orthopedic and the Pain Center, as well as others, seeking damages for injuries sustained when Qureshi mistakenly injected a prolotherapy solution containing phenol (a caustic substance), dextrose and lidocane into her spinal cord. As the result, Henderson's legs became paralyzed, and she experienced significant bowel, bladder and sexual dysfunction. Although Henderson eventually regained the ability to walk, she does so with a pronounced limp resulting from a drop foot, and only with the aid of a leg brace and a cane. Her remaining injuries are permanent. Henderson continues to experience significant pain as the result of the injuries. At the time of the occurrence, Henderson, who was in her early thirties, was employed as Regional Director of Pharmaceutical Affairs by Roxanne Laboratories, Inc., and she was pursuing a masters degree in business administration at Johns Hopkins University. Formerly, she was a beauty queen and athlete. Now, she has been determined by the federal government to be totally disabled, and she has been deemed unemployable. Her economic expert estimated the present value of her economic loss to be $2,698,204 with an additional $1,513,063 in future medical expenses.
At the time of Henderson's injury, Qureshi, Spine Orthopedic and the Pain Center were insured under a single policy of insurance issued by Princeton to Spine Orthopedic that provided coverage of one million dollars each to Qureshi and his two professional corporations. Following service of Henderson's complaint, in letters dated April 6, 2001 and February 9, 2002, Princeton offered a defense to each of its insureds, without any reservation of rights. The firm of Francis & O'Farrell was assigned to represent them. John O'Farrell conducted that defense on behalf of the three insureds throughout the underlying litigation.
As discovery progressed, it became apparent to O'Farrell that Henderson's claim against Qureshi was not defensible. In an undated quarterly report submitted by O'Farrell to Princeton after exhaustive discovery had been completed, O'Farrell expressed the view that Qureshi's viability as a witness was poor and that the impact of his testimony would be unfavorable, whereas he evaluated the testimony of all of Henderson's multiple lay and expert witnesses as favorable to her and unfavorable to the doctor. Even the expert retained on Qureshi's behalf could not unequivocally support the defense position. O'Farrell estimated the chances that Qureshi would prevail at trial at ten percent, and gave an anticipated verdict range of $7,000,000 to $10,000,000. He stated: "This is a case in which a jury can easily become inflamed against Dr. Qureshi and effectively award punitive damages against him in the form of an inflated compensatory verdict that will be difficult to overturn on appeal." Settlement was urged.
Relatively early in the litigation, Henderson's counsel had taken the position that a "physicians exclusion" rendered coverage to Spine Orthopedic unavailable for purposes of settlement, but that coverage in the amount of one million dollars each existed for Qureshi and the Pain Center. Although Princeton did not reserve its rights against Spine Orthopedic, it in large measure adopted the coverage analysis proposed by Henderson's attorney.
By letters dated February 10, 2003, one day before the scheduled commencement of trial, Kathleen Gill, a Princeton claims consultant, advised Dr. Qureshi and the Pain Center that it "would be in your best interest if Princeton Insurance Company could attempt to settle this case," and she urged each to discuss that possibility with personal counsel. The letters continued:
Your policy limits under PS 9229 09 01 are $1M/$3M. The settlement demand is currently $15M. If there is a verdict in excess of your policy limits you will be responsible for such an excess verdict.
In a letter dated March 3, 2003 to Princeton's coverage counsel, with copies to defendants' personal attorney Ethan Sheffet and O'Farrell, Henderson's counsel demanded the Pain Center's ...