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Liberty Surplus Insurance Corporation, Inc. v. Amoroso

February 28, 2007

LIBERTY SURPLUS INSURANCE CORPORATION, INC., PLAINTIFF-RESPONDENT,
v.
NOWELL AMOROSO, P.A.; NOWELL AMOROSO & MATTIA, P.A.; NOWELL AMOROSO KLEIN BIERMAN, P.A.; HENRY J. AMOROSO; CHRISTOPHER W. MCGARRY; WILLIAM C. SOUKAS; DANIEL C. NOWELL, ESQ.; JEANNE M. DAMGEN, ESQ.; LINDA DUNNE, ESQ.; WILLIAM R. DELORENZO, JR., ESQ.; HERBERT C. KLEIN, ESQ.; WILLIAM D. BIERMAN, ESQ.; MARK MATTIA, ESQ.; AND RICHARD J. KAPNER, ESQ., DEFENDANTS-APPELLANTS, AND THOMAS MATARESE; BACHELORS I TAVERN, INC., T/A SCANDALS AND JOHN DOES ESQS. 1-10, A FICTITIOUS DESIGNATION FOR PRESENTLY UNKNOWN LICENSED ATTORNEYS, PROFESSIONAL AND/OR UNKNOWN PERSONS OR ENTITIES, DEFENDANTS.



On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

In this appeal, the Supreme Court must determine whether summary judgment may be granted in favor of an insurer on the issue of coverage where the insured answered "no" to a subjective question on the insurance application -- whether the insured had knowledge of any circumstance, act, error or omission that could result in a legal malpractice claim against it.

In June 2003, Thomas Matarese, Larry Kolczycki, and Bachelor I Tavern, Inc., t/a Scandals (Matarese) sued the law firm of Nowell Amoroso Klein Bierman, P.A. and several of its attorneys (Nowell Amoroso) for malpractice in connection with Nowell Amoroso's representation of Matarese in an action against the City of East Orange and others (East Orange). Nowell Amoroso sought coverage from Liberty Surplus Insurance Corporation under its insurance policy.

In the earlier action against East Orange, Matarese alleged that a city official, who was the part owner of a night club that competed with Scandals, used his influence to encourage the police to harass Scandals' patrons; and that other city agencies engaged in unannounced inspections during peak hours to interfere with operations and increase business for the official's club. By April 1992, there was a substantial decline in Scandals' patronage, and it closed in September 1992. Matarese retained Nowell Amoroso in 1993, but for unknown reasons the law firm did not file a complaint until May 23, 1994. The trial court awarded Matarese damages. East Orange appealed. In February 1999, the Appellate Division reversed and remanded the case for a determination of whether the filing of the suit was beyond the two-year statute of limitations. On remand, the trial court found that the action was not timely filed, entered judgment in favor of East Orange, and dismissed Matarese's suit. Matarese appealed. The Appellate Division affirmed in June 2002.

One month later, in July 2002, Nowell Amoroso submitted a malpractice insurance application to Liberty for claims-made coverage. One of the questions on the application asked whether "any lawyer to be insured under this policy had knowledge of any circumstance, act, error or omission that could result in a professional liability claim." Nowell Amoroso responded "no" to that question. Liberty issued a policy effective July 21, 2002, which covered prior acts, errors, or omissions, provided that "the Insured had no reasonable basis to believe that the Insured had breached a professional duty or to foresee that a claim would be made against the Insured." If that condition was not satisfied, the policy did not provide coverage for any claims arising prior to the policy period.

As noted, in June 2003, Matarese sued Nowell Amoroso for malpractice. Nowell Amoroso sought coverage under its policy with Liberty. Liberty disclaimed coverage and filed a declaratory judgment action against Nowell Amoroso, seeking a determination that Matarese's legal malpractice claim was not covered. Nowell Amoroso moved for summary judgment, seeking a declaration of coverage. Liberty then filed a cross-motion for summary judgment, asserting that at the time Nowell Amoroso completed the insurance application, it had a reasonable basis to believe that it had breached a professional duty or to foresee that a claim would be made against it. In opposition to Liberty's motion, the individual attorneys at Nowell Amoroso certified that at the time the application was submitted, they did not have knowledge of, or a reasonable basis to believe that, any circumstances, act, error or omission on the part of any past or present attorneys of the firm occurring in the course of the representation of Matarese could result in a professional liability claim against Nowell Amoroso, and that they did not have such knowledge until Matarese filed the legal malpractice complaint.

The trial court granted summary judgment in favor of Liberty, reasoning that the February 1999 Appellate Division remand decision in Matarese's case against East Orange, together with the trial court's finding on remand that the action was time barred and the Appellate Division decision affirming that determination in June 2002, provided ample notice to Nowell Amoroso of a possible cause of action for malpractice arising out of its representation of Matarese. The trial court concluded that a reasonable person would have been expected to know a cause of action existed no later than June 2002.

Nowell Amoroso appealed. It also sought to supplement the record on appeal with an expert's report opining that Nowell Amoroso did not commit malpractice. The Appellate Division denied the motion and upheld the grant of summary judgment in favor of Liberty. The panel determined that although a subjective analysis of Nowell Amoroso's knowledge at the time it completed the insurance application was required, under the unique circumstances of this case no reasonable fact-finder could conclude that Nowell Amoroso honestly conceived there was no reasonable basis to believe a professional duty had been breached. The panel concluded that summary judgment was appropriate because there was only one unavoidable resolution of the factual dispute.

The Supreme Court granted Nowell Amoroso's petition for certification. The opinion of the court was delivered by: Justice Wallace, Jr.

Argued October 10, 2006

In this declaratory judgment action, the trial court granted summary judgment in favor of the insurer, Liberty Surplus Insurance Corp., Inc. (Liberty). In an unpublished, per curiam decision, the Appellate Division affirmed. We granted certification, in part, to determine whether summary judgment may be granted in favor of an insurer when an application for insurance contains a subjective question whether the insured had knowledge of any circumstance, act, error or omission that could result in a legal malpractice claim against it and the insured answers "no." We affirm the grant of summary judgment in favor of Liberty.

I.

A.

In June 2003, Thomas Matarese, Larry Kolczycki, and Bachelor I Tavern, Inc., t/a Scandals (collectively referred to as Matarese), filed suit against defendants, the law firm of Nowell Amoroso Klein Bierman, P.A. and several of its attorneys (collectively referred to as Nowell Amoroso), alleging legal malpractice in connection with Nowell Amoroso's representation of Matarese in an action against the City of East Orange and others (East Orange defendants). Nowell Amoroso notified its insurer, Liberty, of the malpractice claim and sought coverage under the insurance policy. On July 21, 2003, Liberty disclaimed coverage, asserting that Nowell Amoroso "had a reasonable basis to believe that [it] had breached a professional duty or to foresee that a claim would be made against" it when it completed the application for claims-made insurance.

Liberty then filed a declaratory judgment action against Nowell Amoroso, seeking a determination that Matarese's legal malpractice claim was not covered under the claims-made policy with Nowell Amoroso. On November 4, 2003, Nowell Amoroso moved for summary judgment. In its statement of material facts, Nowell Amoroso outlined the history of the prior litigation against the East Orange defendants and attached the various trial and appellate court decisions.

Liberty, in turn, filed a cross-motion for summary judgment, included additional undisputed facts in support of its motion, and replied to Nowell Amoroso's statement of material facts. In its July 21, 2003 letter to Nowell Amoroso disclaiming coverage, Liberty reiterated the policy "condition that provides that there is coverage for an act that happens prior to the policy period if[] the Insured had no reasonable basis to believe that the insured had breached a professional duty or to foresee that a claim would be made against the Insured." (Formatting altered). Further, Liberty declared that "[t]he letter disclaiming coverage state[d] . . . that Matarese's malpractice claim [was] not covered under the policy because as of the February 2, 1999 Appellate Division decision, Nowell Amoroso ha[d] a reasonable basis to believe that it had breached a professional duty or foresee that a claim would be made against" it. Liberty also asserted that at the time Nowell Amoroso completed its insurance application, Nowell Amoroso "had knowledge of a circumstance, act, error or omission that could result in a professional liability claim" against it.

In opposition to Liberty's summary judgment cross-motion, the individual attorneys at Nowell Amoroso filed certifications that stated, in part:

On July 15, 2002, when Nowell Amoroso Klein Bierman, P.A. submitted the application for malpractice insurance to Liberty Surplus Insurance Corporation, Inc., I did not have knowledge of, or a reasonable basis to believe that, any circumstances, act, error or omission on the part of any past or present attorneys of the firm occurring in the course of the firm's representation of Thomas Matarese and Bachelor I Tavern, Inc. t/a Scandals in a litigation against the City of East Orange, could or would result in a professional liability claim against Nowell Amoroso Klein Bierman, P.A.

I did not have knowledge of or a reasonable basis to believe that, any circumstances, act, error or omission on the part of any past or present attorneys of the firm occurring in the course of the firm's aforementioned representation could or would result in a professional liability claim against Nowell Amoroso, Klein, Bierman P.A., until after June 6, 2003[,] the date when the Complaint for legal malpractice was filed in the action entitled Thomas Matarese v. Nowell Amoroso Klein Bierman, P.A., et al., Docket No. ESX-4921-03. [(Formatting altered).]

B.

We digress from the procedural history to summarize the earlier action against the East Orange defendants that is the foundation of the legal malpractice complaint against Nowell Amoroso. Matarese owned and operated a night club in East Orange known as Charlie's West. Matarese changed the name of the club to Scandals and sought to expand its clientele. By January 1992, Scandals was a thriving club and posed a threat to a competitor club that was partly owned by a man who was also Director of Property Maintenance for East Orange (Director). Matarese believed that the Director used his influence to encourage the police to harass Scandals' patrons. Matarese also claimed that other city agencies engaged in numerous unannounced inspections of his club during peak hours to interfere with the operation of his club in order to increase business for the Director's club.

By April 1992, there was a substantial decline in the patronage at Scandals. Matarese filed a complaint with the Internal Affairs Unit of the East Orange Police Department against a police lieutenant, alleging harassment and extortion. Matarese also filed a Notice of Claim against ...


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