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Kaplan v. Harleysville Insurance Co. of New Jersey

June 12, 2007

RICHARD H. KAPLAN, ESQ., AND FRANK J. RUBIN, ESQ., PLAINTIFFS-RESPONDENTS,
v.
HARLEYSVILLE INSURANCE COMPANY OF NEW JERSEY, A CORPORATION OF THE STATE OF NEW JERSEY; AND THE HARLEYSVILLE COMPANIES, A CORPORATION OF THE COMMONWEALTH OF PENNSYLVANIA, DEFENDANTS-RESPONDENTS/ CROSS-APPELLANTS, AND TRACEY SCOTTO, ADMINISTRATRIX AD PROSEQUENDUM OF THE ESTATE OF MICHAEL SCOTTO; TRACEY SCOTTO, INDIVIDUALLY; AND FELICIA SCOTTO, BY HER GUARDIAN AD LITEM, TRACEY SCOTTO, DEFENDANTS-APPELLANTS/ CROSS-RESPONDENTS, AND THE WALNUT ADVISORY CORPORATION; ARIEL HESSING; CLIFFORD N. KUHN, JR.; RUBIN, RUBIN, MALGRAN, KAPLAN & KUHN; DAVID B. RUBIN, INDIVIDUALLY; RICHARD G. MALGRAN, INDIVIDUALLY; LEE A. EMMER, INDIVIDUALLY; EICHEN, KUHN & CAHN; BARRY R. EICHEN, INDIVIDUALLY; AND STEVEN D. CAHN, INDIVIDUALLY, DEFENDANTS.
WILLIAM W. VOORHEES, JR., ESQ., PLAINTIFF,
v.
RICHARD H. KAPLAN, ESQ.; FRANK J. RUBIN, ESQ.; AND RUBIN, KAPLAN & ASSOCIATES, DEFENDANTS, AND RICHARD H. KAPLAN, ESQ.; AND FRANK J. RUBIN, ESQ., DEFENDANTS/THIRD-PARTY PLAINTIFFS,
v.
HARLEYSVILLE INSURANCE CO., THIRD-PARTY DEFENDANT.



On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-8117-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 22, 2007

Before Judges Coburn, R.B. Coleman and Gilroy.

This action for declaratory judgment concerns claims for coverage under a legal malpractice insurance policy. Defendant Harleysville Insurance Company of New Jersey ("Harleysville") issued the policy to Rubin, Kaplan & Associates, P.C., providing coverage for the law firm and for its partners, plaintiffs Frank J. Rubin and Richard H. Kaplan. The claims arose when a former partner of Rubin and Kaplan allegedly mishandled a wrongful death case, resulting in its dismissal. After receiving the malpractice complaint, Harleysville promptly offered to defend Rubin and Kaplan, subject to a reservation of rights. About three years later, Harleysville denied coverage entirely and withdrew from the case.

Rubin and Kaplan retained their own counsel and incurred about $35,000 in legal fees and costs. Ultimately, they settled the malpractice claim by assigning any rights they might have under the Harleysville policy to the plaintiffs in the underlying wrongful death action: Tracey Scotto; the estate of her husband Michael; and their daughter, Felicia (the "Scottos"). Although the settlement amount was $750,000, Rubin and Kaplan gave the Scottos no consideration other than the assignment, for which they received a full release of any claims against them.

The declaratory judgment action was resolved in summary judgment proceedings before two judges. The first judge ruled that Harleysville was estopped from denying coverage and entered orders granting Rubin and Kaplan reimbursement of their counsel fees and costs in the amount $35,189.38. Accepting the coverage determination as the law of the case, the second judge nevertheless ruled that the $750,000 settlement was unenforceable against Harleysville because it was unreasonable and had not been negotiated in good faith. We agree with the second judge substantially for the reasons he expressed, but we will not comment further on his decision because we are satisfied that the first judge erred in finding coverage. Therefore, we reverse the orders granting reimbursement for legal fees and costs and affirm the judgment denying enforcement of the settlement obtained by the Scottos as against Harleysville.

I.

The underlying wrongful death action arose from a motor vehicle accident. On July 16, 1992, Michael Scotto, a twenty- five year old truck driver died when his tanker truck overturned in Vernon Township. His wife, Tracy Scotto, retained Clifford N. Kuhn, Jr., who was then a partner in Rubin, Rubin, Malgran, Kaplan & Kuhn ("RRMKK"). Kuhn filed suit in July 1994. In March 1995, Frank J. Rubin left RRMKK, and in June 1995, that firm was dissolved. On August 24, 1995, Rubin and Kaplan formed Rubin, Kaplan & Associates.

Kuhn, who had done little to prosecute the wrongful death case while a partner in RRMKK, continued his representation of the Scottos while associated with other law firms. In January 1996, the time for discovery was extended and a case management conference was ordered for April 23, 1996. In February 1997, the wrongful death case was dismissed on summary judgment. Kuhn did not advise the Scottos of the dismissal and failed to appeal. Consequently, in January 2001, the Scottos filed the legal malpractice case against Kuhn, his partners, and Rubin and Kaplan, who never had any direct involvement in the wrongful death case.

Rubin and Kaplan were insured under a "claims made" legal malpractice policy issued by Harleysville to Rubin, Kaplan & Associates, P.C., in August 2000, with a retroactive date of August 24, 1995, the day of the law firm's formation. Rubin and Kaplan promptly advised Harleysville of the claim. In a letter dated February 23, 2001, Harleysville agreed to defend the case subject to a reservation of rights:

This acknowledges receipt of a new claim brought by Tracey Scotto. This claim is being submitted under Harleysville Insurance Company of New Jersey ("HIC-NJ") policy LP001064, effective 08/24/00 to 08/24/01 ("the policy"). The policy was issued to your present firm, Rubin, Kaplan & Associates (hereinafter "the insured firm"). This also follows our telephone conversation on January 31st.

The Complaint does not name the insured firm as defendant. Rather it names you and Frank Rubin as individual defendants. It also names your prior firm, Rubin, Rubin, Malgran, Kaplan & Kuhn (hereinafter "the prior firm"), its principals*fn1 and a former associate, Lee A. Emmer. You indicated that you are only seeking a defense for yourself and Frank Rubin. You also indicated that the prior firm is not a predecessor firm as that term is defined in the policy.

The crux of plaintiff's claim is that Clifford N. Kuhn, Jr. failed to properly prosecute a wrongful death claim while he was with the prior firm and afterwards. The Complaint indicates that Mr. Kuhn and Mr. Emmer began their representation of the plaintiff on or ...


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