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Shore Orthopaedic Group, LLC v. Equitable Life Assurance Society of the United States

January 24, 2008

SHORE ORTHOPAEDIC GROUP, LLC, PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, DEFENDANT-RESPONDENT/ CROSS-APPELLANT, AND EQ FINANCIAL CONSULTANTS, INC., ALEXANDER BORSUK, LOUIS FARKAS AND THE JOHN F. KRAHNERT AGENCY, DEFENDANTS.



On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2545-01.

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

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued September 10, 2007

Before Judges Stern, A. A. Rodríguez and C. S. Fisher.

Following the entry of final judgment, plaintiff Shore Orthopaedic Group ("Shore") appeals from an order of April 1, 2005, denying its application for counsel fees under Rule 4:42-9(a)(6), or, alternatively, "pursuant to the Frivolous Litigation statute," N.J.S.A. 2A:15-59.1. Judge Robert O'Hagan rejected defendant insurer's disclaimer and effort to rescind its "Business Overhead Expense" disability policy issued to Shore as owner, with respect to Dr. Michael Absatz, as insured, and granted summary judgment on coverage to Shore, for which there is no cross-appeal.*fn1 The judge also denied Shore's post-judgment motion for counsel fees, concluding this was neither a "first party" action nor a frivolous claim. However, by order of June 30, 2005, the judge awarded Shore $50,000 as a sanction for a discovery violation, from which defendant ("Equitable") cross-appeals.

Plaintiff asserts that Rule 4:42-9(a)(6) applies because this case dealt with a third party claim on "a liability or indemnity policy of insurance," and N.J.S.A. 2A:15-59.1 applies because Equitable "knew or should have known that its counterclaims were meritless," and that it is therefore entitled to counsel fees. On its cross-appeal from that part of the April 1, 2005 and June 30, 2005 orders awarding $50,000 in fees and costs as a sanction, Equitable asserts that Shore had "already [been] compensated for all of the fees and costs incurred as a result of the delay" and the discovery motion for which it had been awarded $3,000 in fees and costs.*fn2 Equitable also claims that there was no rational basis for the award nor "scruti[ny]" of the fee application which included time for the discovery motion which had already been the subject of an award and conferences by attorneys in the plaintiff's firm who duplicated review of the same material.

We affirm the judgment in all respects.

I.

On November 7, 1994, Shore, an orthopedic group of practitioners, applied for a Disability Overhead Expense policy with defendant insurer for coverage in the event that its associate Dr. Michael Absatz became disabled and was unable to pay his share of the overhead expenses of the group. Plaintiff was the owner of the policy and paid all of the premiums, although Dr. Absatz was the "insured." The policy provided that all benefits would be paid directly to Shore as "the owner."

In November 1994, Shore made an initial premium payment in order to obtain "conditional receipt" coverage pending review of the application and the carrier's determination that Absatz was "a standard insurable risk." The application stated:

If at least a minimum deposit is made, we will insure the Proposed Insured if s/he is a standard insurable risk on the effective date. The insurance provided will:

i) take effect as of the effective date;

ii) be exactly as requested for individual coverage in the application; and

iii) continue until we notify you that the application is accepted, modified or filed, but in no event longer than 60 days from the effective date.

On December 12, 1994, Equitable's underwriting department issued a memorandum to its agent requesting a recheck of Dr. Absatz's blood pressure. It was known he was under treatment for a dental condition called acute necrotizing ulcerative gingivitis and had high blood pressure. The application was deemed "incomplete" until the recheck of Dr. Absatz's blood pressure. On January 23, 1995, Equitable sent a letter to Dr. Absatz stating that the file was deemed "incomplete" and that he would need to contact the sales representative to resolve the issues before a policy could be issued. Shore's original premium check was returned to defendant's agent who then returned it to Equitable with the new blood pressure readings.

On February 14, 1995, Dr. Absatz submitted new blood pressure readings as a result of which it was determined that he was a standard underwriting risk. Equitable asserted that the underwriting department received the new readings on February 27, 1995, and its in-house medical consultant reviewed them on March 7, 1995.

On March 4, 1995, Dr. Absatz had a biopsy performed on the area of his mouth afflicted with the gingivitis. On March 10, 1995, Dr. Absatz was diagnosed with ...


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