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

June 22, 2009

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



On certification to the Superior Court, Appellate Division, whose opinion is reported at 397 N.J. Super. 614 (2008).

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).

On November 7, 1994, Shore Orthopaedic Group, LLC (Shore), applied for a Disability Overhead Expense policy with The Equitable Life Assurance Society of the United States (Equitable) 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. Shore made an initial premium payment in order to obtain "conditional receipt" coverage pending review of the application. On February 14, 1995, Dr. Absatz submitted new blood pressure readings, as requested by Equitable. The policy was ultimately issued on April 21, 1995. On March 10, 1995, Dr. Absatz had been diagnosed with palate cancer, but Equitable was not advised. Dr. Absatz's condition worsened and in July 1998 he was rendered totally disabled. Consequently, Shore submitted a claim for benefits under the policy.

Equitable denied the claim for failure to disclose Dr. Absatz's cancer diagnosis. On May 25, 2001, Shore filed a complaint seeking the policy benefits. Shore then attempted, unsuccessfully, to obtain certain Equitable underwriting manuals and thereafter filed a motion to compel their production. The trial judge granted the discovery motion and awarded Shore $3,000 in counsel fees in connection with the discovery motion. The trial judge further determined that the policy became effective on February 14, 1995.

Shore filed a motion for attorney fees pursuant to Rule 4:42-9(a)(6), which provides for the award of counsel fees "[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant." Shore also sought attorney fees pursuant to N.J.S.A. 2A:15-59.1, the frivolous litigation statute. Both of these are exceptions to the "American Rule" requiring litigating parties to bear their own counsel fees. The trial court denied counsel fees, but awarded Shore $50,000 as a discovery sanction against Equitable.

Shore appealed, claiming that it was entitled to counsel fees pursuant to Rule 4:42-9(a)(6) and N.J.S.A. 2A:15-59.1. Equitable cross-appealed, seeking to have the Appellate Division vacate or reduce the $50,000 discovery sanction. Equitable did not challenge the determination of coverage. The Appellate Division affirmed the trial court, finding that the complaint against Equitable constituted a first party action and that Rule 4:42-9(a)(6) applied only to third-party claims. The Appellate Division further agreed with the trial court that the action was not frivolous pursuant to N.J.S.A. 2A:15-59.1.

The Supreme Court granted plaintiff's petition for certification and defendant's cross-petition for certification.

HELD: The judgment of the Appellate Division is AFFIRMED substantially for the reasons expressed in Judge Stern's opinion

JUSTICE LaVECCHIA filed a separate, DISSENTING opinion, in which JUSTICE RIVERA-SOTO joins, stating that she would hold that the policy is a third-party indemnity policy and that plaintiff is entitled to fees under Rule 4:42-9(a)(6).

CHIEF JUSTICE RABNER, and JUSTICES LONG, WALLACE, and HOENS, join in the Court's opinion. JUSTICE LaVECCHIA filed a separate, dissenting opinion in which JUSTICE RIVERA-SOTO joins. JUSTICE ALBIN did not participate.

Per curiam.

Argued February 3, 2009

Corrected July 20, 2009

We granted certification to review only the limited question of whether the insurance coverage involved in this dispute was, for purposes of considering an award of counsel fees under Rule 4:42-9(a)(6), a first-party or third-party policy. 195 N.J. 523 (2008). We now affirm the judgment of the Appellate ...


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