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First Trenton Indemnity Co. v. River Imaging

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 11, 2009

FIRST TRENTON INDEMNITY COMPANY, RED OAK INSURANCE COMPANY, AND TRAVELERS CASUALTY AND SURETY CO., PLAINTIFFS,
v.
RIVER IMAGING, P.A., ET AL., DEFENDANTS, AND MICHAEL W. LICAMELE, MANMOHAN A. PATEL, ELLIOTT VERNON, MARK VERNON, GEORGE BRAFF, AND LYNN FOX, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS, AND HEALTHCARE INTEGRATED SERVICES, INC., DEFENDANT/THIRD-PARTY PLAINTIFF,
v.
ZURICH AMERICAN INSURANCE COMPANY, THIRD-PARTY DEFENDANT-APPELLANT.
LIBERTY MUTUAL INSURANCE COMPANY, PLAINTIFF,
v.
EDGEWATER DIAGNOSTIC IMAGING, P.A., ET AL., DEFENDANTS, AND ELLIOTT H. VERNON, MICHAEL LICAMELE, LYNN FOX, MARK VERNON, ROBERT MASKULYAK, GEORGE BRAFF, AND MANMOHAN A. PATEL, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS, AND HEALTHCARE INTEGRATED SERVICES, INC., DEFENDANT/THIRD-PARTY PLAINTIFF,
v.
ZURICH AMERICAN INSURANCE COMPANY, THIRD-PARTY DEFENDANT-APPELLANT.
PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY OF NEW JERSEY, PRUDENTIAL COMMERCIAL INSURANCE COMPANY OF NEW JERSEY, AND PRUDENTIAL GENERAL INSURANCE COMPANY OF NEW JERSEY, PLAINTIFFS,
v.
BLOOMFIELD DIAGNOSTIC IMAGING, EDGEWATER DIAGNOSTIC IMAGING, P.A., ECHELON DIAGNOSTIC IMAGING, P.C., HEALTHCARE INTEGRATED SERVICES, INC., MAINLAND DIAGNOSTIC IMAGING, P.L.C., MONMOUTH DIAGNOSTIC IMAGING P.A., SJG MEDICAL, INC., AND WAYNE MRI, P.A., DEFENDANTS.
STATE OF NEW JERSEY, PLAINTIFF/INTERVENOR,
v.
RIVER IMAGING, ET AL., DEFENDANTS, AND MARK R. VERNON, ELLIOTT H. VERNON, GEORGE BRAFF, LYNN FOX, MICHAEL LICAMELE, ROBERT MASKULYAK AND MANMOHAN A. PATEL, DEFENDANTS/THIRD-PARTY PLAINTIFFS/RESPONDENTS, AND HEALTHCARE INTEGRATED SERVICES, INC., DEFENDANT/THIRD-PARTY PLAINTIFF,
v.
ZURICH AMERICAN INSURANCE COMPANY, THIRD-PARTY DEFENDANT-APPELLANT.
ROBERTSON, FREILICH, BRUNO & COHEN, L.L.C., PLAINTIFF/INTERVENOR-RESPONDENT,
v.
ZURICH AMERICAN INSURANCE COMPANY, DEFENDANT-APPELLANT.

On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-149-01.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued February 24, 2009

Before Judges Skillman, Graves and Ashrafi.

This appeal involves insurance coverage issues. Third-party defendant Zurich American Insurance Company (Zurich) issued a "Directors and Officers Liability and Reimbursement Policy" to defendant Healthcare Integrated Services, Inc. (HIS), which operated a number of magnetic resonance imaging (MRI) facilities in New Jersey. The policy, which covered the period from November 30, 2001 to November 30, 2002, provided "claims-made" liability coverage for HIS's officers and directors. The persons covered by the policy included third-party plaintiffs Elliott H. Vernon, who was the Chairman of HIS's Board of Directors and its Chief Executive Officer, Manmohan Patel, who was Vice Chairman of HIS's Board, Mark Vernon, Lynn Fox and Robert Maskulyak, who were HIS Vice Presidents, and George Braff, Michael Weiss and Michael Licamele, who were HIS Directors.

In 2001 and 2002, three insurance companies -- plaintiff First Trenton Indemnity Company (First Trenton), Liberty Mutual Insurance Company (Liberty Mutual) and Prudential Property and Casualty Insurance (Prudential) -- filed actions against HIS for the recovery of personal injury protection (PIP) benefits. The insurance companies' complaints claimed that HIS had wrongfully obtained payment of PIP benefits because it operated unlicensed medical facilities, fraudulently overbilled the companies, and violated a statutory prohibition against the operation of medical diagnostic facilities that are not under the control and supervision of New Jersey-licensed physicians. The complaints also asserted that HIS's knowing fraudulent submission of bills for medical imaging services that were not eligible for PIP reimbursement violated the Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30. These three actions were consolidated.

The State subsequently intervened in the First Trenton and Liberty Mutual actions and filed a separate complaint against HIS under the Insurance Fraud Prevention Act. This action was ultimately consolidated with the three insurance company actions.

The third-party plaintiffs were subsequently joined as defendants in the First Trenton and Liberty Mutual actions, which sought to hold them personally liable for the PIP benefits that were alleged to have been wrongfully obtained by HIS.*fn1

The third-party plaintiffs and HIS gave notice to Zurich of the actions and demanded coverage. Zurich refused to provide coverage or to participate in the defense of the actions or settlement negotiations.

As a result, the third-party plaintiffs and HIS filed third-party complaints against Zurich seeking to obtain a declaration of their right to coverage under the HIS policy and indemnification of their defense costs and any amounts for which they might be held liable in the underlying actions.

In August 2004, HIS settled the Prudential action for $100,000. Although Elliott Vernon was not named as a defendant in that action, he claims to have paid this settlement personally and sought recovery of the $100,000 as part of his indemnification claim against Zurich.

In May 2005, HIS and the third-party plaintiffs settled the First Trenton action for $150,000. Elliott Vernon also claims to have paid this settlement personally and included this amount in his indemnification claim against Zurich.

In June 2005, the trial court granted partial summary judgment to Liberty Mutual and the State on their claims against HIS and certain affiliated entities. Those partial summary judgments did not relate to any of the claims against the third-party plaintiffs. Thus, the trial court has not yet decided Liberty Mutual's and the State's claims against the third-party plaintiffs.

In early 2006, third-party plaintiffs Elliott Vernon, Manmohan Patel and Lynn Fox moved for summary judgment on their coverage and indemnification claims against Zurich. The other third-party plaintiffs later joined in the motion. By a written opinion dated August 25, 2006, and an order entered on August 28, 2006, the trial court granted this motion.

Zurich filed a motion for a rehearing and/or reconsideration of the summary judgment order and its own motion for summary judgment, which raised defenses to the third-party plaintiffs' coverage claims that it had not raised previously. By written opinion and an order entered on December 21, 2006, the trial court denied the motion.

Third-party plaintiffs subsequently filed motions to require Zurich to indemnify them for the counsel fees and other costs incurred in the defense of the underlying actions as well as in the coverage action against Zurich. The trial court entered a series of seven orders on June 22, 2007, which determined the counsel fees and other costs to which each of the third-party plaintiffs was entitled both for the defense of the underlying actions and their coverage claims against Zurich. In addition, the court granted Elliott Vernon's motion to be indemnified for the $250,000 he allegedly paid to settle the Prudential and First Trenton actions.

On July 20, 2007, the trial court entered an order which "certified as final judgments" the August 25, 2006, December 21, 2006 and June 22, 2007 orders.

Zurich filed a notice of appeal from these orders. Zurich presents a series of arguments challenging the summary judgments and awards of counsel fees and other defense costs to the third-party plaintiffs. Zurich also challenges the $250,000 judgment in favor of Elliott Vernon indemnifying him for the amounts he paid in settlement of the Prudential and First Trenton actions.

We reject all of Zurich's arguments relating to the awards of counsel fees and other defense costs to the third-party plaintiffs and affirm the orders providing those awards. However, we reverse the judgment for indemnification entered in favor of Elliott Vernon.

I.

When we first reviewed this appeal, we questioned whether the trial court's certification of the various orders entered in this action as "final" and thus appealable as of right was appropriate, and directed the parties to submit supplemental briefs addressing this issue. In response, Zurich submitted a supplemental letter brief which pointed out that six of the June 22, 2007 orders had adjudicated specific monetary obligations and that it had posted a supersedeas bond to obtain a stay of enforcement of those obligations. Although the June 22, 2007 orders did not specifically certify that "there is no just reason for delay of . . . enforcement," as required by Rule 4:42-2, and it is not self-evident that the intent of the certification was to authorize immediate enforcement of Zurich's monetary obligations to the third-party plaintiffs, we accept Zurich's arguments that the June 22, 2007 orders imposing those obligations were certified in accordance with Rule 4:42-2(3) and therefore appealable as of right. In reaching this conclusion, we also note that this is now a two-year-old fully briefed and argued appeal and that a member of the Appellate Division Clerk's Office apparently advised Zurich that a motion for leave to appeal was unnecessary. In addition, we conclude that the interests of justice would be served by an early determination of the basic coverage issues presented by the appeal as well as Zurich's monetary obligations to the third-party plaintiffs.

II.

Zurich argues that the trial court improperly granted summary judgment based on erroneous hearsay statements by counsel for the third-party plaintiffs to the effect that the copy of the Zurich policy submitted in support of the motions was true and complete. The argument is clearly without merit and only warrants brief discussion. R. 2:11-3(e)(1)(E).

The only portion of the Zurich policy that the third-party plaintiffs failed to include in their moving papers that Zurich relies upon in defense of the coverage claims is the second page of Endorsement 8, which according to Zurich shows that the exclusion from coverage set forth in that Endorsement bars the third-party plaintiffs' coverage claims. Although the trial court criticized Zurich for failing to submit the portions of its policy the third-party plaintiffs left out of their motion papers with its original opposition, the court addressed the merits of Zurich's argument based on Endorsement 8 in denying its motion. Moreover, we address the merits of this argument in Section III of the opinion. Therefore, Zurich has not been prejudiced by the third-party plaintiffs' failure to submit the complete policy issued to HIS.

III.

Zurich argues that the claims of the insurance companies and the State in the underlying actions were based on "interrelated wrongful acts" previously asserted in a 1999 action entitled Gajarawala v. Vernon, No. PAS-C81-99, and therefore, coverage for the third-party plaintiffs' claims was barred by General Condition V.C. and Endorsement 8 of the policy issued to HIS. Zurich also argues in a separate point that coverage for the third-party plaintiffs was barred by Exclusion IV.A.1. Because these arguments are closely related, we consider them together.

General Condition V.C. of the Zurich policy provides:

For the purposes of this policy, all Loss arising out of the same Wrongful Act and all Interrelated Wrongful Acts of Insured Persons shall be deemed one Loss, and such Loss shall be deemed to have originated in the earliest Policy Period in which a Claim is first made against any Insured Person alleging any such Wrongful Act or Interrelated Wrongful Acts.

The policy defines the term "interrelated wrongful acts," upon which the application of this condition turns, as:

[A]ll Wrongful Acts that have as a common nexus any fact, circumstance, situation, event, transaction, cause or series of causally connected facts, circumstances, situations, events, transactions or causes. Endorsement 8 of the Zurich policy provides:

[Zurich] shall not be liable for Loss on account of any Claim made against any Insured Person based upon, arising out of or attributable to the litigation and circumstances mentioned in the attachment to this endorsement labeled "Details to Q. 5(b)" of the same or substantially the same fact, circumstance or situation underlying or alleged therein.

Exclusion No. IV.A.1 provides an exclusion from coverage for "Loss" on account of any "Claim" made against an "Insured Person":

[B]ased upon, arising out of, or attributable to any fact, circumstance or situation which has been the subject of any written notice given under any policy of which this policy is a renewal or replacement.

Endorsement 8 and Exclusion No. IV.A.1 are clearly exclusions from the coverage provided by the Zurich policy. Therefore, Zurich has the burden of showing the applicability of one of these exclusions to avoid coverage. Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 399 (1970).

General Condition V.C. is in form a coverage provision rather than an exclusion. However, Zurich invokes this provision as an exclusion from coverage for any claims arising out of the "same wrongful act" or "interrelated wrong act" as a claim originating in a prior policy period. Therefore, Condition V.C., like Endorsement 8 and Exclusion No. IV.A.1, must be treated as an exclusion with respect to which Zurich has the burden of proof. See Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 332 (1998) ("[E]xclusions do not shed their essential character when they are moved from one section of a policy and are crafted as part of that policy's grant of coverage.").

Moreover, the exclusions from coverage contained in the Zurich policy, like the exclusions in any other insurance policy, must be narrowly construed. Villa v. Short, 195 N.J. 15, 23-24 (2008).

Although the language of each of the exclusions relied upon by Zurich is somewhat different, the applicability of all three turns on a showing that the claim for which coverage is sought arises out of the same or causally connected facts, circumstances, situations, events or transactions as a prior claim against an insured. Condition V.C. requires a showing of "a common nexus [of] any fact, circumstance, situation, event, transaction, cause or series of causally connected facts, circumstances, situations, events or causes" between the two claims for it to apply. Endorsement 8 requires a showing that the claim is "based upon, arising out of or attributable to [the] litigation and circumstances mentioned in the attachment to [the] endorsement [in this case Gajarawala] of the same or substantially the same fact, circumstance or situation underlying or alleged therein." And Exclusion No. IV.A.1 excludes a claim from coverage that is "based upon, arising out of, or attributable to any fact, circumstance or situation which has been the subject of any written notice given under [a prior policy of the insured] of which this policy is a renewal or replacement." Thus, a determination of the applicability of each of these exclusions requires a comparison of the allegations and claims asserted in Gajarawala with the allegations and claims asserted in the underlying actions against the third-party plaintiffs by the insurance companies and the State.

Before undertaking this comparison, we note that although the exclusions from coverage relied upon by Zurich have not been interpreted in any reported New Jersey case, the federal decisions interpreting similar provisions have concluded that coverage is excluded thereunder only if the insurer can show a "substantial overlap" between the facts alleged and claims asserted in a prior action and in the later action in which the insurer disclaims coverage. In National Union Fire Insurance Company v. Ambassador Group, Inc., 691 F. Supp. 618, 623 (E.D.N.Y. 1988), the court stated that two actions do not arise from "interrelated wrongful acts" if they are "legally distinct claims that allege different wrongs to different people." In Federal Insurance Company v. Raytheon Company, 426 F.3d 491 (1st Cir. 2005), the court interpreted an exclusion, similar to Endorsement 8 of the Zurich policy, for claims "based upon, arising from, or in consequence of any demand, suit or other proceeding pending" prior to the effective date, "or the same or any substantially similar fact, circumstance or situation underlying or alleged therein." Id. at 497. The court concluded that the "based upon" language of this exclusion "does not require that the first action provide the sole support for the second," but rather that "the allegations in the second complaint find substantial support in the first complaint," meaning that "the allegations of the second complaint substantially overlap with those of the first." Id. at 499.

The allegations in the Gajarawala complaint do not have such a "substantial overlap" with the allegations of the PIP insurers' and State's complaints against the third-party plaintiffs. Gajarawala was an action for breach of contract brought against HIS and third-party plaintiff Elliott Vernon by two doctors who worked at HIS's Wayne facility. The Gajarawala complaint addressed only the practice where the two doctors worked and breaches of duties allegedly owed to them by the limited partnership they formed with an HIS subsidiary to provide imaging equipment and management services. The complaint alleged twenty-seven specific wrongful acts and claimed that each represented a breach of contract, a breach of fiduciary duty, or tortious interference with economic advantage. Most of the alleged wrongful acts involved failures to manage the practice's affairs properly, failures to make needed investments to expand the practice, incurring unnecessary expenses, entering into disadvantageous contracts with other HIS entities, and withholding or misappropriating funds owed to the plaintiff doctors.

The allegations in the PIP insurers' and State's complaints against the third-party plaintiffs are significantly different from the allegations in Gajarawala. Those complaints contain substantial and detailed allegations concerning charges for medical services that were never in fact performed. The only overlap between these allegations and Gajarawala is a single allegation in the Gajarawala complaint that "[defendants] have billed insurance carriers of patients for services that were either not performed or improperly billed for services so as to create unearned income, thus jeopardizing not only the continued viability of the Partnership, but also casting aspersions on the business ethics of the Plaintiffs." However, there was no factual detail supporting this broad allegation in the Gajarawala complaint, and the plaintiffs in that action did not have to prove this allegation to establish their basic breach of contract claims. Thus, this allegation was only a peripheral component of their complaint.

Furthermore, the claims asserted and relief sought by the plaintiffs in Gajarawala were significantly different from the claims asserted and relief sought by the insurance companies and the State. The plaintiffs in Gajarawala did not seek damages for HIS's alleged false billing and regulatory violations but instead for breach of contract and related claims. Their allegations regarding false billing and regulatory violations were ancillary to and supportive of their contract claims.

In contrast, the PIP insurers' complaints against the third-party plaintiffs seek recovery of alleged improperly paid PIP benefits on the ground that HIS fraudulently overbilled the PIP insurers, operated unlicensed medical facilities and violated a statutory prohibition against the operation of medical and diagnostic facilities that are not under the control and supervision of New Jersey licensed physicians. Moreover, the complaints seek relief under the Insurance Fraud Prevention Act, which was not relied upon in Gajarawala. Thus, the claims asserted in those actions are completely different from the claims asserted in Gajarawala.

In sum, the facts, circumstances and situations of the Gajarawala action and this action are distinguishable on the basis of (1) the parties involved, (2) the factual allegations, and (3) the claims advanced. Therefore, there is not the "substantial overlap" between the Gajarawala action and this action required to exclude coverage under any of the three policy exclusions relied upon by Zurich.

IV.

Zurich argues that the third-party plaintiffs are not entitled to coverage for the insurance companies' claims because it is contrary to public policy to afford liability insurance coverage for what Zurich characterizes as "insurance fraud exposures." This argument is clearly without merit for several reasons.

First, the insurance companies' claims against the third-party plaintiffs include not only fraud claims but also negligence and recklessness claims. For example, the fifth count of Liberty's fourth amended complaint asserts that third-party plaintiffs engaged in "intentional, wilful, reckless and/or negligent conduct." Zurich does not identify any public policy that is violated by providing insurance coverage for negligence or recklessness that facilitates or fails to prevent insurance fraud by another party, and the assertion of any claims for which the policy provides coverage triggers Zurich's obligations with respect to defense costs. See Hebela v. Healthcare Ins. Co., 370 N.J. Super. 260, 268 (App. Div. 2004).

Second, the Zurich policy contains various exclusions that could be invoked to deny coverage if it were established that the third-party plaintiffs committed insurance fraud. The most significant of those exclusions is for claims arising from "any deliberately fraudulent act or omission or any willful violation of any statute or regulation committed by [an] Insured Person, if a judgment or other final adjudication adverse to such Insured Person establishes such a deliberately fraudulent act or omission or willful violation." There are other exclusions for indemnification of "fines or penalties imposed by law or the multiple portion of any multiplied damage award" and of "punitive or exemplary damages." If it were determined that one or more of the third-party plaintiffs actually committed insurance fraud, Zurich could rely upon one of these exclusions to deny that insured's indemnification claim. Therefore, there is no need to consider whether there is any general public policy that would preclude coverage for insurance fraud even in the absence of such policy exclusions.

Third, the June 22, 2007 orders awarding counsel fees and costs from which this appeal has been taken "condition" the awards upon third-party plaintiffs providing a "refund" to Zurich if they are "found to have committed acts precluded from coverage or uninsurable as a matter of public policy." Thus, these orders preserve Zurich's right to recovery of the awards if it is determined in the still pending actions by Liberty Mutual and the State that one or more of the third-party plaintiffs committed insurance fraud that would fall within one of the previously quoted policy exclusions.*fn2 However, the possibility that a third-party plaintiff may hereafter be found to have committed an insurance fraud for which coverage is not provided is not a basis for denying reimbursement of counsel fees and costs on an interim basis as provided in the June 22, 2007 orders.

V.

Zurich argues that the trial court erred in concluding that Zurich had failed to establish a basis for allocation of defense costs between covered and uncovered claims.

The Zurich policy defines a "loss" for which coverage is provided to include "Defense Costs" and it defines "Defense Costs [to] mean[] that part of Loss consisting of reasonable costs, charges, fees (including but not limited to attorneys' fees and experts' fees) and expenses . . . incurred in defending or investigating Claims." Subsection V.D of the policy establishes procedures for the allocation of defense costs if both covered and uncovered claims are asserted against an insured:

[I]f both Loss covered by this policy and loss not covered by this policy are incurred either because a Claim against the Insured Persons includes both covered and uncovered matters or because a claim is made against both Insured Persons and others, including the Company, the Insured Persons, the Company and the Underwriter shall use their best efforts to agree upon a fair and proper allocation of such amount between covered Loss and uncovered loss.

If the Underwriter, the Insured Persons and the Company agree on an allocation of Defense Costs, the Underwriter shall advance on a current basis Defense Costs allocated to covered Loss. If the Underwriter, the Insured Persons and the Company cannot agree on an allocation, the Underwriter shall advance on a current basis Defense Costs which the Underwriter believes to be covered under this policy until a different allocation is negotiated, arbitrated or judicially determined. Any such negotiated, arbitrated or judicially determined allocation of Defense Costs on account of a claim shall be applied retroactively to all Defense Costs on account of such claim, notwithstanding any prior advancement to the contrary. Any advancement of Defense Costs shall be repaid to the Underwriter by the Company or the Insured Persons, severally accordingly to their respective interests, if and to the extent it is determined that such Defense Costs are not insured by this policy.

The undisputed evidence presented on the third-party plaintiffs' motion for summary judgment established that Zurich failed either to "use [its] best efforts to agree upon a fair and proper allocation . . . between covered [Defense Costs] and uncovered [Defense Costs]" or to "advance on a current basis Defense Costs which [Zurich] believe[d] to be covered under [the] policy until a different allocation [was] negotiated, arbitrated or judicially determined." Instead, Zurich took the position that none of the claims asserted by the three insurance companies were covered claims, and consequently that it had no obligation to advance any defense costs to the third-party plaintiffs. This view of the insurance companies' complaints against the third-party plaintiffs was clearly erroneous.

Therefore, the trial court correctly concluded that Zurich breached its obligations under Subsection V.D of the policy.

In SL Industries, Inc. v. American Motorists Insurance Company, 128 N.J. 188, 214-15 (1992), the Supreme Court set forth the basic rule that governs an insurer's obligation to its insured when there has been a breach of the policy's provisions regarding the costs of defense:

The general rule is that when the insurer has wrongfully refused to defend an action and is then required to reimburse the insured for its defense costs, its duty to reimburse is limited to allegations covered under the policy, provided that the defense costs can be apportioned between covered and non-covered claims. When the defense costs cannot be apportioned, the insurer must assume the cost of the defense for both covered and non-covered claims.

In Hebela, supra, 370 N.J. Super. at 279-81, we held that the insurer bears the burden of proof regarding the allocation of defense costs between covered and uncovered claims if it has breached its obligations regarding the defense of the insured. In reaching this conclusion, we stated that "[p]lacing the burden of persuasion on the insurer is a fair and just response to its wrongful failure to defend." Id. at 280. Therefore, "the burden of persuading the trial judge, by a preponderance of the evidence, as to whether [the insured's counsel fees and other costs of defense] can be allocated and, more importantly, how they should be allocated, [falls] upon the insurer who allowed the difficulties of allocation to accrue through its refusal to defend." Ibid. Moreover, in determining whether this burden has been satisfied, a court must keep in mind that if a defense cost "is reasonably related to defense of a covered claim, it may be apportioned wholly to the covered claim." Id. at 277 (quoting Cont'l Cas. Co. v. Bd. of Educ., Charles County, 489 A.2d 536, 545 (Md. 1985)); see also SL Indus., supra, 128 N.J. at 214-15.

The trial court found that Zurich failed to carry its burden of showing that the third-party plaintiffs' defense costs could be allocated between covered and uncovered claims, and consequently that Zurich was responsible for reimbursement of all reasonable defense costs incurred by the third-party plaintiffs, subject to a refund if it is established in future proceedings that a third-party plaintiff "committed acts precluded from coverage or uninsurable as a matter of public policy." This finding is adequately supported by the record. For example, each count of Liberty Mutual's first amended complaint was based on allegations that HIS's practices were ineligible for PIP reimbursement due to statutory and regulatory violations; that HIS submitted bills with misstatements about eligibility; and that HIS misused the CPT billing code. Each count characterized the conduct it alleged, sometimes in the alternative, as "intentional, wilful, reckless and/or negligent;" as fraudulent; or as a pattern of violations of the Insurance Fraud Prevention Act. Liberty Mutual's subsequent amended complaints as well as the complaints of First Trenton and Prudential similarly failed to clearly distinguish between negligence and insurance fraud claims.

Significantly, Zurich has failed to submit any proposed allocation of the costs of defense of covered and uncovered claims. In fact, Zurich's argument on the allocation issue is less than three pages long and does not include any citation to the third-party plaintiffs' submissions in support of their applications for awards of counsel fees and other defense costs. Zurich could not reasonably expect the trial court (or this court) to undertake the kind of analysis that would be required to allocate defense costs between covered and uncovered claims when Zurich itself has failed to submit a proposal for such an allocation.

VI.

Zurich presents a series of arguments in support of its contention that the trial court erred in awarding Elliott Vernon $250,000 as indemnification for the amounts he paid to settle the actions brought by Prudential and First Trenton.

Regarding the $100,000 Elliott Vernon allegedly paid to settle the Prudential action, Zurich argues that it has no indemnification obligation because the only defendants to that action were HIS and its corporate affiliate entities and the Zurich policy providing liability coverage for HIS's officers and directors does not extend to money an officer or director has paid to settle an action against HIS or its corporate affiliates to which the officer or director was not a party. The brief filed on behalf of Elliott Vernon does not include any response to this argument. Therefore, we consider the argument to be conceded. Accordingly, we reverse the part of the June 22, 2007 order that awarded Elliott Vernon $100,000 as indemnification for his payment to settle the Prudential action against HIS and its corporate affiliates.

Elliott Vernon and the other third-party plaintiffs were named defendants in the First Trenton action. However, Zurich argues that the trial court erroneously awarded Vernon $150,000 as indemnification for the amount paid in settlement of the First Trenton action because that action was based on claims of insurance fraud for which the Zurich policy does not provide coverage and Vernon failed to establish the reasonableness of the $150,000 settlement amount.

The trial court granted Elliott Vernon's application for indemnification of the First Trenton settlement based solely on his motion for summary judgment and application for counsel fees and defense costs. Although Vernon submitted a certification that he paid this $150,000, he did not present any evidence regarding the circumstances of that settlement or its reasonableness. Consequently, the record does not indicate the total amount of First Trenton's claims, what discovery, if any, was conducted in that action, whether First Trenton's claims were based primarily on allegations of insurance fraud or of negligence, counsel's assessment of the likelihood of First Trenton prevailing against Elliott Vernon, or any of the other factual circumstances relevant to a determination of whether the settlement was for covered claims and was reasonable.

An insurer that fails to provide a defense for an action asserting both covered and uncovered claims is nevertheless entitled to a determination of whether any judgment entered against its insured was for a covered claim and thus fell within the insurer's obligation to pay. N.J. Mfrs. Ins. Co. v. Vizcaino, 392 N.J. Super. 366, 376 (App. Div. 2007). This is so even if the insurer's refusal to defend was wrongful. SL Indus., supra, 128 N.J. at 214-15; Sears Roebuck & Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 340 N.J. Super. 223, 242 (App. Div.), certif. denied, 169 N.J. 608 (2001). If the judgment resulted from a settlement, the insurer is also typically entitled to a determination of what percentage of the settlement, if any, was based on covered claims as opposed to uncovered claims. See SL Indus., Inc. v. Am. Motorists Ins. Co., 248 N.J. Super. 458, 467 (App. Div. 1991), aff'd, 128 N.J. 188 (1992). If the case was settled, the insurer is also entitled to challenge the reasonableness of the settlement. Griggs v. Bertram, 88 N.J. 347, 364-368 (1982); Fireman's Fund Ins. Co. v. Imbesi, 361 N.J. Super. 539, 564-65 (App. Div.), certif. denied, 178 N.J. 33 (2003). The insurer bears the burden of proof on this issue. Griggs, supra, 88 N.J. at 366-67. And if there are contested issues of fact as to whether a judgment against an insured was for a covered claim, what portion of a settlement was based on covered claims, or the reasonableness of the settlement, the trial court should conduct an evidential hearing. Fireman's Fund, supra, 361 N.J. Super. at 564-65; SL Indus., supra, 248 N.J. Super. at 467; see also Enserch Corp. v. Shand Morahan & Co., 952 F.2d 1485, 1493-95 (5th Cir. 1992); Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 300-02 (Colo. 2003).

In granting Vernon's motion for indemnification of the $150,000 he paid to settle the First Trenton action, the trial court simply stated that "Vernon's certification regarding this settlement is sufficient to satisfy the burden of proof to recover for the settlement." Although the court did not discuss the issue, it evidently believed that Zurich had no right to contest whether the settlement was for covered claims or the reasonableness of the amount. For the reasons previously set forth, this was error. Accordingly, we reverse this part of the June 22, 2007 order in Elliott Vernon's favor and remand for further proceedings in conformity with this opinion.

VII.

Zurich also argues that the counsel fee awards were excessive. We reject this argument, which is presented in summary form in only three pages, substantially for the reasons set forth in the trial court's letter opinions establishing the amount of those awards. We perceive no abuse of discretion in any of the counsel fee awards.

VIII.

Finally, Zurich argues that the trial court erred in allowing the Robertson law firm, which represented third-party plaintiffs Elliott Vernon, Manmohan Patel, George Braff, Michael Weiss and Michael Licamele until June 2005, to intervene in the action and assert a claim for its fees directly against Zurich. Zurich argues that the Robertson law firm lacked standing to assert such a claim. In rejecting this argument, the trial court stated that the Robertson firm was "essentially a subrogee of its former clients' rights."

We affirm the fee award directly to the Robertson firm. Zurich has not cited any authority that would preclude assignment of a claim for counsel fees to an attorney for the client. Although the Robertson firm did not obtain formal assignments from their former clients of the counsel fee claims against Zurich, none of the clients objected to the Robertson firm's intervention in the action to assert those claims directly. Therefore, we deem the former clients to have assigned those claims to the Robertson firm. We also note that it is "a common and accepted practice" for a court to require payment of a counsel fee award directly to the attorney. Leavengood v. Leavengood, 339 N.J. Super. 87, 96 (App. Div. 2001); see also Williams v. Williams, 59 N.J. 229, 234-35 (1971).

Moreover, even if we were to conclude that the Robertson firm lacked standing to assert the counsel fees claim directly, this would not absolve Zurich of its obligation to pay the fees.

It would simply mean that Zurich would be required to make payment to the former clients rather than to the Robertson firm.

IX.

Accordingly, we reverse the part of the June 22, 2007 order in Elliott Vernon's favor that required Zurich to indemnify him for the $250,000 he allegedly paid to settle the Prudential and First Trenton actions. The part of Vernon's claim relating to the $150,000 he allegedly paid to settle the First Trenton action is remanded to the trial court for further proceedings in conformity with this opinion. The orders under appeal are affirmed in all other respects.


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