September 28, 2012
BARBARA WISMER AND RUSSELL NOLES, PLAINTIFFS,
ANDREW WEINMAN, D.C., AND HIGHTSTOWN CHIROPRACTIC, LLC, DEFENDANTS-RESPONDENTS, AND ALLIED PROFESSIONALS INSURANCE CO., DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-5853-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: February 1, 2012
Before Judges Cuff, Waugh and St. John.
This appeal concerns an attorney fee award to a chiropractor for fees incurred in a coverage action against his professional malpractice insurer following the carrier's declination of coverage and rescission of the policy. While conceding that it is required to reimburse the chiropractor for the attorney's fees incurred to defend the negligence action filed against him, the insurer argues the award of attorney's fees by the Law Division for fees incurred during an arbitration proceeding regarding the coverage dispute between the insurer and its insured is barred by the disposition of the coverage arbitration award. The chiropractor insists the issue of attorney's fees incurred in the coverage action/arbitration was not at issue in the arbitration, the rules of the arbitration precluded submission of that issue, and the law of this State permits an award. We affirm in part, but remand for further proceedings consistent with this opinion.
Plaintiffs Barbara Wismer and Russell Noles filed a medical negligence action against Andrew Weinman, a licensed chiropractor in this State, and Hightstown Chiropractic, LLC.*fn1
Weinman held a professional liability policy of insurance with Allied Professionals Insurance Co. (APIC). Learning that APIC had disclaimed coverage, plaintiffs filed an amended complaint against APIC seeking judgment that it wrongfully disclaimed coverage and requiring it to provide a defense to their complaint. Represented by privately retained counsel, Weinman filed an answer denying negligence and a cross-claim against APIC. In their cross-claim, Weinman alleged APIC breached its contract and sought declaratory relief that APIC wrongfully disclaimed coverage and owed Weinman a defense and indemnification. In the cross-claim, Weinman also sought attorneys fees and costs incurred.
Initially, APIC filed a motion to dismiss the complaint and cross-claims filed against it or to sever plaintiffs' and Weinman's claims. The court denied the motion. Later, APIC filed a verified complaint and order to show cause to compel arbitration of the coverage claim. By order dated November 30, 2009, Weinman was ordered to submit to and participate in arbitration regarding his malpractice insurance coverage with [APIC] pursuant to a contractual arbitration clause in his insurance policy with the American Arbitration Association venued in California under the proceeding entitled Allied Professional Insurance Company v. Andrew Weinman, AAA#73 195 03188 09 TNM[.]*fn2
Plaintiffs were not ordered to participate in the arbitration, and the order provided the medical negligence action would not be stayed pending resolution of the coverage dispute.
Weinman hired California counsel to represent his interests in the arbitration proceeding. Following extensive discovery, including interrogatories, production of documents and depositions, the matter was submitted to an arbitrator, who rendered a decision on January 10, 2011. The arbitrator found that Weinman truthfully answered question three of the Member Renewal Application;*fn3 therefore, he did not breach the APIC policy provision cited by it to deny and rescind coverage. The arbitrator also found that APIC wrongfully denied insurance coverage to Weinman without any legal or factual grounds to do so. The arbitrator found APIC owed coverage for the Wismer claim. The arbitrator also ordered
[t]he administrative fees and expenses of the American Arbitration Association totaling $1,950.00 shall be borne solely by [APIC]; the compensation and expenses of the arbitrator totaling $19,629.20 shall be borne equally by both [APIC] and [Weinman]. Respondent Weinman is awarded his personal costs in defending this Arbitration against
[APIC] upon demonstration by [Weinman] that these incurred costs have been incurred and paid.
The award further provided that it "is in full settlement of all claims and counterclaims submitted to this Arbitration. All claims not expressly granted herein are hereby, denied."
In an email message dated January 21, 2011, California counsel for Weinman sought clarification of the award. Counsel inquired "whether 'personal costs' include attorney's fees which have been incurred and paid?" By letter dated February 7, 2011, counsel for APIC argued that an award of attorney's fees is barred by American Arbitration Association (AAA) Commercial Arbitration Rules and California law. The arbitrator issued a Clarified Decision and Supplemental Order on February 10, 2011. It provides:
Arbitrator deems that he has authority and jurisdiction to answer this question.
In clarification thereof, personal costs incurred and paid by [Weinman] in defending this Arbitration do not include Attorney's Fees.
Attorney's fees are not awarded to [Weinman].
On March 25, 2011, Weinman submitted a motion in the Law Division for attorney's fees incurred in the defense of the negligence action, the action to compel arbitration, the arbitration proceeding, and the motion seeking a fee award.
APIC initially contested only the amount of the fees. Days before the return date of the motion, it submitted a brief contending that the arbitral award denied fees and Weinman was barred from seeking fees in this state. Finding the court had jurisdiction, the motion judge awarded Weinman $85,845.70 for fees and $12,441.27 for costs incurred in the defense of the negligence claim and in prosecution of his coverage claim in New Jersey, and $46,500.98 for fees and $1,884.22 for costs incurred in the California arbitration. In a separate order, the motion judge awarded a fee enhancement of twenty per cent to the New Jersey and California counsel fee awards. Including enhancement, the final fee award is $103,012.84 (New Jersey fees) and $55,801.18 (California fees), plus costs.
On appeal, APIC argues the motion judge erred in awarding attorney's fees because the arbitrator did not award fees, Weinman's only remedy was to file a motion to vacate or modify the arbitrator's decision, and Weinman was collaterally estopped from seeking fees post-arbitration in this state. APIC also argues there is no authority to award fees incurred during the arbitration, Weinman waived his right to seek fees by failing to submit a claim for pre-arbitration fees, and the arbitrator's award definitively ruled on Weinman's ability to recover attorney's fees. Finally, APIC contends the judge failed to explicate the basis for the quantum for the fee award as required by Rendine v. Pantzer, 141 N.J. 292 (1995), and should not have awarded a fee enhancement.
Weinman contends the only issue before the arbitrator was coverage, his post-award inquiry only sought a clarification of the scope of personal costs, and APIC has taken inconsistent and mutually exclusive legal positions throughout the coverage litigation. Weinman also contends the Law Division retained jurisdiction to award attorney's fees incurred to prosecute the coverage action in its entirety, and the judge implicitly accepted the reasonableness of the legal tasks performed, the hours expended, and the hourly rate. Finally, Weinman contends he is entitled factually and as a matter of law to a fee enhancement.
On the merits of the controversy, APIC concedes it is required to compensate Weinman for the legal fees and costs he incurred to defend the Wismer medical negligence complaint, although at the time of oral argument, these fees had not been paid. As to the fees incurred to prosecute the coverage claim, APIC advances two mutually exclusive arguments. First, the parties submitted the issue of attorney's fees expended to defend the medical negligence claim asserted by Wismer and incurred in the arbitration to obtain coverage for the Wismer claim, and the arbitrator ruled that Weinman is not entitled to those fees. Thus, the application for attorney's fees pursuant to Rule 4:42-9(a)(6) is a blatant end-run of the disposition of the arbitration and the principles of res judicata or collateral estoppel bar the award under review. Second, APIC contends that commercial arbitration rules and California law preclude submission of attorney's fees as an arbitrable issue. Yet, it also argues that the arbitration provision in the policy and the order referring the coverage issue to arbitration can be read to require submission of the issue of attorney's fees to the arbitrator.
Paragraph V.C. of the policy of insurance provides:
If a dispute or claim shall arise with respect to any of the terms or provisions of this Policy, or with respect to the performance by any of the parties to the Policy, then any party or that party's authorized representative may, . . . require that the dispute be submitted within fifteen (15) days to an arbitrator in good standing with the [AAA] under the Commercial Arbitration Rules of the [AAA] then in effect. Any arbitration undertaken pursuant to the terms of this section shall occur in Orange County, California.
Neither party contests that the issue of coverage and rescission of the policy by APIC was a dispute subject to arbitration pursuant to the terms of the policy. Neither party contests that California law applied to the resolution of the coverage issue.*fn4
Resolution of this appeal is guided by settled legal principles. First, we must recognize that this state has a strong public policy favoring arbitration as a means of settling disputes. Wein v. Morris, 194 N.J. 364, 376 (2008); Caruso v. Ravenswood Developers, Inc., 337 N.J. Super. 499, 504 (App. Div. 2001). The scope of arbitration is governed by the agreement between the parties. Caruso, supra, 337 N.J. Super. at 504. Any determination whether a dispute or claim is subject to an arbitration provision in a policy of insurance is a legal issue, which this court will review de novo. Polarome Int'l, Inc. v. Greenwich Ins. Co., 404 N.J. Super. 241, 260 (App. Div. 2008), certif. denied, 199 N.J. 133 (2009).
We accord "the words of an insurance policy . . . their ordinary meaning . . . ." Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537 (1990). We must also recognize that the arbitrator's authority is circumscribed by the provisions and conditions of the policy, Grover v. Universal Underwriters Ins. Co., 80 N.J. 221, 229 (1979), and the terms of the order referring the matter to arbitration. Furthermore, "an arbitration award bars 'only such matters as were comprehended within the scope of the submission and passed on by the arbitrator.'" Chattin v. Cape May Greene, Inc., 216 N.J. Super. 618, 633 (App. Div.) (quoting Rosa v. Transp. Operators Co., 45 N.J. Super. 438, 441-42 (App. Div. 1957)), certif. denied, 107 N.J. 148 (1987); see also Culver v. Ins. Co. of N. Am., 115 N.J. 451, 460, 463-64 (1989) (res judicata, consistent with the entire controversy doctrine, bars litigation of those matters fairly litigated and determined in addition to all relevant issues that could have been submitted to the arbitrator). Thus, a party who seeks to retain the benefits of an arbitration award and who also seeks additional relief must demonstrate that the other relief was not or could not be submitted to the arbitrator. Chattin, supra, 216 N.J. Super. at 633.
Here, the arbitration clause in the policy requires the parties to arbitrate only a dispute or claim with respect to the terms or provisions of the policy or either party's performance in accordance with the terms of the policy. The dispute between the parties centered on whether the insured made full disclosure of relevant information and whether the insurer could disclaim coverage and rescind the policy under the particular circumstances of the case. Obviously, an insured will incur attorney's fees to defend an action filed by a patient and will incur fees to contest a disclaimer and rescission of the policy. The policy, however, is silent whether the insured may recover attorney's fees in any proceeding against the insurer.
Our review of California law reveals that an arbitrator may award attorney's fees when a contract compels arbitration and permits an award of attorney's fees to the prevailing party. Harris v. Sandro, 117 Cal. Rptr. 2d 910, 914 (Ct. App. 2002). Furthermore, when the parties seek arbitration of all disputes between them, and the order referring the matter to arbitration imposes no limits on the issues to be submitted, the decision to award or withhold fees to a prevailing party is within the scope of the arbitrator's power. Moore v. First Bank of San Luis Obispo, 996 P.2d 706, 708-09 (Cal. 2000). Accord Moshonov v. Walsh, 996 P.2d 699, 702 (Cal. 2000). Conversely, if the scope of the dispute submitted to the arbitrator is limited and the agreement does not provide for the award of attorney's fees to the prevailing party, the arbitrator lacks the authority to make such an award. Mansdorf v. Cal. Physicians' Serv., Inc., 151 Cal. Rptr. 388, 391-92 (Ct. App. 1978). See generally William M. Howard, J.D., Ph.d., Annotation, Awarding Attorney's Fees in Connection with Arbitration, 60 A.L.R. 5th § 5 (1998) (collecting cases).
The order referring the matter to arbitration does not implicitly or explicitly address attorney's fees incurred by the insured. Rather, the order simply provides that Weinman must "submit to and participate in arbitration concerning his malpractice insurance coverage with [APIC] pursuant to a contractual arbitration clause in his insurance policy . . . ." The order, therefore, does not definitively determine whether the issue of attorney's fees was submitted to the arbitrator; it simply suggests the issue was not submitted.
The relevant rule governing the arbitration permits attorney's fees to be submitted for resolution when certain conditions are met. Rule-43 of the AAA Commercial Arbitration Rules provides in relevant part:
R-43. Scope of Award . . . .
(d) The award of the arbitrator(s) may include:
(i) interest at such rate and from such date as the arbitrator(s) may deem appropriate; and
(ii) an award of attorney's fees if all parties requested such an award or it is authorized by law or their arbitration agreement.
APIC did not request attorney's fees in its demand for arbitration, the arbitration provision of the policy of insurance is silent on the subject, and the scope of the issue submitted to arbitration was limited solely to the propriety of the disclaimer by APIC.
Some of APIC's argument focuses on res judicata and collateral estoppel, also known as issue preclusion. The rules of res judicata are applicable only when the judgment is final and "includes any prior adjudication of an issue in another action that is determined to be sufficiently firm to be accorded conclusive effect." Restatement (Second) of Judgments § 13 (1982). Here, neither party questions that the issue of the propriety of the coverage disclaimer was decided by the arbitrator and that decision is final. A valid and final personal judgment is conclusive between the parties when "(3)
[a] judgment in favor of either the plaintiff or the defendant is conclusive, in a subsequent action between them on the same or different claim, with respect to any issue actually litigated and determined if its determination was essential to that judgment (see § 27)." Id. at § 17.
Issue preclusion, also known as collateral estoppel, arises "[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim." Id. at § 27. To forestall future litigation, "the party asserting the bar must show that:
(1) the issue to be precluded is identical to the issue decided in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding." [Olivieri v. Y.M.F. Carpet, Inc., 186 N.J. 511, 521 (2006) (quoting In re Estate of Dawson, 136 N.J. 1, 20-21 (1994)).]
See also, Winters v. No. Hudson Reg'l Fire & Rescue, ___ N.J. ___, ___ (2012) (slip op. at 23).
The award rendered by the arbitrator also does not definitively resolve the issue of whether the issue of attorney's fees was submitted to the arbitrator. The initial award did not refer to attorney's fees at all and simply awarded personal costs. The clarified award is also not definitive as it simply responds to an inquiry whether personal costs include attorney's fees. By stating that personal costs do not include attorney's fees and that the award does not include attorney's fees, neither the parties nor the court are informed whether the arbitrator simply decided that personal costs do not include attorney's fees or that the issue was never submitted, or he was not permitted to award fees based on the rules of the arbitration forum and/or California law. Manifestly, if the arbitrator did not award attorney's fees due to the rules of the arbitration forum, his clarified order cannot be considered a ruling on the merits of Weinman's attorney's fee request.
As noted, APIC did not demand attorney's fees; therefore, the rules of arbitration barred such an award. Moreover, in accordance with California law, attorney's fees may be awarded by an arbitrator if the scope of the submitted issue includes attorney's fees or the policy permits such an award. Neither condition is met in this case.
Finally, our review of the record submitted to the Law Division judge in support of and in opposition to Weinman's motion for attorney's fees suggests that the issue was not before the arbitrator. To be sure, the record is limited to APIC's form interrogatories, "specially-prepared" interrogatories, first set of requests for admission, and first demand for production of documents to Weinman and his responses to each discovery request. This discovery was submitted to the Law Division judge to demonstrate the effort expended to defend the coverage claim in arbitration. The form interrogatories and the "specially-prepared" interrogatories concentrate on the Wismer claim and the facts and circumstances attendant to the renewal of the policy of insurance. The request for admission concentrates on the care provided to plaintiff Wismer, notice to Weinman that the Wismer claim was not covered, notice of rescission of the policy, and return of premium. Not a single discovery request or response addresses the costs, including attorney's fees, incurred in arbitration.
Thus, we cannot with any certainty conclude that the issue of attorney's fees incurred in the coverage action was submitted for resolution by the arbitrator and definitively decided against Weinman, or was a matter that could have been submitted, or would have been expected to be submitted for resolution by the arbitrator. That being the case, we cannot apply issue preclusion principles to bar submission of a motion for attorney's fees in the Law Division. Moreover, application of such principles is directly contrary to APIC's substantive position that the rules of the forum did not permit submission of the eligibility for and the quantum of attorney's fees to the arbitrator and California law did not permit the award of counsel fees in the context of a coverage dispute.
The position advanced by APIC also undercuts its position that the only remedy available to Weinman was to seek to vacate the arbitral award. Accepting the legal principles advanced by APIC, the exclusive remedy available to Weinman was indeed a hollow remedy.
Having concluded that the record does not permit a determination that the issue of attorney's fees incurred in the course of the arbitration was submitted to the arbitrator or that the arbitrator addressed the issue on the merits and rendered a decision adverse to Weinman on the merits, we address the ability of Weinman to apply for an attorney's fee award pursuant to Rule 4:42-9 in the pending Wismer matter. We must recall that the court referred the coverage dispute to arbitration but denied APIC's motion to dismiss the complaint and cross-claim against it or to sever those claims. Thus, pending resolution of the coverage dispute, the only issue referred to arbitration, the Law Division retained jurisdiction of plaintiffs' and Weinman's claims against APIC.
Although the APIC insurance policy contains no provision for payment of attorney's fees, Rule 4:42-9 specifically permits an award of a fee for legal services in an action upon a liability or indemnity policy of insurance in favor of a successful claimant. R. 4:42-9(a)(6). The rule is designed to address actions against an insurer who fails to defend claims filed against the insured by a third party, although other claims related to coverage, such as indemnification or rescission of a policy, are encompassed by the rule in the context of third-party claims. Schmidt v. Smith, 294 N.J. Super. 569, 591 (App. Div. 1996), aff'd, 155 N.J. 44 (1998). See also Pressler & Verniero, Current N.J. Court Rules, comment on R. 4:42-9(a)(6) (2013). Moreover, the rule is considered a procedural rule; therefore, it is applicable to an action brought in this state even if the law of another jurisdiction governs the substantive issues. Du-Wel Prods., Inc. v. U.S. Fire Ins. Co., 236 N.J. Super. 349, 362-63 (App. Div. 1989), certif. denied, 121 N.J. 617 (1990).
An insured may also seek fees in this state pursuant to Rule 4:42-9(a)(6) for counsel fees incurred in out-of-state litigation commenced to litigate a coverage issue. Myron Corp. v. Atl. Mut. Ins. Corp., 407 N.J. Super. 302 (App. Div. 2009), aff'd o.b., 203 N.J. 537 (2010). In Myron, the insurer initially agreed to provide a defense in an action filed against its insured, actually provided that defense for some time, and filed the out-of-state action only after the insured had filed a declaratory judgment in this state to determine coverage under its policy. Id. at 306-07. We noted that a fee award in such circumstances furthers the purpose of the rule as explained in Sears Mortgage Corp. v. Rose, 134 N.J. 326 (1993):
The policy underlying Rule 4:42-9(a)(6) is "to discourage groundless disclaimers and to provide more equitably to an insured the benefits of the insurance contract without the necessity of obtaining a judicial determination that the insured, in fact, is entitled to such protection." Guarantee Ins. v. Saltman, 217 N.J. Super. 604, 610 (App. Div. 1987)[, certif. denied, 109 N.J. 484-85 (1987)]. Although Commonwealth may not have been acting in bad faith when it refused to honor Kaiser's and Rose's demands, to deny Rose and Kaiser their counsel fees would be to deny them the benefits of the insurance contract that they achieved as successful litigants. [Id. at 356.]
See also Liberty Vill. Assocs. v. W. Am. Ins. Co., 308 N.J. Super. 393, 406 (App. Div.) (insured entitled to full protection provided by coverage without showing of bad faith or arbitrary action by insurer to recover attorney's fees), certif. denied, 154 N.J. 609 (1998).
APIC may require arbitration of disputes arising under its professional negligence policy in California to obtain the favorable California law that limits the circumstances when an attorney fee may be awarded in arbitrated coverage actions. Yet, this advantage in the arbitral forum state does not bar the insured from returning to New Jersey where the coverage action commenced and remained pending following the reference to arbitration as required by the policy. See Myron, supra, 407 N.J. Super. at 311 (law of the out-of-state forum permitting recovery of counsel fees in coverage actions only upon a finding of bad faith or malice not applicable in this state); Liberty
Vill. Assocs., supra, 308 N.J. Super. at 406 (same).
Having determined that Weinman could seek attorney's fees in the pending New Jersey action, we must determine whether the judge applied the appropriate standards to fashion the fee awarded in this matter. Here, we hold the findings of fact are too cursory to permit an informed appellate review.
A "'trial judge has broad discretion as to when, where, and under what circumstances counsel fees may be proper and the amount to be awarded.'" Passaic Valley Sewerage Comm'rs v. St. Paul Fire & Marine Ins. Co., 206 N.J. 596, 619 (2011) (quoting Iafelice ex rel. Wright v. Arpino, 319 N.J. Super. 581, 590 (App. Div. 1999)). The judge must clearly state the reasons for exercising such discretion. Brewster v. Keystone Ins. Co., 238 N.J. Super. 580, 586-87 (App. Div. 1990).
In 1995, our Supreme Court issued two opinions designed to address the issue of calculation of a reasonable attorney's fee payable under fee-shifting statutes to the prevailing party. Rendine, supra, 141 N.J. 292; Szczepanski v. Newcomb Med. Ctr., 141 N.J. 346 (1995). Although occasioned by cases involving fee-shifting legislation, such as the Law Against Discrimination in Rendine and Szczepanski, these standards have been applied in many situations in which the prevailing party is entitled to a fee award. See Incollino v. Canuso, 297 N.J. Super. 57 (App. Div. 1997) (fee award in a class action). Interestingly, the Court expressed the goal that "by setting forth standards that inform the exercise of discretion" of judges who are requested to award fees, the Court could discourage collateral litigation. Rendine, supra, 141 N.J. at 317. The Court also declared that conformance with the standards announced in Rendine and Szczepanski would permit "future fee determinations . . . [to] be disturbed on the rarest occasions, and then only because of a clear abuse of discretion." Ibid.
In Rendine, the Court explained that the trial judge must first "determine the 'lodestar': the number of hours reasonably expended multiplied by a reasonable hourly rate." Id. at 334-35. This requires the "court to evaluate carefully and critically the aggregate hours and specific hourly rates advanced by counsel for the prevailing party . . . ." Id. at 335. Time not reasonably expended should be excluded. Ibid. The hourly rate must be calculated "according to the prevailing market rates in the relevant community." Id. at 337.
The Court also addressed the relationship between the attorney's fees and the amount of damages recovered. Id. at 336. The Court noted that although damages recovered are a factor bearing on the reasonableness of the fee award, fee-shifting statutes do "not require proportionality between damage recoveries and counsel-fee awards . . . ." Ibid.
After determining the lodestar, the trial judge must consider whether an enhancement or a reduction is appropriate under the circumstances. Id. at 336-37. As to increases to the lodestar, the trial judge "should consider whether to increase [the lodestar] to reflect the risk of nonpayment in all cases in which the attorney's compensation entirely or substantially is contingent on a successful outcome." Id. at 337. The Court observed that "it is the actual risks or burdens that are borne by the lawyer or lawyers that determine whether an upward adjustment is called for." Id. at 339-40 (internal quotations and citations omitted). The Court noted certain circumstances in which an enhancement may not be appropriate, such as where an attorney is paid a portion of his or her hourly fee regardless of results; or where an attorney enters a contingent fee arrangement in suit seeking substantial damages, creating the prospect of compensation greater than the lodestar amount; or where the likelihood of success is unusually strong. Id. at 340-41.
As to the amount of a contingency enhancement, the Court held that, ordinarily, the amount "should range between five and fifty-percent of the lodestar fee, with the enhancement in typical contingency cases ranging between twenty and thirty-five percent of the lodestar." Id. at 343. The Court cautioned that these "enhancements should never exceed one-hundred percent of the lodestar . . . ." Ibid. Recently, the Court reiterated "that the mechanisms for awarding fees, including contingency enhancements, that we adopted in Rendine shall remain in full force and effect as the governing principles for attorneys' fee awards made pursuant to fee-shifting provisions in our state statutes and rules." Walker v. Giuffre, 209 N.J. 124, 129 (2012).
Although the Court stated that a fee award applying these standards will not be disturbed absent a clear abuse of discretion, such deference requires a cogent statement of reasons in support of the fee award. This statement must demonstrate recognition and application of the governing standards to the unique facts of the case. See id. at 148 (affirming the need to sufficiently address the Rendine factors to permit review of a fee award). Here, APIC concedes it is responsible for the fees allowed in defense of the medical negligence action. As to the award for the fees incurred for the Law Division and arbitration proceeding to obtain coverage and reinstatement of the policy, however, APIC contends the motion judge failed to provide a statement of reasons in support of his award that permits this court to defer to his determination of the appropriate fee for the coverage litigation. APIC also contends that counsel for Weinman are not entitled to a fee enhancement as a matter of law. We agree.
The motion judge did not provide a cogent explanation of the fee award. He ruled as a matter of law that New Jersey law controls the application for an award of attorney's fees and announced that Weinman was entitled to a fee award. He found the $350 an hour was a reasonable rate but "the only dispute . . . is as to time." He ordered counsel for Weinman to submit an affidavit of services. After further review and oral argument in which Weinman's privately retained counsel advised the motion judge that Weinman had paid only costs incurred to defend the negligence action, the judge determined to award a twenty percent enhancement. In accordance with his statements at oral argument, the motion judge executed an order dated April 29, 2011, granting Weinman $85,845.70 for attorney's fees incurred to defend the Wismer negligence action, $12,441.27 for costs associated with the New Jersey negligence action, $46,500.98 for fees incurred by California counsel who represented Weinman for the arbitration, and $1,884.22 in costs incurred in California. On May 24, 2011, the motion judge entered an order reflecting the fee enhancement. The amended fees are $103,012.84 for the New Jersey negligence action and $55,801.18 for the California arbitration. The costs remained the same.
Here, the absence of any findings of fact and an explanation of the application of the principles announced in Rendine and Rule of Professional Conduct 1.5(a) completely hamper our appellate function. There is no indication that the judge reviewed the hours expended much less determined that the tasks undertaken and the time expended were reasonable under the circumstances. The judge also concluded $350 an hour was a reasonable hourly rate to defend a negligence claim based on his personal experience. There is no finding whether that is the rate normally and usually paid to experienced counsel to defend medical negligence actions. We, therefore, remand for detailed findings of fact and application of the governing standards to those facts to the fee award.
Although our Supreme Court has declined to follow the rule announced in Perdue v. Kenny A., ___ U.S. ___, 130 S. Ct. 1662, 176 L. Ed. 2d 494 (2010), regarding enhancement of fee awards to matters arising under state fee-shifting statutes and rules, we must still address whether this is an appropriate instance to award a fee enhancement for the fees incurred in this coverage dispute. Walker encompasses two cases, both of which involved matters governed by statutes that permit a fee award to the prevailing parties. In one matter, the plaintiff premised her complaint on the Consumer Fraud Act and the Truth-in-Consumer Contract, Warranty and Notice Act and obtained a modest damage award of $654.50. Walker, supra, 209 N.J. at 141, 143. In the other matter, the plaintiff sought and obtained equitable relief under the Law Against Discrimination and the American with Disabilities Act. Id. at 149, 152. In each instance, the Court permitted fee enhancements because a full recovery on behalf of the client offered little or no mechanism to mitigate the risk of non-payment and the real possibility of no payment at all absent an authorized fee award. Id. at 155.
Here, we are not confronted with a contingent fee relationship. We are also not confronted with a situation in which a litigant is a party to a civil action calculated to vindicate not only personal rights but also public rights, such as barrier-free access to places of public accommodation and commercial transactions untainted by fraud or trickery.
We are confronted with a situation in which Weinman was required to retain an attorney to defend a medical negligence claim and incur a substantial liability in the process. Yet, under the American Rule, to which this jurisdiction steadfastly adheres, a litigant such as Weinman has no hope to recover the fees expended even if he prevails in the negligence action. To be sure, Weinman had recourse to challenge the declination of coverage and rescission of his policy and the ability to recoup funds expended or to reduce the accrued liability to defend that action by contesting the declination of coverage and obtaining an award of attorney's fees. Nevertheless, we do not believe the public policy to discourage groundless denials of coverage is furthered by permitting an enhancement to the fee permitted by Rule 4:49-2(a)(6). We, therefore, vacate the fee enhancement.
In summary, we hold the issue of an allowance of attorney's fees incurred in the coverage dispute was not within the scope of the issue referred to the arbitrator or submitted to the arbitrator for resolution. The clarified order cannot be considered a determination of a claim for attorney's fees. We also hold the motion judge had the authority under Rule 4:42-9(a)(6) to award fees incurred in the coverage action following an arbitration award finding that the insured denied coverage wrongfully without any legal and factual grounds. We remand, however, for findings of fact and application of the governing standards regarding fee awards due to the absence of a detailed explanation of the basis for the fee award. We also hold that Weinman is not entitled to a fee enhancement under the circumstances of this case.
Affirmed in part; reversed in part; remanded for further proceedings consistent with the terms of this opinion. We do not retain jurisdiction.