United States District Court, D. New Jersey
ROBERT J. MORROW, HUNTON & WILLIAMS LLP, NEW YORK, NY, WALTER J. ANDREWS, MICHAEL S. LEVINE, HUNTON & WILLIAMS LLP, MCLEAN, VA, On behalf of State National Insurance Company.
WILLIAM M. TAMBUSSI, JOSEPH T. CARNEY, WILLIAM F. COOK, BROWN & CONNERY, LLP, WESTMONT, NJ, On behalf of the County of Camden.
NOEL L. HILLMAN, District Judge.
In October 2008, State National Insurance Company ("State National") filed a declaratory judgment action against the County of Camden, seeking a determination that it did not owe coverage to the County under an excess liability insurance contract for a multi-million dollar state court jury verdict against the County. State National contended that the County's delay in notifying it of the lawsuit, its repeated representation that the case was within the County's $300, 000 self-insured retention, its errors in investigating and defending the case, and its revaluation of the case four days into trial, breached the insurance contract's notice provision and the adequate investigation and defense condition to coverage. After six years of extensive litigation and motion practice before the Court, the claims between State National and the County were settled in October 2014.
In June 2009, State National amended its initial complaint to add legal malpractice claims against Donna Whiteside, in-house counsel for the County who handled the underlying state court case. State National claimed that Whiteside committed legal malpractice by not properly defending the County and State National's interests. In March 2010, and again in June 2010, the Court rejected State National's attempts to assert legal malpractice claims against Whiteside. Despite the recent settlement of the claims between State National and the County, or perhaps because of, State National has again sought to renew its legal malpractice claims against Whiteside.
For a comprehensive explanation of the Court's prior decisions on the unviability of State National's legal malpractice claims against Whiteside, the Court will refer the parties to its two prior Opinions, Docket Numbers 226 and 272. Briefly summarized, the Court found that "no matter what Whiteside did, her conduct cannot be held to be the proximate cause of State National's... alleged damages." (Docket No. 226 at 10.) The Court recognized that the relationship between State National and the County was contract-based, and the breach of that contract was the basis for State National's declaratory judgment action against the County. The Court observed,
If it is found that the County, by and through its lawyer employee, breached the insurance contract with State National..., [State National] will not be required to pay under the policy. Despite any alleged malpractice by Whiteside that [State National] wish[es] she atone for, it is the County, and not State National..., that has to pay for that negligence. The County accepted this potential outcome by conducting its own defense. Conversely, if it is found that the County, by and through its lawyer employee, did not breach the insurance contract, then there cannot be any malpractice upon which State National... can base a declination of coverage.
[State National] attempt[s] to separate the County and Whiteside into two distinct and independent defendants. The problem is that the County, as a non-person entity, obviously cannot act-its actions are those of its employees. In other words, when [State National] contend[s] that the County breached its obligations under the insurance policy, it was Whiteside, and perhaps other County employees, who perpetrated that alleged breach. It is the County-through Whiteside-that allegedly failed to conduct an adequate investigation or provide a proper defense. Because the County and Whiteside are one-in-the-same, and [State National] had a contract with the County, [State National] cannot maintain separate and independent causes of action against Whiteside.
(Docket No. 226 at 11-12.)
In March 2014, this Court issued another Opinion addressing various legal issues, including the issue of the existence of disputed facts as to whether the County's defense of the state court litigation was "adequate" as required by the terms of the SIR endorsement to the insurance policy. (See Docket No. 655 at 18.) The Court found that it could not independently weigh the County's actions in its defense and investigation of the state court case to determine whether they were "adequate" under the SIR endorsement, particularly because the insurance contract did not define what an "adequate defense" entails. (Id. at 22.) The Court found that the determination of whether the defense was "adequate" was for the jury. (Id.) The Court also included this footnote:
State National contends that the term "adequate" must be given its plain and ordinary meaning, which, according to Black's Law Dictionary, is "what is needed" and "of moderately good quality, " and is "legally sufficient." State National further contends that the Court previously found that the County must prove more than that it did not commit legal malpractice in order to demonstrate its compliance with the "adequate defense" condition in the SIR endorsement. (State National Reply, Docket No. 613 at 6.) The Court did not make such a specific finding, and instead observed that the "adequate defense and investigation provision does not require the County to generally opine on the adequacy of its abilities to defend and investigate all law suits against it in order to meet the condition for coverage[;] the policy requires that the County demonstrate that in handling the Anderson lawsuit, it took certain steps and made certain decisions, and that conduct was adequate.'" The Court also noted, "even if the County can prove that its in-house counsel did not commit legal malpractice, it still must prove that its defense and investigation, although not considered malpractice, were adequate. Stated differently, the condition precedent still applies even if the elements of legal malpractice cannot be met." (Docket No. 474 at 8, 8 n.1.) What is an "adequate defense" as required by an insurance policy condition to coverage can be more burdensome than proving legal malpractice, or less burdensome, or the same. The Court did not decide that distinction, and, in denying State National's prior motion for summary judgment on the adequacy of the County's defense, the Court suggested that "in order to prove that the County's conduct was negligent such that it caused the breach of the insurance contract provisions, the aid of expert testimony is ordinarily required." (Docket No. 393 at 3 n.1.) The Court leaves it to the parties' proofs, expert or otherwise, to support their respective positions on what constitutes an "adequate defense" under the insurance policy endorsement.
(Id. at 22-23 n.11.)
In State National's current motion to revive its malpractice claims against Whiteside, State National argues that this footnote in the March 2014 Opinion altered the basis on which its malpractice claims were dismissed in March 2010, and created a potential for State National to incur damages caused by Whiteside's alleged malpractice. When the Court noted, "What is an adequate defense' as required by an insurance policy condition to coverage can be more burdensome than proving legal malpractice, or less burdensome, or the same, " State National interprets this observation as a "new" ruling that allows a claim for malpractice to be viable even if Whiteside provided an adequate defense. State National argues that where, in March 2010, the Court found that "a finding of legal malpractice necessarily foreclosed a finding of an adequate' defense, " the Court's March 2014 decision "creates a potential for a finding that Donna Whiteside did indeed commit legal malpractice while still implicating coverage under the Policy." (Docket No. 663-1 at 13.)
The Court's footnote in the March 2014 did not create a "new" ruling as to State National's ability to lodge legal malpractice claims against Whiteside. The footnote addressed State National's argument that the County must prove more than that it did not commit legal malpractice in order to demonstrate its compliance with the "adequate defense" condition in the SIR endorsement. In responding to that argument, the Court reaffirmed its statement in the body of the Opinion that it was for the ...