LIBERTY SURPLUS INSURANCE CORPORATION, INC. v. NOWELL AMOROSO, P.A., et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4756-03T14756-03T1

LIBERTY SURPLUS INSURANCE

CORPORATION, INC.,

Plaintiff-Respondent,

v.

NOWELL AMOROSO, P.A.; NOWELL,

AMOROSO & MATTIA, P.A.; NOWELL

AMOROSO KLEIN BIERMAN, P.A.;

HENRY J. AMOROSO; CHRISTOPHER W.

MCGARRY; WILLIAM C. SOUKAS;

THOMAS MATARESE & BACHELORS I

TAVERN, INC., t/a SCANDALS;

DANIEL C. NOWELL, ESQ.; JEAN M.

DAMGEN, ESQ.; LINDA DUNNE, ESQ.;

WILLIAM R. DELORENZO, JR., ESQ.;

HERBERT C. KLEIN, ESQ.; WILLIAM

D. BIERMAN, ESQ.; MARK MATTIA,

ESQ.; and RICHARD KAPNER, ESQ.,

Defendants-Appellants.

________________________________________________________________

 

Argued September 20, 2005 - Decided

Before Judges Kestin, Lefelt, and Hoens.

On appeal from the Superior Court of

New Jersey, Law Division, Essex County,

Docket No. ESX-L-6287-03.

Christopher J. Carey argued the cause

for appellants (Graham, Curtin & Sheridan,

attorneys; Mr. Carey, of counsel and on

the brief; David M. Blackwell and

Terrence Dahl, on the brief).

Elliot Abrutyn argued the cause for

respondent (Morgan, Melhuish, Monaghan,

Arvidson, Abrutyn & Lisowski, attorneys;

Mr. Abrutyn, of counsel and on the

brief; Shaji M. Eapen, on the brief).

PER CURIAM

Liberty Surplus Insurance Corporation issued a claims-made legal malpractice insurance policy to Nowell Amoroso Klein Beirman, P.A. (collectively referred to as the law firm), with an effective date of July 21, 2002. After the law firm advised Liberty Surplus of a suit brought against it by former clients, the insurance company denied coverage. The disclaimer was based on a provision in the insurance contract excluding acts, errors, or omissions before the policy's effective date if the insureds, at the time of the application for the policy, had a reasonable basis to believe that they had breached a professional duty or that a claim would be made against them. Liberty Surplus sought a declaratory judgment supporting its disclaimer, and cross-motions for summary judgment were made. The law firm now appeals from Judge Bernstein's summary judgment in favor of Liberty Surplus. We affirm.

We begin by summarizing the underlying litigation in which the claimed malpractice occurred and follow with the coverage dispute that forms the basis of this appeal. To avoid confusion, our reference to plaintiffs and defendants pertains exclusively to the underlying litigation. In the coverage dispute, we refer to the litigants as Liberty Surplus and the law firm.

I.

On May 23, 1994, the law firm filed a complaint on behalf of plaintiffs, Larry Kolczycki, Thomas Matarese, and Bachelor I Tavern, Inc., t/a Scandals, against defendants, the City of East Orange, its police and fire departments, and certain of its employees, alleging, among other things, that defendants tortiously interfered with plaintiffs' prospective economic advantage by engaging in a course of conduct designed to force plaintiffs to close their night club. Kolczycki v. City of East Orange, 317 N.J. Super. 505, 509 (App. Div. 1999). Due to defendants' failure to comply with discovery obligations, the trial court suppressed defendants' answer, and after a proof hearing, plaintiffs obtained a $400,000 judgment. Defendants appealed to this court.

On appeal, among other contentions, defendants argued that plaintiffs' complaint should have been dismissed as time-barred. In our February 2, 1999 decision, we noted that the trial court's suppression order had been entered without prejudice and "defendants should not have been barred from any defenses, including that of the statute of limitations, until and unless a 'with prejudice' order was entered." Id. at 516. Accordingly, we recognized "the issue as to when plaintiffs' cause of action accrued remains critical." Ibid. We explained that even if defendants' answer is stricken, plaintiffs may still be precluded from recovery if the proofs reveal a prevailing legal defense. Id. at 517. We noted there was a serious issue regarding "whether plaintiffs' filing of the suit on May 23, 1994 [was] barred by the two-year limitations period under N.J.S.A. 59:8-8b." Id. at 518.

We further pointed out that plaintiffs' reliance on Russo Farms, Inc. v. Vineland Bd. of Educ., 144 N.J. 84, 99 (1996), to establish the accrual date for its cause of action was misplaced. Kolczycki, supra, 317 N.J. Super. at 519. In Russo, supra, our Supreme Court explained that the "continuing tort doctrine" is "best understood in the context" of a nuisance claim. 144 N.J. at 99. For example, when a defendant causes a nuisance on plaintiff's land, the failure to remove the nuisance constitutes a continuous tort because defendant's duty continues for each day defendant fails to ameliorate the nuisance. Ibid. However, a "'wrongful act with consequential continuing damages is not a continuing tort' and does not lengthen the statute of limitations." Id. at 114 (quoting Ricottilli v. Summersville Mem'l Hosp., 188 W.Va. 674, 677 (W.Va. 1992)). Russo provided an example of a wrongful act with continuing damages by utilizing continuous assaults and explained that "each new assault is a battery, because the attack itself contains every element of a new tort. If the first attack is barred by the statute of limitations, more recent claims may not be barred because each asserts a new tort." Id. at 105-06. Therefore, each assault constitutes a separate breach of duty.

Based on Russo, we remanded for the trial court to determine "whether any tortious conduct perpetrated by defendants against plaintiffs that occurred on or after May 22, 1992 constitutes a tort that can stand on its own for the maintenance of a suit against defendants without any need to refer to prior conduct of defendants to establish liability." Kolcyzycki, supra, 317 N.J. Super. at 519-20. The remand decision made relatively clear that we did not believe plaintiffs' claim involved a continuous tort, and that unless separate tortious conduct occurred on or after May 22, 1992, plaintiffs' cause of action would be time barred.

On remand, the trial court determined that defendants engaged in conduct on or after May 22, 1992 that "constitute torts for which liability may be established." However, the court found in favor of defendants because there was "an inadequate showing of proximate causation and . . . an inadequate showing of a measure of damages [that] could be deemed attributable to any acts that occurred on or after May 22[,] 1992 . . . ."

Plaintiffs appealed, arguing the trial court exceeded our remand instructions. Plaintiffs asserted they had contemplated only having to establish liability and not to prove damages. Plaintiffs contended the trial court erred in excluding the testimony of plaintiffs' damage expert and in denying plaintiffs' request to supplement the record with such expert testimony.

We rendered our second decision in this matter on June 12, 2002, and affirmed the trial court's ruling substantially for the reasons expressed by the trial judge. We observed that the trial court properly rejected plaintiffs' expert testimony because "it did not break down or address the impact of events occurring before and after May 22, 1992." We also noted the trial "judge held a scope of remand hearing and by virtue of the judge's ruling, plaintiffs knew the issues to be considered at the hearing and had an opportunity at that hearing to supplement . . . the prior proofs with respect to the impact of events on the issue of damages." We further stated "plaintiffs [did] not contest the fact they knew of the defendants' tortious conduct and the fact injuries were sustained by May 22, 1992, thereby requiring a suit within two years for those injuries." Lastly, we noted that "[t]o succeed, therefore, plaintiffs had to show under our prior opinion both a tort and damages within the statutory period."

Our second decision also quoted from the holding of our first decision requiring "the trial court [to] determine whether any tortious conduct perpetrated by defendants against plaintiffs . . . occurred on or after May 22, 1992." Most significantly, immediately after this quote, we stated "[t]his holding was premised on our determination that any prior acts were time barred under the Tort Claims Act."

II.

On July 15, 2002, about one month after our second decision had been filed, the law firm, which had represented the plaintiffs in the suit against East Orange, submitted a "Lawyers Professional Liability Insurance Application" to Liberty Surplus. The application asked whether "any lawyer to be insured under this policy: [had] knowledge of any circumstance, act, error or omission that could result in a professional liability claim." The law firm answered "no." After receiving this application, the carrier issued a "claims made and reported" lawyers professional liability policy, effective July 21, 2002 through July 21, 2003.

This policy covered claims made during the policy period for acts, errors, or omissions that happened "during the policy period," but also covered acts, errors, or omissions "prior to the policy period," with certain conditions. One of the conditions constitutes the major focus of this appeal and requires that malpractice before the policy period would be covered provided "the Insured had no reasonable basis to believe that the Insured had breached a professional duty or to foresee that a claim would be made against the Insured." (emphasis added).

On July 29, 2002, the law firm filed a petition for certification in the East Orange litigation with the Supreme Court, seeking review of our June 12, 2002 decision. Certification was denied on January 28, 2003.

On June 6, 2003, the plaintiffs in the East Orange litigation sued the law firm for legal malpractice, contending, among other things, that the firm failed to file plaintiffs' complaint within the limitations period. About six days thereafter, the firm notified Liberty Surplus of the malpractice claim. On July 21, 2003, Liberty Surplus disclaimed coverage under the policy asserting that, by virtue of our decisions in the East Orange litigation, the firm "had a reasonable basis to believe it had breached a professional duty or to foresee that a claim would be made against it."

On July 24, 2003, Liberty Surplus filed a complaint for declaratory judgment seeking a determination that the legal malpractice claim brought against the firm was not covered under the pertinent policy. Liberty Surplus sued the firm, individual attorneys of the firm, and prior attorneys of the firm. On November 4, 2003, the firm moved for summary judgment, arguing the claim was covered under the relevant policy. On December 23, 2003, Liberty Surplus cross-moved for summary judgment, asserting the malpractice claim was not covered.

These cross-motions for summary judgment came before Judge Bernstein. The judge found that the "no cause of action entered by the trial court on remand[,] coupled with the Appellate Division decision affirming that no cause in June of 2002[,] provided ample notice of a possible cause of action for malpractice." The judge acknowledged that the plaintiffs in the East Orange law suit brought their dispute to the firm one year before the case was filed. The judge concluded "a reasonable person would have been expected to know a cause of action existed, at the very least, at the second Appellate Division decision on June 12, 2002." Furthermore, the judge noted that the "fact that the [firm was] pursuing another appeal to the [S]tate Supreme Court [did] not insulate them from the fact that they had a reasonable basis at that point to believe that there was a potential claim." Accordingly, the judge granted Liberty Surplus's cross-motion for summary judgment and denied the firm's motion for summary judgment. This appeal by the firm ensued.

III.

The firm argues that we must apply a subjective test to determine whether its conduct was included within the relevant policy clause. In opposition to Liberty Surplus's summary judgment motion, the firm had filed certifications that it "did not have knowledge of[,] or a reasonable basis to believe that, any circumstances, act, error or omission . . . could or would result in a professional liability claim against [the firm]." Because the judge failed to conduct a hearing to probe the subjective belief of the firm lawyers at the time, the law firm submits that summary judgment was inappropriate. The law firm further contends that Liberty Surplus denied coverage in bad faith, interim coverage should have been offered while any factual disputes regarding coverage were resolved, and the policy should have been interpreted to provide coverage to innocent insureds.

Liberty Surplus does not contend that the firm made a material misrepresentation on the insurance application. Its sole assertion is that the firm failed to satisfy the policy condition pertaining to malpractice preceding the effective date of the policy. Consequently, Liberty Surplus argues that we must reject all of the law firm's contentions.

We begin our analysis with some general principles regarding insurance contract interpretation. "Generally, an insurance policy should be interpreted according to its plain and ordinary meaning." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992) (citing Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537 (1990)). We must give the policy "its ordinary meaning and not indulge in a strained construction [solely] to impose coverage," especially when the language is relatively "clear, unambiguous, and not violative of public policy." Iorio ex rel. Iorio v. Simone, 340 N.J. Super. 19, 24 (App. Div. 2001), aff'd o.b. sub nom., Aetna Cas. & Sur. Co. v. Simone, 170 N.J. 438 (2002).

When the language in the policy is ambiguous, "the ambiguity is resolved in favor of the insured and in line with an insured's objectively-reasonable expectations." Voorhees, supra, 128 N.J. at 175 (citation omitted). Courts, however, "'should not write for the insured a better policy of insurance than the one purchased.'" Longobardi, supra, 121 N.J. at 537 (quoting Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529 (1989)).

The clause at issue conditions the policy's coverage for malpractice pre-existing the insurance contract. The condition provides coverage only for those malpractice claims where the insureds "had no reasonable basis to believe" that they "had breached a professional duty or to foresee that a claim would be made against" them.

Our Supreme Court has previously found that a clause similar to the one at issue was reasonable and not in violation of any public policy. Zuckerman v. Nat'l Union Fire Ins. Co., 100 N.J. 304, 320 n.3 (1985). The Court explained that it does not violate public policy for an insurance company to seek "to protect itself against the professional who, recognizing his past error or omission, rushes to purchase a 'claims made' policy before the error is discovered and a claim is asserted against him." Ibid.

In our view the condition is relatively straight-forward and unambiguous. The only portion of the condition that is ambiguous is whether the "reasonable basis to believe" language should be construed to require an objective or subjective determination. This ambiguity must be "interpreted in a manner that recognizes the reasonable expectations of the insured." Id. at 320; Hofing v. CNA Ins. Cos., 247 N.J. Super. 82, 89 (App. Div. 1991).

In Liebling v. Garden State Indem., 337 N.J. Super. 447 (App. Div.), certif. denied, 169 N.J. 606 (2001), we analyzed a similar clause in a malpractice claims-made insurance policy. That policy excluded claims that at "the inception date of [the] contract" the insured "knew or reasonably could have foreseen that any such act, error, or omission might be expected to give rise to a claim. . . ." Id. at 459. Despite the use of the term "reasonably," we construed the clause as requiring a subjective analysis. Id. at 462-63; see also Estate of Logan v. Northwestern Nat'l Cas. Co., 242 N.W.2d 179, 185-86 (Wis. 1988); and generally Harold A. Weston, Annotation, Lawyers' Professional Liability Insurance, 92 A.L.R.5th 273 (2001).

Even though the clause in Liberty Surplus's policy is slightly different from the clause in Liebling, they are essentially the same, and we agree with our previous rationale requiring a subjective analysis of the firm's knowledge at the time of its insurance application. As we stated in Liebling, supra, it is this construction that best captures "the reasonable expectations of an attorney seeking the protection afforded by malpractice insurance." 337 N.J. Super. at 461. Obviously, an attorney purchasing insurance would believe that he or she is purchasing protection from a mistake, not protection limited to mistakes only which a reasonable lawyer could have made.

After the law firm had been retained in the underlying litigation, it knew of East Orange's tortious conduct and that the plaintiffs had sustained injuries before May 22, 1992. Indeed, the malpractice complaint alleged that the firm was aware "that the majority of the harassment and tortious conduct of the City of East Orange and its agents occurred between January 2, 1992 and May 1, 1992."

The firm was retained over a year before filing suit on May 23, 1994, and plaintiffs alleged in their malpractice complaint that the firm never provided any explanation for the delay. The pertinent standard of care mandates that attorneys pay careful attention to applicable statutes of limitation. Failing to file a complaint within the pertinent limitation period is one of the most common and well-known causes for attorney malpractice. E.g., Passanante v. Yormark, 138 N.J. Super. 233, 238-39 (App. Div. 1975), certif. denied, 70 N.J. 144 (1976).

Our first decision concluded that allegations regarding East Orange's acts on or before May 22, 1992 were time-barred and that no continuous tort claim could succeed. The only possibility of sustaining a cause of action against East Orange after our first decision was for the firm to establish separate tortious acts occurring after May 22, 1992.

In our second decision, which came one month before the firm applied for the Liberty Surplus policy, we explicitly acknowledged that we had previously determined that any tortious acts before May 23, 1992 "were time barred under the Tort Claims Act." Furthermore, we affirmed the remand judge's determination that the law firm had failed in its attempt to establish that tortious conduct, sufficient to begin a new two-year limitation period, had occurred after May 22, 1992. Therefore, when our second decision was rendered, it was relatively clear that the entire cause of action pressed by the law firm had been rejected as untimely at both the trial and appellate levels.

It is also a well known fact that our Supreme Court accepts for consideration but a small percentage of the certifications seeking its review. Consequently, the outstanding certification at the time of the application provides little solace to the law firm.

Even if we assume that because of their litigation efforts and the tortuous progress of this case, neither the firm nor any member of the firm could have subjectively foreseen that a malpractice claim was possible, we still must decide in favor of Liberty Surplus. Coverage, under the policy, was conditioned not only on foreseeing a possible malpractice claim, but also on the insured having no reasonable basis to believe that any deviation from a pertinent standard of legal care had occurred. When a trial court and two appellate division decisions indicate that a statute of limitations has been missed, no reasonable fact-finder could conclude the firm honestly conceived there was no plausible basis to believe that they had breached a professional duty. See Liebling, supra, 337 N.J. Super. at 465.

We are not concluding that malpractice has in fact occurred in this case or that in the future any adverse result in court would trigger carrier notification requirements. Instead, we hold that, under the unique circumstances of this case, the law firm could not have conceived that there was no reasonable basis to believe a professional duty had been breached. When there is a single, unavoidable resolution of a factual dispute, summary judgment is appropriate. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

 
Consequently, we affirm Judge Bernstein's summary judgment in favor of Liberty Surplus, and reject all of the firm's other arguments as without merit. R. 2:11-3(e)(1)(E).

Affirmed.

(continued)

(continued)

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A-4756-03T1

November 3, 2005