Hofing v. CNA Ins. Companies

• Court: New Jersey Superior Court — Appellate Division
• Writing for the Court: DEIGHAN
• Citation: Hofing v. CNA Ins. Companies, 588 A.2d 864, 247 N.J.Super. 82 (N.J. Super. App. Div. 1991)
• Decision Date: 01 April 1991
• Parties: Sidney L. HOFING; Joseph E. Buckley, Jr. and Hofing & Buckley, Esquires, Plaintiffs-Appellants, v. CNA INSURANCE COMPANIES, Defendant-Respondent.

Page 82

247 N.J.Super. 82

588 A.2d 864

Sidney L. HOFING; Joseph E. Buckley, Jr. and Hofing &amp Buckley, Esquires, Plaintiffs-Appellants, v. CNA INSURANCE COMPANIES, Defendant-Respondent.

Superior Court of New Jersey Appellate Division.

Argued Feb. 5, 1991.

Decided April 1, 1991.

William F. Hartigan, Jr., for plaintiffs-appellants (McLaughlin & Cooper, attorneys, William F. Hartigan, Jr., on brief and reply letter brief), Trenton.

Anthony P. Pasquarelli, for defendant-respondent (Methfessel & Werbel, attorneys, Anthony P. Pasquarelli on brief), Rahway.

Before Judges DEIGHAN and BAIME.

The opinion of the court was delivered by

DEIGHAN, J.A.D.

Plaintiffs Sidney L. Hofing, Joseph E. Buckley, Jr. and Hofing & Buckley, Esquires, appeal from a denial of their motion for summary judgment and the grant of a summary judgment in favor of defendant CNA Insurance Companies (CNA). Plaintiffs filed a declaratory judgment action in the Law Division against CNA contending that a Legal Professional Liability Policy (policy) issued to them requires CNA to defend them and provide coverage in an action filed against plaintiffs in North River Insurance Co. v. Hofing and Buckley, et al, No. L-51359-86.

The underlying facts concerning this action are not disputed. In 1977, North River Insurance Company (North River) retained plaintiffs to represent it in a surety bonding matter that resulted in litigation entitled North River Insurance Co. v. Kupper Engineering, Inc. and Borough of Mantoloking, No. L-4342-79. The facts underlying that case involved the issuance of a $1.7 million performance bond by North River on behalf of Major Construction Co. (Major) with regard to a construction project for Mantoloking. Major became bankrupt and abandoned the project in May 1977. At the direction of North River, plaintiffs instituted a suit against Kupper Engineering and Mantoloking and also represented North River in Major's bankruptcy matter. In February 1986, during the litigation, plaintiff filed a substitution of attorney at North River's request. While represented by new counsel, North River settled the underlying suit for an undisclosed amount.

Plaintiffs' counsel fees and related expenses for their representation exceeded $1.6 million. After the substitution of attorney, North River filed a complaint against plaintiffs in the Law Division to compel them to turn over all documents compiled in North River Insurance Co. v. Kupper Engineering, Inc., and to allow North River to post bond as security for $44,708.92 in disputed legal fees.

Subsequently, North River filed an amended complaint in which it alleged:

The attorneys' fees charged by the defendants were unreasonable in that they included charges for time and labor not actually expended by counsel. That the services rendered by the defendants to the plaintiff were not effective. That the said charges included time that was required due to the defendants' failure to properly meet the orders of the trial court and that the hours expended did not contribute to the successful prosecution of the plaintiff's case and that the monies received by the defendants were far in excess of the value of the professional services rendered to the plaintiff.

The charges made by the plaintiff to the defendant violated the standards of professional conduct, more particularly Rule 1:5 of the RPC and those standards applicable to attorneys fees as defined by the courts of the State of New Jersey.

The first count of the complaint demanded judgment against plaintiffs for:

(1) An accounting of any and all monies paid by the plaintiff to the defendants;

(2) A determination as to the reasonable value of the professional services rendered by the defendant to the plaintiff;

(3) A judgment for the difference between the sum of money paid by the plaintiff to the defendants and the reasonable value of the services rendered, costs, interest and such other relief as may be just in the premises [sic].

In the second count of the amended complaint, North River alleged that:

The defendants contracted with the plaintiff to perform professional services in accordance with the applicable standards of professional conduct and to render to the plaintiff legal services and advice in a professional manner.

The defendants breached their contract with the plaintiff to render legal services in a professional manner in accordance with the known and applicable professional standards and rules and laws of the State of New Jersey.

North River made the same demands for judgment in the second count against plaintiffs as stated in the first count but, in addition, demanded:

(4) Judgment for additional legal costs the plaintiff has and will incur to prosecute the action filed against Kupper Engineering, Inc. and the Borough of Mantaloking and costs, attorneys' fees, interest and such other relief as may be just in the premises [sic].

During discovery, North River described the circumstances underlying its suit in answers to interrogatories. North River stated that plaintiffs failed to advise them of court orders entered in the litigation against Kupper Engineering and Mantoloking, especially a partial summary judgment in favor of Kupper Engineering, and did not provide sufficient information to evaluate the effect of the orders on their case and violated the standards of conduct and care applicable to attorneys. As a result, North River continued to pay bills submitted by plaintiffs. North River also asserted that plaintiffs failed to properly advise North River of the steps it could take to settle the case and advise of the state of the applicable law in 1981. North River contended that it incurred excessive unnecessary fees as a result of plaintiffs' failure to properly manage and plan the case.

In the second count, North River contends that because of plaintiff's inadequacy it incurred, or will incur, additional attorneys' fees and expenses in retaining new counsel. No claim is made for the difference between the amount of settlement actually paid and the amount it could have received but for plaintiffs' negligence in handling the case.

Plaintiffs forwarded North River's summons and complaint to CNA to assume the defense and coverage pursuant to the policy purchased from CNA. CNA informed plaintiffs that the loss did not fall within the scope of their coverage because it came within an exclusion pertaining to claims for return of fees. Accordingly, CNA refused to defend plaintiffs in the suit brought by North River.

The Professional Liability Coverage Part of plaintiffs' policy provides the following coverage in relevant part:

I COVERAGE AGREEMENTS

A. We will pay all amounts, up to our limit of liability, which you become legally obligated to pay as a result of a wrongful act by you or by any entity for whom you are legally liable.

....

C. We have the right and will defend any claim. We will do this even if the charges of the claim are groundless, false, or fraudulent....

D. We have no duty to defend any claim not covered by this Coverage Part.

"Wrongful act" is defined in the policy as "any negligent act, error or omission in: A. the rendering of or failure to render, professional services." The policy contains the following exclusion:

We will not defend or pay, under this Coverage Part for:

. . . . .

G. any fine, penalty, or claim for return of fees.

The policy defines "claim" as "the receipt of a demand for money or services, naming you and alleging a wrongful act."

In an oral opinion granting summary judgment in favor of CNA, the trial judge assumed that plaintiffs were negligent in performing legal services for North River and that North River's suit is based on such negligence. He concluded that:

The claim is for mismanagement, failure to perform necessary work, performance of unnecessary work, failure to develop a plan of action, unauthorized raising of hourly billing rates, billing for time necessary to correct errors made by the attorneys themselves, charging excessive amounts in the bills for services, and billing for excessive amounts of time.

With respect to North River's claim for costs incurred in hiring substituted counsel, the trial judge stated he found "no coverage for such a claim, even if it is being made." He also found the exclusion clear, unambiguous and applicable to the claim.

The plaintiffs contend that the trial court erred by not construing the provisions of plaintiffs' professional liability policy strictly against CNA and the judgment was factually and legally incorrect.

I

Initially, an insurer's duty to defend an action against the insured is measured by the allegations contained in the complainant's pleadings. Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504, 512, 210 A.2d 221 (1965); Danek v. Hommer, 28 N.J.Super. 68, 77, 100 A.2d 198 (App.Div.1953), aff'd o.b., 15 N.J. 573, 105 A.2d 677 (1954); 7C Appleman, Insurance Law and Practice § 4683, at 42 (Berdal ed. 1979). The duty to defend arises when the complaint states a claim constituting a risk falling within the purview of the policy language. Danek, 28 N.J.Super. at 77, 100 A.2d 198. If the pleadings state facts bringing the injury within the coverage of the policy, the insurer must defend regardless of the insured's ultimate liability to the complainant. Appleman, supra. The nature of the damage claim, rather than the actual details of the accident or the ultimate liability of the insurer, determines whether the insurer is obliged to defend. Ohio Cas. Ins. Co., 44 N.J. at 512, 210 A.2d 221; see also Hackensack Water Co. v. General Accident, Fire & Life Assur. Corp., 84 N.J.Super. 479, 482-83, 202 A.2d 706 (App.Div.1964); Van Der Veen v. Bankers Indemnity Ins. Co., 30 N.J.Super. 211, 217, 103 A.2d 900 (App.Div.1954). The duty to defend is broader than the duty to pay. Lumbermen's Mutual Casualty Co. v. United Servs. Automobile Ass'n, 218 N.J.Super. 492, 497, 528 A.2d 64 (App.Div.1987); NPS Corp. v. Insurance Co. of N. Am.,...