Kielb v. Couch

• Decision Date: 27 April 1977
• Citation: 374 A.2d 79,149 N.J.Super. 522
• Parties: Franklin W. KIELB, Plaintiff, v. John A. COUCH, Jr., John A. Couch, Jr. and Company, Inc. and St. Paul Fire and Marine Insurance Company, Defendants.
• Court: New Jersey Superior Court

Page 522

149 N.J.Super. 522

374 A.2d 79

Franklin W. KIELB, Plaintiff, v. John A. COUCH, Jr., John A. Couch, Jr. and Company, Inc. and St. Paul Fire and Marine Insurance Company, Defendants.

Superior Court of New Jersey Law Division.

April 27, 1977.

Michael F. Martino, East Orange (Willette & Luongo, East Orange, attorneys) for defendants.

Robert I. Kuchinsky, Flemington, for plaintiff.

GAYNOR, J.C.C., Temporarily Assigned.

Defendants seek a summary judgment dismissing the complaint on the ground that the action is barred by the statute of limitations. The suit is one for damages resulting from the refusal of defendant insurance company to defend litigation against plaintiff under a professional liability policy. The question presented by this motion for summary disposition is whether the statute of limitation begins to run as of the date of the refusal or as of the date of the termination of the litigation involving the insured. Although this question has been the subject of conflicting decisions in other jurisdictions, we have not been referred to, nor has our research disclosed, any case in New Jersey in which this issue has been directly passed upon.

Plaintiff, an attorney, was insured under a lawyer's professional liability policy issued by defendant St. Paul Fire and Marine Insurance Company, through the John A. Couch, Jr., Agency. On October 19, 1967 a suit was instituted against plaintiff by one of his clients seeking an accounting in connection with certain collection matters. Notification of this suit was not given to St. Paul or the Couch Agency because plaintiff concluded that, since only an accounting was sought and no claim for damages was made, the action was not one covered by his professional policy. Subsequently, the complaint against plaintiff was amended to include a count of fraud and a claim for consequential damages. Thereupon plaintiff notified defendants of the pending suit and demanded that St. Paul provide the necessary defense. After conducting an investigation St. Paul advised plaintiff that the action was not within the coverage afforded by the policy and that the company would not defend the suit on his behalf. This determination was contained in a letter dated April 18, 1968 from the carrier's claim manager to plaintiff. Counsel was thereupon retained by plaintiff to represent him in the action, and plaintiff subsequently handled the litigation Pro se. The litigation was terminated on July 12, 1974 by the voluntary dismissal of the complaint with prejudice. The instant suit was instituted on August 9, 1974 to recover the fees and costs incurred, and the reasonable value of plaintiff's services, in connection with the defense of the action brought against plaintiff.

Defendant contends that plaintiff's action is barred by the statute of limitations inasmuch as it was instituted more than six years after his right of action accrued. Defendant asserts that plaintiff's cause of action arose on April 18, 1968 when it notified plaintiff of its refusal to defend him in the then pending litigation. It is plaintiff's position that his right to recover the costs of providing the required defense in the suit brought against him did not accrue until the litigation had been terminated and his damages ascertainable. These respective contentions clearly frame the issue presented by the instant motion.

The provisions of the insurance agreement which are relevant to the present inquiry are the following clauses contained in the 'Coverage' and 'Conditions' sections:

Coverage A--Professional Liability.

To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages arising out of the performance of professional services * * * and the Company shall have the right and duty to defend in his name and behalf any suit against the Insured alleging damages * * *

Conditions Applicable to Coverages A and B.

D. Action Against Company

No action shall lie against the company unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of the Policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant and the Company.

The six-year statute of limitations governing actions for recovery upon a contractual claim is applicable to plaintiff's cause of action. See N.J.S.A. 2A:14--1; Breen v. Manufacturers Indem. Ins. Co., 105 N.J.Super. 302, 252 A.2d 49 (Law Div.1969), aff'd 109 N.J.Super. 473, 263 A.2d 802 (App.Div.1970).

The obligation of defendant insurer under the policy was either to defend the action involving plaintiff's performance of professional services, or to reimburse the plaintiff for the cost of defense if the claim made against him is held to be within the covenant to pay. Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 267 A.2d 7 (1970); Continental Nat'l American Group v. Pluda, 115 N.J.Super. 206, 278 A.2d 540 (Law Div.1971). Thus, upon defendant's refusal to provide a defense the plaintiff could have instituted a declaratory judgment proceeding to adjudicate the question of coverage, which was not done, or proceed with his own defense and, as he is now doing, seek to obtain reimbursement from defendant company. As the full amount of his claim for reimbursement was not ascertainable until the termination of the action brought against him, it was not until then that plaintiff was in a position to assert his complete claim against defendant. Although plaintiff could have started an action against defendant prior to the completion of the third-party litigation for the then accrued costs, such a procedure would have resulted in piecemeal litigation and a multiplicity of suits, both of which are looked upon with disfavor in the law.

Other jurisdictions have adopted the rule that the claim of an insured against the insurer for payment of costs of a defense which was refused by the insurer does not accrue until those expenses have been fully and finally ascertained and the right of action is complete. Continental Cas. Co. v. Florida Power & Light Co., 222 So.2d 58 (Fla.D.Ct.App.1969); Employers' Fire Ins. Co. v. Continental Ins. Co., 326 So.2d 177 (Fla.Sup.Ct.1976); Moffat v. Metropolitan Cas. Ins. Co., 238 F.Supp. 165 (D.Ct.Pa.1964). See also, Terteling v. United States, 334 F.2d 250, 167 Ct.Cl. 331 (1964). These cases therefore hold that a statute of limitations applicable to the insured's action for reimbursement of such costs does not begin to run until the third-party litigation involving the insured has ended. Some practical reasons...