McNally v. Providence Washington Ins. Co.

• Decision Date: 05 August 1997
• Citation: 698 A.2d 543,304 N.J.Super. 83
• Parties: Brother Vincent McNALLY and The Christian Brothers Institute, Plaintiffs-Appellants, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 83

304 N.J.Super. 83

698 A.2d 543

Brother Vincent McNALLY and The Christian Brothers Institute, Plaintiffs-Appellants, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Defendant-Respondent.

Superior Court of New Jersey,

Appellate Division.

Argued April 23, 1997.

Decided Aug. 5, 1997.

William J. Bailey, Teaneck, for plaintiffs-appellants (DeCotiis, Fitzpatrick & Gluck, attorneys; Edward N. Fitzpatrick, of counsel; Mr. Bailey, on the brief).

James B. Moran, New Brunswick, for defendant-respondent (Hoagland, Longo, Moran, Dunst & Doukas, attorneys; Mr. Moran, of counsel; Paul C. Vitrano, on the brief).

Before Judges LONG, A.A. RODRIGUEZ ¹ and CUFF.

The opinion of the court was delivered by

LONG, P.J.A.D.

On August 17, 1988, James Hoy and his parents filed a complaint against several individuals and entities, including Brother Vincent McNally and the Christian Brothers Institute (CBI). The complaint alleged that while a student at Essex Catholic High School in the fall of 1982, James Hoy was sexually assaulted by Brother Andrew Hewitt.

CBI, a non-profit organization affiliated with the Roman Catholic Church, provided education and religious instruction and guidance at Essex Catholic, under a contract with the Archdiocese of Newark. In 1982, Brother McNally served as the religious superior of the high school, pursuant to the assignment by CBI. Brother McNally indicated in a certification that at the time of the alleged sexual assaults, in his capacity as religious supervisor, he "was responsible for overseeing governance of [Essex Catholic], as well as the overall management of same." Further, he stated in the certification that:

I worked closely with the provincial leadership in CBI's main office in New Rochelle, New York. In my capacity as a Christian Brother, I have taken a vow of poverty and rely entirely on CBI for room, board and financial support. I receive money from CBI for those expenses not paid directly by CBI and I am under the direction and control of CBI's provincial headquarters in New Rochelle, New York.

The Hoys alleged in their complaint that Brother McNally: (1) negligently and/or intentionally failed to report the alleged assaults to the appropriate authorities; and (2) allegedly conspired to conceal the assaults from them.

At the time of the alleged assault, CBI held two policies of insurance with defendant Providence Washington Insurance Company (insurer). The first policy, a business owner's policy, had a $500,000 limit per occurrence and covered liability incurred by CBI, any executive officer, director, or stockholder while acting within the scope of their duties for all sums which the insured becomes legally obligated to pay as damages because of bodily injury or property damage. The second policy, a commercial umbrella policy, had a $2,000,000 limit per occurrence and covered liabilities of CBI, its executive officers, directors, stockholders, or other employees while acting within the scope of their duties for which the insured becomes legally obligated to pay on account of, among other things, personal injury. In this policy, "personal injury liability" is defined as meaning, among other things, "bodily injury, sickness, disease, disability, shock, mental anguish and mental injury." The umbrella policy provided coverage over underlying policies or self-insured retention where there was no underlying coverage. Both policies in effect at the time of the alleged incident provided for defense and indemnification of the insureds. Additionally, both policies contain "no action" clauses which, in relevant part, prohibit an action against the insurer "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 [insurer]." Both policies also indicate that the insured does not have the right to join the insurer as a co-defendant in any action against the insured to determine the insured's liability.

On October 20, 1988, John Duffy, general counsel for CBI, directed a copy of the Hoy complaint to the insurer. On November 15, 1988, Ross Wasielke, branch claim manager for the insurer, informed Duffy that Brother Hewitt was not an "insured" under the policies.

Apparently there was no further contact between the insurer and Duffy until July 7, 1989, at which time Duffy informed Wasielke that the law firm of Clapp & Eisenberg, counsel for Brother McNally, believed there was a negligence claim in the Hoy litigation against Brother McNally and/or CBI.

Approximately one year later, on July 10, 1990, Duffy again wrote Wasielke and informed him that CBI had not yet been named a party defendant in the Hoy litigation. He also stated that Clapp & Eisenberg advised him there may be a statute of limitations defense, but "none of us would prefer to have to plead such a defense if we do not have to do so." He went on to note:

It appears that a Louisiana attorney has suddenly made his appearance in the case perhaps too well known. He is, we are advised, the attorney for the excess carrier which covers the Archdiocese. He and his company are putting pressure on the Archdiocese obviously seeking to force an early settlement. To that end he wants to see the policy which "insures" Bro. McNally. Of course, there is no such policy!

Our attorneys, Ed Fitzpatrick and John Lloyd of Clapp & Eisenberg ("C & E") do not wish to disclose your policy since they fear it might somehow come to the attention of plaintiff's counsel who might then seek to join the Institute as a party defendant.

They're also concerned that counsel might seek disclosure by means of a motion which would bring it to plaintiff's attention.

We discussed possible alternatives:

a) C & E could permit counsel to review your policy in their office.

b) C & E could attempt to harden the Archdiocese's position vis-a-vis their excess carrier, if that is at all possible.

c) C & E could offer their letter averring that McNally is uninsured and has taken the vows of poverty, chastity and obedience.

Wasielke responded on July 11, 1990 and suggested that Clapp & Eisenberg indicate that Brother McNally is uninsured and has taken the vows of poverty, chastity and obedience.

Subsequently, on September 14, 1990, John R. Lloyd of Clapp & Eisenberg, wrote to Wasielke confirming a conversation two days earlier, in which Wasielke informed Lloyd that Brother McNally was not covered under any policy issued by the insurer. In the letter, Lloyd notified Wasielke that copies of the policies covering CBI were being provided to counsel for the Archdiocese.

The next documented contact between representatives of Brother McNally and the insurer was October 13, 1992, at which time Ed FitzPatrick of Clapp & Eisenberg sent a letter to Scott Lazar, who was at that time counsel for the insurer. The letter stated in relevant part [I]t is clear that Brother McNally would be covered....

We would urge that you read the policy and advise [the insurer] that McNally is insured and that they ought to immediately meet their responsibility both as to a defense and settlement in order to resolve this litigation.

Your client was advised of this law suit years ago and disclaimed coverage. In our view that disclaimer was in bad faith and we will be advising our client to institute suit if we are not able to reach an amicable settlement with [the insurer] (unfortunately that probably means tomorrow).

Since you are only a couple of blocks from my office, you should also know that my entire file is open to you in order that we can be of assistance to you. While it is clear that your late entry into the matter handicaps you; nonetheless your client has known about the matter for years and I have made, over the last several months, at least a dozen telephone calls trying to get their attention.

On October 14, 1992, FitzPatrick sent another letter to Lazar in which he stated that due to CBI's inability to contribute more money to the settlement, the Hoy action would proceed to trial. He further noted that "[CBI] and Brother McNally will hold [the insurer] accountable for all damage assessed by the jury."

On October 15, 1992, the Hoy case settled, apparently for $475,000, with CBI contributing $40,000 on behalf of Brother McNally.

From October 1992 through 1993, the insurer was contacted several times by Clapp & Eisenberg regarding coverage for Brother McNally's portion of the settlement and legal fees in connection with the Hoy matter. The insurer maintained its position that the relevant policies did not cover Brother McNally.

On June 2, 1995, plaintiffs, Brother McNally and CBI through their new attorneys, the law firm of DeCotiis, Fitzpatrick & Gluck, filed a complaint against the insurer seeking legal fees and settlement costs incurred during the Hoy litigation, arguing that the insured wrongfully refused to defend and indemnify the plaintiffs as per the terms of the umbrella policy and the comprehensive liability policy.

The insurer moved for summary judgment. On May 16, 1996, the trial judge issued a letter opinion in which he dismissed the complaint as barred by the entire controversy doctrine because: (1) the facts in the coverage case are sufficiently related to those at issue in the Hoy action; and (2) plaintiffs' current claim arose, was known, and could have been asserted in the underlying action. See DiTrolio v. Antiles, 142 N.J. 253, 267, 274, 662 A.2d 494 (1995); Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 142 N.J. 280, 290, 662 A.2d 509 (1995). Plaintiffs' position that the current claims did not accrue until the settlement and that the "no-action" clauses in the policies precluded them from earlier instituting litigation against the insurer were rejected by the judge:

[T]he precise claims that plaintiffs now assert, their entitlement under the [defendant's] insurance policies to have the company...