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An applicant for legal malpractice insurance who fails to disclose known facts that could lead to a malpractice claim, even if no claim has been filed, may be denied coverage as a matter of law, the New Jersey Supreme Court says. The justices on Wednesday affirmed summary judgment in favor of the insurer in Liberty Surplus Insurance Corp. v. Nowell Amoroso Klein Bierman , A-91-05, finding “the trial court would have had to ignore reality to conclude that Nowell Amoroso did not have knowledge that a claim might be filed against it.” The Hackensack firm now faces a malpractice trial in which it will have no insurance coverage. The underlying case began in 1994, when Nowell Amoroso was retained by an East Orange nightclub, Scandals, to sue the city for harassment. The city flouted discovery rules and a judge handed the club a $400,000 judgment, but the city got it overturned by showing the suit was filed beyond the Tort Claims Act’s two-year statute of limitations. Further appeals followed, and the Appellate Division twice affirmed the dismissal, most recently in June 2002. The firm petitioned the Supreme Court for certification. In July 2002, Nowell Amoroso applied to Liberty Surplus Insurance Co. Inc. for a malpractice policy. One of the questions on the application was whether “any lawyer insured under this policy: [had] knowledge of any circumstance, act, error or omission that could result in a professional liability claim.” The firm had a one-word answer: “No.” Later that month, the Court denied the firm’s certification petition, and a year later, the club owners sued Nowell Amoroso for legal malpractice. When Liberty Surplus got notice of the claim, it denied coverage, refused to defend and filed a suit for a declaratory judgment, which the trial court granted and the Appellate Division affirmed. When the case was argued to the Court last October, Liberty Surplus’s lawyer said that blowing a statute of limitations is almost certain grounds for a malpractice claim, and Nowell Amoroso’s lawyer should have anticipated it when the Appellate Division dismissed the suit. “There is no way the lawyers had an honest belief” that no claim was looming, says Elliott Abrutyn, of Livingston’s Morgan Melhuish Abrutyn. The justices on Wednesday agreed, finding no genuine issue of material fact warranting a trial of the issue. “Nowell Amoroso knew that [the nightclub owner's] claim against the East Orange defendants had been dismissed based on the failure to file the complaint within the statute of limitations period,” Justice John Wallace Jr. wrote for the unanimous Court. Wallace rejected affidavits from the firm’s lawyers attesting to their belief that they did not think they would be facing a malpractice action. “In light of the events that had transpired, those affidavits were insufficient to create a genuine issue of material fact,” he wrote. Nowell Amoroso’s pleading tactic in the declaratory judgment action may also have undone its chances on appeal. The firm filed a motion for summary judgment first and Liberty followed with its cross-motion, which was granted. On appeal, its attorney, Christopher Carey, argued that the grant was premature because discovery was not complete. Wallace disagreed. “When both parties to an action ‘move[] for summary judgment, one may fairly assume that the evidence was all there and the matter was ripe for adjudication,’” he wrote, citing Morton Int’l, Inc. v. Gen. Accident Ins. Co. of Am., 266 N.J. Super. 300, 330 (1991), aff’d, 134 N.J. 1 (1993). That case, which concerned coverage for environmental damage, held an insured’s subjective intent may not be controlling when undisputed facts show otherwise. Abrutyn says the ruling sends a clear signal to attorneys: Be forthcoming, and err on the side of discretion, when applying for malpractice insurance. “Law firms have to disclose in the application any potential error they’ve committed,” he says. “Here, they knew there was a likelihood a complaint was going to be filed. If there is any basis to believe you have breached a duty, there is a good chance you’re going to be sued.” The insured’s lawyer, Carey of Morristown’s Graham Curtin, does not disagree in principle. “It is in an attorney’s best interest to disclose to its carrier any possible mistake because then the carrier is responsible,” he says. “You’re putting the carrier on notice.” “It does beg the question, though,” Carey adds: “Why make a declaration when you’re going to be barred from making a claim?”

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