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A law firm’s legal malpractice policy can be rescinded if a partner lies on the application, despite the other partners’ claims of being “innocent insureds,” the Superior Court Appellate Division in Trenton, N.J., ruled June 4. The judges said that a partner who completed the insurance application — and failed to disclose a range of ethical problems — was an agent of the firm, acting by authorization of the two other partners . First American Title Insurance Company v. Lawson, A-0992-01T5. The Guttenberg, N.J., firm of Wheeler, Lawson & Snyder applied to Lloyds of London in January 1996 for professional liability insurance soon after it learned that the Office of Attorney Ethics would audit its books based on grievances over real estate transactions. The partner submitting the application, Kenneth Wheeler, was not admitted in New Jersey but was engaged in real estate practice there. To boot, he had misappropriated client trust funds, according to the appeals court. To rectify the misappropriations, he and partner Edward Lawson Jr. devised a kiting scheme, using funds from one client account to pay obligations to another. Disciplinary proceedings ensued. Lawson consented to disbarment. The third partner, Craig Snyder, was not privy to the scheme, the ruling says. When two title insurers brought claims of professional malpractice against the firm and its partners, certain underwriters at Lloyds brought an action seeking a declaration that the policy was rescinded or provided no coverage. Passaic County, N.J., Superior Court Judge Robert Passero denied Lloyds’ motion for summary judgment, prompting the appeal. Judge Anthony Parrillo, joined by Judges Sylvia Pressler and Jose Fuentes, rejected the trial court’s reasoning that the firm and other “innocent insureds” are not bound by the misrepresentations of one partner. The judges found that the Uniform Partnership Law, N.J.S.A. 42:1-1 to -49, which R. 1:21-1c makes applicable to limited liability partnerships for lawyers, provides that partners acting within the scope of the business bind not only the partnership but their co-partners. The panel also rejected Passero’s holding that rescission was not available because the contract only provided for cancellation as a prospective remedy. Lloyds was entitled to rescission because it proved misrepresentation, the maker’s intent that the other party relied on that misrepresentation and detrimental reliance by the other party, the judges said. One of the plaintiffs, First American Title Insurance of Santa Ana, Calif., is considering an appeal, says its attorney, Richard Plotkin, a partner at Pitney, Hardin, Kipp & Szuch in Morristown, N.J..

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