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Legal malpractice insurers have plenty of legitimate reasons for denying coverage, but a case heading to a New Jersey appeals court warns them that a denial won’t stick if they take too long to make the decision. In 2001, Harleysville Insurance Co. notified Piscataway, N.J.’s Rubin Kaplan & Associates that it would defend a claim under a reservation of rights. But in 2004, after being the firm’s champion for three years, Harleysville withdrew — setting the firm adrift a month before a scheduled trial. Harleysville argued the reservation-of-rights letter in 2001 was good enough to alert the firm that the carrier might exercise the opt-out clause at any time. The notice explained why coverage was problematic and recommended that the firm retain personal counsel. Even so, Middlesex County, N.J., Superior Court Judge Nicholas Stroumtsos says the carrier left the final decision hanging too long. There was no statement in the letter that the policyholder had the right to accept or reject the reservation of rights. And there was no evidence the insurer made a prompt investigation that would lead to a definitive yes or no decision on coverage, Stroumtsos ruled on Feb. 18 in Kaplan v. Harleysville Insurance Company, Mid-L-8117-04. His ruling also suggests that when it comes to the mumbo jumbo of insurance, lawyers can’t be held to a higher standard of knowledge than the general public. Referring to the 2001 notification, Stroumtsos asked rhetorically at a hearing, “If you wrote a letter to an attorney who did house closings, would the attorney know what you meant by that?” Judging from his opinion, the answer is no. As a result, the Harleysville, Pa., carrier is now in jeopardy of having to pay the $750,000 settlement Rubin Kaplan reached, during its period of abandonment, with the disgruntled ex-client. And Stroumtsos ruled on April 27 that Harleysville must pay Rubin Kaplan’s defense costs and the cost of hiring an insurance coverage lawyer, Morristown, N.J., solo William Voorhees Jr. “The lesson for lawyers is, if your carrier is being the neighborhood bully, you can fight back,” Voorhees says. The lesson for carriers is simpler: If you suspect you aren’t obliged to cover, don’t pussyfoot around. Act immediately. If there are such things as innocent bystanders in a legal malpractice case, Richard Kaplan and Frank Rubin qualify. In July 1994, partner Clifford Kuhn brought a personal injury case into the firm and took the case with him when he and the firm split a year later. It was a sensational and difficult matter. Client Tracey Scotto was the widow of an oil tanker driver who was asphyxiated by gasoline fumes while trapped in the cab of his vehicle after it turned over on a notoriously dangerous stretch of Route 515 in Sussex County, N.J., in 1992. Kuhn sued the unsuccessful rescuers, the driver of another vehicle and public entities, alleging there was shockingly substandard safety on the highway, known as Breakneck Road. But the case was dismissed on grounds that Kuhn had provided insufficient evidence or experts’ theories of liability, particularly against the public entities. Kuhn didn’t appeal and delayed so long telling the client she had lost, it was too late for a new counsel to get the case reinstated, an appeals court said. So Scotto filed a malpractice case against Kuhn and firms he had been in between 1994 and 1997, including Rubin Kaplan. Under the firm’s claims-made policy with Harleysville, it was covered for alleged negligence that resulted in any claim during 2001, which was when Scotto sued. But the policy also had a “retroactive date” to August 1995, meaning any alleged malpractice that occurred before then wouldn’t be covered. The carrier notified the firm on Feb. 23, 2001, that it would provide a defense, but reserved the right to withdraw if the theory of liability against the firm alleges an act, error or omission that occurred prior to the policy retroactive date. The letter added, “You may wish to retain personal counsel to protect your uninsured interest.” In the meantime, Harleysville provided a blue-chip defense counsel: James Rothschild Jr. — now an Essex County, N.J., Superior Court judge but at the time a partner in Morristown’s Riker, Danzig, Scherer, Hyland & Perretti. Kuhn and other lawyers with whom he had been partners were represented by other carriers, and for a time it looked like none of the insurers had much to worry about. A judge threw out the malpractice claims on grounds that Kuhn wouldn’t have won the underlying case even if his lawyering had been impeccable. But an appeals court reinstated the claim on April 2, 2004, saying there was sufficient evidence that Sussex County’s poor maintenance of the road had caused Scotto’s accident. The widow could take Kuhn to trial for not finding the crucial evidence and presenting it. BELATED DISCLAIMER Nothing focuses a carrier like an appeals court decision reversing a summary dismissal. Scotto v. Kuhn, A-1692-02T5, fit the bill. Carriers for Kuhn and another set of lawyers reached a confidential settlement with Scotto. Harleysville wrote a letter to the law firm: Remember that reservation of rights we sent you in 2001? Now we’re disclaiming coverage and here’s why. Coverage is limited to acts after the retroactive date, which doesn’t include the time Kuhn was in the firm. And the firm doesn’t fit the definition of Kuhn’s predecessor firm in the policy language. It’s still a mystery to everyone outside the company why Harleysville didn’t bow out in 2001. A spokesman for the company wouldn’t comment. Outside counsel Diana Hendry of Morristown’s McElroy, Deutsch, Mulvaney & Carpenter says she can’t comment except to say she thinks the judge’s decision was erroneous and an appeal is in the works. Scotto’s lawyer, Woodbridge, N.J., solo Toni Ann Marcolini, says she believes the carrier didn’t follow up the 2001 reservation-of-rights letter because the lawyers called in by other carriers took the lead in the defense. She theorizes that Harleysville didn’t begin focusing on its exposure until the appeals court reinstated the case. “Until then, they underestimated the claim,” she says. Hendry argued that while case law goes against carriers that abruptly deny coverage after years of defending, it’s OK to do so if the law firm is put on notice of a possible problem. And the notice sent to Rubin Kaplan in 2001 was specific enough, she argued. The company should at least have the right to develop evidence that it had no reason to believe there would be a disclaimer until it was made, Hendry argued. Stroumtsos ruled, however, that the company, having supplied a defense for so long, was estopped from denying coverage later, and he granted summary judgment to the firm. If the ruling is upheld, Harleysville could have a lot of coverage to provide. After losing its carrier-supplied defense, Rubin Kaplan reached a $750,000 settlement with Marcolini under Griggs v. Bertram, 88 N.J. 347 (1982). That case authorizes defendants who are abandoned by their carriers to reach settlements with plaintiffs, and the carrier has to pay if it loses the coverage dispute and the settlement was made in good faith. Marcolini says the settlement was reached after a lengthy negotiation and that she is confident it will withstand any charge by the carrier that the pact was collusive. Tracey Scotto and her daughter, born after the accident, received nothing from the defendants in the underlying case. “They have struggled,” Marcolini says, and the malpractice settlements will be a great help to them. The firm and its coverage lawyer, Voorhees, also have reason to be buoyed. Stroumtsos awarded them $42,000 under the fee-switching provisions of insurance coverage law.

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