District Judge Nicholas G. Garaufis
Medical supplier Med-Plus Inc. was a named insured in a commercial general liability policy issued by defendant insurer. It was added as a defendant in Abbott Labs. v. Adelphia Supply USA (Underlying Action), whose second amended complaint modified the substance of trade dress infringement claims seeking punitive damages. Med-Plus’s diversity suit charged breach of contract and sought a declaration of entitlement to independent counsel in the Underlying Action. Denying defendant insurer dismissal, the court granted Med-Plus partial summary judgment and issued its requested declaration. From their communications it was clear defendant insurer asserted a right to select Med-Plus’s counsel in the Underlying Action, while Med-Plus asserted a right to proceed with its chosen counsel. Thus, there was an “actual controversy” for 28 USC §2201(a) purposes. Under both New York and New Jersey law, the possibility of punitive damages created a conflict of interest that entitled policyholders to independent counsel. Based on the threat of punitive damages in the Underlying Action, Med-Plus was entitled to select independent counsel therein, limited to issues presenting a probable conflict of interest with defendant insurer.