In the unreported opinion of Johnson v. Plasser American Corporation, the Appellate Division recently held that an insured is not automatically entitled to attorneys fees expended in an underlying action when coverage is contested as a “successful claimant” simply because its insurance carrier contributes to a settlement on its behalf. Rather, a determination must first be made that the insured was entitled to coverage in the first instance.
In Johnson, Plaintiff sustained serious personal injuries during the course of his employment with TGI. He filed suit against TGI, alleging theories of both negligence and intentional conduct. TGI had insurance from two carriers: (1) Workers’ Compensation coverage, and $1,000,000 in employer’s liability coverage, from NJM; and (2) a separate Commercial General Liability policy with $1,000,000 limits, and an Umbrella liability policy with $4,000,000 from Hartford. NJM provided counsel to defend TGI. Hartford rejected TGI’s request for defense and indemnification under the CGL policy; however, because the notice of claim provided to Hartford did not refer to the Umbrella policy, Hartford’s response similarly did not address the availability of coverage under this policy. More than two years later, TGI’s defense counsel requested coverage for TGI under the Umbrella policy from Hartford. Hartford did not respond.
TGI filed a coverage action against Hartford seeking a declaratory judgment …
Plaintiff subsequently filed an amended Complaint seeking a declaratory judgment that there was coverage under the Umbrella policy. TGI filed a coverage action against Hartford seeking a declaratory judgment and alleging breach of insurance contracts, breach of the covenant of good faith and fair dealing, and bad faith. The actions were consolidated.
Subsequent to consolidation, a $5,000,000 settlement demand was made by Plaintiff. Counsel for Hartford advised TGI’s counsel it would agree to contribute the $4,000,000 limits of the Umbrella policy to the settlement with the expectation that NJM would contribute $1,000,000. Hartford further expected that TGI would dismiss the coverage action. While TGI agreed to the settlement package, it further advised it expected reimbursement of over $71,000 in legal fees incurred in the coverage action which it would not have incurred but for Hartford’s denial of coverage. The underlying matter settled but the coverage action remained. The trial court granted Hartford’s motion for dismissal of all coverage claims prosecuted by TGI, finding TGI was not entitled to Umbrella coverage under the Hartford policy.
On appeal, TGI argued that Hartford had a duty to defend and indemnify it in the underlying action, and that Hartford exercised bad faith by failing to respond to the demand for Umbrella coverage. Its application sought fees. The issue before the Appellate Division was whether TGI was a “successful claimant” entitled to such fees, because coverage was owed under the Umbrella policy.
The Appellate Division first found that TGI was not entitled to a defense from Hartford under the Umbrella policy because the policy, by its terms, did not provide for a defense until the underlying coverage was exhausted. The NJM policy had a $1,000,000 limit on Employer Liability coverage, and no limit on Workers’ Compensation benefits. NJM’s duty to defend was not terminated until it actually paid its limits, which did not happen during the course of litigation. Therefore, Hartford’s obligation to defend TGI was not triggered. The Appellate Division next found that TGI was not entitled to indemnification under the Umbrella policy because of the operation of its exclusions. Finally, the Appellate Division found that Hartford had not acted in bad faith; although it failed to timely respond to the request for Umbrella coverage, its failure was negligent at best. The Court also cited a lack of follow-up by TGI or its representatives.
In short, the Appellate Division found that there was no coverage available under the Hartford Umbrella policy, and Hartford had no duty to defend or indemnify TGI in the underlying action. Therefore, TGI was not a “successful claimant” entitled to recovery of attorneys fees, and the trial court correctly dismissed TGI’s declaratory judgment action.
The Court’s decision in Johnson reflects that the Court will not award attorneys fees against a settling party in an action involving a coverage dispute merely because it settles. Many factors go into settlement, and oftentimes these factors reflect a business decision, rather than an admission of liability. Therefore, in order to recover fees, the proponent must also convince the Court that its claim is meritorious.
By Jill A. Mucerino, Esq.