*1 COMPANY, TITLE FIRST AMERICAN INSURANCE PLAINTIFF- APPELLANT, LAWSON, JR., WHEELER, ESQ., v. EDWARD SNYDER, L.L.P., BANK, LAWSON & SUMMIT ADAM M. SLA SLATER, VII, INC., TER, JILL L. K. HOVNANIAN AT WAYNE SNYDER, WHEELER, KENNETH E. AND CRAIG J.J. ESQ. ESQ., DEFENDANTS. CORPORATION, TITLE PLAINTIFF-AP LAWYERS INSURANCE SNYDER, L.L.P., PELLANT, WHEELER, v. LAWSON & KEN WHEELER, LAWSON, JR., ESQ., ESQ., NETH C. EDWARD SNYDER, MASON, AND SEAN G. DEFEN CRAIG J.J. ESQ. DANTS. LLOYD'S, LONDON, AT PLAINTIFF- CERTAIN UNDERWRITERS RESPONDENT, LAWSON, JR, ESQ., v. KENNETH E. EDWARD WHEELER, SNYDER, WHEELER, ESQ., J.J. AND CRAIG ESQ. SNYDER, L.L.P., DEFENDANTS, K. LAWSON & AND HOVNA VII, INC., AT AMERICAN TITLE INSUR NIAN WAYNE FIRST ANCE COMPANY AND LAWYERS TITLE INSURANCE COR PORATION, INTERESTED PARTIES. 3, 2003 Argued July March Decided 2003.
Richard L. argued Plotkin appellant the cause for First Ameri- can Hardin, Title Company (Pitney, Szuch, Insurance Kipp & attorneys; Slowata, brief). Mr. Plotkin and L. Deborah on the
Russell M. Finestein and D. Malloy argued Michael the cause appellant (Finestein for Lawyers Title Corporation Insurance & Malloy, attorneys). for Priestley argued F. the cause and Robert
Diane J. O’Neil O’Neil, (Mendes Mount, attorneys; Mr. Priest- Ms. respondent & brief). Genovese, E. Laura on ly and opinion of was delivered The the Court VERNIERO, J. concerning attorney’s questions presents ease difficult
This in practicing a law while exposure uninsured coverage liability partnership. The firm’s as a organized limited partner managing know- the firm’s Specifically, is at stake. also he to an misrepresentations applied when ingly had made material the firm malpractice coverage behalf of and for insurer misrepre- Division that such Appellate The concluded members. coverage firm’s void insurer to consider the entitled the sentations initio, is, had coverage as if it never existed to treat ab attorneys firm itself. reverse or for the We any firm’s firm’s is void part. in We hold that the part, in and affirm defalcating but entity partner, respect of the firm as an and in partner. respect in innocent not
I. only the We summarize record this case extensive. The disposition. to our history facts that are relevant procedural and dispute do those facts. parties Lawson, Jersey New law liсense obtained his Edward Jr. practice law in Con- was licensed to Kenneth E. Wheeler 1992. Columbia, was not licensed but the District necticut partnership law formed a Jersey. and Wheeler New Lawson 1997, Craig spring In the or summer early 1997. late 1996 Wheeler, firm, Lawson joined which Snyder then became J.J. agreement up partnership Snyder drew a formal Snyder, L.L.P. & registered firm as limited parties and between the During all Jersey Secretary of State. partnership with the New action, law Snyder practice licensed relevant to this times office. Unlike the firm’s Manhattan York maintained in New *5 Wheeler, Snyder performed Lawson and little or no work in the office, Jersey Guttenberg. firm’s New which was located testimony, According deposition to a Lawson’s Wheeler acted as closing attorney for several real estate transactions in New Jer- sey, though practice even was not he licensed to here. Consistent testimony, with that Wheeler a attorney acted as Lawson’s own closing involving January residential real in Mahwah in estate 1999. “delegated”
Lawson that further testified he had to Wheeler the authority open and maintain firm’s bank accounts and maintain ledgers. purportedly the firm’s account Wheeler “knew everything going that was on with In regard, books[.]” that writing system banking the firm’s “check ... [and] on-line system computer.” [were] on Lawson also [Wheeler’s] indicated most, all, that arrangements Wheeler if not “did of the with the respect distributing closing cheeks, banks” real-estate re- gardless attorney actually of which particular had handled the partners transaction. apparently signatory All three had authori- ty certification, however, over the firm’s business account. In a Snyder to, from, he indicates that “never funds transferred [fjirm’s within Jersey New business or trust accounts.” only record indicates that Wheeler Lawson issued cheeks from the firm’s trust account. Lawson considered Wheeler the firm’s managing partner. early 1998,
In late 1997 or Lawson discovered that Wheeler had transferring money accounts, been improperly from various client including mother, Lawson’s widowed into other client accounts and into firm’s business account. When Lawson discovery, confronted Wheeler with that responded Wheeler necessаry pay the monies expenses. were the firm’s Rather than halt practice, joined Lawson Wheeler what became essentially “kiting” scheme whereby monies one client trust account would be trans- obligations being
ferred to of another client. Monies were also pay transferred from client trust to the accounts law firm’s account to business of the pay expenses including law firm, draws. On Lawson also partners’ occasion, used client trust including his own use. all of his mother, personal By account those funds, to this scheme. nor accounts, party, neither Snyder privy, Title v. *6 [First Lawson, American Ins. Co. 407, 414, (App.Div.2002).] 1997, firm and its members December behalf of the On through professional liability insurance Jami- applied for Wheeler (Jamison), Risk, broker for Special Inc. a domestic Certain son (Underwriters). Lloyd’s for of Wheeler London Underwriters the required application and verified provided information used a purpose, For that Wheeler CNA application as a whole. specifically for designed a form Under- application form instead of writers. following Wheeler confronted completing application, In
. three-part question: firm of: aware your
After inquiry, attorney against the film or member of the claims made a. Any professional firm within the months? past services that be may reasonably or omissions acts, professional b. error Any of claim? to be the basis a expected professional been to CNA? Have claims incidents c. all reported and/or questions a and and markеd for b the box “NO” Wheeler cheeked question c. an answer for did cheek warranty 30,1998, signed statement assert- April a On Wheeler application the information the CNA ing to Underwriters that rely on Based on that insurer could it. accurate and statement, professional Underwriters subscribed application and 19, 1998, behalf, beginning April liability policy on the firm’s 19, to include defines “Insured” expiring April 1999. “any lawyers who are firm the “Named Insured” as solely Acts on behalf Insured ... but partners the Named also issued a certificate The insurer of the Named Insuredf.]” 1998, 8, this Court as insurance, May naming the Clerk of dated certificate holder. entering an financing policy by into for the
The firm facilitated Finance, (Imperial). Un- Premium Inc. agreement Imperial with attorney- Imperial as agreement, designated the firm der in-fact, granting right it cancel if the did not pay required premiums. payment did When it not receive 1998, premium due in Imperial purportedly December mailed the policy. firm a notice of intent cancel the The cancellation Jamison, eventually of January occurred 1999. Underwrit- broker, offering ers’ wrote to Wheeler the policy reinstate Imperial should payment premium receive firm’s and a warranty renewed statement. time, Attorney
At about the same this Office Court’s Ethics (OAE) notified the firm that conducting the OAE would be audit of the firm’s books. The OAE acted as a result three grievances concerning that it handling had received the firm’s certain real estate January transactions. That notice is dated 1999. 22, 1999, January presumably
On after the firm had received *7 notice, the audit warranty. Wheeler executed the In new so doing, he affirmed: being during against I am aware of not claims made the any five the past years
firm of its any or or past owners, present partners, shareholders, corporate officers or or I am also employees predecessors business. not aware of circum- any allegations or stances contentions as to which result in any incident, a may being against claim made firm or the of its past owners, present partners, shareholders, officers or or its corporate employees predecessors business. warranty by Wheeler delivered the faxing to Jamison it on Janu- 26,1999. ary day, sought temporary
On that same the OAE suspension practice Lawson from the of law. This suspended Court Lawson later, Lawson, 79, about a week re In 157 N.J.
(1999), Lawson, ultimately 201, and disbarred him. In re 165 N.J. 1167 (2000). 755A.2d defalcations,
As a result of the numerous First American Title (First American) Company Insurance Lawyers and Title Insur- Title) Corporation insurers) (Lawyers (collectively, ance the title paid each claims to various individuals. The title insurers in turn sought recovery from the firm and partners. specifically, More American by filing First this action complaint initiated a verified Lawson, buyers, pay as to certain did alleging that counsel $339,212 First American also property. to a seller real due complaint It a filed a second named the as defendant. adding that prior claims claims Lawson hаd reasserting the and approximate in the satisfy outstanding mortgage failed to $97,285 closing estate in which he another real amount of (which eventually In represented buyer. complaint the second includ- complaint), First American was consolidated with first Snyder, as individual partners, ed two Wheeler and Lawson’s defendants. against the firm
Similarly, Lawyers brought complaint Title a Wheeler, Lawson, individually. Snyder That against Lawson, pur- who complaint alleges that certain clients were $143,763 into a client trust property, deposited of real chasers that Lawson had issued account. It asserts that check prior mortgage property off a pay that account Lawyers alleges further that Title returned for insufficient funds. another mоrtgage representative as Lawson failed record purchaser property. of real legal noti- problems, of the firm’s Jamison
Apparently unaware February policy had been firm’s fied Wheeler notice Snyder Jamison a of insurance thereafter sent reinstated. those regarding above matters. The carrier denied claim claims. declaratory judgment alleging action filed
Underwriters then January 1999” and firm’s “was that the cancelled of the purported “was void reason reinstatement Warranty[.]” After misrepresentation forth material set *8 action, Title its Lawyers amended had filed Underwriters against firm and its both the complaint, asserting additional counts complaint partners. First American amended individual liability partnership status should be the firm’s limited assert that professional insur- to maintain void for failure declared required by ance our Rules of Court. as 134
Snyder complaint answered Underwriters’ and asserted certain defenses, including supervised, affirmative that he “never con- encouraged any alleged [Lawson] doned to commit of the acts complaint.” Snyder in the also filed a cross-claim for contribution from, by, and Lawson filed indemnification and a counterclaim against coverage policy. Underwriters for under the firm’s Un- Snyder’s by denying derwriters answered counterclaim his claims defenses, coverage asserting separate and certain including 16, 1999, policy January that the was cancelled as and was not validly. reinstated Underwritеrs’ answer further asserts policy coverage arising excluded for “claims out of criminal con- activity, dishonest, as arising duct well as claims out of fraudulent, malicious or intentional acts.” eventually
The three actions were consolidated. First Ameri- can, Title, Lawyers respective and Underwriters filed motions seeking summary judgment. The trial court consolidated parties’ disposed and July motions them orders issued September and 2001.
Although it concluded that
policy
firm’s
did not insure
against
and
Lawson’s Wheeler’s “criminal
dishonest con-
and/or
duct,” the trial court
policy
found that the
did cover the firm’s
separate legal entity
as a
distinct from that of its individu-
partners.
al
The court concluded that
firm’s
insurance with
Underwriters was not void
had
propеrly.
not been cancelled
granted summary
It thus
judgment in
favor
the title insurers
against Underwriters, indicating
that the former entities were
coverage
“entitled to
under [Underwriters’]
for their re-
spective
damages
subsequent
be determined at
hearing[.]”
Appellate
granted
Division
appeal
leave to
on behalf of
Underwriters and reversed the trial
court’s determination
American,
decision. First
reported
supra,
N.J.Super. at
412,
n.
panel
135 in had cancelled the accor properly Underwriters whether statutory applicablе law. contractual terms and dance 'with its Ibid. Lawyers separately Title before American and moved First granted appeal, to and we both motions. this Court for leave (2002). 357, N.J. A.2d 191
II. analyze interplay between appeal, To this we must resolve rules, arising first set of in the bodies of law. The two established field, liability for individu- corporate parameters establishes the second, arising partners liability partnership. a limited al law, coverage to permits an insurer rescind when under insurance coverage, misrepresented insured, applying in for that has an dispute on the conduct parties’ Because the centers material fact. must our Court that seek attorneys, also consider Rules of we by mandating that New protect legal services consumers in certain circum- Jersey attorneys adequate maintain insurance appropriate us ultimately requires to strike stances. This case competing tenets. applying those sometimes balance A. liability partner- briefly governing review the law limited We action, rules this those were ships. all times relevant At - N.J.S.A. 42:1-1 to Law, Partnership the Uniform codified under Law). (UPL Legislature repealed In or December Act, N.J.S.A Partnership replaced the UPL with the Uniform Act). (UPA -56, parties L. or Because 42:1A-1 c. 161 this action’s effect when dispute do not UPL arose, analysis our statute underlying facts we focus rather than on the current UPA. states, part:
The UPL relevant Subject in a limited section, liability e. d. of this partner partner- to subsection indemnification, contribu- liable, directly indirectly, by way either ship chargeable obligations of or and liabilities tion, otherwise, debts, assessment or arising negligence, otherwise, whether contract or tort, to the partnership, wrongful omissions, or misconduct committed acts, while the malpractice, partner- is a limited the course of the ship limited partnership agent, or an business another
partnership partner employee, representative *10 of the limited liability partnership. of d. Subsection c. this section shall not affect the of in a a liability partner negligence, wrong- limited for his own omissions, liability partnership malpractice, or acts, misconduct, ful that of under his direct any person and supervision control. § L. [N.J.S.A. 42:1-15, 3.] c. 1995, 96, incorporates agency govern- The UPL also principles to the law ing partnerships. provides: The statute agent is an of the for Every partner business, the of its and partnership purpose including act the of the execution in every the name of partner, partnership any carrying for on in
instrument, the usual the business of the way apparently of he is a which member binds the unless partnership the so partnership, partner acting has fact no to act for the authority the partnership particular matter, dealing knowledge and the with whom he has is the fact that he has no person such authority. § L. [N.J.S.A. 42:1-9.1, 9.] c. 1919, 212, Harmonizing meaning provisions, the of the above two First, principles emerge partner under any the UPL. can execute instrument, as an application requiring such for insurаnce the payment premiums, doing partnership and so can the bind ordinary Thus, any a whole the course its business. one partner general can incur partner business indebtedness the Second, ship’s behalf. when a is a limited partner special a ship, partners rule exists to incurring liability shield arising solely wrongful partners. from the acts of Although fellow they personal misconduct, remain for liable their own partners of a limited partnership profes are not responsible for the negligence sional or wrongful partners. acts of other
B. is equitable The law well provides settled fraud for a party basis to rescind a Cty. contract. Ctr. Jewish Sussex Whale, 619, (1981). v. general, equitable 86 N.J. 432 521 “In A.2d (1) requires fraud proof misrepresentation a material of a (2) fact; presently past existing the maker’s intent that the
137 (3) it; by the other rely on and detrimental reliance party other Indem., 447, 453, N.J.Super. 337 party.” Liebling v. Garden State 606, denied, 424 169 782 A.2d N.J. (App.Div.), 767 A .2d515 certif. (2001). initio, meaning it is ab Rescission voids the contract if beginning” and treated as it does “null from the considered (7th ed.1999). Dictionary Law purpose. for Black’s exist contract, of an insurance Within context in the whether itself or insured, contained representation by rights under for will the forfeiture the insured’s insurance, support application insurer, if it material risk assumed untruthful, particular insurer in the issuance of the policy. relied actually reasonably upon by (App.Div. A.2d Ins. v. [Allstate Meloni, 158-59, Co. 1967).] subjective application evaluating an that calls In insurance i.e., information, in inquiry, is an additional whether there completing false the information was when sured knew that William, Co., 138 N.J. application. Ledley v. Penn Ins. Life *11 (1995). subjective information 636, Examples of about an to indicate belief when an insurer asks insured include here, health, when, ibid., insurer as the of his or her status any. which applicant “is aware of circumstances asks whether an against First being firm[.]” claim made the may result in a 419, American, “[A] A.2d 661. supra, 351 at ques if equitable fraud the subjective question will not constitute knowledge applicant and probing the toward of tion is directed of mind ... the answer is a correct determining state his and Ledley, knowledge belief!.]” applicant’s and statement (internal 636, and quotation marks supra, A.2d 92 138 N.J. at omitted). citation
C. attornеys “engage explicitly Rules authorize Our of Court same liability partnerships law as limited practice of in the partnership may engage as an individual or a manner l:21-lC(a). adopted in 1997 that rule practice R. We law[.]” Court-appointed commit- considering of a recommendations after attorneys tee formed “to consider permitted whether should be practice Report law in Supreme [that] form[.]” Court by Liability Committee on the Practice Law Compa Limited (June 1996) (Re Liability nies at 1 Partnerships and Limited port). attorneys per The committee “concluded that should be subject mitted use these business forms to certain conditions.” conclusion, provides Ibid. Consistent that with the rule that “[a]ll Act, provisions Partnership of the Unifоrm 42:1-1 N.J.S.A. 49, with, through complied except shall be where inconsistent with l:21-1C(a)(l). these rules.” R.
takeWe this occasion to correct a minor textual error. Al- though Act,” it Partnership refers to “Uniform the rule cites 49,” through 42:1-1 actually “N.J.S.A. which is the citation for the Partnership originally adopted, Uniform Law. As rule should Law, have referred Partnership to the Uniform not to the Act. See Report (referring at Partnership to Uniform Law as basis of rule). juncture because, The error at this already academic noted, Legislature repealed replaced has the Law with the Pressler, pursuant Act to L. c. 161. See Current N.J. Court Rules, (2003) R. comment on L21-1C (describing history rule’s effect). instructing Act that now is conditions, of the namely,
One committee’s recommended liability partnеrships carry insurance, limited adequate is codified (a)(3). A component rule, subsection provi- critical of the sion mandates that good standing [t]he limited shall obtain and maintain one or partnership more policies which lawyers’ professional liability insurance shall insure the against damages limited it liability partnership law for liability imposed upon
resulting against claim made the limited its clients partnership by arising out of the services performance professional by attorneys employed by *12 the limited in their liability partnership capacities as attorneys. l:21-lC(a)(3).] [it specifies rule the minimum coverage required. insurance Ibid. It also liability mandates that limited partnerships file with insurance, the Clerk of this Court “a certificate of issued the insurer, setting the forth name and address of the insurance required by paragraph policies writing the insurance company (a)(3) R. and limits.” rule the number of this and l:21-lC(b). file the Additionally, requires firms to with rule of to of the certificate any and renewals “[a]mendments Clerk days on which such amend- ... within 30 after date insurance Ibid. or renewals become effective.” ments grounded in this constitu- requirements are Court’s The above legal profession. N.J. Const. authority regulate See tional ¶ VI, 2,§ shall have (providing “Supreme Court Art. law jurisdiction practice to the over the admission admitted”). encapsulate They the same 'discipline persons appeal. in this On the one interests that are at stake competing hand, attorneys oppоrtunity practice provides Rule 1:21-1C entity for its members. that includes limited a chosen other, protect legal services On it seeks to consumers ade- by requiring such entities to maintain attorney malpractice limited quate requirement rule’s insurance. The updated of insur- any certificates partnerships file initial and objec- those of the Court consistent with ance with the Clerk bottom, public’s exposure rule to limit the helps At tives. legal in this services arising receipt from the uninsured risks State.
III.
tenets,
inquiry
our
focuses
foregoing
threshold
applying
In
application
responses recorded on the insurance
on Wheeler’s
warranties. Wheel-
contained
the two
form and his statements
30, 1998, warranty
false
April
his
obviously
er
knew that
engaging
practice
in the unauthorized
on
own conduct
based
his
with Law-
client funds
concert
misappropriating
of law and in
Further,
January
knowledge
his
with
son.
knowledge of
im-
presumed
and with
Lawson’s defalcations
falsely
audit,
warranty.
new
It
pending OAE
executed a
Wheeler
“not
circumstances
represents that he was
aware
*13
allegations
incident,
may
or contentions as to
which
result in
being
against
partners[.]”
claim
the
made
of its ...
circumstances,
Appellate
correctly
Under those
the
Division
anything
found “that no reasonable factfinder could conclude
other
than that
[answers
Wheeler knew his
and
to be
statements]
false.”
American,
420,
supra,
First
at
fraudulent activities been known. (internal omitted).] [Id. at citations question The thornier concerns whether and to what extent misrepresentations Wheeler’s should result in a forfeiture of cov- еrage. question requires Resolution four inquiries: distinct (1) coverage respect Wheeler, whether should be rescinded in (2) (3) (4) Lawson, entity, the firm as an Snyder. We will inquiry separately address each in that order. difficulty We no discerning consequences have Wheeler’s misrepresentations respect himself. Wheeler Our provides case law right Underwriters with the clear to rescind coverage Wheeler’s in the face of his misrepre blatant and direct disagree sentations. We with the title insurers that the exclusive remedy for such fraud is cancellation that would take only effect prospectively. Appellate As properly Division observed, equitable remedy rescission is an that “operates a law, matter It contraсt. lies within the inherent discretion of the court.” at Id. 661. A.2d We therefore conclude that Wheeler’s misconduct entitles Underwriters to consider the policy void insofar as that individual is concerned. coverage
Similarly, the carrier is entitled rescind furnishing role in the misinforma respect of Lawson. Lawson’s role. direct as Wheeler’s is not as clear or tion to Underwriters *14 however, funds, was in client misappropriating conduct Lawson’s Wheeler’s, left the are with so intertwined with that of we known Lawson knew or should have unmistakable conclusion that false or mislead to the carrier contained that the forms submitted Bastien, 175 Safety Ins. v. ing & Ass’n information. Palisades Cf. (2003) 144, 151, (holding material A.2d that husband’s N.J. 814 619 personal injury protec misrepresentation to carriеr voided wife’s (PIP) occupied “unique in she had part tion benefits because actions). ques There are no position to be of’ husband’s aware resolve; jury or for a to concerning either Lawson Wheeler tions thus, respect void in of both individuals. the to is entitled consider whether Underwriters
We next
There,
entity.
the
respect
of the firm as an
coverage
rescind
complicating
is that
straightforward.
factor
analysis is not as
One
have
permitted rescission
prior
Jersey
that have
New
cases
entities,
insureds,
sole-practitioner
rather
concerned individual
See, e.g.,
entity in
case.
multi-person firms like the
this
than
Boston, 19 N.J.
England
Ins. Co.
Gallagher v. New
Mut.
of
Life
(1955)
policies);
(concerning two life insurance
We are managing firm’s he was the the firm as a whole. Because eases to chiefly person occupied special as the partner, a status Wheeler Permitting firm’s process. the application responsible for essence, would, in coverage Wheeler’s defalcations survive entity subterfuge for as a partnership of condone use attorney in a lone not a case which conduct. This is fraudulent managing partner had knowingly supplied firm multi-person merely partner forwarded with false information that the Rather, knowledge fаlsity. carrier without of its firm’s two partners engaged wrongful managing three had conduct and the partner, wrongdoer, himself a had concealed that conduct when applying facts, policy. for the firm’s On those carrier is coverage entity. entitled to rescind as an the firm remaining Snyder’s concerning coverage issue is the Many most concepts support voiding difficult. of the same Wheeler, Lawson, in respect the firm as a whole and. support however, also it in voiding respect Snyder. Snyder, way participated no in the fraudulent conduct of his part fellow Snyder ners. Lawson testified that engage misap did not propriation knowledge any improprieties and had no or that the Further, foundering. Snyder Lawson did not inform grievanсes filed with OAE that the OAE had demanded Snyder an audit. partner also was a distant in the sense that he Wheeler, did not share offices with Lawson and but instead *15 practice his in separate conducted Manhattan office he that alone maintained. Because he did not issue checks from firm’s accounts, Jersey Snyder New presumably was unfamiliar with the ledger firm’s trust-account or with similar records that Wheeler managing partner. maintained as require Those facts us Snyder to consider an innocent partner purposes for balancing equities of attendant in these circum- Further, by organizing stances. liability the firm as a limited partnership, Snyder every expect had reason exposure to his that liability to would be in circumscribed accordance with Uniform Partnership differently, voiding Law. Snyder’s coverage Stated solely partners’ because of wrongful his potentially conduct would expose Snyder to in uninsured a manner inconsistent with (We his expectations express under the UPL. opinion regard- no ing Snyder’s any actual party, regarding to whether any allegation against Snyder coverage in excluded accor- dance policy’s with the contractual terms. Our sole task is to policy determine whether the itself is as a void matter of law as applied Snyder.)
Moreover, Snyder policy respect would mean voiding the coverage any of actions in longer possess for his that he no would matters, including simple malpractice, might that have unrelated Thus, coverage. apply during anticipated period occurred mem could leave ing rule of law advocated Underwriters Snyder represented throughout had that public, bers of the whom though the himself committed no period, unprotected even insured view, sweeping In our that result would be fraud. harsh it contrary public specifically, to the interest. More would be underlying Rules policies with the our of Court that inconsistent by requiring attorneys protect legal consumers services seek to adequate setting. in this Fisher v. New to maintain insurance Cf. Ass’n, Underwriting Jersey Ins. Auto. Full 557-58, (App.Div.1988) (allowing PIP benefits for parties underlying insurance third even when innocent policyholder’s misrepresentations). void otherwise is due equities do not warrant rescissiоn of We thus conclude that coverage. holding is confined Snyder’s We reiterate our suggest question. not solely legal The Court does to that narrow coverage opinion scope of the of that other respect Snyder insofar as might policy’s issue it relate to the existence as Appellate found no Understandably, Division is concerned. given original any question regarding Snyder need to review Appellate disposition. Accordingly, we remand the matter might appropriate it deem to consider issue that Division opinion. this resolution view of rescinding
Lastly, acknowledge we Wheeler, Lawson, entity, firm an but respect and the degree drawing. respect Snyder, encompasses a certain line *16 howevеr, dissent, disposition convinced that our we are Unlike remedy, equitable proper which with as an is consistent rescission given totality in a case and ly on of circumstances depends Assocs., Inc. v. See Intertech resides within court’s discretion. Paterson, 52, 59, (App.Div. A.2d City 1992) grounds exist (observing for rescission “[e]ven that where Here, remedy discretionary”). ... those circumstances public, distinguishes include our concern for the which this matter typical succinctly the more contract case. As the trial court “Equitable observed: relief does not mean automatic relief.” We underlying policy being sufficiently respect view the as divisible in partner each so partial permissi- individual is a rescission Thus, remedy ble on facts before us. to the extent that we have drawn certain disposing appeal, boundaries in of this competing equities required As disputes, have it. for future we do optimism not share the attorneys dissent’s innocent legal protected consumers of adequately services would be absent designed carefully holding. our
IV. judgment Appellate Division part is affirmed in part. reversed The matter to is remanded that court issues, any, might consider if appropriate those that it deem for opinion. jurisdic- resolution consistent with this We do not retain tion.
LaVECCHIA, J., dissenting. I Appellate would affirm the Division decision for the reasons expressed in persuasive opinion by Judge authored I Parrillo. only following add comments.
Distilled, plaintiff this ease is about whether title insurers must full rеsponsibility companies, fact, bear on risk agreed those respective to insure or whether may their lightened liabilities be by requiring a malpractice provide coverage insurer under a policy it would have issued but the insured’s misrepresen- application. join tations in I am loath to a result that could be perceived tolerating as procurement fraudulent of insurance. The majority grants partial what profession- amounts of a rescission that, view, my al should be deemed void ab initio procured representations. based fraudulent Allowing cover- age attorneys for even one of comprising the three law
145 ignores the application on the for insurance misrepresented that have issued a that the insurer never would critical fact partner for of one partners but the deceit covering the (who clients), complicity partner, a money second stole from partner. a third and the indifference of misrepresentation is a material appropriate is where Rescission misrepre upon, it relied the intent that will be made with is, fact, upon one’s Jewish Ctr. relied detriment. sentation (1981); Whale, 619, 624-25, 432 521 County v. 86 A.2d Sussex N.J. (3d Al § & Supp.2003). ed. 1995 2 on Insurance 31:81 Couch case, majority precisely in this happened is what though that rescinding policy, as would stops the entire insurance short void ah a contract of insurance is declared normally occur when initio, partial of the contract. See and instead orders resсission Danvers, Elec. v. 411 Mass. Co. Town Mass. Mun. Wholesale (1991) (stating general rule that “[a] N.E.2d 292-93 577 may initio, beginning, void void ab contract which is noting “[jjudicial equitable doctrines not be enforced” and given that “courts treat life into such a contract” cannot breathe made”); v. see also Remsden as if it had never been contract (1976) 587, 589, Co., (stating 421 Dependable N.J. 367 A.2d Ins. 71 justify misrepresentations application rescission material initio). policy ah appropriate accepted partial rescission generally
It is divisible, the basis for rescission remedy only a contract is where contract, of a warrant and the facts case does affect the whole Insurance, 31:69; § see also supra, such relief. Couch (1998) Fauver, 80, 97, 707 N.J. A.2d County Mоrris v. into trans- “[ojnly is severable different (stating where contract avoided”); may separate those transactions be actions one of 599, 612, Petrol, Epstein, 115 N.J. v. Borneo Inc.
(1989) partially is not to be (acknowledging rule that “a contract rescinded”). appli- present opportunity case does not This rescission, may be. seductive that result partial however cation of subject policy covered a The not have a divisible contract. We do comprised law firm partners. misrepresentations of three concerning professional liability claims, potential during made application process, made were on behalf of the entire firm. That *18 attorneys, firm, three acting on behalf of were insured under policy does not render divisible into different transactions. insured,
Even if the were divisible as to each named total rescission still procurement warranted where the goes fraud Insurance, 2 of the entire swpra, § contract. Couch on 31:68 (stating ground may that “the for rescission such be as to affect contract, validity parts not, all of the whether divisible or in rescinding which case a decree the entire contract is of course ibid, proper”). (noting that policies “where two are issued Cf. upon application fraudulent, a single policies may which is both be rescinded”). The basis for rescission misrepresen- here—material concerning potential application tations claims on the for a сlaims- professional liability made policy—most assuredly insurance af- validity fected the of the entire contract. Accord Home Indem. Toombs, (N.D.Ga.1995) F.Supp. v.Co. 1569 (rescinding legal malpractice policy as to entire firm misrepre- based on material application). in sentation inherently
As an discretionary remedy, rescission is awarded Assocs., case-by-case Paterson, City basis. Intertech Inc. v. 52, 59, (App.Div.1992). I leave day another whether equity would not profes allow rescission policies sional settings. Query insurance other whether rescission would be partner allowed where a in firm guilty successfully malfeasance concealed his misdeeds from other partners responsible who were for procuring insurance and who work, undertook inform generally themselves about the firm’s including safeguarding There, of client trust fund accounts. settings, equities other might poised be differently than they I are here. trust future cases the fact-sensitive equitable analysis required for protect rescission over would whelming majority of conscientious law li- attorneys firms and rules of contract But traditional in this State. practice censed majority that the partial rescission support the do not rescission that this is rightly concluded Appellate Division here. The orders defrauded coverage in favor of the rescinding a classic case for company. insurance part; remandment—Chief part; reversal
For affirmance VERNIERO, LONG, COLEMAN, PORITZ and Justices Justice and ALBIN—6. ZAZZALI affirmance—Justice LaVECCHIA—1.
For
827 A.2d *19 PLAINTIFF-RESPONDENT, JERSEY, v. NEW STATE OF GARRON, DEFENDANT-APPELLANT. ANDERSON 4, 2003 July 2003. Argued March Decided