New Jersey Appellate Division Dismisses Broker’s Attempt to Hold Defense Counsel Jointly Liable for Failure to Report D&O Claim

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The Appellate Division recently rejected an attempt by an insurance broker to assert contribution and common law indemnity claims against two law firms that represented a mutual client as part of a professional malpractice case the client filed against the broker. The holding confirms the narrow circumstances in which such claims can be successful under New Jersey law. The case is South Brunswick Furniture, Inc., et al. v. Acrisure LLC d/b/a Beckerman & Co. No.:A-2981-17T1, 2020 WL 1043114 (N.J. App. Div. March 4, 2020).

In 2009, the mutual client, a furniture retailer, purchased claims-made Directors and Officers (D&O) insurance on the recommendation of its insurance broker. The D&O policy’s claims-made coverage trigger required a covered claim be made against the client and reported to the carrier as soon as practicable, but in no event later than 60 days after the termination of the policy period. While the D&O policy was in effect, the client was sued in a consumer fraud class action. The client retained one of the law firm defendants (Firm A) as its defense counsel, and then later discharged Firm A and retained a separate law firm (Firm B) to defend it. Neither law firm suggested to the client that it investigate whether the claims asserted against it in the consumer fraud action were covered under the D&O policy.

The client reported the suit to the broker, who advised the client that it would report the suit to the client’s D&O carrier. After further discussion with the client, though, the broker did not report the suit to the insurer. The suit against the client was later reported to the D&O carrier, who denied coverage based on the client’s failure to timely report the suit. The client then sued the broker for malpractice, and the broker in turn filed a third-party complaint against Firm A and Firm B for contribution under New Jersey’s Joint Tortfeasors Contribution Law, N.J.S.A. 2A:53A-1, et seq. (the JTCL) and for common law indemnity. The law firms moved to dismiss the third-party complaint, which the trial court granted. The Appellate Division evaluated each of the broker’s claim in turn and affirmed the dismissal of both law firms.

The broker’s indemnification claim was one based in equity, as there was no contract between the broker and the law firms. New Jersey permits equitable indemnity where a party has been held liable, but that party’s liability is secondary to another, primarily liable party. The broker argued that the law firms should be primarily liable, an argument the Appellate Division noted would effectively absolve the broker from its primary responsibilities of ascertaining the client’s insurance needs, procuring adequate coverage, and taking steps to ensure coverage is available when a covered claim arises. The Appellate Division refused to accept this argument and noted that the client had not claimed it was harmed by the law firms, but rather claimed direct professional negligence against the broker. As such, the Appellate Division dismissed the equitable indemnity claim.

As for the broker’s contribution claim, the Appellate Division held the broker and the law firms were not joint tortfeasors under the JTCL and, thus, that the broker was not entitled to contribution from the law firms, because there was not common liability for the client’s alleged injuries when the client’s cause of action accrued. Rather, the Appellate Division found that each parties’ allegedly negligent act was distinct and occurred at separate times.