A Capehart Scatchard Blog

Insurance Carrier’s Reservation of Rights Found Sufficient To Permit Later Disclaimer

By on May 29, 2014 in Blog with 0 Comments

In Petersen v. New Jersey Mfrs. Ins. Co., 2014 N.J. Super. Unpub. LEXIS 995 (App. Div. May 2, 2014), the Appellate Division considered whether NJM adequately reserved its rights so as to permit it to later disclaim coverage. In Petersen, Lonnie and Kathleen Petersen’s son, Brandon, stabbed and robbed a neighbor. He was charged with attempted murder.

The neighbor, Doris Zayacz, sued Brandon and his parents in a civil suit. She alleged negligent, willful and wanton, and intentional acts. NJM decided to appoint counsel to represent the parents on the negligent and willful and wanton counts subject to a reservation of rights letter. It disclaimed as to the intentional act or punitive damages claims and advised that the insureds may want to retain counsel at their expense to cooperate with NJM’s counsel as to those claims.

NJM sought the Petersens’ consent to the representation by asking them to sign a copy of the letter, acknowledging their approval to the terms of the defense. However, the insureds never signed the letter. But, they did accept the services of the defense counsel chosen by NJM.

Discovery commenced but then was stayed pending a resolution of the criminal proceedings. Brandon pled guilty to the charges.

After the Supreme Court rendered its decision of Villa v. Short, 195 N.J. 15 (2008), ruling that a criminal acts clause such as the one in NJM’s policy barred coverage for all insureds under the policy, NJM disclaimed coverage as to the parents. Accordingly, it directed its assigned counsel to withdraw as their attorney.

A  judgment was entered and the Petersens assigned their rights against NJM to the plaintiff to pursue it’s the amount of the judgment. Thereafter, this matter ensued whereby the plaintiff attempted to collect on the judgment against the Petersens from NJM.

However, the Appellate Division found that NJM had properly reserved its rights and was able to disclaim coverage. NJM had informed the Petersens that it was investigating the matter and that its assigned defense counsel was directed to defend the insureds “until such time as any coverage issues have been resolved.”

Further, although the Petersens did not sign the reservation of rights letter to indicate their approval of NJM’s terms, they did accept the services of NJM’s defense counsel. By accepting this representation, the court found that they had accepted NJM’s terms.

This case bears out the importance of a properly worded reservation of rights letter. Although this case found that acceptance of the chosen defense counsel constituted an acceptance of the terms of the carrier’s offer to defend, language can be placed directly into the reservation of rights letter, stating that whether or not it is signed, acceptance of the services of the chosen defense counsel would be considered an acceptance of the terms of the defense.


About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 30 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020-2023, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

“Best Law Firms” is published by Best Lawyers in partnership with U.S. News & World Report. For a description of the selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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