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