Kimberly A. Jolley, et al. v. John J. Marquess, et al., ___A.2d___, 2007 WL 1518114 (N.J.Super.A.D.)

Brief Summary
Addressing a question of first impression, the Appellate Division of the New Jersey Superior Court held that a malpractice insurance policy’s definition of “insured” ― which included a former partner “while acting solely in a professional capacity on behalf of” the partner’s former firm ― required the insurer to defend and indemnify for work the lawyer did both before and after he had left the firm. The decision has important things to say not only about the scope of malpractice coverage but also about the importance for attorneys and insurers alike of proper transfer of client matters when a lawyer leaves a firm.

Complete Summary
John Marquess was a partner and employee of the firm Marquess, Morrison and Trimble, P.A. The firm had professional liability coverage with Zurich Specialties London Limited (“Zurich”). Marquess, Morrison and Trimble had been retained by American Independent Insurance Company (“AIIC”) to defend its insured, Barbara Gorna, regarding an auto accident that seriously injured Kimberly Jolley.

Marquess, Morrison and Trimble filed an appearance in the personal injury action. The designated trial attorney for the case was Mr. Morrison, as AIIC was primarily considered his client. However, he requested the assistance of Mr. Marquess who subsequently became the primary firm attorney involved in the case.

Between March and November 1998, plaintiff sent numerous “Rova Farms” letters to Mr. Morrison at Marquess, Morrison and Trimble and to AIIC. These were demand letters stating that the insurance company had a fiduciary duty to try to settle the claim within the policy limits where the damages exceeded policy limits. The AIIC policy limits in this case were $15,000. In December 1998, Ms. Jolley’s attorney notified Marquess, Morrison and Trimble that his client would no longer accept the policy limits. Id. at *1. A few days after the letter from Ms. Jolley’s attorney, Mr. Marquess responded that AIIC was willing to pay the policy limits to resolve the claim. Ms. Jolley’s attorney replied that it was too late and that his client was going to pursue all her damages and would expect the carrier to pay any damages in excess of the policy limits. During this same time frame, disputes arose among the partners at Marquess, Morrison and Trimble, which resulted in Mr. Marquess leaving the firm to set up his own solo practice. An agreement was made for Morrison and Trimble to buy Mr. Marquess’ interest in the partnership effective April 30, 2000, at which time the firm would be dissolved. The new firm would be known as Morrison and Trimble. Mr. Marquess would remain with the firm as “senior trial attorney” until April 30, 2000, but his status from November 3, 1999, until April 30, 2000, would be “senior trial attorney” rather than partner. Id. at *2.

The Jolley case was originally scheduled for trial on May 15, 2000. Mr. Morrison was not prepared to try the case, and he requested that Mr. Marquess do so, which Mr. Marquess agreed to do if he could bill AIIC directly to assure payment. Importantly, a substitution of counsel was never filed, and at the time the case ultimately was tried by Mr. Marquess on August 8-9, 2000, Marquess, Morrison and Trimble was still counsel of record. Id. at *3.

The jury verdict was against Gorna for 100 percent liability. Without obtaining Ms. Gorna’s consent, Mr. Marquess stipulated to damages of $878,475. Mr. Marquess told Ms. Gorna that she would not be personally responsible for the judgment, although this was not stated in the Order of Judgment issued on September 5, 2000.

Subsequently, Ms. Gorna assigned her rights to Ms. Jolley in exchange for an agreement not to execute against her on the judgment. After determining that the rights to a legal malpractice claim could not be assigned, Ms. Jolley and Ms. Gorna jointly sued Mr. Marquess/Marquess, Morrison and Trimble and AIIC. Id. at *3. They alleged a bad faith claim against AIIC and a malpractice claim against Mr. Marquess/Marquess, Morrison and Trimble. The malpractice action had several counts, including one for fraudulent misrepresentations.

Mr. Marquess filed a third party complaint against Zurich to confirm that it was obligated to provide him with coverage for the malpractice suit. Zurich denied coverage for any work done by Mr. Marquess after the firm dissolved. Id. at *3. The lower court granted summary judgment in favor of Mr. Marquess and required Zurich to defend and indemnify him for all claims by Ms. Jolley. Id. at *4. This appeal followed.

The court first addressed the issue of whether Mr. Marquess would be considered an “insured” for all of the work he did both before and after leaving Marquess, Morrison and Trimble. Under the definition of insured in the Zurich policy, the following two clauses were present,

“(c) any person who is not defined as Named Insured, but was, is now, or hereinafter becomes an employed lawyer or another employee of the firm or predecessor firms named in the Declarations solely while acting in a professional capacity on behalf of such firm or firms;

“(d) any former partner, officer, director or stockholder employee of the firm or predecessor firms named in the Declarations while acting solely in a professional capacity on behalf of such firms;

“(e) any partner, officer, director or stockholder employee of the firm or predecessor firms named in the Declarations who have retired from the practice of law, but only for those professional services rendered prior to the date of retirement from the Insured firm….”

*Id. at *5. The court concluded that subsection (c) would provide coverage to Mr. Marquess for services he provided after he ceased being a partner and became a “senior trial attorney” for Marquess, Morrison and Trimble but before he left the firm. The remaining issue was whether he was an insured after he left the firm, but continued to work on the Gorna case. The court described the language in sections (c) and (d) as vague and noted the well-settled principle that insurance policies as contracts of adhesion would be construed in favor of the insured in situations of ambiguity. Id. at *6, citing Voorhees v. Preferred Mut. Ins. Co., 607 A.2d 517 (1989) and Progressive Cas. Ins. Co. v. Hurley, 765 A.2d 195 (2001).

In resolving this core issue, the court focused on the distinction between whether the dominant inquiry would be whether the client remained a client of the original firm and whether the date of Mr. Marquess’ departure from the firm was the key. The court concluded that Zurich could have made the matter quite clear by using the same language it used for section (e) regarding retired firm members, which clearly limited the coverage to services provided prior to date the retired member left the firm. Instead, the court focused on the language in sections (c) and (d) which addressed work done “solely on behalf” of the insured firm. Id. at *7.

With that focus, the court then concluded that the facts in this case supported that Mr. Marquess was acting on behalf of Marquess, Morrison and Trimble and its client even after he left the firm. He was asked to try the case by Marquess, Morrison and Trimble; daily trial reports were sent to AIIC and Marquess, Morrison and Trimble; Mr. Morrison continued to work on the file as well prior to trial. Critically, the client was never advised of a change in representation, the client was never asked to consent to a change in representation, and no substitution of counsel ever was filed with the court. Id. at *7. For these reasons, Mr. Marquess was deemed to be an “insured” under the Zurich policy. The court considered the fact that AIIC paid Mr. Marquess directly to be irrelevant, treating it as a logistical matter that had no bearing on the policy language at issue.

The court next addressed whether there was defense and/or indemnification coverage for Mr. Marquess based on the malpractice complaint. The court cited precedent, which held the duty to defend would not be limited merely to what was set forth in the complaint. See SL Indus. v. Am. Motorist Ins. Co., 607 A.2d 1266 (1992). The court held the allegations in the complaint were broadly stated to trigger defense and indemnity for all services provided by the defendants, including Mr. Marquess, both before and after he left the firm. 2007 WL 1518114 at *9. Although the policy excluded indemnification for fraudulent conduct, but did provide a defense to such claims, Mr. Marquess was entitled to defense coverage for this count as well. Id. at *10.

Significance of Case
This case stands for a couple of very important propositions:

First, a law firm’s malpractice insurance policy was interpreted to provide coverage for the conduct of a lawyer that occurred well after the lawyer left the firm. The court’s opinion makes it clear that the insurer could have avoided this risk with a policy worded more clearly than the ambiguous provisions in the policy here.

Second, the insurer was left holding the bag on coverage here even though the key reason for that conclusion by the court was that the law firm and the former partner of that firm each had neglected to assure that the client and the court were properly notified that a change of counsel had occurred. Put differently, the insurer arguably was left on the risk because of negligent handling of the terms of representation by the lawyers after Mr. Marquess left the firm. Had the client been notified of a change of counsel and consented to it, and if the counsel of record had been changed with the trial court, it is doubtful that the appellate court here would have held the insurer responsible for defending and indemnifying Mr. Marquess for his conduct in the case after he left the firm. This highlights the importance for law firms and insurers alike of proper transfer of client matters when a lawyer leaves a firm.

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