A malpractice carrier need not indemnify a New Jersey law firm whose principal unwittingly omitted an associate's potential liability issues from the insurance application, a New Jersey appeals court said.
"[W]hen the exclusion clause of this policy referred to 'Named Insured,' it is clear that the term included both the firm as an entity and the individual attorneys employed by the firm," the Appellate Division said its its unpublished opinion on Feb. 27 in Imperium Insurance Co. v. Porwich.
The firm manager cannot "reasonably rely upon his asserted lack of personal knowledge ... to defeat the clear terms of the policy," the panel added.
According to the decision, the firm, Feintuch, Porwich & Feintuch of Jersey City, New Jersey, was retained in 2006 by Ismael Salgado in connection with a fall on a snowy sidewalk outside an apartment building.
The matter was handled by firm attorney Alan Porwich, who filed a personal injury action against the apartment building's supposed owner in February 2007, one day before the statute-of-limitation period was set to expire. But that person had died years earlier, and Porwich never identified the actual owner. The suit was dismissed with prejudice for lack of prosecution, the opinion said.
Porwich later testified that he was struggling with personal issues at the time of Salgado's engagement, but knew his inaction likely would lead to a malpractice suit, the opinion said.
Several times, Salgado unsuccessfully asked Porwich to return his file, and later filed an ethics grievance, which eventually resulted in a censure being issued by the state Supreme Court, according to court records.
In December 2008, prior to the ethics matter, firm manager Philip Feintuch applied to Imperium Insurance Co. for a malpractice policy, and answered in the negative a question about whether firm attorneys—"'any of you'"—had been "'aware of any incident, circumstances, acts, errors, omissions, or personal injuries that could result in a professional liability claim[.],'" according to the opinion.
Feintuch later acknowledged that he did not ask Porwich about any potential issues before filing the form, even though the latter had prior disciplinary cases. Feintuch also admitted to having no supervisory system in place to monitor other attorneys, and had a "'don't ask policy.'" the opinion said.
Feintuch renewed the policy in December 2009, and answered the pertinent policy questions in the same way, according to the opinion.
After Salgado filed his October 2010 malpractice suit, Feintuch Porwich sought coverage from Imperial, which issued a series of reservation-of-rights letters and eventually filed an action seeking a declaration that it was not obligated to indemnify the firm.
In a bench trial, Hudson County Superior Court Judge Lourdes Santiago denied the request, obligating Imperium to defend Feintuch Porwich. The judge said the 2007 state Supreme Court ruling in Liberty Surplus Insurance Corp. v. Nowell Amoroso required using a subjective standard–hinging coverage on what the named insured, Philip Feintuch, knew about potential liability, not other firm attorneys. She found that Feintuch didn't have actual knowledge of Porwich's errors, according to the opinion.
Santiago denied Feintuch Porwich's fee request, but did award about $48,000 in fees to Salgado, whom Imperium named a defendant because of his interest in the outcome of the declaratory judgment action.
Imperium appealed, contending that the trial court erroneously determined coverage based on Feintuch's subjective knowledge of Porwich's actions, and Appellate Division Judges Susan Reisner, Michael Haas and Carol Higbee agreed in a per curiam decision.
The "terms of the policy clearly excluded [the firm's] claim because Porwich was fully aware that his actions would likely lead to Salgado filing a malpractice claim against him and the firm," the panel said, noting that the policy "'expansively' defined the term 'you' to include" any firm attorney.
"Thus, Porwich's knowledge of his own errors in the Salgado matter was plainly critical to the issues of coverage," the court said.
The court noted that the small, three-person firm "held Porwich out to the public as a partner and he had an extraordinary amount of responsibility in the firm."
"In spite of this fact, Feintuch adopted a policy of not asking his associates if they were facing any possible professional liability claims because he believed they would bring those matters to his attention," the court said. "In Porwich's case, however, this policy was honored only in the breach because Feintuch admitted knowing that Porwich had been the subject of prior claims, and that Porwich never brought those matters to Feintuch's attention until after they were resolved."
The court also reversed the $48,000 fee award to Salgado, finding that he could not be deemed a successful claimant under Rule 4:42-9(a)(6).
During the pendency of the declaratory judgment action, Imperium continued to defend Feintuch Porwich in the malpractice suit, which ended in a defense verdict favoring the firm, according to the opinion.
Jonathan Koles of Koles, Burke & Bustillo in Jersey City, who represented Salgado in both cases, said he was handling the malpractice action on contingency and "got pulled sideways" into the declaratory judgment action.
"I'm out a lot of time and money, but more importantly, Mr. Salgado got nothing," Koles said.
He said an appeal to the Supreme Court is unlikely. "The outcome is entirely moot now," except for the fee issue, he added.
Feintuch and Porwich couldn't be reached, and the firm's outside counsel, Jack Wind of Margulies Wind in Jersey City, declined to comment other than to say that an appeal from their side is also unlikely.
Steven Lewbel of Melito & Adolfsen in New York, Imperium's counsel, didn't return a call seeking comment.