New Jersey Supreme Court Ruling on who is responsible for attorney’s fees in an insured’s claim against an insurer

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The New Jersey Supreme Court recently issued a disappointing decision in Shore Orthopedic Group, LLC v. The Equitable Life Assurance Society of the United States, 972 A. 2d 381 (NJ 2009) with regard to the payment of counsel fees in insurance disputes. Shore Orthopedic had purchased a disability policy to cover some of the expenses of the practice, if their associate orthopedist became disabled.
When the time came to pay on the policy, Equitable denied coverage, claiming the disabled doctor had not revealed a medical condition that had become apparent between the initial application for coverage and the payment of the first premium.
In litigation The Equitable failed to produce its own claim handling guidelines. In the lower court proceeding Shore Orthopedic obtained a court order requiring Equitable to produce its claims manual and awarded Shore Orthopedic $50,000 as a sanction against Equitable’s improper conduct in intentionally misrepresenting that such a manual did not exist. However, the court denied plaintiff’s counsel’s motions for counsel fees.

In a disappointing decision, the New Jersey Supreme Court upheld the lower courts’ decision to deny an award of counsel fees. Thus the insured remains saddled with both fighting the unjust denial of his case, and paying his own counsel fees. The Supreme Court refused to consider this a “third party claim” for insurance coverage, although the policy insured a doctor and the beneficiary of the policy proceeds was the entire orthopedic practice.
My concern is that our New Jersey Supreme Court overlooks the extreme financial distress experienced by insureds in New Jersey when their insurance company, who readily accepts the premium payments refuses to pay a legitimate claim without justifiable reason. When the insured is forced to litigate the action, he is faced with an additional expense, that of competent counsel to represent him. Experienced counsel will typically spend hundreds of hours fighting for their client’s legal rights to insurance money. But when New Jersey counsel wins the case, the client has to pay their fee, often from the proceeds of the insurance claim. Therefore the insured is not “made whole” by the successful litigation. Until our Supreme Court and Legislature take a closer look at this issue, unfortunately insureds will continue to suffer financially even when they win the battle.