DeMarco v. Stoddard, 434 N.J. Super. 352 (App. Div. 2014). In P.V. v. Camp Jaycee, 197 N.J. 132 (2008), discussed here, the Supreme Court replaced the “governmental interest test” that had guided choice of law decisions with the “most significant relationship” test drawn from the Restatement (Second) of Conflict of Laws. This opinion by Judge Ashrafi applied that test on somewhat unusual facts in the context of medical malpractice insurance coverage.
Plaintiffs, the DeMarcos, filed a medical malpractice lawsuit against defendant Stoddard, a podiatrist, regarding foot surgery that Stoddard had performed. Stoddard looked to the Medical Malpractice Joint Underwriting Association of Rhode Island (“JUA”) for coverage, but the JUA responded that because Stoddard had misrepresented in his insurance application that at least 51% of his practice was in Rhode Island, the JUA would not provide coverage. (Tellingly, however, Stoddard’s application contained only a New Jersey telephone number, not a Rhode Island one, so that the JUA might have inferred that his practice was not primarily in Rhode Island).
The JUA filed a declaratory judgment action in Rhode Island against the DeMarcos and Stoddard to vindicate the JUA’s claim that it need not provide coverage. The DeMarcos were never served, and they asserted that Rhode Island had no jurisdiction over them. Stoddard defaulted in the Rhode Island case, and the Rhode Island court entered judgment declaring that the JUA had no obligation to indemnify or defend Stoddard in the New Jersey malpractice case.
Thereafter, the DeMarcos and the JUA filed cross-motions for summary judgment in the New Jersey case. The Law Division ruled for the DeMarcos. That court held that the Rhode Island judgment was not binding on the DeMarcos and that the JUA was required to indemnify Stoddard in the New Jersey case in the minimum amount ($1 million) mandated by statute. The Law Division also awarded attorneys’ fees to the DeMarcos for having succeeded in defeating the JUA’s disclaimer of coverage. The JUA sought leave to appeal, which was granted. In an opinion by Judge Ashrafi, the Appellate Division affirmed the ruling below.
Though the issue of whether New Jersey or Rhode Island law applied was at the heart of the case, Judge Ashrafi first had to dispose of a number of procedural arguments asserted by the JUA. Those included arguments that the Rhode Island judgment was entitled to res judicata or collateral estoppel effect against the DeMarcos, contentions that Judge Ashrafi rightly rejected. The DeMarcos were never served in Rhode Island and there was no jurisdiction over them. Nor were they in privity with Stoddard, who had been served and who defaulted.
The DeMarcos contended that the JUA could not assert the applicability of Rhode Island law in opposition to the DeMarcos’ motion for summary judgment. This, the DeMarcos said, was because the JUA had not argued for Rhode Island law in its pleadings or on its own motion for summary judgment. “A trial court, however, has discretion to permit a party to raise a choice-of-law issue even if it was not raised earlier.” Nor did judicial estoppel apply against the JUA. The JUA had never taken a contrary position on choice of law, so judicial estoppel did not apply.
Once Judge Ashrafi was finally able to turn to the choice of law issue, he observed that both New Jersey and Rhode Island “would restrict the rescission remedy available to insurance carriers in order to provide some protection to innocent third parties for whose benefit compulsory insurance laws were enacted.” Like auto insurance, a New Jersey statute mandates medical malpractice insurance. The panel cited New Jersey auto insurance cases, and concluded that “[i]n the same way as the general public uses our roadways, medical patients can reasonably assume New Jersey doctors are complying with the law and carrying compulsory malpractice insurance. Insurance in at least the minimum compulsory amount should remain available for the benefit of innocent patients who suffered injuries when the policy was in effect.” Judge Ashrafi found that Rhode Island auto cases would support that same result.
However, the two states’ laws differed on the issue of whether and to what extent medical malpractice insurance was compulsory. Thus, the panel performed a Camp Jaycee choice of law analysis. The four factors derived from the Restatement– competing interests of the states, the interests of commerce among the states, the interests of the parties, and the interests of judicial administration– all pointed to New Jersey law or were neutral. Thus, the panel affirmed the ruling of the Law Division on the merits.
Finally, Judge Ashrafi upheld the award of attorneys’ fees to the DeMarcos. Rule 4:42-9(a)(6) authorizes fees “[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.” The DeMarcos were successful, so the fee award to them was proper.