Fifteen Years Since Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A.

It’s been awhile since this blog featured an anniversary post. Today is a good day to do so. On this date in 2007, the Supreme Court decided Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436 (2007). According to Lexis, that opinion by Justice Wallace, for a 6-0 Court, has been cited over 600 times.

The issue in the case, as Justice Wallace put it, was “whether summary judgment may be granted in favor of an insurer on the issue of coverage where the insured answered ‘no’ to a subjective question on the insurance application– whether the insured had knowledge of any circumstance, act, error or omission that could result in a legal malpractice claim against it. The Court answered “yes” and affirmed a summary judgment for the plaintiff insurer.

The defendant law firm had obtained legal malpractice coverage from the plaintiff. One month before the law firm applied for coverage, however, the Appellate Division issued an opinion that held that a complaint that the firm had filed on behalf of a client in a particular case had not been filed within the statute of limitations. Despite that, the firm stated on its application for insurance that it had no knowledge of anything “that could result in a professional liability claim.” Plaintiff issued a “claims made and reported” policy that included coverage for acts, errors, and omissions prior to the policy period.

Thereafter, the client in the statute of limitations case sued the law firm for malpractice. The firm looked to plaintiff for coverage. Plaintiff disclaimed coverage and filed an action for a declaratory judgment that it had no obligation to cover the law firm because the firm had a reasonable basis to foresee a malpractice claim when the firm applied for coverage from plaintiff.

The insurer and the law firm each moved for summary judgment. In opposition to the insurer’s motion, attorneys at the firm submitted certifications stating that they did not have a reasonable basis to believe that there could or would be a professional liability claim against the firm.

The Law Division granted summary judgment to the plaintiff insurer. The Appellate Division affirmed. On further review, the Supreme Court also affirmed.

The parties agreed that the question on the insurance application called for a subjective response. The Court applied that standard. But despite that, and the attorney certifications by the law firm, “subjective intent may not be controlling when the undisputed facts reveal otherwise.” Justice Wallace said that “the trial court would have had to ignore reality to conclude that Nowell Amoroso did not have knowledge that a claim might be filed against it” when the Appellate Division had concluded that the firm had missed the statute of limitations. The record was so one-sided that summary judgment for the insurer was appropriate.

The law firm also argued that it should have been able to supplement the record before the Appellate Division with an expert opinion that it had not committed malpractice. The Appellate Division had denied supplementation.

Justice Wallace noted that Rule 2:5-5, the supplementation rule, applied only to supplementation on appeal of an administrative agency record, not a court record. But he ruled that the Appellate Division had “inherent power” to allow supplementation of a trial court record.

Nonetheless, the Court ruled, supplementation was properly denied. The law firm “could have sought that report prior to filing its own motion for summary judgment,” thus avoiding the need for belated supplementation, and given the undisputed evidence, adding the expert report to the record would not have changed the outcome.