MARCH 2016 BAD FAITH CASES: ATTORNEYS FORMERLY REPRESENTING INSURER IN DECLARATORY JUDGMENT ACTION WERE NOT ALLOWED TO LATER REPRESENT INSUREDS AS DEFENSE COUNSEL IN CIVIL ACTION (New Jersey Appellate Division)

In Bukowiec v. Adamo, the case arose out of a one car accident resulting in a death and severe injury. The car had been provided to the driver’s mother as a courtesy car by a dealer. The insureds were successful in defeating a declaratory judgment against one of their potential insurers, i.e., the dealer’s insurer. The trial court found coverage was due from that insurer. The opinion makes repeated references to that insurer ultimately intending to appeal the trial court’s decision, which was interlocutory and not then appealable as of right.

One of the insurer’s law firm’s on the declaratory judgment claims later entered an appearance for the insureds as defense counsel, to defend the insureds against the underlying civil claims brought by the estate of one of the accident victims. That law firm withdrew as the insurer’s counsel as to the declaratory judgment aspect of the matter.

The insureds agreed to allow that counsel to serve as their defense counsel in the civil litigation. However, plaintiff’s counsel on the civil claims moved for disqualification. The appellate court ruled for the disqualification.

Among the various reasons discussed, the court stated: “[the insured’s and insurer’s] interests remained adverse after the [firm] withdrew from representing [the insurer]. It remained in [the insured’s] best interest to settle the case. [The insurer’s] only position of record — espoused by the … firm during earlier proceedings — was its intention to appeal. For these reasons and those we have previously noted, ‘there is a significant risk that the representation of [the insured] will be materially limited by [the …firm’s] responsibility to . . . a former client,’ namely, [the insurer]. R.P.C. 1.7(a)(2). In view of the … firm’s previous representation of [the insurer], it cannot now advocate the reasons [the insurer] should make a good faith effort to settle plaintiff’s claims, including avoiding a bad faith claim.”

Date of Decision: January 6, 2016

Bukowiec v. Adamo, DOCKET NO. A-4092-13T1, SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2016 N.J. Super. Unpub. LEXIS 36 (App. Div. May 12, 2015) (Fisher, Nugent, Manahan, JJ.)