MAY 2018 BAD FAITH CASES: “OVERWHELMING CREDIBLE EVIDENCE” OF INSURED’S MATERIAL MISREPRESENTATION JUSTIFIED COVERAGE DENIAL (Superior Court of New Jersey, Appellate Division)

The insured law firm submitted a renewal application for a professional liability policy. Asked whether he knew of any potential legal malpractice claims pending against him, the insured answered “no.” The insurer renewed the policy, and the insured later faced a malpractice claim based upon circumstances that preexisted the renewal application.

The insurer denied coverage alleging a material misrepresentation, and argued that the policy was void ab initio. The trial court granted summary judgment to the insurer. The insured appealed, and argued that the trial court erred in determining the insured made a material misrepresentation.

The Appellate Division stated that “a subjective standard applies when considering a challenge to an insured’s prior knowledge representation[,]” however, “subjective intent may not be controlling when the undisputed facts . . . reveal otherwise.” The Court found “overwhelming credible evidence showing” that the insured knew about a potential malpractice claim at the time he filled out the renewal application. This evidence came in the form of the insured’s own deposition testimony. As a result, the Court stated that the insured made a material misrepresentation on the renewal application, and this misrepresentation justified the insurer’s denial of coverage.

Date of Decision: May 1, 2018

Ironshore Indemnity v. Pappas & Wolf, Superior Court of New Jersey, Appellate Division, Docket No. A-0959-16T1 (Per Curiam), 2018 N.J. Super. Unpub. LEXIS 1010 (N.J. App. Div. May 1, 2018) (Per Curiam).