New Jersey Appellate Court Affirms Rescission of Policies Based on Law Firm’s Misrepresentation in Applications
In a win for Wiley’s client, a New Jersey appellate court, applying New Jersey law, affirmed a trial court’s decision rescinding four lawyer’s professional liability policies because of material misrepresentations made in the applications. Schibell, Mennie & Kentos, LLC v. Allied World Ins. Co., No. A-3144-22 (N.J. Super. Ct. App. Div. Dec. 20. 2024).
The first policy’s application asked: “Has any attorney been the subject of any bar complaint, investigation or disciplinary proceeding within the past 5 years?” The firm (with an attorney signing) answered “No” in 2016. When he signed, the attorney knew that the Office of Attorney Ethics had opened an investigation into his dishonest and intentional misconduct (including falsifying bank records and issuing fake checks to clients) in 2012, and subsequently had filed a disciplinary complaint against him in 2013. The applications for the firm’s three renewal policies asked: “Have there been any new bar complaints, investigations or disciplinary proceedings against any attorney?” The firm (with the same attorney signing) answered “No.” When he signed each renewal application, the attorney knew that a Special Ethics Master had recommended suspending his bar license for six months and that the New Jersey Supreme Court had censured him. After independently learning of the disciplinary proceeding, the insurer rescinded the policies as to the firm and the attorney.
The trial court held that the insurer’s right to rescind the policies was “straightforward.” The trial court determined that the firm misrepresented that there were no “bar complaints, investigations or disciplinary actions,” and the insurer reasonably relied on the firm’s misrepresentations when issuing the policies. The trial court further found that the plain language of the policies confirmed that the firm’s misrepresentations in the applications were material to the issuance of the policies. The trial court refused to “ignore the plain, unambiguous language of the policy and re-write a better policy for [the attorney] because he chose not to be candid when seeking professional malpractice insurance.”
On appeal, the firm argued that it was not required to disclose the disciplinary proceeding because it was “in no way related to the rendering of legal services and, thus, provided no exposure as to any potential claim or loss.” The appellate court was unpersuaded, holding that it was a “self-evident conclusion” that violating the rules of professional conduct involved legal services. Additionally, the appellate court determined that the allegations involving the attorney’s improper endorsement and cashing of checks intended for the firm’s clients likewise involved the improper provision of legal services. The appellate court further found that the policy language put the firm on notice that the insurer would rely on the firm’s representations in the applications as material and, “if any representation [was] false or misleading,” the policy would be “void from the inception.”
