The opinion
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
RAYMOND VENTRICE, et al., Civil Action No.: 16-660
Plaintiffs,
v.
OPINION
LEXINGTON INSURANCE COMPANY, et
al.,
Defendants.
CECCHI, District Judge.
I. INTRODUCTION
This matter comes before the Court on motions for summary judgment filed by Plaintiffs
Raymond Ventrice and Kevin Ventrice (“Plaintiffs” or the “Ventrices”) and Defendant Lexington
Insurance Company (“Defendant” or “Lexington”). ECF Nos. 117, 118. The parties opposed each
other’s motions (ECF Nos. 120, 122), and filed replies (ECF Nos. 123, 124). The Court has
considered the submissions made in support of and in opposition to the motions and decides the
motions without oral argument pursuant to Fed. R. Civ. P. 78(b). For the reasons set forth below,
the motions are denied.
II. BACKGROUND1
This action arises out of an insurance coverage dispute between Defendant, an insurance
carrier, and Plaintiffs, assignees of Defendant’s insured. In 2008, Plaintiffs filed a professional
1 Unless otherwise noted, all facts are drawn from Plaintiffs’ Statement of Undisputed Material
Facts (“Pls. SMF”), ECF No. 117-3, Defendant’s Response to Plaintiffs’ Statement of Undisputed
Material Facts (“Def. Resp. SMF”), ECF No. 121, Defendant’s Rule 56.1 Statement of Undisputed
Material Facts in Support of Its Motion for Summary Judgment (“Def. SMF”), ECF No. 118-28,
Plaintiffs’ Response and Counter-Statement of Undisputed Material Facts (“Pls. Resp. SMF”),
ECF No. 122-1, and the relevant record. In accordance with Local Civil Rule 56.1, any fact not
properly disputed will “be deemed undisputed for purposes of the summary judgment motion[s].”
L. Civ. R. 56.1(a).
negligence suit against Moore Stephens, P.C. (“Moore Stephens”), a certified public accounting
firm, and one of Moore Stephens’s attorneys. Def. SMF ¶¶ 1-2; Pls. Resp. SMF ¶¶ 1-2. Moore
Stephens sought insurance coverage for the action from Defendant, its professional liability
insurer. See Def. SMF ¶¶ 1, 3; Pls. Resp. SMF ¶¶ 1, 3. Defendant agreed to provide a defense but
disclaimed coverage for any claim arising out of legal services. Def. SMF ¶¶ 4-5; Pls. Resp. SMF
¶¶ 4-5. Plaintiffs and Moore Stephens settled certain of the underlying claims, and Moore Stephens
assigned its rights under the insurance policy to Plaintiffs. Def. SMF ¶ 35; Pls. Resp. SMF ¶ 35.
In the instant action, Plaintiffs assert that Defendant breached the implied warranty of good
faith and fair dealing by wrongfully denying coverage for one of the claims and acted in bad faith
in handling the claim. See First Amended Complaint and Jury Demand (“Compl.”) ¶¶ 27-32, ECF
No. 25. Defendant counterclaimed, inter alia, that it is entitled to a declaratory judgment relieving
it from any further obligations under the insurance policy because Moore Stephens settled the
claim in violation of certain Policy provisions. See generally Counterclaim, ECF No. 26 at 10-16;
see also ECF No. 118-1 at 6-7, 9.
A. Factual Background
1. The Insurance Policy
In or about 2007, Defendant issued LexAssure Accountants Professional Liability Policy
No. 1225115 to Moore Stephens for the policy period of June 1, 2007, to June 1, 2008 (the
“Policy”). See Def. SMF ¶ 1; Pls. Resp. SMF ¶ 1; Declaration of Carl Salisbury (“Salisbury
Decl.”), Ex. C, ECF No. 117-2 at 20-47. The Policy provides for $2,000,000 in professional
liability coverage upon satisfaction of a $250,000 self-insured retention. See id.; Pls. SMF ¶ 4;
Def. Resp. SMF ¶ 4. Section 1.A of the Policy states, in relevant part:
The Company [Lexington] will pay on behalf of the Insured [Moore
Stephens] those sums, in excess of the Self-Insured Retention, that
the Insured shall become legally obligated to pay as Loss Amounts
resulting from a Claim that is first made against the Insured and
reported to the Company during the Policy Period or the Extended
Reporting Period, if applicable, as a result of a Wrongful Act by the
Insured.
Salisbury Decl., Ex. C, ECF No. 117-2 at 26. Under § II.I, the Policy excludes from coverage
“Loss Amounts in connection with any Claim made against an Insured . . . based upon or arising
out of any legal advice or services, or actuarial advice or services.” Id. at 27-28.
Under § I.C, the Policy contains the following cooperation clause:
. . . [T]he Company [Lexington] at its option shall have the right and
shall be given the opportunity to associate, at its own expense, with
the Insured [Moore Stephens] in the investigation, defense or control
of any Claim which would likely result in a settlement or judgment
in excess of the Self-Insured Retention, in which event the Insured
and the Company shall cooperate in the defense or settlement of
such Claim.”
Id. at 27. Section I.C further provides, in relevant part, that “the Insured [Moore Stephens] shall
take no action or agree to any settlement which alone or together with Defense Costs will exceed
the Self-Insured Retention, without the prior written consent of the Company [Lexington].” Id.
2. The Underlying Action
In March 2008, Plaintiffs filed a professional negligence action in the Superior Court of
New Jersey, Law Division (the “Underlying Action”) against Moore Stephens and its attorney,
Charles Falk, Esq. (“Falk”). Def. SMF ¶ 2; Pls. Resp. SMF ¶ 2; Salisbury Decl., Ex. A, ECF No.
117-2 at 5-9. In August 2008, Plaintiffs amended the complaint in the Underlying Action, alleging
with specificity that Moore Stephens failed to: (1) file a timely gift tax return; and (2) complete
the tasks necessary to establish a Qualified Personal Residence Trust (“QPRT”). Pls. SMF ¶ 2;
Def. Resp. SMF ¶ 2; Salisbury Decl., Ex. B, ECF No. 117-2 at 10-19.
3. Defendant’s Coverage Position
Moore Stephens tendered the Underlying Action to Defendant for defense under the Policy.
See Def. SMF ¶ 3; Pls. Resp. SMF ¶ 3; Salisbury Decl., Ex. D, ECF No. 117-2 at 48-52. By letter
dated May 27, 2008, Defendant acknowledged receipt of the Underlying Action. Salisbury Decl.,
Ex. D, ECF No. 117-2 at 48-52. The May 27, 2008, letter described the Underlying Action,
identified relevant Policy provisions, reserved Defendant’s rights, and “disclaim[ed] coverage for
any allegations relating to deficient legal services” in accordance with the Section II.I of the Policy.
Id. By about September 2012, Moore Stephens had exhausted the Policy’s self-insured retention.
Pls. SMF ¶ 13; Def. Resp. SMF ¶ 13.
On November 12, 2012, Kathryn Ridenour (“Ridenour”), an attorney employed by
Defendant who had taken over handling Moore Stephens’s coverage claim, sent a letter to Moore
Stephens concerning Defendant’s coverage position. See Pls. SMF ¶¶ 12, 15; Def. SMF ¶¶ 12, 15;
Salisbury Decl., Ex. I, ECF No. 117-2 at 80-82. The letter incorporated Defendant’s prior letter
by reference and stated that Defendant “is providing a defense . . . subject to its reserving the right
to deny coverage in the future on grounds set forth in the letter of Ronald W. Gorski of Lexington
to you dated May 27, 2008.” Salisbury Decl., Ex I, ECF No. 117-2 at 81. The letter further noted
that Plaintiffs were seeking damages in part for “taxes incurred because the real property that was
to fund the Qualified Personal Residence Trust set up by Attorney Falk allegedly was not
transferred” in a timely manner. Id. With respect to that amount, Defendant stated the following:
It appears that, if awarded to the plaintiffs, the $1,291.815.63, or any
other amount in federal and state estate tax alleged by the plaintiffs
to have been incurred because the subject property was not
transferred to the Trust on or before November 18, 1999, would
constitute a “Loss Amount” that was based upon or arising out of
legal services performed by Attorney Falk. Accordingly, as set forth
in Mr. Gorski’s letter, there would be no coverage for any such
“Loss Amount” under Policy No. 1225115.
Id. at 82. Defendant indicated that it would continue to provide a defense and indemnify Moore
Stephens for any “covered” loss that may be awarded against it in the Underlying Action, but urged
Moore Stephens “to take all steps necessary to protect its own interest with respect to any amount
that may be awarded to the plaintiffs that is excluded from coverage by operation of Exclusion I
or any other provision of the policy.” Id.
On December 16, 2013, Ridenour held a conference call with: (1) Ruth Simon (“Simon”),
defense counsel for Moore Stephens in the Underlying Action; (2) Joseph Corcoran (“Corcoran”),
a Moore Stephens representative; (3) James Flannery (“Flannery”), another Moore Stephens
representative; and (4) Russell Hewit (“Hewit”), Moore Stephens’s personal counsel. See Pls.
SMF ¶ 19; Def. Resp. SMF ¶ 19; Def. SMF ¶ 13; Pls. Resp. SMF ¶ 13; Salisbury Decl., Ex. J, ECF
No. 117-2 at 83-84. Ridenour memorialized the call in a claim file, noting that she had “reiterated
Lexington’s coverage position that the majority of the damages (approximately $1.25M of the
$1.5M) arise from legal services for which there is no coverage under the policy.” Salisbury Decl.,
Ex. J, ECF No. 117-2 at 84.
On December 17, 2013, Hewit sent Defendant a letter advising of Moore Stephens’s
coverage position and acknowledging Moore Stephens’s duty to cooperate. ECF No. 118-12. By
letter dated January 31, 2014, Ridenour responded to Hewit’s December 17, 2013 letter. Salisbury
Decl., Ex. L, ECF No. 117-2 at 87-92. The letter stated that Defendant “maintains that it is not
obligated to indemnify Moore Stephens in connection with any claim that is ‘based upon or aris[es]
out of any legal advice or services…,’ which includes any damages that may be awarded that arise
from the Qualified Personal Residence Trust (“QPRT”) prepared by Attorney Falk for Mrs. Ann
Ventrice.” Id. at 88. In support of Defendant’s position, the letter pointed to New Jersey case law,
allegations in the Underlying Action complaint, and “additional factual support establishing that
Attorney Falk’s services related to the QPRT constitute ‘legal services’ and that the Ventrices’
allegations related to the QPRT are ‘based upon or arise[] out of… legal advice or services.” Id.
at 89-90. It further stated that “[w]ithout question, the Ventrices’ alleged damages related to the
QPRT ‘arise from’ . . . Attorney Falk’s ‘legal services’ in preparing the QPRT and arranging for
the conveyance of the Florida property. Such damages are, therefore, excluded from coverage
under Exclusion I of the Policy.” Id. at 90. The letter noted that Defendant would “attend
mediation with settlement authority corresponding to the covered exposure, subject to its
reservation of rights,” “reiterate[d] that Lexington will not have settlement authority to cover any
damages arising from legal services,” and “urge[d] Moore Stephens to take all steps necessary to
protect its own interest with respect to any amount that may be awarded to the plaintiffs that is
excluded from coverage by operation of Exclusion I or any other provision of the Policy.” Id. at
90, 92.
On April 17, 2014, four days before the April 21, 2014 trial in the Underlying Action was
set to begin, Dianna Manning (“Manning”), coverage counsel for Defendant, sent a letter to Hewit.
See Salisbury Decl., Ex. R, ECF No. 117-2 at 115-20. In the letter, Manning noted that “[a]s
specifically indicated previously in Ms. Ridenour’s January 31, 2014 letter, the factual allegations
of the parties in this case clearly evidence that Mr. Falk was providing legal services.” Id. at 117.
The letter further explained that “Lexington has been providing a defense because, arguably, there
are limited covered claims under the Policy,” and “reserve[d] the right to deny coverage on
alternative bases presently unknown to Lexington should the underlying facts or theories so
warrant.” Id. at 119. Notwithstanding its reservation of rights, “Lexington acknowledge[d] that
there may be limited exposure for the gift tax return element of the Claim that could be considered
as arising from covered accounting services.” Id. Accordingly, “Lexington would consider
offering up to $248,000 towards settlement, which represents the total alleged damages associated
with the gift tax return issue and, therefore, the maximum exposure for this covered element of the
Claim.” Id.
That same day, Hewit responded to Manning’s letter and confirmed Moore Stephens’s
understanding of Defendant’s position as follows:
This will confirm that Lexington will defend all claims filed by the
Ventrices, including full defense at trial provided by Ruth Simon,
subject to various reservations of rights asserted by Lexington. To
be clear, we believe the reservations are without merit, and the
disclaimer of indemnity coverage for the claims related to
transferring the Florida property into the QPRT is a breach of the
insurance contract.
Salisbury Decl., Ex. S, ECF No. 117-2 at 122.
4. Alleged Breach of the Duty to Cooperate
Defendant alleges that shortly before trial, “Hewit, engaged in settlement negotiations with
the Ventrices’ counsel, Carl Perrone [(“Perrone”)], to release Moore Stephens from any personal
liability and assign to the Ventrices Moore Stephens’s coverage claim against Lexington.” Def.
SMF ¶ 30. Defendant cites an April 14, 2014, email from Hewit, in which Hewit allegedly
“‘coached’ the Ventrices on how to try their claims against Moore Stephens, in such a manner that
the Ventrices’ claims might be covered by the Policy, and not subject to the Policy’s exclusions.”
Id. On April 20, 2014, Hewit sent an email to Perrone, stating that he was “not sharing our
settlement efforts with Lexington or Ruth Simon. I would not comment further to her.” ECF No.
118-24 at 2.
5. Settlement of the Underlying Action
The Underlying Action proceeded to trial on April 21, 2014. Pls. SMF ¶ 42; Def. Resp.
SMF ¶ 42. On the first day of trial, Plaintiffs along with Moore Stephens, through its personal
counsel Hewit, settled the QPRT claim and agreed to arbitrate the gift tax claim at a later date.
Def. SMF ¶ 35; Pls. Resp. SMF ¶ 35. Under the settlement, “the Ventrices released the QPRT
Claims for $805,000, which included (i) an assignment of Moore Stephens’ rights under the Policy
against Lexington, and (ii) a payment of $25,000 from Moore Stephens to the Ventrices.” Id.
Plaintiffs also “agreed ‘not to seek recovery of any further monies or compensation from Moore
Stephens, but to seek recovery for such additional monies and compensation from Lexington . . .
.’” Id. Hewit placed the terms of the settlement on the record and informed the court in the
Underlying Action that Defendant had denied coverage for the QPRT claim. See Salisbury Decl.,
Ex. T, ECF No. 117-2 at 125-31. Although Simon and Defendant’s coverage counsel were present
at the hearing, there is no indication that either informed the court or Plaintiffs’ counsel that
Hewit’s representations were incorrect. On or about May 1, 2014, Simon prepared the Order of
Dismissal in the Underlying Action, which confirmed the terms of the settlement of the QPRT
claim. Salisbury Decl., Ex. U, ECF No. 117-2 at 132-34.
B. Procedural History
On or about July 8, 2014, Defendant commenced a JAMS Arbitration against Moore
Stephens, seeking declaratory relief that: (1) “Lexington is not obligated to indemnify Moore
Stephens in connection with any claim that is based upon or arises out of any legal advice or
services”; (2) “Moore Stephens has breached the terms and conditions of the Policy by settling the
legal malpractice claim in the Ventrice action without Lexington’s consent or participation”; and
(3) Moore Stephens improperly assigned its interests under the Policy to Plaintiffs. ECF No.
118-26.
On or about January 22, 2016, Plaintiffs filed the instant action in the Superior Court of
New Jersey, which Defendant then removed to this Court. ECF No. 1. In the operative First
Amended Complaint filed herein in federal court, Plaintiffs assert two claims: (1) breach of the
implied warranty of good faith and fair dealing (Count I); and (2) bad faith (Count II). ECF No.
25. Defendant counterclaimed for, among other things, a declaratory judgment relieving it of any
further obligations under the Policy as a result of Moore Stephens’s alleged breach of the Policy’s
consent provision. Counterclaim Count I ¶¶ 19-22, ECF No. 26.2
On January 31, 2017, the JAMS panel issued an award concluding that the “legal services”
exclusion of the Policy does not apply to the settlement for which Moore Stephens seeks
indemnity, and therefore does not bar indemnity for that settlement. See ECF No 118-27; Def.
SMF ¶ 39; Pls. Resp. SMF ¶ 39. The panel declined to rule on the coverage defenses raised by
Defendant relating to Moore Stephens’s failure to obtain Defendant’s consent to settle and Moore
Stephens’s bad faith and fiduciary claims. Def. SMF ¶ 40; Pls. Resp. SMF ¶ 40.
On October 2, 2018, this Court denied Defendant’s motion for judgment on the pleadings
seeking a declaration that it had no further obligations under the Policy because there was a
“genuine issue of material fact . . . as to whether Defendants timely and validly reserved its rights
under the Policy.” ECF No. 101 at 13.
C. Instant Motions
After discovery was complete, the parties moved for summary judgment, opposed each
other’s motions, and filed replies. ECF Nos. 117, 118. In Defendant’s reply brief, it raised for the
2 Defendant also counterclaimed for a declaratory judgment relieving it of its obligations under the
Policy as a result of Moore Stephens’s alleged improper assignment of its interest under the Policy
to Plaintiffs (“Counterclaim Count II”), because the amount of the settlement was unreasonable
(“Counterclaim Count III”), and because the arbitration awards should be vacated (“Counterclaim
Count IV”). Defendant previously withdrew Counterclaim Count II, see ECF No. 101 at 4 n.1,
and does not substantively address Counterclaim Count III in its summary judgment submissions.
The Court previously administratively terminated a motion to confirm the arbitration awards
pending resolution of the question of whether Plaintiffs are entitled to coverage under the Policy.
See ECF No. 101 at 8.
first time the argument that Plaintiffs’ claims are barred by the statute of limitations. ECF No. 123
at 13-15. With leave of Court, Plaintiffs filed a sur-reply on November 21, 2021, addressing
Defendant’s statute of limitations argument. ECF No. 142. On December 15, 2021, Defendant
filed a sur-sur-reply on the same issue. ECF No. 145. The Court has duly considered all
submissions.
III. LEGAL STANDARD
Summary judgment is appropriate if the “depositions, documents, electronically stored
information, affidavits or declarations, stipulations . . . , admissions, interrogatory answers, or other
materials,” demonstrate that there is no genuine issue as to any material fact, and, construing all
facts and inferences in a light most favorable to the non-moving party, “the moving party is entitled
to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also
Pollock v. Am. Tel. & Tel. Long Lines, 794 F.2d 860, 864 (3d Cir. 1986).
The moving party has the initial burden of proving the absence of any genuine issue of
material fact. See Celotex, 477 U.S. at 323. Once the moving party meets this burden, the non-
moving party has the burden of identifying specific facts to show that, to the contrary, a genuine
issue of material fact exists for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 585–87 (1986). In order to meet its burden, the non-moving party must “go beyond the
pleadings and by [its] own affidavits, or by the ‘depositions, answers to interrogatories, and
admissions on file,’ designate ‘specific facts showing that there is a genuine issue for trial.’”
Celotex, 477 U.S. at 324 (citation omitted); see also Big Apple BMW, Inc. v. BMW of N. Am., Inc.,
974 F.2d 1358, 1363 (3d Cir. 1992) (“To raise a genuine issue of material fact,” the opponent must
“exceed[] the ‘mere scintilla’ threshold . . . .”). An issue is “genuine” if it is supported by evidence
such that a reasonable jury could return a verdict in the non-moving party’s favor. See Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is “material” if, under the governing
substantive law, a dispute about the fact might affect the outcome of the suit. See id. “In
considering a motion for summary judgment, a district court may not make credibility
determinations or engage in any weighing of the evidence; instead, the non-moving party’s
evidence ‘is to be believed and all justifiable inferences are to be drawn in his favor.’” Marino v.
Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).
The legal standard for summary judgment does not change when both parties file motions
for summary judgment. Bacon v. Avis Budget Group, Inc. 357 F. Supp. 3d 401, 413 (D.N.J. 2018)
(internal quotations and citations omitted). According to the principles outlined above, in
reviewing each motion, “the court construes facts and draws conclusions in favor of the [non-
moving party].” Id. (internal quotations and citations omitted).
IV. DISCUSSION
Plaintiffs advance several arguments in their briefing, including that: (1) there is no genuine
dispute that Defendant denied indemnity coverage for the QPRT claim prior to the settlement; (2)
by denying coverage for the QPRT claim, Defendant waived its right to enforce, or is equitably
estopped from enforcing, the Policy’s consent and cooperation provisions; and (3) Defendant’s
conduct amounts to both a breach of the implied warranty of good faith and faith dealing and bad
faith. See ECF No. 117-1 at 32-44; Compl. ¶¶ 27-32.
Defendant contends that: (1) contrary to Plaintiffs’ assertion, it never in fact denied
indemnity coverage for the QPRT claim but merely reserved its right to deny coverage in the
future; (2) Moore Stephens breached the Policy’s consent provision by failing to obtain
Defendant’s consent before settling with Plaintiffs and the Policy’s cooperation provision by
allegedly “coaching” Plaintiffs on how to maximize their coverage; (3) if Defendant is found to
have denied indemnity coverage before settlement, its denial would not waive its right to
participate in the settlement and Plaintiffs claims in any event would be time-barred; and (4)
Plaintiffs have failed to demonstrate bad faith. See, e.g., ECF No. 118-1 at 24-33; ECF No. 120
at 19-29, 31; ECF No. 123 at 17-19.
A. Declaratory Judgment
The Court will first address whether Defendant is entitled to a declaratory judgment
relieving it of further obligations under the Policy. Defendant claims that Moore Stephens
breached the Policy by failing to seek or obtain Defendant’s consent before settling the Underlying
Action and colluding with Plaintiffs. See ECF No. 118-1 at 6-7. As a result of these alleged
breaches, Defendant argues, it is relieved of any further obligations to Plaintiffs under the Policy.
Plaintiffs contend that Defendant itself first breached the Policy by improperly denying indemnity
coverage on the QPRT claim before settlement. See, e.g., ECF No. 122 at 10-11. Plaintiffs argue
that by breaching the Policy, Defendant waived its right to enforce, or is equitably estopped from
enforcing, the consent and cooperation provisions. Id. Defendant counters that if Plaintiffs’
argument that Defendant first denied coverage in 2008 is accepted, Plaintiffs’ claims are barred by
the six-year statute of limitations. See ECF No. 123 at 17-19.
As a threshold matter, the Court finds that there is a triable issue of fact as to when, or
whether, Defendant denied indemnity coverage on the QPRT claim. The parties agree that under
New Jersey law, a “six-year statute of limitations ordinarily applies to insurance actions.” Liguori
v. Certain Underwriters at Lloyds London Subscribing to Pol’y |AJD8955, No. 14-5898, 2015 WL
4402851, at *2 (D.N.J. July 17, 2015). To “determin[e] when a cause of action accrues so that the
applicable period of limitation commences to run, the relevant question is when did the party
seeking to bring the action have an enforceable right. . . . [I]n regard to an action for breach of
contract, the date of accrual of an enforceable right is tied to the date that the defendant breached
the contract.” 21st Mortg. Corp. v. Chicago Title Ins. Co., No. 17-03456, 2018 WL 6716081, at
*4 (D.N.J. Dec. 21, 2018) (internal citations and quotation marks omitted).
Here, if Defendant is found to have first denied indemnity coverage on May 27, 2008—the
date of its first coverage position letter—Plaintiffs’ claims, which were first asserted on January
22, 2016, would be untimely under the six-year statute of limitations. The Court finds that there
is a genuine dispute of material fact as to whether Defendant’s 2008 letter constituted a denial of
coverage or a mere reservation of rights to deny coverage in the future. While Defendant’s 2008
letter did generally reserve its rights and disclaim coverage for allegations related to deficient legal
services, it did not contain the details concerning the QPRT claim as Defendant’s later
communications did. Compare Salisbury Decl., Ex. D, ECF No. 117-2 at 51 (May 27, 2008 letter
noting that “Lexington hereby disclaims coverage for any allegations in the Lawsuit relating to
deficient legal services”), with Salisbury Decl., Ex. L, ECF No. 117-2 at 90 (January 31, 2014
letter stating that “[w]ithout question, the Ventrices’ alleged damages related to the QPRT ‘arise
from’ Attorney Falk’s ‘legal services’ in preparing the QPRT and arranging for the conveyance of
the Florida property. Such damages are, therefore, excluded from coverage under Exclusion I of
the Policy.”). On this record, the Court cannot say, as a matter of law, whether Defendant denied
indemnity coverage in 2008, rendering Plaintiffs’ claims untimely. Because this threshold issue
must be resolved before the Court can determine whether Defendant is entitled to enforce the
consent and cooperation provisions, the Court must deny summary judgment at this time.3
While the Court need not reach beyond this threshold issue, it notes that if Plaintiffs’ claims
are timely, the record may present additional issues of material fact that must be resolved by a
factfinder. For example, Defendant contends that even if it is found to have denied indemnity
coverage before the settlement, its denial would not waive its right to participate in the settlement
because it continued to provide Plaintiffs with a defense. See ECF No. 120 at 31 n.4. Even if the
Court were to accept, arguendo, Defendant’s position, there may remain a triable issue of fact as
to whether Defendant is equitably estopped from enforcing the consent and cooperation provisions.
Estoppel is an “equitable doctrine, founded in the fundamental duty of fair dealing imposed by
law” that “requires the reliance of one party on another.” Knorr v. Smeal, 178 N.J. 169, 178 (2003)
(internal citations and quotation marks omitted). “[T]o establish equitable estoppel, plaintiffs must
show that defendant engaged in conduct, either intentionally or under circumstances that induced
reliance, and that plaintiffs acted or changed their position to their detriment.” Id. at 178.
3 Plaintiffs also contend that their claims are timely because the limitations period began on the
date the settlement was reached, the statute of limitations reset itself with each coverage letter, and
Defendant’s initiation of arbitration preserved Plaintiffs’ claims. See ECF No. 142 at 5, 8-9.
Plaintiffs’ contentions are unpersuasive. First, as noted above, the limitations period begins on the
date the alleged breach occurred, and there is a genuine dispute as to if or when a breach occurred.
See 21st Mortg. Corp., 2018 WL 6716081, at *4. Second, while Plaintiffs assert that the limitations
period reset because each coverage communication until 2013 invited Plaintiffs to provide
additional information, see ECF No. 142 at 8-9, courts in this District have found that a mere
invitation to provide additional information, without more, does not necessarily toll the limitations
period. See G. Matts Hosp., LLC v. Scottsdale Ins. Co., No. 17-6826, 2019 WL 4745604, at *4
(D.N.J. Sept. 30, 2019) (noting that without more, “reservation of rights language . . . allowing the
insured to provide ‘additional information that you believe will have a material effect on [the]
determination of coverage’ does not serve to vitiate the letter’s status as a denial of coverage”)
(internal citation omitted). Finally, Plaintiffs cite no authority suggesting that Defendant’s
initiation of an arbitration proceeding operated to preserve Plaintiffs’ affirmative claims.
Here, the record indicates that Defendant, inter alia: (1) sent a pre-settlement letter to
Plaintiffs stating that Plaintiffs’ damages related to the QPRT claim arose from legal services and
were excluded from coverage under the Policy, see Salisbury Decl., Ex. L, ECF No. 117-2 at 90;
(2) was informed by Moore Stephens’s personal counsel shortly before the settlement was reached
that Moore Stephens intended to settle with Plaintiffs unless Defendant admitted to coverage for
the QPRT claim, see Deposition of Russell Hewit (“Hewit Dep.”) Tr. at 117:5-15, Salisbury Decl.,
Ex. H, ECF No. 117-2; and (3) after Moore Stephens’s personal counsel informed the court in the
Underlying Action that Defendant had denied coverage for the QPRT claim, Defendant’s coverage
counsel and Simon never informed the court that such representations were incorrect, see Salisbury
Decl., Ex. T, ECF No. 117-2 at 125-31.4 Such circumstances may raise a triable issue as to whether
Defendant’s conduct induced detrimental reliance.
Given the record in this case, the Court will deny summary judgment in either party’s favor
on Defendant’s declaratory judgment counterclaim.
4 Hewit informed the court in the Underlying Action that he represented Moore Stephens “with
respect to claims made by the plaintiffs on which their professional liability carrier disclaimed
coverage. Those are claims that I’ll use as an umbrella term relate to the qualified personal
residence of trust and the failure or the alleged failure to transfer a Florida property into that trust
on a timely basis. Coverage was disclaimed on those claims.” Salisbury Decl., Ex. T, ECF No.
117-2 at 128. After the court asked for further clarification, Hewit reiterated that Defendant is
“[d]isclaiming on the claim we settled [the QPRT claim]. They are not disclaiming on the gift tax
claim . . . So the claim which they are providing coverage is proceeding to trial unless it’s otherwise
resolved. What I’m going to call the QPERT [sic] claim, they [Defendant] have disclaimed
coverage on.” Id. at 129.
B. Claims for Breach of the Implied Warranty of Good Faith and Fair Dealing
and Bad Faith
The parties also seek summary judgment in their respective favors on the two claims
Plaintiffs assert in the Amended Complaint: (1) breach of the implied warranty of good faith and
fair dealing (Count I); and (2) bad faith (Count II). See ECF Nos. 117-4, 118-29. The Court finds
that there is a triable issue of fact as to the viability of these claims.
As an initial matter, the Court notes that while Count I asserts a claim for breach of the
implied duty of good faith and Count II asserts a claim for bad faith, these claims appear to be
duplicative. Courts in this District have found that “[w]here, as here, an insurance contract is at
issue, a claim for breach of the implied covenant of good faith and fair dealing is tantamount to a
claim for bad faith.” Veyhl v. State Farm Fire & Cas. Co., No. 21-10112, 2021 WL 6062304, at
*2 (D.N.J. Dec. 22, 2021) (internal citation and quotation marks omitted); see also Laing v. Am.
Strategic Ins. Corp., No. 14-1103, 2014 WL 4953250, at *2 (D.N.J. Oct. 1, 2014) (“Counts Two
and Three of the Complaint assert claims of breach of the implied duty of good faith and fair
dealing and the tort of bad faith, respectively. . . . [U]nder New Jersey law, these two claims are
tantamount to the same cause of action. . . . Accordingly, the two claims will be decided as one.”)
The Court will therefore analyze both claims together.
To establish a claim for bad faith, a plaintiff must demonstrate that “(1) the insurer lacked
a fairly debatable reason for denying coverage, and (2) insurer knew of or recklessly disregarded
the lack of a reasonable basis for denying coverage.” Stiso v. State Farm Fire & Cas. Co., No. 13-
5741, 2015 WL 7296081, at *9 (D.N.J. Nov. 18, 2015). “A claim is fairly debatable if a plaintiff
cannot establish as a matter of law a right to summary judgment on the substantive claim, i.e ., the
underlying contract claim.” Laing, 2014 WL 4953250, at *3 (internal citation and quotation marks
omitted).
Here, factual issues preclude summary judgment on these claims. It is undisputed that the
arbitration panel concluded, as a matter of law, that the legal services exclusion in the Policy did
not apply to the QPRT claim. See Pls. SMF ¶ 56; Def. Resp. SMF ¶ 56. However, the panel’s
conclusion has yet to be judicially confirmed, see ECF No. 101 at 8, and, as noted above, there is
a dispute of fact as to the timeliness of Plaintiffs’ coverage claims. In addition, Defendant has
cited to evidence from the Underlying Action that Falk considered his services legal in nature. See
Def. SMF ¶¶ 25-27; Pls. Resp. SMF ¶¶ 25-27. Because a factfinder is better suited to resolving
such conflicts in the evidence, the Court will deny summary judgment on Counts I and II.
V. CONCLUSION
For the reasons set forth above, Plaintiffs’ and Defendant’s motions for summary judgment
(ECF Nos. 117, 118) are denied. An appropriate Order accompanies this Opinion.
DATED: July 28, 2022
s/ Claire C. Cecchi
CLAIRE C. CECCHI, U.S.D.J.