James W. Dabney v. the Ohio Casualty Insurance Company

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the

internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0120-23

JAMES W. DABNEY,

Plaintiff-Appellant,

v.

THE OHIO CASUALTY

INSURANCE COMPANY,

Defendant-Respondent.

________________________

Argued March 6, 2025 - Decided March 14, 2025

Before Judges Mawla and Natali.

On appeal from the Superior Court of New Jersey, Law

Division, Bergen County, Docket No. L-1487-22.

Eugene Killian, Jr. argued the cause for appellant (The

Killian Firm, PC, attorneys; Eugene Killian, Jr., on the

briefs).

John T. Coyne argued the cause for respondent

(McElroy, Deutsch, Mulvaney & Carpenter, LLP,

attorneys; John T. Coyne, on the brief).

PER CURIAM

Plaintiff James W. Dabney appeals from an August 25, 2023 order

granting defendant Ohio Casualty Insurance Company (Ohio Casualty)

summary judgment and dismissing his complaint with prejudice. We affirm.

Ohio Casualty sold a comprehensive general liability and directors and

officers insurance policy to the Shelburne Cliffs Condominium Owners'

Association in Vermont. The policy included a one-million-dollar liability limit

for each "wrongful act[,]" with an aggregate limit of two million dollars. It

insured the association's "'directors and officers' . . . collectively, and each

'director and officer' individually, . . . while acting within the scope of their

duties on behalf of the insured."

The coverage also included "those sums that the insured becomes legally

obligated to pay because of a 'loss' due to 'wrongful acts' committed by the

insured's 'directors and officers' solely in the conduct of their management

responsibilities for the condominium association." The policy defined

"wrongful acts" as "any negligent act(s), error(s), or omission(s) directly related

to the operations of the condominium property of the [insured]." Lawsuits or

"suits" were defined as "civil proceeding(s) in which 'loss' because of 'wrongful

acts' to which this insurance applies are alleged." "Loss" means "damages,

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settlements, and/or defense costs[,]" and "claim" means "a demand received by

an insured for money, including the service of a 'suit.'"

Part two of section one of the policy contained seventeen exclusions,

namely: (g) "'[l]osses' based upon or attributable to the insured gaining any

personal profit, remuneration[,] or advantage which is not shared equitably by

the [association] or to which the insured is not legally entitled"; (o) "[f]ines or

penalties imposed by law"; and (q) "[a]ny 'claim' or 'suit' that is brought by or

on behalf of any insured or any person or organization[,] which is controlled by,

controls, or is under common control with [the insured]."

Plaintiff's wife, Virginia Gardner, and another association resident ,

Howard Malovany, sued the association and the Vermont Mutual Insurance

Company (Vermont Mutual), the association's insurer, in Vermont state court in

a derivative action over the alleged alteration and damage of drainage systems

on the association's property. The suit resulted in an August 23, 2018 order

requiring the association to restore the property. Plaintiff is an attorney and

served as counsel in the derivative action.

On October 31, 2019, plaintiff, who is also a New Jersey resident, was

elected to the association's board of directors. Gardner was elected to the board

as vice president, and Malovany its president.

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Plaintiff alleged certain outdoor property and drainage systems, owned by

the association, were damaged due to "disobedience of two court [o]rders issued

August 23, 2018, and September 13, 2018." He further alleged Vermont

Mutual's attorney, Susan J. Flynn, Esq., engaged in "misconduct . . . entitl[ing

the association] to recover compensatory damages, punitive damages, and

attorneys' fees for violation of Vt. Stat. Ann. tit. 8, § 4723, [and] . . . Vt. Stat.

Ann. tit. 9, § 2453." Plaintiff claimed Flynn violated the August 23 order and

committed multiple intentional torts, including breach of fiduciary duty.

On December 16, 2019, former members of the association's board, Janice

Hokenson, Donald Crocker, and Chad Hansen (Hokenson plaintiffs), sued

plaintiff, Gardner, Malovany and his wife Cynthia (Hokenson defendants),

alleging breach of fiduciary duty and conversion. Three days later, the

association held a meeting and voted to terminate Flynn. Plaintiff was not

present for the vote, but two of the votes in the affirmative were cast by a

corporate representative of two LLCs in which plaintiff was the sole member.

Immediately following Flynn's termination, the association engaged Barr

Law Group, which entered appearances on its behalf in the ongoing lawsuits.

Barr also filed notices of withdrawal of legal filings, notified Flynn of her

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termination, and requested she turn over her files related to her representation

of the association.

On December 23, 2019, the Hokenson plaintiffs applied for a temporary

restraining order (TRO) to invalidate the December 19 vote to terminate Flynn.

They alleged plaintiff breached the duty of care by wrongfully casting "unit

owner votes" in support of terminating Flynn and the derivative action. Further,

as board members, plaintiff, Gardner, and Malovany engaged in "self-dealing or

breach of their fiduciary duties[,]" including the duty of care and duty of loyalty.

The Vermont court granted the TRO.

The Vermont trial judge was Helen M. Toor. On January 6, 2020, she

conducted an evidentiary hearing on the preliminary injunction sought by the

Hokenson plaintiffs. On January 30, 2020, she issued an order invalidating

Barr's notice of appearance and the withdrawal of Flynn, and instructing

plaintiff, Gardner, and the Malovanys to take no further action. The judge

found:

[I]t is clear [the Hokenson plaintiffs] are likely to

succeed on the merits of their claim that the vote to

retain Barr . . . and fire . . . Flynn was a conflict of

interest for . . . Gardner[, plaintiff,] and the Malovanys,

because the benefits would flow entirely to them as

individuals and against the [a]ssociation . . . . The

decision to have new counsel withdraw filings that had

put Malovany and Gardner at financial risk, to the

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detriment of the [a]ssociation's financial interests, is on

its face a breach of fiduciary duty. No evidence was

presented that Malovany's and Gardner's spouses had

interests divergent from theirs. Any financial award

against them can be presumed, absent evidence to the

contrary, to impact their spouses as well. Therefore, all

of them had a personal interest in not paying the

[a]ssociation any money, in direct conflict with the

[a]ssociation's interest in collecting any such funds.

The same is true of the [one to two] million [dollars] in

attorney's fees that Gardner and Malovany wish to

recover from the [a]ssociation for [the derivative suit]

if they succeed on appeal—a substantial portion of

which would go to [plaintiff] as counsel in that case.

Such a result would clearly be in the interests of the

Malovanys and . . . Gardner/[plaintiff], and antithetical

to the interests of the [a]ssociation. Thus, [the

Hokenson plaintiffs] are likely to succeed on their

claims that the Malovanys and Gardner/[plaintiff]

breached their fiduciary duties and that their six votes

could not be counted towards ratification.

On March 2, 2020, the Hokenson plaintiffs moved for the appointment of

a litigation receiver for the association. The judge granted the motion and

empowered the receiver to speak and act on behalf of the association in the

derivative suit. Plaintiff, Gardner, and the Malovanys moved for leave to appeal

from the March 2 order, but their application was denied.

On March 5, 2020, Ohio Casualty acknowledged receipt of the Hokenson

defendants' claim for coverage. The claim acknowledgement letter expressly

preserved Ohio Casualty's rights to, among other things, "disclaim insurance

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coverage, in whole or in part, at a later date as warranted." It also recited the

Hokenson plaintiffs' claims that defendants had engaged in self-dealing and

breach their fiduciary duties. Although Ohio Casualty would be investigating

the claim, it pointed out certain exclusions could apply and recited exclusions

(g) and (q) in addition to a third exclusion irrelevant to our discussion. The

March 5 letter recited that Ohio Casualty's "participation in the defense of the

[l]awsuit [did not] waive or change the [p]olicy terms." Plaintiff countersigned

the letter acknowledging the defense pursuant to the reservation of rights.

On March 17, 2020, Ohio Casualty issued a supplemental letter, which

acknowledged its receipt of the March 2 court order. The letter cautioned that,

based on a review of the court's order, the claim could be barred by the policy

exclusions and pointed out Ohio Casualty continued to reserve its rights as set

forth in the March 5 letter.

On April 28, 2020, Ohio Casualty acknowledged receipt of a request by

the Hokenson defendants to indemnify them for the costs of the receiver's bond

and payment of the receiver's expenses. It declined coverage for both requests

because the receiver's bond did "not qualify as a payment of damages,

settlements, and/or defense costs."

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On August 3, 2020, Judge Toor granted the Hokenson plaintiffs summary

judgment. She incorporated her findings from her January 30 decision and

concluded plaintiff, among other defendants, was liable for breach of his

fiduciary duties. The breach occurred because plaintiff was "personally in an

adversary role against the [a]ssociation" in the derivative suit. And "[d]irecting

new counsel to withdraw legal filings for the obvious purpose of personally

benefitting . . . financially, and harming the [a]ssociation financially, was a clear

violation of [plaintiff's] duties to the [a]ssociation." The judge reached the same

conclusion regarding "the attempt to obtain the privileged records" from Flynn,

"which were generated at least in part in her capacity as a lawyer opposing"

plaintiff and the others.

The judge dismissed the derivative action with prejudice. The remaining

issue was the Hokenson plaintiffs' and the association's applications for

attorney's fees and costs.

Judge Toor entered summary judgment against plaintiff, Gardner, and the

Malovanys, who subsequently appealed. Ohio Casualty authorized and paid for

the filing of "an appellate [d]ocketing [s]tatement" for the appeal. The statement

included the following issues on appeal:

1. Whether the trial court's [p]reliminary [i]njunction

[o]rder and [o]rder [a]ppointing [l]itigation [r]eceiver

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were based on an erroneous interpretation of 11B

V.S.A. § 8.31(a) and Vermont law governing common

owner voting rights.

2. Whether the trial court's [p]reliminary [i]njunction

[o]rder and [o]rder [a]ppointing [l]itigation [r]eceiver

were unconstitutional as effecting a private taking of

property, as suppressing speech, and as compelling

speech.

3. Whether the trial court abused its equity power by

granting the [l]itigation [r]eceiver unprecedented

powers, including the power to dismiss legal claims and

pending actions.

4. Whether the trial court erred in granting summary

judgment in favor of [defendants].

5. Whether the trial court erred in dismissing

[plaintiffs'] [c]ounterclaims.

Ohio Casualty also agreed to defend plaintiff against the Hokenson

plaintiffs' motion for attorneys' fees and costs. On February 10, 2021, Judge

Toor found plaintiff, Gardner, and the Malovanys jointly and severally liable to

the Hokenson plaintiffs for $208,847 in attorneys' fees and $2,520.42 in costs,

plus $59,937.42 to the association.

On March 5, 2021, Ohio Casualty sent the Hokenson defendants a letter,

advising it was terminating its obligation to defend them. The letter explained:

Based on the information now known to us,

including [the Hokenson plaintiffs'] voluntary

dismissal of the damages claims and the [c]ourt's orders

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and decisions . . . , we have determined that there is no

obligation to defend [plaintiff and co-defendants] in the

[l]awsuit or the associated appeal, and that there is no

coverage for the [l]awsuit and, in turn, the [a]ward. As

set forth below, there is no longer a "suit" seeking

"those damages" set forth in the insuring agreement.

Therefore, please be advised that we are ceasing

reimbursement for defense costs and expenses incurred

by independent defense counsel in the [l]awsuit at this

time.

....

The claims in the [l]awsuit were based upon

allegations that [plaintiff and co-defendants] breached

their fiduciary duty and that they were personally in an

adversary role against the . . . [a]ssociation. On August

3, 2020, the [c]ourt ruled, concluding that these

allegations were true. The [c]ourt granted summary

judgment on [the Hokenson plaintiffs'] claim for breach

of fiduciary duty with respect to [plaintiff's and co-

defendant's] conduct "personally benefitting [them]

financially, and harming the [association] financially."

Notably, the remaining claims in the [l]awsuit,

including intentional conversion, have since been

dismissed. Thus[,] the [l]awsuit, as confirmed by the

[c]ourt's findings, falls within exclusion g, which

precludes "'losses' based upon or attributable to the

insured gaining any personal profit, remuneration or

advantage which is not shared equitably by the

condominium association or to which the insured is not

legally entitled." Given that this determination is the

sole basis for the [a]ward, the [a]ward is likewise

precluded by exclusion g.

Even more preliminarily, if all of [the] claims in

the [l]awsuit did not fall within exclusion g, the

[l]awsuit ceased falling within the insuring agreement

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of the [p]olicy's . . . Directors and Officers [Insurance]

Coverage Form when the [c]ourt granted [Hokenson's]

voluntary dismissal of all their damages counts on

November 5, 2020. The [l]awsuit was no longer for

"loss," meaning "damages, settlements, and/or defense

costs." As such, the [i]nsuring [a]greement was not

satisfied[,] and coverage is not implicated.

[The Hokenson plaintiffs'] award of the

attorneys' fees and costs they incurred in bringing the

[l]awsuit against [plaintiff and co-defendants] does not

qualify as "damages, settlements, and/or defense costs."

Further, while [the Hokenson plaintiffs] were also

awarded their attorneys' fees and costs in defending

against counterclaims, the counterclaims (and all . . .

fees and costs arising therefrom) are precluded from

coverage. Exclusion q bars coverage for any "claim" or

"suit" that is brought by or on behalf of any insured.

....

Similarly, the award of the litigation receiver's

fees and costs is precluded by exclusion q. The request

that the litigation receiver's fees and costs be assessed

against the non-prevailing party was made by the

[a]ssociation through its receiver. The [c]ourt adopted

the receiver's request in awarding these fees and costs.

Coverage for this award is barred by exclusion q

because the award is based on a "claim . . . brought by

or on behalf of an[] insured."

Lastly, the award of fees and costs under 17A

V.S.A. Section 4-117(a) are precluded under exclusion

o, as a penalty imposed by law.

[(final alteration in original).]

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On March 10, 2021, plaintiff, Gardner, and the Malovanys settled the

underlying action brought by the Hokenson plaintiffs by voluntarily dismissing

their own appeal and paying $382,152.12 to settle the judgment entered against

them in the February 10, 2021 order. In March 2022, plaintiff sued Ohio

Casualty in New Jersey for withdrawing from the defense and failing to pay a

judgment entered against him. Ohio Casualty filed an answer, averred plaintiff's

settlement was not covered under the policy, and coverage was barred by several

exclusions, including (g), (o), and (q). In May 2023, Ohio Casualty moved for

summary judgment and plaintiff later cross-moved for summary judgment. On

August 25, 2023, the motion judge granted the motion and denied the cross-

motion.

The judge made oral findings and concluded the Vermont judgment was

entitled to full faith and credit. He declined to reevaluate the record or the

Vermont decision, reasoning "[t]he Vermont [S]tate [C]onstitution preempt[ed]

th[e c]ourt's jurisdiction, and establishes that [the] Vermont Supreme Court has

the core, original and exclusive jurisdiction for review and appeal of the

Superior Court of Vermont."

Substantively, the judge took judicial notice of Judge Toor's findings that

the firing of Flynn and hiring of Barr "was a conflict of interest [for plaintiff],

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. . . both in avoiding personal liability for the[] adversary's attorneys['] fees, and

recovering attorneys['] fees personally, [and] was against the interest of the

association, as it would not collect any such funds." The judge noted that,

[i]n granting summary judgment, Judge Toor found . . .

the Hokenson defendants, including plaintiff, . . . did in

fact, breach their fiduciary duty, . . . direct[ing] new

counsel to withdraw legal findings for the obvious

purpose of personally benefiting . . . defendants

financially and [harming] the association financially,

was a clear violation of defendant's duties to the

association.

The same is true of the attempt to obtain the

privileged . . . records of the association's prior

counsel . . . .

The motion judge also took judicial notice of the February 10, 2021 ruling,

which found plaintiff, Gardner, and the Malovanys were "personally, in an

adversarial role, to the association, and clearly violated their duties to the

association, and subsequently awarded the subject attorneys['] fees and costs to

the Hokenson plaintiffs."

The judge addressed the insurance policy. He applied Vermont law and

noted, that much like our law, it required the court interpret the policy like other

contracts by "[s]triving to give effect to the intent [of] the parties, as expressed

by the plain language of the" policy. Here the policy obligated Ohio Casualty

to cover "a loss due to wrongful acts committed by the insured's directors and

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officers, solely in the context of the management responsibilities for the . . .

association." The policy defined a wrongful act as "any negligent acts, errors or

omissions directly related to the operations of the condominium property of the

named insured."

Judge Toor had found plaintiff, Gardner, and the Malovanys breached

their duty of loyalty. The motion judge noted: "[i]t was after this finding that

[Ohio Casualty] withdrew support, and denied coverage to plaintiff, as it was at

this point that plaintiff's wrongful acts transcended any negligence, and the

Hokenson plaintiffs withdrew their other claims against plaintiff, warranting a

denial in coverage." He concluded exclusion (g) of the policy applied because,

"[b]ased on the clear and unambiguous language of the insurance policy,

plaintiff's wrongful acts were not covered, and [Ohio Casualty] was entitled to

deny coverage."

Even if the award from the Hokenson litigation was covered, exclusion

(g), barred a recovery from Ohio Casualty because, it did not cover "losses based

upon or attributable to the insured gaining any personal profit, remuneration, or

damage, which is not shared equitably by the . . . association, or to which the

insured is not legally entitled." Here,

Judge Toor specifically found that the Hokenson

defendants acted in their capacity as board members, in

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a way as to benefit themselves personally, at the cost of

the association. And that plaintiff . . . stood to gain a

substantial portion of a [one] to [two] million dollar

recovery, at the cost of the association.

Such a loss is a personal profit, not shared

equitably with or by the . . . association, and a profit

plaintiff was not entitled to.

The motion judge was further convinced by Ohio Casualty's argument

exclusions (o) and (q) applied. Exclusion (o) barred defense coverage where the

loss was a result of a penalty imposed on the insured. The award of attorneys'

fees against plaintiff was not damages but a penalty. And exclusion (q) barred

coverage for claims and suits brought by or on behalf of an insured. That

exclusion applied because the association, through its receiver, sought to assess

the award of the receiver's fees and costs against plaintiff.

I.

We review a ruling on a summary judgment motion de novo, applying the

same standard governing the trial court. Templo Fuente De Vida Corp. v. Nat'l

Union Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 199 (2016). Our task is to

consider "whether the competent evidential materials presented, when viewed

in the light most favorable to the non-moving party, . . . are sufficient to permit

a rational factfinder to resolve the alleged disputed issue in favor of the non -

moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

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Summary judgment must be granted "if the pleadings, depositions, answers to

interrogatories and admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact challenged and that the

moving party is entitled to a judgment or order as a matter of law." R. 4:46-

2(c).

If there is no genuine issue of material fact, we must then "decide whether

the trial court correctly interpreted the law." DepoLink Ct. Reporting & Litig.

Support Servs. v. Rochman, 430 N.J. Super. 325, 333 (App. Div. 2013). The

"trial court's interpretation of the law and the legal consequences that flow from

established facts are not entitled to any special deference" and are reviewed de

novo. Est. of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 382-83

(2010).

II.

Plaintiff concedes Vermont law applies to discerning what Ohio

Casualty's obligations were under the policy. He argues that pursuant to

Vermont law, Ohio Casualty had a duty to defend him, which included a duty to

appeal from the Vermont trial court's adverse rulings. Plaintiff asserts there

were reasonable grounds to believe his interests would have been served by an

appeal without having to demonstrate the appeal would be successful. He

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contends the motion judge could have made this finding while also according

the Vermont court's rulings full faith and credit.

Plaintiff claims the motion judge did not view the facts in the light most

favorable to him, including that the Hokenson plaintiffs alleged negligence,

which was a cause of action covered the policy thereby requiring Ohio Casualty

to appeal from the Vermont trial court's rulings. Regardless, the Vermont court's

grant of summary judgment did not sever Ohio Casualty's obligation to defend

on appeal because the Hokenson action constituted a lawsuit involving an

allegation of wrongful acts leading to a loss.

Plaintiff contends Ohio Casualty violated the covenant of good faith and

fair dealing notwithstanding its withdrawal of coverage through a reservation-

of-rights letter. Rather than recognize there were appealable aspects of the

Vermont trial court's ruling, plaintiff claims Ohio Casualty used the conflict of

interest as a reason to withdraw from defending him.

Plaintiff reiterates Ohio Casualty is liable to cover the amount he paid to

resolve the Hokenson litigation because the attorneys' fees were recovered

damages due to the breach of a legal duty. The attorneys' fees were

compensatory damages since there is no requirement to show bad faith or

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deliberate misconduct to sustain an award under Vermont law. Exclusion (o)

did not apply because the Vermont judgment did not impose a fine or penalty.

Plaintiff asserts exclusion (q) did not apply merely because the court

appointed a receiver due to the breach of the duty of loyalty. The receiver did

not bring the suit and acted outside of the control of any insured party. The

exclusion also did not apply to "[a]ny 'claim' or 'suit' that is brought by or on

behalf of any insured or any person or organization which is controlled by,

controls, or is under common control with [the insured]." The Hokenson

plaintiffs' suit was brought individually and derivatively on behalf of the

association.

III.

Having considered the record, we affirm substantially for the reasons

expressed by the motion judge. We add the following comments.

The motion judge correctly concluded the policy did not cover the

Hokenson plaintiffs' litigation because a breach of the duty of loyalty exceeded

the scope of the policy, which covered acts of negligence. Under Vermont law,

plaintiff had the burden of establishing whether claims are within the scope of

the policy. Huntington Ingalls Indus., Inc. v. Ace Am. Ins. Co., 287 A.3d 515,

524 (Vt. 2022). The duty of loyalty included allegations of self-dealing, and

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clearly were not negligence based, but instead predicated on claims of

misconduct. This was evidenced by the fact the Vermont court granted the

Hokenson plaintiffs' injunctive relief and awarded attorneys' fees—neither of

which could be considered compensatory damages. Moreover, under Vermont

law, attorneys' fees and expenses are considered costs rather than damages.

Murphy v. Stowe Club Highlands, 761 A.2d 698, 701 (Vt. 2000).

Like the motion judge, we need not reach plaintiff's arguments regarding

exclusions (o) and (q) because Judge Toor's finding that plaintiff, Gardner, and

the Malovanys "acted . . . in a way as to benefit themselves personally, at the

cost of the association[,]" is indisputable based on the summary judgment

record. Therefore, the motion judge correctly found exclusion (g) applied and

plaintiff was not entitled to coverage.

Finally, Ohio Casualty did not have a duty to continue the appeal. Neither

the plain language of the policy, nor Vermont law, impose such a duty. See Co-

operative Ins. Cos. v. Woodward, 45 A.3d 89, 93 (Vt. 2012) (holding no duty to

defend where there is "no possible factual or legal basis on which the insurer

may be required to indemnify."). The duty to defend was extinguished because

plaintiff's actions fell outside the scope of the policy. Therefore, as a matter of

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fact and law, Ohio Casualty had no obligation to prosecute the appeal or cover

the attorneys' fees paid to the Hokenson plaintiffs.

Affirmed.

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