DRIVE NEW JERSEY INSURANCE COMPANY VS. LOUIS A. D'ALESSIO, JR. (L-4201-15, MIDDLESEX COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE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-4200-16T3
DRIVE NEW JERSEY INSURANCE
COMPANY,
Plaintiff-Appellant/
Cross-Respondent,
v.
LOUIS A. D'ALESSIO, JR.,
D'ALESSIO'S BAGEL EXPRESS,
ADOLINA LOPEZ AVILA (as
Administrator ad Prosequendum
and General Administrator of
the Estate of Pedro Avidan
Reyes Tejada),
Defendants,
and
SENTINEL INSURANCE COMPANY
and/or THE HARTFORD,
Defendant-Respondent/
Cross-Appellant.
___________________________
Argued June 5, 2018 – Decided July 9, 2018
Before Judges Reisner, Mayer, and Mitterhoff.
On appeal from Superior Court of New Jersey,
Law Division, Middlesex County, Docket No.
L-4201-15.
Daniel J. Pomeroy argued the cause for
appellant/cross-respondent (Pomeroy Heller &
Ley, LLC, attorneys; Daniel J. Pomeroy and
Karen E. Heller, on the briefs).
Gerald D. Wixted argued the cause for
respondent/cross-appellant (Dilworth Paxson,
LLP, attorneys; Gerald D. Wixted, on the
briefs).
PER CURIAM
This appeal concerns an attempt by plaintiff Drive New Jersey
Insurance Company (Drive) to disclaim $485,000 in coverage to its
insured, and instead reduce coverage to $15,000 pursuant to a
policy exclusion, after Drive had begun defending the insured in
a wrongful death suit. Drive admittedly did not provide the
insured with a reservation of rights (ROR) letter, before it
undertook his defense. Thereafter, Drive filed a declaratory
judgment (DJ) action against its insured, the insured's employer,
the employer's insurer Sentinel Insurance Company (Sentinel), and
the deceased accident victim's estate. Sentinel counterclaimed
for declaratory and other relief. The trial court granted summary
judgment against Drive, and subsequently denied Drive's
reconsideration motion.1
1
The wrongful death suit was not settled until after the trial
court denied the reconsideration motion. That history illustrates
the difficulty of settling litigation when there is uncertainty
about the litigants' insurance coverage.
2 A-4200-16T3
Drive now appeals from an April 15, 2016 order, granting
Sentinel's summary judgment motion, dismissing Drive's DJ
complaint against all defendants, declaring that Drive must
provide primary coverage and a defense to its insured and the
employer, with $500,000 in coverage, and requiring Drive to
reimburse Sentinel's defense costs in the underlying wrongful
death suit. Drive also appeals from an April 15, 2016 order
denying Drive's summary judgment motion. Lastly, Drive appeals
from an April 18, 2017 order denying its motion for
reconsideration. Sentinel cross-appeals from a May 3, 2017 order
denying its motion for a counsel fee award for defending against
the DJ action.2
I
We review a summary judgment order de novo, employing the
Brill3 standard. Davis v. Brickman Landscaping, Ltd., 219 N.J.
395, 405 (2014). We review a trial court's decision to grant or
deny a reconsideration motion for abuse of discretion. See Hinton
v. Meyers, 416 N.J. Super. 141, 148 (App. Div. 2010). We will
2
Drive paid Sentinel approximately $23,000 in reimbursement for
defense costs for the wrongful death action. Sentinel sought
approximately $40,000 in additional fees for litigating the
coverage case.
3
Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540
(1995).
3 A-4200-16T3
not disturb a trial court's decision of a counsel fee motion,
except in the rarest case and only if we find a clear abuse of
discretion. Rendine v. Pantzer, 141 N.J. 292, 317 (1995).
Finding no legal errors in the summary judgment decisions and
no abuse of discretion in the denial of reconsideration, we affirm
the April 15, 2016 and April 18, 2017 orders for the reasons set
forth in this opinion.
On the cross-appeal, we affirm the May 3, 2017 order for the
reasons stated by the trial court. No further discussion of the
fee issue is warranted. R. 2:11-3(e)(1)(E).
II
Before addressing the legal issues pertaining to the summary
judgment and reconsideration motions, we summarize the most
pertinent evidence. The case arose from an accident in which
Drive's insured, Louis A. D'Alessio, Jr., struck and killed a
pedestrian. At the time, D'Alessio was using his personal vehicle
to deliver bagels for his employer, Bagel Express. The
pedestrian's estate sued D'Alessio and Bagel Express.
Bagel Express had a $2,000,000 policy through Sentinel,
which covered its employees. D'Alessio had a $500,000 policy from
Drive, covering his personal vehicle. The Drive policy had an
exclusion for use of the vehicle to make business-related
deliveries. The exclusion stated that, if the vehicle was used
4 A-4200-16T3
for that purpose, the coverage was reduced to the minimum allowed
by law, or $15,000. Eventually, Drive would seek to invoke the
policy exclusion, but on the summary judgment record, Drive did
not do so until after it undertook to defend D'Alessio in the
wrongful death lawsuit.
The wrongful death complaint was filed on February 12, 2015.
In April 2015, Drive retained counsel for D'Alessio, and the
attorney filed an answer on D'Alessio's behalf on April 27, 2015.
On July 16, 2015, Drive filed the DJ action against D'Alessio,
Bagel Express, Sentinel, and the pedestrian's estate. Drive did
not seek a stay of the wrongful death litigation, and that lawsuit
continued, with the Drive-retained attorney representing
D'Alessio.
After discovery closed in the DJ action, Sentinel moved for
summary judgment. The summary judgment record discloses that
Drive never asserted that it served D'Alessio with a ROR letter.
In fact, during discovery, Sentinel's attorney asked Drive's
attorney multiple times to produce a ROR letter if Drive had sent
one. Drive's attorney avoided directly answering the discovery
demand. Finally, in response to Sentinel's summary judgment
statement of material facts, Drive admitted that no "formal" ROR
letter was ever sent. That response did not cite to record
evidence of any ROR letter, formal or informal, or any attempt to
5 A-4200-16T3
disclaim coverage or invoke the policy exclusion, other than the
DJ complaint itself.
At the motion argument on April 15, 2016, Drive's attorney
did not claim that the company ever served its insured with a ROR
letter. The attorney instead contended that a ROR letter was not
required. The motion judge noted that Drive had not raised that
argument in its motion papers but was asserting the contention for
the first time at oral argument. The judge granted summary
judgment, concluding that, absent timely service of a ROR letter,
Drive could not sue its insured to disclaim coverage, after
commencing representation of the insured in the underlying
wrongful death action.
After the trial judge granted summary judgment in favor of
Sentinel, Drive filed what it characterized as a reconsideration
motion, seeking to re-open discovery to permit an amendment to its
responses to Sentinel's motion to produce. In other words, after
stalling discovery for months, Drive finally sought to produce a
letter invoking the policy exclusion. The motion sought to place
several documents before the court, only two of which are pertinent
here. The first document, a letter dated October 30, 2013, was
from Mr. Orlando, a Drive claims specialist, advising D'Alessio
that he had $500,000 in coverage. The letter also stated that,
because it was possible that damages might be awarded against
6 A-4200-16T3
D'Alessio in excess of that amount, he "may wish to retain a
personal attorney at [his] own expense regarding this potential
excess exposure."
The second document was an August 1, 2014 letter from Orlando
to Andrew Statmore, an attorney who had represented D'Alessio at
a March 5, 2014 examination under oath (EUO). The August 1, 2014
letter stated that Drive's "coverage investigation" revealed that
D'Alessio was using his vehicle for business purposes, and invoked
the policy exclusion for use of a vehicle for retail or wholesale
delivery of food. The letter noted the stepdown clause, and stated
that "[a]ny claims for damage resulting from this accident, other
th[a]n those which fall within the minimum liability coverage
[$15,000] are hereby denied." The letter advised that Drive would
"proceed with the investigation and resolution of all claims which
fall within" that liability coverage.
The letter was unsigned, but Orlando stated that he "[could]
certify" that he prepared it and sent it. Orlando explained that
Drive mistakenly failed to provide the letter to its attorneys,
thus leading to the attorneys' failure to provide the documents
to Sentinel or to the court.
In opposition, Sentinel's attorney produced documents
illustrating his extensive efforts to obtain discovery from Drive,
and Drive's repeated failure to provide discovery. In particular,
7 A-4200-16T3
Drive refused to provide the defense file relating to the wrongful
death action, which according to Orlando, was the file containing
the August 1, 2014 letter.4
Sentinel also provided the court with a copy of Statmore's
retainer letter with D'Alessio, clearly stating that Statmore was
only retained to represent D'Alessio at the EUO and "that
representation shall end after the formal statement is concluded."
The retainer further specified that Statmore was not retained to
represent D'Alessio in connection with any denial or disclaimer
of coverage, should that occur after the EUO. The EUO took place
on March 5, 2014. Nothing in the transcript of the EUO presented
to us reflects that Drive's attorney put Statmore or his client
on notice that there was a coverage issue. His introductory
explanation to D'Alessio of the EUO's purpose did not mention
coverage.
On July 22, 2016, the motion judge wrote to the attorneys
that he was scheduling a testimonial hearing to resolve factual
issues pertinent to the reconsideration motion. Those issues
included whether D'Alessio received the August 1, 2014 letter,
4
Another Drive claims specialist, Ms. Giacobbe, explained that
when she took over the coverage file, it was empty; all the
pertinent documents were in the wrongful death file, which was
maintained by Orlando. She claimed that company policy precluded
her and Orlando from sharing files.
8 A-4200-16T3
whether Statmore continued to represent D'Alessio after the EUO,
the circumstances under which Orlando allegedly prepared and sent
the letter, and how the letter "finally came to be discovered"
eight days after the court granted summary judgment. In response,
Sentinel's attorney sent the court a certification from Statmore,
confirming that his representation of D'Alessio ended immediately
after the March 5, 2014 EUO. Statmore also stated his belief that
he told Drive's attorney at or around the time of the EUO that his
representation was limited to the EUO. Statmore further stated
that the August 1, 2014 letter was incorrectly addressed, and he
had no record or recollection of ever having received it.
The trial court had some difficulty scheduling the
testimonial hearing. Meanwhile, the wrongful death case was on
the trial list, and the coverage issue continued to be uncertain
due to the reconsideration motion. Finally, the court set a
peremptory date of April 18, 2017 for the hearing. On that date,
Drive's counsel conceded that one of his witnesses, Mark Jones,
the attorney who represented Drive at the EUO, had no recollection
of anything relevant to the hearing.5 Further, although the
5
At a previous conference, in November 2016, Drive's counsel
represented to the court that Jones told Statmore that there might
be a coverage issue. However, on April 18, 2017, Drive's counsel
told the court Jones remembered nothing pertinent. Drive's
appellate brief now asserts – inaccurately — that Jones was
9 A-4200-16T3
hearing was scheduled for 10:30 a.m., Statmore was not present to
testify, apparently because Drive's attorney had told him the
hearing would last all day and Statmore planned to appear at 2:00
p.m. D'Alessio had very recently been subpoenaed, but told Drive's
attorney that he could not appear on short notice, and he and his
family were scheduled to be on vacation.6 Drive's attorney stated
that Orlando was unavailable due to a stomach ailment. In short,
Drive was not prepared to proceed with the peremptory hearing, at
which Drive had the burden of proof.
In a brief oral opinion, the judge denied the reconsideration
motion. The judge first noted that Drive had not shown that there
were exceptional circumstances or that the proffered new evidence
could not have been located earlier through diligent effort. The
judge concluded that, even if Drive had been able to prove that
Statmore received the letter, at a time when he was still
representing D'Alessio, the document was not a reservation of
rights letter. In fact, Drive's attorney admitted it was not a
"available in court" at the April 18, 2017 hearing date but was
unfairly precluded from testifying.
6
We gather from the transcript that D'Alessio was served with
the subpoena on the previous Thursday, which was the day before
Good Friday. The hearing was on April 18, 2017, which was the
Tuesday after Easter Sunday.
10 A-4200-16T3
ROR letter. The judge reasoned that Drive was simply attempting
to rehash its earlier argument that a ROR letter was not required.
III
We begin our legal analysis by addressing the summary judgment
motion. We agree with the motion judge that in the circumstances
presented, Drive could not undertake the defense of its insured,
without giving the insured advance notice that Drive intended to
deny most of the coverage the policy provided and that it would
defend under a reservation of that right. Even if a formal ROR
letter were not required, an insurer must timely invoke a policy
exclusion. See Griggs v. Bertram, 88 N.J. 347, 363-64 (1982).
The undisputed summary judgment evidence established that Drive
neither timely invoked the exclusion nor served its insured with
a reservation of rights letter.
We find no merit in Drive's argument that a ROR letter was
not required because Drive was not denying coverage but was only
reducing the coverage — from $500,000 to $15,000. Drive's argument
is based on an unduly narrow view of the purpose of the ROR letter
requirement. It is clear from cases as early as Merchants
Indemnity Corp. v. Eggleston, 37 N.J. 114 (1962), that a carrier
may not control the defense, without notice to the insured of a
reservation of the insurer's right to disclaim coverage, and then
eschew its obligation to provide the coverage.
11 A-4200-16T3
Relying on Burd v. Sussex Mutual Insurance Co., 56 N.J. 383(1970), Drive argues for a narrow construction of the obligation,
contending that it only applies where the carrier's control of the
defense could influence the outcome of the coverage obligation.
First of all, Burd did not involve a reservation of rights, but
an insurer's refusal to defend its insured. However, Burd
recognized that
if the trial will leave the question of
coverage unresolved so that the insured may
later be called upon to pay, or if the case
may be so defended by a carrier as to prejudice
the insured thereafter upon the issue of
coverage, the carrier should not be permitted
to control the defense.
[Id. at 389 (emphasis added).]
Drive focuses on the second phrase in the above-quoted language
while downplaying the first phrase. We conclude that a carrier
that intends to defend its insured in either situation described
in the quote above has an obligation to serve a reservation of
rights letter.
Burd does not hold to the contrary. Burd focused on the
possibility of a carrier litigating the tort action in a way that
would prejudice the insured, because that was the issue in the
case. Burd did not hold that that was the only situation in which
a ROR letter was required. Burd was not about an insurer's failure
to serve a ROR letter. Instead, Burd addressed how and when an
12 A-4200-16T3
insurer could obtain a declaration of its obligation to provide
coverage. However, Burd reaffirmed the following basic
principles:
[I]f a carrier defends an action in the face
of a coverage issue, the carrier must pay the
judgment (unless the insured expressly agreed
to a reservation of that issue), and if the
carrier does not defend the tort claim because
a plaintiff's verdict will not resolve the
coverage problem in the insured's favor or
because the carrier cannot defend with
complete fidelity to the insured's sole
interest, then the carrier may be heard upon
the coverage issue in a proceeding upon the
policy. And of course if the carrier does not
defend, it will have to reimburse the insured
for the cost of defense if the tort judgment
is held to be within the covenant to pay.
[Id. at 394 (emphasis added).]
In Griggs, the Court also recognized the requirement to issue
a reservation of rights letter. The obligation applies to policy
exclusions as well as claims of noncoverage.
Under certain circumstances an insurance
carrier may be estopped from asserting the
inapplicability of insurance to a particular
claim against its insured despite a clear
contractual provision excluding the claim from
the coverage of the policy. The strongest and
most frequent situation giving rise to such
an estoppel is one wherein a carrier
undertakes to defend a lawsuit based upon a
claim against its insured. If it does so with
knowledge of facts that are relevant to a
policy defense or to a basis for noncoverage
of the claim, without a valid reservation of
rights to deny coverage at a later time, it
is estopped from later denying coverage.
13 A-4200-16T3
[Griggs, 88 N.J. at 355-56.]
In Griggs, the Court focused on the insurer's related
obligation to timely invoke any policy exclusion, even before
litigation ensues:
We therefore conclude that where, after timely
notice, adequate opportunity to investigate a
claim, and the knowledge of a basis for
denying or questioning insurance coverage, the
insurance carrier fails for an unreasonable
time to inform the insured of a potential
disclaimer, it is estopped from later denying
coverage under the insurance policy in the
event a legal action is subsequently brought
against its insured.
[Id. at 363-64.]
Accordingly, we find no merit in Drive's contention that it
did not need to serve D'Alessio with a ROR letter. Drive's related
assertion – that D'Alessio had no right to obtain counsel of his
own choosing – is belied by Drive's first letter to D'Alessio,
advising him that his $500,000 coverage might be inadequate, and
he might want to retain his own attorney to represent him with
respect to any possible excess liability. Drive's citation to
Sussex Mutual Insurance Co. v. Hala Cleaners, Inc., 75 N.J. 117,
126 (1977), is inapposite, because in that case the insurer made
its position known before the underlying tort lawsuit was filed
and quickly obtained a stay of the tort lawsuit. In this case,
Drive continued to represent D'Alessio in the wrongful death suit,
14 A-4200-16T3
while also suing him in the DJ action, without his agreement to a
reservation of rights.
We find no abuse of the trial court's discretion in denying
the reconsideration motion. A belated attempt to produce evidence
on a reconsideration motion, after the court has rendered judgment,
requires a convincing explanation why the evidence could not have
been produced earlier. See Fusco v. Bd. of Educ. of City of
Newark, 349 N.J. Super. 455, 462-63 (App. Div. 2002).7 Likewise,
a motion for relief from a judgment based on newly discovered
evidence, under Rule 4:50-1(b), requires a showing that the
evidence could not have been obtained earlier "by the exercise of
due diligence." DEG, LLC v. Township of Fairfield, 198 N.J. 242,
264 (2009) (citation omitted).
We do not fault the trial judge for being skeptical about
Drive's sudden production of the documents a few days after the
court granted summary judgment. It was not unfair to require a
testimonial hearing, or to cancel the hearing when Drive was not
prepared to proceed with its witnesses. At that point, the
wrongful death case was still pending, and the settlement of that
case – which would provide compensation to the estate of the man
7
Drive's merits brief does not even address the standards for a
reconsideration motion, instead citing cases applicable to
requests for extensions of discovery.
15 A-4200-16T3
who was killed in the accident – was being delayed due to
uncertainty about insurance coverage. The summary judgment record
supported the judge's first decision, and there was no abuse of
discretion in declining to reopen the judgment.
We also agree with the trial judge that, even if the August
1, 2014 correspondence had been properly addressed, mailed, and
received by an attorney who still represented D'Alessio (none of
which facts were proven), it was not a reservation of rights
letter. See Sneed v. Concord Ins. Co., 98 N.J. Super. 306 (App.
Div. 1967). In fact, Drive's counsel admitted that it was not a
ROR letter and argued that no ROR letter was required.
Finally, we briefly address Drive's argument that Sentinel
had no standing to raise Drive's failure to serve D'Alessio with
a ROR letter. Drive's brief in chief relies solely on United
States Casualty Co. v. Hyrne, 117 N.J.L. 547, 552 (E. & A. 1937),
a case that is not on point here. We deem the issue inadequately
presented by the appellant. However, we add that Drive sued
Sentinel to resolve the coverage issue, and, particularly given
the then-pending wrongful death suit, both insurers had an interest
in the amounts of coverage available to their insured, D'Alessio.
In those circumstances, Sentinel had standing to raise the
reservation of rights issue. See Potomac Ins. Co. of Ill. ex rel.
OneBeacon Ins. Co. v. Pa. Mfrs., 425 N.J. Super. 305, 320-21 (App.
16 A-4200-16T3
Div. 2012), aff'd, 215 N.J. 409 (2013); Marshall v. Raritan Valley
Disposal, 398 N.J. Super. 168, 177 (App. Div. 2008).
Affirmed.
17 A-4200-16T3