Court Opinion

ID: 9691660
Source: CourtListenerOpinion
Date Created: 2023-08-24 20:57:00.301439+00
Date Added: 2024-06-11T18:19:24.855995
License: Public Domain

LaVECCHIA, J.,
dissenting.
I would affirm the Appellate Division decision for the reasons expressed in the persuasive opinion authored by Judge Parrillo. I add only the following comments.
Distilled, this ease is about whether plaintiff title insurers must bear full responsibility on a risk those companies, in fact, agreed to insure or whether their respective liabilities may be lightened by requiring a malpractice insurer to provide coverage under a policy it would not have issued but for the insured’s misrepresentations in its application. I am loath to join a result that could be perceived as tolerating fraudulent procurement of insurance. The majority grants what amounts to partial rescission of a professional liability policy that, in my view, should be deemed void ab initio as procured based on fraudulent representations. Allowing coverage for even one of the three attorneys comprising the law firm *145that misrepresented on the application for insurance ignores the critical fact that the insurer never would have issued a policy covering the firm and its partners but for the deceit of one partner (who stole money from clients), the complicity of a second partner, and the indifference of a third partner.
Rescission is appropriate where a material misrepresentation is made with the intent that it will be relied upon, and the misrepresentation is, in fact, relied upon to one’s detriment. Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624-25, 432 A.2d 521 (1981); 2 Couch on Insurance § 31:81 (3d ed. 1995 & Supp.2003). Although that is precisely what happened in this case, the majority stops short of rescinding the entire insurance policy, as would normally occur when a contract of insurance is declared void ah initio, and instead orders partial rescission of the contract. See Mass. Mun. Wholesale Elec. Co. v. Town of Danvers, 411 Mass. 39, 577 N.E.2d 283, 292-93 (1991) (stating general rule that “[a] contract which is void ab initio, or void from the beginning, may not be enforced” and noting that “[jjudicial or equitable doctrines cannot breathe life into such a contract” given that “courts treat the contract as if it had never been made”); see also Remsden v. Dependable Ins. Co., 71 N.J. 587, 589, 367 A.2d 421 (1976) (stating material misrepresentations in application justify rescission of policy ah initio).
It is generally accepted that partial rescission is appropriate as a remedy only where a contract is divisible, the basis for rescission does not affect the whole contract, and the facts of a case warrant such relief. 2 Couch on Insurance, supra, § 31:69; see also County of Morris v. Fauver, 153 N.J. 80, 97, 707 A.2d 958 (1998) (stating “[ojnly where a contract is severable into different transactions may one of those separate transactions be avoided”); Borneo Petrol, Inc. v. Epstein, 115 N.J. 599, 612, 560 A.2d 655 (1989) (acknowledging rule that “a contract is not to be partially rescinded”). This case does not present an opportunity for application of partial rescission, however seductive that result may be. We do not have a divisible contract. The subject policy covered a *146law firm comprised of three partners. The misrepresentations concerning potential professional liability claims, made during the application process, were made on behalf of the entire firm. That three attorneys, acting on behalf of the firm, were insured under the policy does not render the policy divisible into different transactions.
Even if the policy were divisible as to each named insured, total rescission is still warranted where the fraud goes to procurement of the entire contract. 2 Couch on Insurance, swpra, § 31:68 (stating that “the ground for rescission may be such as to affect the validity of all parts of the contract, whether divisible or not, in which case a decree rescinding the entire contract is of course proper”). Cf. ibid, (noting that “where two policies are issued upon a single application which is fraudulent, both policies may be rescinded”). The basis for rescission here—material misrepresentations concerning potential claims on the application for a claims-made professional liability insurance policy—most assuredly affected the validity of the entire contract. Accord Home Indem. Co. v. Toombs, 910 F.Supp. 1569 (N.D.Ga.1995) (rescinding legal malpractice policy as to entire firm based on material misrepresentation in application).
As an inherently discretionary remedy, rescission is awarded on a case-by-case basis. Intertech Assocs., Inc. v. City of Paterson, 255 N.J.Super. 52, 59, 604 A.2d 628 (App.Div.1992). I leave for another day whether equity would not allow rescission of professional liability insurance policies in other settings. Query whether rescission would be allowed where a partner in a firm was guilty of malfeasance and successfully concealed his misdeeds from other partners who were responsible for procuring insurance and who undertook to inform themselves generally about the firm’s work, including the safeguarding of client trust fund accounts. There, and in other settings, the equities might be poised differently than they are here. I trust that in future cases the fact-sensitive equitable analysis required for rescission would protect the overwhelming majority of conscientious law firms and attorneys li*147censed to practice in this State. But traditional rules of contract rescission do not support the partial rescission that the majority orders here. The Appellate Division rightly concluded that this is a classic case for rescinding coverage in favor of the defrauded insurance company.
For affirmance in part; reversal in part; remandment—Chief Justice PORITZ and Justices COLEMAN, LONG, VERNIERO, ZAZZALI and ALBIN—6.
For affirmance—Justice LaVECCHIA—1.