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NJ: No Attorney's Fees Against In-House Counsel

State National Ins. Co. v. The County of Camden, et al., D.N.J., June 25, 2010

Facts:  State National sued its insured, the County of Camden, to determine which entity or person ought to be liable for injuries sustained by a driver who collided with a guardrail owned and maintained by the County.  State National also sued the County’s in-house counsel, alleging late notice, errors in investigating and defending the case, and untimely evaluation.  More specifically, State National alleged that counsel’s negligence breached the insurance contract’s provisions and conditions to coverage.  State National sought attorney’s fees and costs incurred in prosecuting its declaratory judgment action against the County from its in-house counsel.

Issue:  Can the insurer successfully seek attorney’s fees for alleged professional negligence from an attorney who is its insured’s employee? 

Ruling:  No.

The Court held that State National could not maintain a separate cause of action against the County’s in-house counsel because "the County and [its in-house counsel] are one and the same."  The Court further noted:

If it is found that the County, by and through its lawyer employee, breached the insurance contract with State National and ICSOP, the insurers will not be required to pay under the policy. Despite any alleged malpractice by [the attorney] that the insurers wish she atone for, it is the County, and not State National or ICSOP, that has to pay for that negligence. The County accepted this potential outcome by conducting its own defense. Conversely, if it is found that the County, by and through its lawyer employee, did not breach the insurance contract, then there cannot be any malpractice upon which State National and ICSOP can base a declination of coverage. . . . Whatever [the attorney’s] conduct, that is for the County to bear as her employer…Thus, based on this analysis, even if State National’s claim for damages in the form of attorneys’ fees and costs was valid, it would lie against the County, and not [its attorney].

 Lesson:  Insurers will not be allowed to obtain attorney’s fees under Saffer v. Willoughby in malpractice cases against their insured’s in-house attorneys.

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