New Jersey High Court Rules Insured May Recover Attorneys' Fees in Out-of-State Coverage Action
July 29, 2010

In Myron Corporation v. Atlantic Mutual Insurance Corp., decided July 27, 2010, the Supreme Court of New Jersey gave New Jersey Rule 4:42-9(a)(6) extraterritorial application when it ruled that Myron Corporation could recover its attorneys' fees incurred in two declaratory judgment actions filed in federal court in Illinois. In so holding, the court addressed for the first time the application of the New Jersey "fee-shifting" rule to an out-of-state insurance coverage action.

Myron Corporation ("Myron"), a New Jersey-based commercial entity, was sued in Illinois for violation of the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227. Myron gave notice to Atlantic Mutual, its general liability insurer, and Atlantic Mutual agreed to provide a defense subject to a reservation of rights. Subsequently, Atlantic Mutual filed a declaratory judgment action in federal court in Illinois, requesting a declaration that the policy did not coverage the alleged TCPA claims. The court dismissed the action for failure to meet the "amount in controversy" requirement for federal diversity jurisdiction. Atlantic Mutual refiled the action after obtaining documentation that actual amount in controversy exceeded the federal requirement.

Myron Corporation then filed a declaratory judgment action in New Jersey state court. The New Jersey court dismissed the action in favor of the first-filed action pending in Illinois. Myron Corporation then petitioned the court in Illinois to stay the declaratory judgment action in favor of the New Jersey action. The court granted the petition, requiring, however, that Myron Corporation take all steps necessary to reinstate the New Jersey action on the court's docket. Myron Corporation did so, and the New Jersey court ruled that Atlantic Mutual owed a duty to defend the TCPA claims. Myron Corporation and Atlantic Mutual settled, however, could not reach agreement regarding $160,000 in attorneys' fees Myron Corporation incurred in defending the two federal declaratory judgment action in Illinois.

Invoking New Jersey Rule 4:42-9(a)(6), the plaintiff argued it was entitled to its attorneys' fees. The rule states that "[n]o fee for legal services shall be allowed in the taxed costs or otherwise , except . . . [i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant[.]" The trial court ruled that Myron Corporation was not entitled to fees incurred in defending an action in Illinois. The Appellate Division reversed, finding that the Illinois actions were part of the "same controversy" as the New Jersey declaratory judgment action. The Supreme Court of New Jersey affirmed.

The affirmance was over a vigorous dissent by Justice Rivera-Soto, who noted that Myron Corporation was a defendant and therefore not a "successful claimant" in the Illinois actions and thus the insurance exception to Rule 4:42-9(a)(6) did not apply in this instance. The dissent further reasoned that the court's ruling would open the door to plaintiffs litigating insurance coverage questions elsewhere and, once successful, coming to New Jersey to take advantage of the specific fee-shifting statute.

The Myron Corporation decision is significant for its expansion of New Jersey's rule allowing fee-shifting for successful claimants in insurance coverage actions. Based on this ruling, an insured incurring fees in defense of an out-of-state coverage action may nevertheless be able to recover those fees under the New Jersey rule.

For more information about this and other coverage issues, please contact Richard K. Traub.