Sparks v. St. Paul Ins. Co.

Sparks v. St. Paul Ins. Co.

Opinion

 [*327]  [**407]   In this case, as in Zuckerman v. National Union Fire Ins. Co., 100 N.J. 304 (1985), which the Court also decides today, we consider the enforceability of certain coverage limitations contained in a "claims made" professional liability insurance policy issued by appellant St. Paul Insurance Company (St. Paul). The trial court and the Appellate Division refused to enforce the policy provision limiting coverage [***2]  to claims and potentialclaims reported to St. Paul during the policy period. We granted the insurance company's petition for certification, 99 N.J. 211 (1984), in order to resolve the apparent conflict between the unreported Appellate Division decision in this case and the Appellate Division decision in Zuckerman, supra, 194 N.J. Super. 206 (1984), enforcing a similar provision in the "claims made" policy at issue in that case.

The material facts are not in dispute. In November, 1978, respondents, John and Carolyn Sparks, retained A. Raymond Guarriello, a New Jersey attorney, to represent them in connection with the sale of their residence. That transaction resulted in litigation between respondents and the prospective purchasers. In the course of that litigation, apparently due to Guarriello's negligence, Mr. and Mrs. Sparks failed to answer interrogatories. This resulted in an order entered in mid-October, 1979, suppressing the Sparks' answer and counterclaim. A default judgment for specific performance was entered against Mr. and Mrs. Sparks in February, 1980, and a money judgment for $ 18,899.08 was entered  [**408]  against them [***3]  in May, 1981. It is not disputed that Guarriello'snegligence was the proximate cause of the judgments against Mr. and Mrs. Sparks.

On November 6, 1976, appellant, St. Paul, issued Guarriello a one-year professional malpractice policy that was renewed for successive one-year periods, terminating on November 6, 1979. On September 27, 1979, St. Paul issued a substitute policy for  [*328]  one additional year that was to take effect on November 6, 1979. Guarriello failed to pay the premium and appellant sent Guarriello a notice cancelling the substitute policy, effective January 21, 1980. Between June and August of 1980, substituted counsel for respondents notified St. Paul of the underlying facts and demanded that the insurance company provide malpractice coverage with respect to Guarriello's negligence.

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