The Superior Court of New Jersey has refused to place the responsibility to comply with a court rule requiring a minimum amount of professional liability coverage for attorneys practicing as an LLC with an insurer. The court, instead, ruled that it was the responsibility of the insured to ensure that it had enough coverage to be in compliance with the court rule. The case is Cadre v. ProAssurance Cas. Co. ., No. A-4969-18, 2021 N.J. Super. LEXIS 77 (Super. Ct. App. Div. June 9, 2021.
Jill Cadre is a New Jersey attorney who conducts her practice as a limited liability company, The Cadre Law Firm, LLC. New Jersey Rule 1:21-1B, governs the practice of law as an LLC and among other things, mandates that attorneys who practice law must have professional liability insurance which provides coverage to the LLC for damages "arising out of the performance of professional services by attorneys employed by the [LLC] in their capacities as attorneys."
Cadre purchased a professional liability insurance policy, called LawyerCare, from ProAssurance Casualty Company. In preparation for a compliance audit by the Office of Attorney Ethics (OAE) in 2015, Cadre discovered that one of her paralegals had misappropriated $80,000 of client's funds held in the LLC's trust account in connection with real estate closings. Cadre notified ProAssurance of a potential claim under the policy. ProAssurance denied coverage, relying on the policy's definition of covered damages which did not include "misappropriated client funds." Cadre then filed a declaratory judgment action, and subsequent amended complaint, and moved for a summary judgment, seeking coverage for claims under the policy resulting from the misappropriated funds.
ProAssurance made a cross-motion for summary judgment. The lower court granted that motion and Cadre appealed.
Cadre argued that ProAssurance must have issued her a professional liability policy that applied with Rule 1:21-1B's minimum coverage requirements. She further argued several issues with the policy itself; the policy's definition of "damage" was ambiguous, the policy did not meet her reasonable expectations, and that ProAssurance negligently misrepresented that the policy complied with Rule 1:21-1B.
ProAssurance argued that Rule 1:21-1B only governs attorneys practicing as LLCs, not insurers, and that the rule does not mandate the "scope of coverage" which insurers must provide.
Cadre responded that only the court can regulate the conduct of attorneys, Rule 1:21-1B has statutory authority and so the ProAssurance policy must be reformed to provide the statutorily require coverage.
The New Jersey Superior Court refused to revive Cadre's claims against ProAssurance, holding that while a professional liability policy that defines damages to specifically exclude coverage for misappropriated funds does not provide coverage as required under Rule 1:21-1B, the rule permits more than one insurance policy to be in place to provide the statutorily required coverage for the LLC. The court also noted that it is the attorney, not the insurer, who must procure the appropriate insurance coverage and comply with Rule 1:21-1B. The Superior Court also found nothing ambiguous about the policy coverage limitation, where the policy clearly excludes coverage for "misappropriating clients funds." The Superior Court further found that Cadre misinterpreted the scope of the power of the trial court, that she was unaware of the requirements of Rule 1:21-1B, and that ProAssurance did not make any representations to her regarding whether the policy complied with Rule 1:21:1B.