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Voorhees v. Preferred Mutual Insurance Co.3/20/1991
EF-->267 A.2d 7 (1970). So too, " henever the [insurer's] position so diverges from the insured's that the carrier cannot defend the action with complete fidelity to the insured, there must be a proceeding in which the carrier and the insured, represented by counsel of their own choice, may fight out their differences." Id. at 391, 267 A.2d 7; see also Hartford Acc. & Indem. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. 18, 24-25, 483 A.2d 402 (1984); Heldor Inds. v. Atlantic Mut. Ins., 229 N.J. Super. 390, 399, 551 A.2d 1001 (App.Div.1988); Lyons v. Hartford Ins. Group, 125 N.J. Super. 239, 247, 310 A.2d 485 (App.Div.1973), certif. den. 64 N.J. 322, 315 A.2d 411 (1974).
Preferred asserts that these exceptions apply in this case. If Voorhees acted intentionally, the policy exclusion would apply. If she acted either negligently or recklessly, the exclusion for "intentional acts" would not bar coverage. It is argued that the interests of Preferred and Voorhees do not coincide. If Sisto's suit had gone to trial, obviously both the insurer and the insured would want her to fail. Yet, if Sisto were to succeed, Preferred would want the basis to be Voorhees' intentional conduct, since intentional acts are excluded under the policy. Preferred could not be expected to resist that basis of liability with the fervor or fidelity expected of an advocate selected by the insured. See Burd v. Sussex Mutual Insurance Co., 56 N.J. at 389-390, 267 A.2d 7. It is argued that any attorney
retained by Preferred to defend Voorhees against Sisto's claim and at the same time to protect Preferred against the coverage claim of Voorhees would be placed in the position of conflict which our courts have said must be avoided. See Hartford Acc. & Indem. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. at 24-25, 483 A.2d 402; Burd v. Sussex Mutual Insurance Co., 56 N.J. at 391, 267 A.2d 7; Heldor Inds. v. Atlantic Mut. Ins., 229 N.J. Super. at 399, 551 A.2d 1001; Lyons v. Hartford Ins. Group, 125 N.J. Super. at 247, 310 A.2d 485. The discharge of the attorney's obligation to Preferred might well require presentation of evidence incompatible with the effective defense of Voorhees or delete its force with the jury. Since the interests of the insurer and the insured were not coextensive, Preferred argues that it was not only within its rights in refusing to defend Voorhees but was in fact ethically obliged to follow that course once it denied coverage.
We disagree. Even assuming that there was a conflict of interest, the result would not be to free Preferred from its covenant to defend, but rather to translate its obligation into one to reimburse the insured if it later developed that the claim was one within the policy covenant to pay. Burd v. Sussex Mutual Insurance Co., 56 N.J. at 390, 267 A.2d 7. The obligation of a carrier faced with a conflict of interest will be dealt with later in our opinion. Suffice it to say here, Preferred, confronted with a real or potential conflict, could not, consistent with its fiduciary obligation, and without any further investigation, see Griggs v. Bertram, 88 N.J. 347, 357, 443 A.2d 163 (1982), or arrangement with Voorhees, simply decline liability, leaving its insured to fend for herself.
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