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NJ Fee Shifting Applies Even to Out of State Coverage Litigation

July 29, 2010

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New Jersey is generally considered a pro-policyholder state. Under New Jersey Court Rule 4:42-9(a)(6), a successful claimant may recover attorneys fees “in an action upon a liability or indemnity policy of insurance.” While the courts have some discretion when considering such fee applications, the trend has been to award attorneys fees to a successful policyholder in most circumstances. See, for example, our post on<i> Baughman v. US Liability Insurance </i>on July 16, 2010.
How far does Rule 4:42-9(a)(6) extend? Does it apply where a piece of the declaratory judgment is litigated in another state?
According to the New Jersey Supreme Court, the reach of Rule 4:42-9(a)(6) extends beyonds the borders of New Jersey and applies to coverage litigation filed in another state. In <i>Myron Corporation v. Atlantic Mutual</i>, this point was significant because an Illinois court – where two actions for declaratory relief had been filed by the insurer and later dismissed—would have followed the traditional American rule and denied the policyholder’s application for attorneys fees.
Getting your coverage position right at the onset is critical when considering an insured’s request for a defense or indemnification under a liability policy. The consequences of a mistaken judgment can be significant if the insured prevails and recovers its attorneys fees in litigating the coverage dispute in addition to those associated with the underlying suit.
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