Absent a specific law or contractual provision, American courts generally follow the “American Rule,” meaning that each side pays its own legal fees.  Seems unfair that when a company buys a liability insurance policy, it still may have to hire lawyers to sue the carrier and secure the paid-for defense of an underlying action.  New Jersey addresses this problem in R. 4:42-9 (a) (6), which provides for the recovery of legal fees “[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.”

Question:  Why doesn’t the rule also allow for recovery of legal fees in actions upon first-party policies, such as property insurance policies?  Answer:  It’s sort of like the origins of the Feast of the Seven Fishes.  No one really seems to know.   

In any event, the New Jersey Supreme Court has now held that the rule applies even when coverage litigation takes place out of state. The Court adopted the Appellate Division’s opinion in Myron Corp. v. Atlantic Mutual Insurance Co., 407 N.J. Super. 302 (2009). The decision allows Myron Corporation, a business-to-business personalized gift company based in Maywood, New Jersey, to recover around $160,000 in legal fees incurred battling its liability carrier, Atlantic Mutual, in federal court in Illinois.  Underlying the coverage dispute was a putative class action filed in 2003 by Stonecrafters Inc., an Illinois business that claimed Myron had blasted it with junk faxes in violation of the federal Telephone Consumer Protection Act of 1991 and Illinois consumer protection law.   Myron notified Atlantic Mutual of the claim, seeking protection under the policy’s “advertising injury” provisions. The carrier agreed to defend under a reservation of rights.

Atlantic Mutual then sued in Illinois for a declaration of no coverage.  Myron countersued in New Jersey to enforce coverage.  Game on.  Ultimately the Illinois court stayed the coverage case there on the ground that New Jersey had more significant contacts to the matter, Myron being based in New Jersey.  The parties settled, but Atlantic Mutual refused to reimburse Myron for the legal fees incurred in the Illinois coverage case. 

Under the Supreme Court’s decision, the Illinois fees were incurred as part of larger “battles in a war that Myron ultimately won” and thus “an integral part of the entire controversy over coverage.”