Page 45 - Reservation of Rights - Special Edition

Eggleston, 179 A.2d 505, 512 (N.J. 1962).)
The second choice is that the insurer “could refuse to defend and dispute its obligations thereafter, so as to ‘translate its obligation into one to reimburse the insured if it is later ad- judged that the claim was one within the policy covenant to pay.’” Flomerfelt, 997 A.2d at 999 (quoting Burd, 267 A.2d at 10). In Hartford Accident & Indemnity Co. v. Aetna Life & Casualty Insurance Co., 483 A.2d 402, 407 (N.J. 1984), the court stated that when there is a conflict of interest between the insured and insurer, “the insurer not only [is] within
its rights in refusing to take over the defense on behalf of its insured but [is] in fact obligated to follow that course once it denied coverage. According to the court in Hartford Accident, “[t]he practical effect of Burd is that an insured must initially assume the costs of defense itself, subject to reimbursement by the insurer if it prevails on the coverage issue.» Id. at 411, n.3. However, the insured is not always required to take on the defense initially if the coverage question can be decided before trial in a declara- tory judgment proceeding. See Flomerfelt, 997 A.2d at 999; Burd, 267 A.2d at 11. Furthermore, with respect to how the insured’s defense counsel is chosen, there is dicta in Dunne v. Fireman’s Fund Am. Ins. Co., 353 A.2d 508, 513 (N.J. 1976) that states that “the insured should select their own counsel, subject to the carrier’s approval. [If] such ap-proval is not forthcoming the selection should be made by the assignment judge.”
In one case, the insurer accepted defense of covered claims but also sent the insured a reservation of rights letter regard- ing the uncovered claims and offered the insured
the right to have its own defense counsel for the uncovered claims. See Aquino v. State Farm Ins. Co., 793 A.2d 824 (N.J. Super. Ct. App. Div. 2002). However, the insured did not expressly agree to the reservation of rights. The court held that the insurer was responsible for the insured’s defense counsel’s fees, but only for the time period where the uncovered claims were viable. Nevertheless, the court made clear that although the insured was entitled to choose his own counsel, he “does not have the right to dictate to the insurers the hourly rate they must pay. The trial court here should have determined a reasonable hourly rate for defense work of this nature and set a fee accordingly. “Aquino v. State Farm Ins. Co., 793 A.2d 824, 832 (N.J. Super. Ct. App. Div. 2002).
Time for Providing Insured with Coverage Position/ Reservation of Rights
• An insurer must accept or deny coverage within 30 days after receipt of proof of loss for first-party claims (other than personal injury or auto damage claims, which are subject to a 60-day time limit); 45 days to accept or deny coverage after receipt of proof of loss for third-party property damage claims; and 90 days to accept or deny coverage after receipt of proof of loss for third-party bodily injury claims.
• If more time is needed, the insurer must notify the insured of that and continue to do so every 45 days thereafter until a determination of coverage is made. N.J. Admin. Code § 11:2-17.6 to 11:2-17.8.
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