Thomas Demarco v. Sean Robert Stoddard, D.P.M.

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3924-12T1

THOMAS DEMARCO and CYNTHIA
DEMARCO, APPROVED FOR PUBLICATION

Plaintiffs-Respondents, JANUARY 22, 2014

APPELLATE DIVISION
v.

SEAN ROBERT STODDARD, D.P.M.,
Individually and t/a CENTER FOR
ADVANCED FOOT & ANKLE CARE, INC.,

Defendant,

and

MEDICAL MALPRACTICE JOINT
UNDERWRITING ASSOCIATION OF
RHODE ISLAND,

Defendant-Appellant.

__________________________________

Argued October 15, 2013 – Decided January 22, 2014

Before Judges Yannotti, Ashrafi and
St. John.

On appeal from Superior Court of New Jersey,
Law Division, Ocean County, Docket No.
L-3309-11.

Todd J. Leon argued the cause for appellant
(Hill Wallack, L.L.P., attorneys; Mr. Leon
and Jonathan D. Pavlovcak, on the brief).
 Michael D. Schottland argued the cause for
respondents (Lomurro, Davison, Eastman
& Munoz, P.A., attorneys; Michael J. Fasano,
on the brief).

The opinion of the court was delivered by

ASHRAFI, J.A.D.

This appeal concerns medical malpractice insurance

coverage. Defendant Medical Malpractice Joint Underwriting

Association of Rhode Island ("the JUA") appeals from summary

judgment entered by the New Jersey Superior Court, Law Division,

requiring that it provide liability coverage in the medical

malpractice lawsuit filed by plaintiffs Thomas and Cynthia

DeMarco against defendant podiatrist Sean Robert Stoddard. The

JUA contends it justifiably rescinded the malpractice policy it

had issued to Dr. Stoddard because the doctor purposely

misrepresented the nature and location of his practice.

Although the summary judgment record supports the JUA's

allegation that Stoddard gave materially false information in

his applications for the insurance policy and its annual

renewals, we affirm the Law Division's judgment that the JUA

must provide indemnification coverage for the DeMarcos'

malpractice claims in the minimum amount required by New Jersey

law.

I.

2 A-3924-12T1
 Viewed most favorably to the JUA, see R. 4:46-2(c); Brill

v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), the

summary judgment record reveals the following facts and

procedural history.

Thomas DeMarco, a resident of New Jersey, was a patient of

Dr. Stoddard from 2004 to 2011. Stoddard practiced podiatry at

the Center for Advanced Foot & Ankle Care, located in Toms River

and Lakewood, New Jersey. From 2007 through 2011, Stoddard was

insured by medical malpractice liability policies issued by the

JUA out of Rhode Island.

The Rhode Island legislature created the JUA, which is

composed of private insurance carriers, so that Rhode Island

doctors might obtain medical malpractice insurance if it is not

otherwise available. R.I. Gen. Laws § 42-14.1-1. The JUA is

required to provide coverage to qualified Rhode Island doctors.

Essentially, its underwriting rules require only that the

applicant be licensed to practice in Rhode Island and that at

least 51% of the doctor's medical practice be generated in Rhode

Island. The JUA provides policies to doctors who also practice

in the adjacent states of Massachusetts and Connecticut, but it

was not aware of any doctor it insured, other than Stoddard, who

also practiced in New Jersey.

3 A-3924-12T1
 Stoddard initially applied for a JUA policy in January 2007

through an agent located in Rhode Island named Lisa O'Neil.

O'Neil was not an employee of the JUA, as plaintiffs allege; she

was an independent insurance broker. Stoddard alleged that

O'Neil was responsible for the contents of his JUA application.

According to O'Neil's deposition, the information on Stoddard's

application was provided by him, and he had an opportunity to

review the application before it was submitted to the JUA.

Stoddard's original January 2007 application stated that he

was licensed to practice podiatry in both Rhode Island and New

Jersey, that his office address was in Newport, Rhode Island,

and that he was applying for affiliation with Newport Hospital

in Rhode Island. But the office telephone numbers on the

application contained a 732 area code, which is located in New

Jersey. In response to the question: "Is at least 51% of your

practice generated in Rhode Island?" the application checked off

"yes," but that answer was false. Stoddard later admitted that

at no time was a majority of his practice generated in Rhode

Island.

Stoddard's annual renewal applications were also filed

through O'Neil out of her Rhode Island office. The first two

renewal applications, which covered the period through March 1,

2010, again contained a Newport, Rhode Island office address for

4 A-3924-12T1
Stoddard, but once again with 732 office telephone numbers. For

the policy period most relevant to the DeMarcos' malpractice

lawsuit, 2010-2011, Stoddard's renewal application contained a

Lakewood, New Jersey, office address with the same 732 telephone

number previously provided in the earlier applications. All

three renewal applications falsely answered the question "yes"

as to Stoddard generating 51% of his practice in Rhode Island.

In fact, Stoddard never had any significant practice in Rhode

Island.

In September 2010, Stoddard performed foot surgery on

Thomas DeMarco in New Jersey. In January 2011, Stoddard

informed DeMarco that he was closing his practice in New Jersey

and moving to California. DeMarco's foot condition worsened,

and he consulted another doctor. In October 2011, DeMarco and

his wife filed a medical malpractice lawsuit in New Jersey

alleging that Stoddard had negligently performed the September

2010 foot surgery.

Stoddard received the summons and complaint in California,

and submitted them to the JUA. The JUA sent a reservation of

rights letter back to Stoddard indicating it would not provide

coverage if a majority of his practice was not generated in

Rhode Island. Shortly after that, Stoddard wrote to plaintiffs'

attorney, stating: that he had moved to California and was

5 A-3924-12T1
attempting to begin a new practice there in the form of a

professional corporation; that the JUA had disclaimed coverage

for the DeMarcos' malpractice lawsuit because of the 51%

underwriting rule; that he had truthfully told the insurance

broker O'Neil that the bulk of his practice was in New Jersey

but he intended to build up a Rhode Island practice; that O'Neil

had responded that Stoddard could apply to the JUA so long as he

was making an effort to reach the 51% level of Rhode Island

practice; that he was in fact never able to generate a

significant practice in Rhode Island; and that he was currently

going through a divorce and had no assets from which a

malpractice judgment could be recovered personally from him.

On January 13, 2012, the JUA filed a complaint for a

declaratory judgment in the superior court of Rhode Island. It

sought rescission of Stoddard's last renewed policy on the

ground that he had misrepresented material information in his

application. Both Stoddard and the DeMarcos were named

defendants in the JUA's Rhode Island complaint, but the JUA was

never able to effect personal service of process on the

DeMarcos. Neither Stoddard nor the DeMarcos filed an answer or

otherwise defended the declaratory judgment action in Rhode

Island. The DeMarcos' attorney wrote to counsel for the JUA

contending that Rhode Island did not have personal jurisdiction

6 A-3924-12T1
over the DeMarcos, and that the DeMarcos had never been in and

had no other significant contacts with that state. Counsel for

the JUA forthrightly revealed that information to the Rhode

Island court.

On March 9, 2012, the DeMarcos filed an amended complaint

in their New Jersey malpractice case. They named the JUA as a

defendant and sought a declaratory judgment in New Jersey that

the JUA must provide indemnification coverage on their medical

malpractice claim against Stoddard.

On May 25, 2012, the court in Rhode Island entered default

judgment against Stoddard, declaring the 2010-2011 renewed

policy void. The judgment also stated that the JUA was not

required to defend or indemnify Stoddard in the DeMarcos' New

Jersey lawsuit. The Rhode Island court, however, did not enter

a default judgment or take any other action against the

DeMarcos.

Subsequently, the JUA and the DeMarcos filed cross-motions

in the New Jersey malpractice case for summary judgment on the

coverage question and on the effect of the Rhode Island default

judgment. The New Jersey court heard argument and granted

summary judgment in favor of the DeMarcos. It determined that

the Rhode Island judgment was not binding on the DeMarcos and

that the JUA was required to indemnify Stoddard in the DeMarcos'

7 A-3924-12T1
lawsuit. The court also granted the DeMarcos attorney's fees

arising from successful litigation of the JUA's disclaimer of

coverage.

We granted the JUA's motion for leave to appeal. The trial

court then stayed the underlying medical malpractice case

between the DeMarcos and Stoddard pending the outcome of this

appeal.

II.

We first consider whether the default judgment entered by

the Rhode Island court against Stoddard is binding on the

DeMarcos. We agree with the Law Division that it is not.

The Rhode Island court declined to grant the JUA's

application to hold the DeMarcos in default and to enter

judgment against them. The JUA now argues that the Law Division

in New Jersey erred in concluding that the Rhode Island court

lacked jurisdiction, and also that the doctrines of res judicata

and collateral estoppel bar the DeMarcos' New Jersey cause of

action against the JUA.

We need not address the JUA's argument that the New Jersey

Law Division incorrectly determined there was inadequate service

of process for the Rhode Island court to obtain personal

jurisdiction over the DeMarcos. That issue is moot because the

Rhode Island court did not exercise jurisdiction over them; it

8 A-3924-12T1
did not enter default judgment or take any other action against

the DeMarcos.

The doctrine of res judicata prevents the re-litigation of

an issue once it has been fairly litigated and there is: "(1) a

final judgment by a court of competent jurisdiction, (2)

identity of issues, (3) identity of parties and (4) identity of

the cause of action." Selective Ins. Co. v. McAllister, 327

N.J. Super. 168, 172-73 (App. Div.), certif. denied, 164 N.J.

188 (2000). Here, the first and third requirements are not

satisfied. The Rhode Island court did not exercise personal

jurisdiction over the DeMarcos, and they were never active

parties in that litigation. There is no final judgment against

the DeMarcos that can constitute res judicata.

Nor does the doctrine of collateral estoppel apply.

Collateral estoppel, which is also known as
issue preclusion, prohibits relitigation of
issues if its five essential elements are
met. Those elements are that
(1) the issue to be precluded is
identical to the issue decided in
the prior proceeding; (2) the
issue was actually litigated in
the prior proceeding; (3) the
court in the prior proceeding
issued a final judgment on the
merits; (4) the determination of
the issue was essential to the
prior judgment; and (5) the party
against whom the doctrine is
asserted was a party to or in
privity with a party to the
earlier proceeding.

9 A-3924-12T1
 [Allen v. V & A Bros., Inc., 208 N.J. 114,
137 (2011) (quoting Olivieri v. Y.M.F.
Carpet, Inc., 186 N.J. 511, 521 (2006)).]

"Although mutuality of parties no longer is an essential

condition of collateral estoppel, the party against whom

collateral estoppel is to be invoked must have been in 'privity'

with a party in the first action." Zirger v. Gen. Accident Ins.

Co., 144 N.J. 327, 338 (1996) (citing Wunschel v. City of Jersey

City, 96 N.J. 651, 658 (1984)). The JUA contends that the

DeMarcos were in privity with Stoddard with respect to the

coverage issue litigated in Rhode Island. We disagree.

"Generally, one person is in privity with another and is

bound by and entitled to the benefits of a judgment as though he

was a party when there is such an identification of interest

between the two as to represent the same legal right . . . ."

Moore v. Hafeeza, 212 N.J. Super. 399, 403-04 (Ch. Div. 1986)

(cited in Zirger, supra, 144 N.J. at 339). Here, the DeMarcos

do not have such an identification of interest with Stoddard so

that he represented the same legal right as them in the Rhode

Island litigation.

The JUA's claim before the Rhode Island court was that

Stoddard procured the policy through a material misrepresent-

tation, which gave the JUA the right to rescind the policy. The

DeMarcos are innocent third parties with respect to Stoddard's

10 A-3924-12T1
misrepresentation. Although both Stoddard and the DeMarcos have

an interest in coverage of the DeMarcos' malpractice claims by

the JUA, it cannot be said that their legal rights were the same

before the Rhode Island court. As the party that admittedly

misrepresented the nature of his Rhode Island practice, Stoddard

was not in a position to argue for the validity of the JUA

policy. In fact, the Rhode Island court had personal

jurisdiction over Stoddard, but he did not defend against the

JUA's coverage action. Whether he believed he did not have an

adequate defense or he did not feel compelled to defend the case

given his personal financial circumstances, he did not represent

the DeMarcos' interests.

In sum, the DeMarcos were not in privity with Stoddard and

are not collaterally estopped from seeking a judgment contrary

to the Rhode Island judgment entered against him. The Law

Division correctly refused to enforce the Rhode Island judgment.

III.

On the merits of the DeMarcos' New Jersey judgment

requiring insurance coverage, we must decide whether the law of

New Jersey or that of Rhode Island applies. The Law Division

concluded that New Jersey law applies on the issue of whether

the JUA could disclaim coverage of the DeMarcos' claims.

11 A-3924-12T1
 A.

The DeMarcos contend the JUA should not be permitted to

argue that Rhode Island law applies because it did not raise the

choice-of-law issue in its pleadings or motion for summary

judgment. A trial court, however, has discretion to permit a

party to raise a choice-of-law issue even if it was not raised

earlier. See Rowe v. Hoffman-La Roche Inc., 383 N.J. Super.

442, 450-51 (App. Div. 2006), rev'd on other grounds, 189 N.J.

615 (2007). In this case, the Law Division did not err in

undertaking to determine the threshold choice-of-law issue, and

the JUA may now appeal from that ruling.

Nor is the JUA judicially estopped from arguing that Rhode

Island law should apply on the ground that it was willing to

accept application of New Jersey law in the trial court.

"[J]udicial estoppel is an extraordinary remedy and should be

invoked only when a party's inconsistent behavior will otherwise

result in a miscarriage of justice." Ramer v. N.J. Transit Bus

Operations, Inc., 335 N.J. Super. 304, 313 (App. Div. 2000)

(internal quotation marks omitted). Judicial estoppel may be

applied when a party prevailed in an earlier proceeding on the

basis of a position that is inconsistent with its current

position. See McCurrie ex rel. Town of Kearny v. Town of

Kearny, 174 N.J. 523, 533-34 (2002).

12 A-3924-12T1
 Here, the JUA has not taken inconsistent positions. It

argues before us that it is not liable to the DeMarcos under

either New Jersey or Rhode Island law. Moreover, the JUA did

not successfully assert any position that the Law Division

accepted. See Kimball Int'l, Inc. v. Northfield Metal Prods.,

334 N.J. Super. 596, 606-07 (App. Div. 2000) ("[T]o be estopped

[a party must] have convinced the court to accept its position

in the earlier litigation. A party is not bound to a position

it unsuccessfully maintained."), certif. denied, 167 N.J. 88

(2001). Judicial estoppel does not bar the JUA's choice-of-law

arguments on appeal.

B.

We exercise plenary review of a trial court's ruling on a

choice-of-law issue. Bondi v. Citigroup, Inc., 423 N.J. Super.

377, 418 (App. Div. 2011), certif. denied, 210 N.J. 478 (2012);

Dolan v. Sea Transfer Corp., 398 N.J. Super. 313, 321 (App.

Div.), certif. denied, 195 N.J. 520 (2008).

The first step in a choice-of-law analysis is to "determine

whether an actual conflict exists" by comparing the potentially

applicable laws of the two jurisdictions. P.V. ex rel. T.V. v.

Camp Jaycee, 197 N.J. 132, 143 (2008). If the laws of the two

jurisdictions do not differ significantly, then there is no

choice-of-law issue to be resolved, and the forum state applies

13 A-3924-12T1
its own law. Rowe, supra, 189 N.J. at 621; Gantes v. Kason

Corp., 145 N.J. 478, 484 (1996). The party seeking application

of the foreign law must demonstrate that the laws of the two

jurisdictions differ. Pressler & Verniero, Current N.J. Court

Rules, comment 6.1 on R. 4:5-4 (2014).

The precise question before us is whether a medical

malpractice insurance carrier may rescind a policy so that the

carrier has no duty to indemnify the insured doctor for injuries

suffered by an innocent third party who made a malpractice claim

before the policy was rescinded. We have no statutes or cases

directly on point to inform us, but we suspect that both New

Jersey and Rhode Island would protect the interests of innocent

third parties. Analogous case law of both states suggests that

both would restrict the rescission remedy available to insurance

carriers in order to provide some protection to innocent third

parties for whose benefit compulsory insurance laws were

enacted. Nevertheless, we see some differences between the laws

of the two states.

In the field of automobile insurance, New Jersey courts

have held that the rescission remedy available to insurance

carriers when a policy was procured by means of a material

misrepresentation may not infringe upon the rights of innocent

third parties who might need to rely on insurance coverage to

14 A-3924-12T1
compensate them for their injuries. See, e.g., Rutgers Cas.

Ins. Co. v. LaCroix, 194 N.J. 515, 524-31 (2008); Fisher v. N.J.

Auto. Full Ins. Underwriting Ass'n, 224 N.J. Super. 552, 557-59

(App. Div. 1988). Our courts distinguish between the wrongdoing

insured, who procured the policy fraudulently or otherwise

failed to comply with the terms of the policy, and an innocent

third party, who had nothing to do with the fraud or breach of

the policy. Dillard v. Hertz Claim Mgmt., 277 N.J. Super. 448,

450-54 (App. Div. 1994), aff'd o.b., 144 N.J. 326 (1996);

Fisher, supra, 224 N.J. Super. at 557-58.

Because New Jersey mandates auto insurance coverage,

innocent third parties who use the roadways can reasonably

expect that other motorists will comply with the law and be

covered by a liability policy. Marotta v. N.J. Auto. Full Ins.

Underwriting Ass'n, 280 N.J. Super. 525, 532 (App. Div. 1995),

aff'd o.b., 144 N.J. 325 (1996). Consequently, our courts have

refused to declare an auto policy void from its inception and in

its entirety as to injured third parties who did not benefit

from the fraud committed in procuring the policy. Instead, the

voided policies are reformed to provide the minimum liability

coverage mandated by law. See Citizens United Reciprocal Exch.

v. Perez, 432 N.J. Super. 526, 532-34 (App. Div. 2013); N.J.

15 A-3924-12T1
Mfrs. Ins. Co. v. Varjabedian, 391 N.J. Super. 253, 256-57 (App.

Div.), certif. denied, 192 N.J. 295 (2007).1

The distinction between the insured as the wrongdoer and an

innocent third party has also been significant in the context of

a legal malpractice policy. First Am. Title Ins. Co. v. Lawson,

177 N.J. 125, 143 (2003). In Lawson, two title insurance

companies sought reimbursement from a law firm's malpractice

carrier for claims they had paid when lawyers at the firm

misappropriated the firm's trust funds in real estate

transactions. Id. at 133-34. Our Supreme Court held that the

legal malpractice coverage could be voided from the inception of

the policy for two attorneys in the firm because they had

misrepresented the existence of pending claims when they applied

for the policy. The Court further held that the policy could be

voided for the law firm itself, but not with respect to an

innocent third attorney in the firm because that attorney was

not involved in any wrongdoing. Id. at 140-43.

Both sides in this appeal cite Lawson as favoring their

positions on rescission of the JUA medical malpractice policy.

1
Another way of explaining the law is that the rescission remedy
available to the defrauded insurance carrier is "molded and
shaped" by the court under equitable principles so that innocent
third parties do not lose the benefits of mandatory insurance
protection. See Citizens United Reciprocal Exch., supra, 432
N.J. Super. at 538 (Ashrafi dissenting) (quoting LaCroix, supra,
194 N.J. at 528-29).

16 A-3924-12T1
The DeMarcos focus on their status as innocent parties in the

perpetration of the alleged fraud by Stoddard and his insurance

agent, O'Neil. On the other hand, the JUA points out that the

Supreme Court in Lawson allowed rescission of coverage with

respect to the wrongdoing lawyers, which necessarily included

coverage for claims of their innocent clients. Id. at 141-42.

The Court only mandated that coverage be available for any

potential claims of the innocent third attorney's clients. Id.

at 143.

A noteworthy distinction between Lawson and this case is

that the innocent clients of the wrongdoing lawyers had already

recovered their losses from the title insurance companies. The

claims against the malpractice carrier were not brought by the

law firm's clients but by the title insurance companies that

were seeking to pass on their liability on the risks to the

malpractice carrier. On the subject of innocent clients, the

Court referred only generally to the "policies underlying our

Rules of Court that seek to protect consumers of legal services

by requiring attorneys to maintain adequate insurance."2 Lawson,

supra, 177 N.J. at 143 (citing Fisher, supra, 224 N.J. Super. at

557-58). The Court emphasized that the rescission remedy

2
Rules 1:21-1B(a)(4) and 1:21-1C(a)(3) of our Court Rules
require that law firms formed as limited liability companies or
limited liability partnerships maintain malpractice insurance.

17 A-3924-12T1
depends on equitable principles — "the totality of circumstances

in a given case," including the Court's "concern for the

public." Id. at 143-44.

Because the Court ultimately did not address the question

that is before us, the JUA's reliance on Lawson is misplaced.

The reasoning of the auto insurance cases more aptly applies to

the circumstances of this case. Like auto insurance, medical

malpractice insurance is mandatory in New Jersey. N.J.S.A.

45:9-19.17(a); N.J.S.A. 45:5-5.3(a). In the same way as the

general public that uses our roadways, see Marotta, supra, 280

N.J. Super. at 532, medical patients can reasonably assume New

Jersey doctors are complying with the law and carrying

compulsory malpractice insurance. Insurance coverage in at

least the minimum compulsory amount should remain available for

the benefit of innocent patients who suffered injuries when the

policy was in effect.

The rescission remedy available to an insurance carrier may

preclude the insured doctor from demanding coverage when he gave

materially false information in his application for insurance,

but that remedy does not permit a malpractice policy to be

voided from its inception and in its entirety when an innocent

patient seeks coverage. See Dillard, supra, 277 N.J. Super. at

451. The statutory minimum coverages under our state laws are

18 A-3924-12T1
not subject to post-claim rescission by the insurance carrier

because of the insured's fraud in procuring the policy.

The Rhode Island Supreme Court has issued decisions in the

context of automobile insurance that suggest it may decide the

issue of coverage in the same way. Although the superior court

of Rhode Island in the JUA's declaratory judgment action entered

a default judgment declaring that the JUA was not obligated to

provide coverage for the DeMarcos' lawsuit, the matter was

uncontested, and the court did not issue an opinion supporting

its judgment. Moreover, the judgment addressed only Stoddard's

right to demand a defense and indemnification. In the default

situation presented, we cannot say that the Rhode Island trial

court's judgment represents the law of that state with respect

to the rights of innocent third parties such as the DeMarcos.

To our reading, the published Supreme Court case law in

Rhode Island indicates an inclination to protect the rights of

innocent parties where compulsory insurance is involved. In

Ryan v. Knoller, 695 A.2d 990, 995-96 (R.I. 1997), the holding

of the Rhode Island Supreme Court is similar to the New Jersey

auto insurance cases we have cited. In Ryan, the plaintiff was

injured by an intoxicated driver who was driving a rented car.

The rental company's insurance policy contained an "intoxication

exclusion" that absolved the carrier of an obligation to cover

19 A-3924-12T1
the driver's liability. Id. at 991. The court held that

coverage had to be provided for the innocent injured party. It

stated that in situations where "the purpose of statutorily

required insurance coverage is intended for the protection of

the public, that purpose may not be thwarted by permitting an

insurer to avail itself of technical defenses included in its

policy relating to conditions whose performance is wholly beyond

the ability of the injured person to control." Id. at 992. The

court held that the intoxication exclusion was against public

policy and not enforceable against an innocent injured third

party. Id. at 995.

In a second auto insurance case decided on the same day and

written by the same justice, Ogunsuada v. Gen. Accident Ins. Co.

of Am., 695 A.2d 996 (R.I. 1997), the Rhode Island Supreme Court

reached a result that, on the surface, may seem inconsistent

with its holding in Ryan. It declined to distinguish between

the wrongdoing insured and the innocent injured party who had no

control over the wrongdoing.

The plaintiff in Ogunsuada was injured by an insured

motorist who subsequently breached a "cooperation clause" in his

insurance policy. After the insurance carrier withdrew from

providing a defense and indemnification for its non-cooperating

insured, the injured plaintiff obtained a default judgment

20 A-3924-12T1
against the insured tortfeasor. Id. at 997-98. The plaintiff

then sought recovery of his judgment from the insurance carrier

under a Rhode Island statute that permits a direct action

against the carrier after judgment is first obtained against the

insured tortfeasor. Id. at 998 (citing R.I. Gen. Laws § 27-7-

2). The Rhode Island Supreme Court held that a judgment-

creditor, seeking to recover from a judgment-debtor's insurer,

"stands in the shoes of the defendant's insured and is subject

to any defenses that the insurer would have against its

insured." Id. at 999. The court held that the injured

"plaintiff bore the burden of proving that [the insured] had

substantially complied with the cooperation provision in his

liability insurance contract, that any failure on his part to do

so was either excused or waived, or that his failure to comply

was not prejudicial to the defendant insurer." Ibid.

Both Ryan and Ogunsuada involved wrongdoing by the insured

driver that was wholly outside the control of the innocent third

party. In Ryan the court held that the carrier could not

disclaim coverage while in Ogunsuada the court held that the

carrier could use any defense it had available against the

insured. However, in Ogunsuada the court also noted a

distinction between parts of the subject insurance policy that

pertained to a compulsory insurance law and those that pertained

21 A-3924-12T1
only to optional insurance. Id. at 1001. It did not need to,

and in fact did not, hold that compulsory insurance coverage

could be denied to the innocent third party on the ground that

the insured had breached the terms of his policy.

We read the Ryan and Ogunsuada decisions together to

conform to an underlying principle that an innocent party will

be protected in circumstances where compulsory insurance laws

require coverage, but that otherwise, the insurance carrier may

rely on defenses that are not contrary to the public policy of

the state. As far as compulsory auto insurance coverage is

concerned, New Jersey and Rhode Island law are not substantially

different. The resulting question, however, is whether New

Jersey and Rhode Island both have laws that make medical

malpractice insurance compulsory.

New Jersey requires that doctors carry malpractice

insurance of at least one million dollars coverage per

occurrence, or if insurance coverage is not available, doctors

must demonstrate their financial responsibility with a letter of

credit of at least $500,000. N.J.S.A. 45:9-19.17(a).

Podiatrists in New Jersey are required to carry either a

malpractice policy or, if one is not available, a letter of

credit in "the minimum amount required by the State Board of

Medical Examiners." N.J.S.A. 45:5-5.3(a). The New Jersey

22 A-3924-12T1
Legislature enacted these laws to "ensure the citizens of the

State that they will have some recourse for adequate

compensation in the event that a physician or podiatrist is

found responsible for acts of malpractice." S. Health Comm.

Statement to S. 267 (N.J. 1996), available at http://law.

njstatelib.org/law_files/njlh/lh1997/L1997c365.pdf.

While the Rhode Island legislature has also considered the

question of mandatory malpractice insurance, it has not directly

compelled coverage in any specific amount. Instead, its statute

requires that the state's "director of business regulation"

promulgate regulations regarding malpractice insurance coverage.

R.I. Gen. Laws § 42-14.1-2. Furthermore, the Rhode Island

statute sets a floor of $100,000 coverage, ibid., in comparison

to the million dollars of minimum coverage required by the New

Jersey statute, N.J.S.A. 45:9-19.17(a). At the time of the

summary judgment motions in this case, no regulations had been

promulgated in Rhode Island mandating malpractice insurance

coverage for doctors. See Insurance Regulation 21 — Medical

Malpractice Insurance, R.I. Gen. Laws § 42-14.1-2 (proposed

Sept. 2007).3

3
Public notice of Proposed Rule-Making, implementing minimum
medical malpractice insurance requirements, Section 5, available
at http://www.dbr.state.ri.us/documents/rules/proposed/2013-
propd21.pdf (last visited Dec. 30, 2013).

23 A-3924-12T1
 Although New Jersey and Rhode Island may come to the same

conclusion on limiting the rescission remedy to protect innocent

third parties, the laws of the two states are sufficiently

different with respect to compulsory insurance coverage that a

choice-of-law analysis and ruling is required in this case.

C.

The next step in our analysis is to evaluate the facts of

the case under the proper New Jersey choice-of-law standard

since, generally, the forum state applies its own conflicts law.

Erny v. Estate of Merola, 171 N.J. 86, 94 (2002). The parties

agree that, in deciding which state's law should apply, New

Jersey no longer follows traditional concepts of lex loci

delicti4 for torts, see, e.g., Veazey v. Doremus, 103 N.J. 244,

247-49 (1986); Mellk v. Sarahson, 49 N.J. 226, 228-29 (1967),

and lex loci contractus5 for insurance contracts, see, e.g.,

State Farm Mut. Auto. Ins. Co. v. Estate of Simmons, 84 N.J. 28,

36-37 (1980). Instead, we have employed "a more flexible

'governmental-interest' standard, applying the law of the state

with the greatest interest in, or most significant connections

with, the issues raised or the parties and the transaction."

4
"The law of the place where the tort or other wrong was
committed." Black's Law Dictionary 930 (8th ed. 2004).
5
"The law of the place where a contract is executed or to be
performed." Black's Law Dictionary 930 (8th ed. 2004).

24 A-3924-12T1
Lonza, Inc. v. The Hartford Accident & Indem. Co., 359 N.J.

Super. 333, 342 (App. Div. 2003).

More recently, the New Jersey Supreme Court has referred to

the analysis as a "most significant relationship test." Camp

Jaycee, supra, 197 N.J. at 135-36; see also id. at 156-63

(Hoens, J. dissenting) (describing the "most significant

relationship test" as distinct from and less preferable to the

"governmental interest test," the latter focusing on the

conflicting public policies of the two jurisdictions).

In this case, the JUA emphasizes its own expectations and

argues that the interests of Rhode Island in regulating the

JUA's insurance contracts are predominant and therefore Rhode

Island law should apply. The DeMarcos, in turn, emphasize their

expectations when they engaged Stoddard to perform surgery, and

they argue that they and New Jersey have a greater interest in

protecting those who seek medical services in this state.

In Camp Jaycee, supra, the Court started with a presumption

that the law of the state where the injury occurred applies.

197 N.J. at 136, 141. The Court then considered general

principles addressed in section 6 and other sections of the

Restatement (Second) of Conflict of Laws ("Restatement") (1971).

Camp Jaycee, supra, 197 N.J. at 140-42. In the context of

conflicting state laws on charitable immunity, the Camp Jaycee

25 A-3924-12T1
Court evaluated the specific facts of the case and concluded

that the interests and laws of the state where the injury

occurred were controlling. Id. at 151-52.

The JUA argues that Camp Jaycee does not apply here because

it was purely a tort case while this case is primarily a

contract case pertaining to either enforcement or rescission of

an insurance contract. The JUA argues that the more relevant

precedent is Simmons, supra, 84 N.J. at 37, where the Court

discussed a conflict of laws in the context of insurance

coverage as a contract case rather than as a tort case.

In Simmons, too, the Court referenced applicable sections

of the Restatement, specifically, sections 6, 188, and 193.

Simmons, supra, 84 N.J. at 34-35. Most significant, section 193

of the Restatement provides:

The validity of a contract of fire, surety
or casualty insurance and the rights created
thereby are determined by the local law of
the state which the parties understood was
to be the principal location of the insured
risk during the term of the policy, unless
with respect to the particular issue, some
other state has a more significant relation-
ship under the principles stated in § 6 to
the transaction and the parties, in which
event the local law of the other state will
be applied.

[(Emphasis added).]

Notably, the Restatement commentary to section 193 identifies

that section as applicable to "such questions as whether a false

26 A-3924-12T1
statement made by the insured to the company bars recovery upon

the policy." Comment a to Restatement § 193. The commentary

also recognizes that the "principal location of the insured

risk" may be in more than one jurisdiction, in which case,

"[t]he importance of the risk's principal location" will have

less significance in deciding a choice-of-law issue. Id.

comment b.

The Court in Simmons acknowledged the overlap of contract

and tort law in the context of liability insurance coverage. It

held that, while the place where the insurance contract was

issued "ordinarily governs the choice of law," that rule

should not be given controlling or
dispositive effect. It should not be
applied without a full comparison of the
significant relationship of each state with
the parties and the transaction. That
assessment should encompass an evaluation of
important state contacts as well as a
consideration of the state policies affected
by, and governmental interest in, the
outcome of the controversy.

[Simmons, supra, 84 N.J. at 37.]

The Supreme Court also referenced Restatement § 193 in

Gilbert Spruance Company v. Pennsylvania Manufacturers'

Association Insurance Company, 134 N.J. 96, 107 (1993), which

was an insurance coverage dispute in an environmental

contamination case. The Court stated that an insurance policy

"should be interpreted under the substantive law of the state

27 A-3924-12T1
that the parties understood to be the principal location of the

insured risk, unless another state has a more significant

relationship to the parties, the transaction, and the outcome of

the controversy." When making this determination, "courts

should rely on the factors and contacts set forth in Restatement

sections 6 and 188."6 Id. at 102-03.

6
Restatement § 6 lists the following seven factors as relevant
to the choice-of-law issue:

(a) the needs of the interstate and
international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other
interested states and the relative interests
of those states in the determination of the
particular issue,

(d) the protection of justified
expectations,

(e) the basic policies underlying the
particular field of law,

(f) certainty, predictability and uniformity
of result, and

(g) ease in the determination and
application of the law to be applied.

More specifically, with respect to contracts, section 188
provides:

[T]he contacts to be taken into account in
applying the principles of § 6 to determine
the law applicable to an issue include:

(continued)

28 A-3924-12T1
 In Lonza, we followed our Supreme Court's lead and

reformulated the seven factors listed in Restatement § 6 as

follows: "(1) the competing interests of the relevant states,

(2) the national interests of commerce among the several states,

(3) the interests of the parties, [and (4)] the interests of

judicial administration." Lonza, supra, 359 N.J. Super. at 347-

48 (quoting Pfizer, Inc. v. Employers Ins. of Wausau, 154 N.J.

187, 197-98 (1998)). Contrary to the JUA's contentions, our

application of the reformulated section 6 factors and the

relevant contacts listed in section 188, leads us to conclude

that New Jersey law should apply in this case.

(1) Competing interests of the states. New Jersey has a

strong interest in ensuring that all doctors who practice in

(continued)
(a) the place of contracting,

(b) the place of negotiation of the
contract,

(c) the place of performance,

(d) the location of the subject matter of
the contract, and

(e) the domicil, residence, nationality,
place of incorporation and place of business
of the parties.

These contacts are to be evaluated according
to their relative importance with respect to
the particular issue.

29 A-3924-12T1
this state maintain malpractice insurance. It has enacted a

statute mandating malpractice coverage so that patients who use

medical services in this state can be protected. Rhode Island

has an interest in ensuring that its JUA is used for its proper

purposes — to provide malpractice insurance for Rhode Island

doctors and not for doctors who practice primarily in another

state.

The JUA, however, was in a much better position than the

DeMarcos to protect the interests of both states by ensuring

that Stoddard was qualified to receive a JUA policy. All that

was required was that the JUA examine Stoddard's applications

and follow up on any apparent discrepancies, such as the absence

of a telephone number for a Rhode Island office.

In addition, the JUA undertook to provide insurance

coverage for out-of-state patients comprising up to 49% of a

Rhode Island doctor's practice. It must therefore abide the

potential application of the laws of other jurisdictions to its

coverage obligations.

(2) The interests of commerce among the states. The

inquiry pertinent to this factor should focus on whether the

application of one state's law would frustrate the policies of

the other state. Lonza, supra, 359 N.J. Super. at 348 (quoting

Pfizer, supra, 154 N.J. at 198-99). New Jersey has a policy of

30 A-3924-12T1
protecting innocent injured parties. See, e.g., Lawson, supra,

177 N.J. at 143; Fisher, supra, 224 N.J. Super. at 557-58. That

policy would be frustrated by application of Rhode Island's law,

if it is interpreted not to provide similar protection to

innocent medical patients. Since Rhode Island may also have

such a policy of protecting innocent patients, at least in

circumstances where insurance coverage is compulsory, see Ryan,

supra, 695 A.2d at 995, application of New Jersey's law in this

context is less likely to offend the public policy of Rhode

Island.

(3) The interests of the parties. The justified

expectations of the parties are of considerable importance. See

Restatement § 188 (comment b); Lonza, supra, 359 N.J. Super. at

348 (quoting Pfizer, supra, 154 N.J. at 198-99). In evaluating

the parties' expectations, the relevant contacts listed in

section 188 (see supra, footnote 6) should be analyzed, taking

account of their relative importance in these factual

circumstances.

Here, Rhode Island is the place of the insurance contract,

as well as the location of one of the contracting parties.

Significantly, all other contacts point to New Jersey.

Stoddard's practice was actually located in New Jersey. On

the last of the renewal applications, the one that the JUA

31 A-3924-12T1
rescinded, Stoddard listed his office address in Lakewood, New

Jersey. In fact, the earlier applications provided clues that

Stoddard was actually practicing in New Jersey, not in Rhode

Island. They all contained a New Jersey office telephone

number.

Furthermore, the JUA had constructive knowledge all along

that up to 49% of Stoddard's practice was located in New Jersey

and not in Rhode Island. Consequently, the place of performance

of activities covered by the insurance contract included a

significant level of practice in New Jersey. The location of

the risk the JUA undertook to cover was not just in Rhode

Island.

The JUA nevertheless entered into the insurance contract

and agreed to cover all of Stoddard's medical practice, in both

Rhode Island and New Jersey. When an insurance contract

protects against a localized risk, the state where the risk is

located has a significant interest in application of its own

laws. Comment e to Restatement § 188. The JUA had ample

information that it was subjecting its insurance contract to the

laws of a jurisdiction other than Rhode Island when it accepted

premium payments from Stoddard and provided him with liability

coverage for his New Jersey practice as well as his purported

32 A-3924-12T1
51% or more practice in Rhode Island. The JUA's interests were

not tied exclusively to Rhode Island and its laws.

On the other hand, the DeMarcos never ventured outside New

Jersey in seeking medical services from Stoddard. They are

residents of New Jersey who sought the care of a doctor in this

State. The allegedly negligent surgery was performed in New

Jersey. The DeMarcos have a strong interest in the application

of this State's laws to their claims against Stoddard and the

insurance carrier that provided him with liability coverage as

mandated by New Jersey law. Their interests in application of

New Jersey laws clearly predominate over those of the JUA in

application of Rhode Island laws.

(4) The interests of judicial administration. The inquiry

for this factor is whether choosing either competing state's law

will foster or hinder a fair, just, and timely disposition of

the controversy. Lonza, supra, 359 N.J. Super. at 348 (quoting

Pfizer, supra, 154 N.J. at 198-99). This factor is particularly

important when there are numerous parties and the issues before

the court are complex. Ibid. In this case, there are only

three parties, and the issues do not reach the complexity of

insurance coverage in an environmental contamination or similar

multi-state, multi-party case. We give this factor minimal

weight.

33 A-3924-12T1
 Our analysis of the factors and contacts derived from the

Restatement leads us to conclude that New Jersey has a more

significant relationship, and a greater governmental interest,

in the application of its laws to this coverage dispute than

does Rhode Island. To the extent there are differences in the

laws of the two states, New Jersey law shall apply to the

coverage dispute.

We have already determined in the prior section of this

opinion that New Jersey law requires the JUA's rescission remedy

be limited so that it does not apply to the DeMarcos' claims.

We conclude that the Law Division correctly granted summary

judgment to the DeMarcos requiring liability coverage in the

minimum amount mandated by New Jersey statute, one million

dollars, N.J.S.A. 45:9-19.17. If the DeMarcos prevail in their

malpractice case against Stoddard, the JUA must indemnify

Stoddard up to that amount.

IV.

Finally, the JUA challenges the award of attorney's fees to

the DeMarcos for prevailing on the coverage issue.

Rule 4:42-9(a)(6) allows a court to award attorney's fees

"[i]n an action upon a liability or indemnity policy of

insurance, in favor of a successful claimant." The rule

includes an action brought by a third-party beneficiary of a

34 A-3924-12T1
liability insurance contract. Myron Corp. v. Atlantic Mut. Ins.

Corp., 407 N.J. Super. 302, 311 (2009), aff’d o.b., 203 N.J. 537

(2010).

The JUA argues that the granting of attorney's fees is not

mandatory and that its defense of the DeMarcos' complaint was

not a "groundless disclaimer" of insurance coverage. It argues

further that attorney's fees are not warranted because the case

involved a "novel" issue "worthy of consideration." See Messec

v. USF&G Ins. Co., 369 N.J. Super. 61, 64 (App. Div.), certif.

denied, 181 N.J. 287 (2004). While we do not disagree factually

with these contentions, they do not preclude the award of

attorney's fees.

First, although not mandatory, a court can grant attorney's

fees when such an award is authorized and the court finds it

appropriate to do so. Shore Orthopaedic Grp. v. Equitable Life

Assur. Soc'y of U.S., 397 N.J. Super. 614, 623 (App. Div. 2008),

aff’d o.b., 199 N.J. 310 (2009). "The decision to award counsel

fees rests within the sound discretion of the trial court."

Ibid. Second, bad faith is not a prerequisite to an attorney's

fee award under Rule 4:42-9(a)(6). Sears Mortg. Corp. v. Rose,

134 N.J. 326, 356 (1993); Myron Corp., supra, 407 N.J. Super. at

310-11. Finally, unlike Messec, supra, 369 N.J. Super. at 64,

this was not a coverage dispute between two insurance carriers

35 A-3924-12T1
and in which we were affirming the trial court's discretionary

decision to deny attorney's fees. Rather, "the insurer ha[d]

refused to provide coverage or to indemnify or defend its

insured," ibid., and we are reviewing the trial court's decision

to award fees.

Where a trial court has authority to grant attorney's fees,

we grant it broad discretion and will not disturb its decision

unless there has been a clear abuse of that discretion. Furst

v. Einstein Moomjy, Inc., 182 N.J. 1, 25 (2004); Rendine v.

Pantzer, 141 N.J. 292, 317 (1995). Here, the DeMarcos

successfully litigated the action and prevailed on a judgment

declaring that the JUA is obligated to provide coverage for

their malpractice claims against Stoddard. The Law Division did

not abuse its discretion in granting them attorney's fees.

Affirmed.

36 A-3924-12T1