Legal Memorandum: Equitable Estoppel Claim in NJ

Issue: Whether, under New Jersey law, a landlord’s insurer can argue that the insurer for the tenant is estopped to claim that the landlord’s insurer can be held liable for settlement costs?

Under New Jersey law, an insurer is estopped to deny liability when it has accepted control of the defense of a claim. 

The rationale behind estoppel in this context is that once the insurer has acknowledged the claim and assumes control of the defense, the insured is justified in relying upon the carrier to protect it under its policy and to be responsible for any judgment against it.. . .  The insured’s justifiable reliance arises from the insurer’s contractual right to control the defense under the policy.  In assuming this contractual right of control, the insurer preempts its insured from defending itself.  If the insurer could later repudiate its responsibility and ultimate liability under the policy, it would in effect have left its insured defenseless or seriously hampered in its ability to protect itself. That resultant inequity is a necessary ingredient of an estoppel.

American Handling Equip., Inc. v. T.C. Moffatt & Co., 184 N.J. Super. 131, 140, 445 A.2d 428, 433  (App. Div. 1982).

The New Jersey Appellate Division, in what it termed a case of first impression, recently addressed the issue of estoppel between insurers.  In General Accident Ins. Co. v. New York Marine and Gen. Ins. Co, 320 N.J. Super. 546, 727 A.2d 1050 (App. Div. 1999), an insured was covered by two policies.  One insurer declined to participate in the litigation, but came in at the end of trial and settled the case for […]