In the case of Baughman v. US Liability Insurance, US Liability disclaimed coverage to its insured. The claim arose out of mercury exposure and the questions presented included whether: (a) exposure to [/i]indoor mercury contamination was “traditional environmental pollution”, or (b) whether medical monitoring constituted “damages” and whether exposure to harmful substances comprises “bodily injury.” The Court ruled in favor of the insured and insured’s counsel sought to recover its fees in both the underlying case and the declaratory judgment action. The federal court granted both applications. In granting the fees in the declaratory judgment action, the federal court used its discretion under New Jersey Court Rule 4:42-9(a)(6) and held that although the disclaimer was reasonable, because it was declared wrong by the court, the carrier was on the hook for the entire bill. To make matters worse, because insured’s counsel took the case on a contingency basis, the carrier was forced for pay a 35% lodestar enhancement.
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