Daily Archive for September 19th, 2014

SEPTEMBER 2014 BAD FAITH CASES: INSUREDS LIABLE FOR OVER $800,000 UNDER NEW JERSEY’S INSURANCE FRAUD PROTECTION ACT; INSURER NOT REQUIRED TO RETURN PREMIUMS AS PREDICATE FOR RECOVERY IN CASE WHERE FRAUD IS ALLEGED IN MAKING A CLAIM ON THE POLICY, NOT IN PROCURING THE POLICY (New Jersey Appellate Division)

Published on September 19, 2014 in NJ - Reverse Bad Faith. Closed

In Masaitis v. Allstate New Jersey Insurance Company, the jury not only ruled that the insureds were not entitled to compensation from the insurer for a fire loss to their home, but there was a judgment awarding more than $800,000 against them under N.J.S.A. 17:33A-7(a), a provision of the Insurance Fraud Protection Act (IFPA), N.J.S.A. 17:33A-1 to -30.

The county prosecutor did not find arson, but the carrier continued to investigate the claim after it was originally made, ultimately denying it on the basis of “misrepresentation, fraud or concealment,” including specific reasons with the denial. The carrier eventually paid mortgagees $675,000. The insured filed suit against the insurers and the mortgagees, and the insurer filed a counterclaim under the IFPA.

A jury found “that plaintiffs had knowingly misrepresented material facts concerning their claim for payments under their insurance policy, but it also found that [the insurer] had not proven that plaintiffs committed arson.” The final judgment was for over $800,000, which also included interest, attorney’s fees, and costs per the IFPA.

On appeal, the court rejected the arguments that the trial court erred in permitting the insurer to argue arson, and that the insurer was estopped from denying the claim because it did not refund the premium. The court found no error in the trial court’s ruling that the carrier had “produced sufficient circumstantial evidence of plaintiffs’ involvement in the cause of the fire to present a jury question.”

The court did instruct the jury that the insurer bore the burden of proving arson as an affirmative defense, along with the burden to prove its counterclaims. Moreover, “the jury found insufficient proof that plaintiffs were guilty of arson. Its verdict in favor of [the insurer] was based on its finding that plaintiffs had misrepresented their losses in making their claims on personal property damaged by the fire.” The jury answered special interrogatories on this point, in finding an IFPA violation.

As to the estoppel argument, the requirement to return premiums is found in cases where the policy was obtained by fraud at its inception; whereas, in this case the insurer was alleging that a fraudulent claim was being made on the policy itself, not that the policy was procured through fraud.

Date of Decision: August 26, 2014

Masaitis v. Allstate New Jersey Insurance Company, DOCKET NO. A-4435-12T1, SUPERIOR COURT OF NEW JERSEY (App. Div. August 26, 2014) (Ashrafi and Haas, JJ.) (Per curiam) (not approved for publication).

SEPTEMBER 2014 BAD FAITH CASES: BAD FAITH CLAIM NOT TIME BARRED BASED ON DATE OF DENIAL TRIGGERING CAUSE OF ACTION; COMMON LAW BAD FAITH CLAIM SUBSUMED IN BREACH OF CONTRACT CLAIM, WHICH HAD BEEN DISMISSED ON BASIS OF CONTRACTUAL LIMITATIONS PERIOD (Philadelphia Federal)

Published on September 19, 2014 in PA - Common Law Bad Faith (contractual or fiduciary basis) and PA - Limitations Period. Closed

In Blackwell v. Allstate Insurance Company, the court found that the contractual one year period for bringing a claim under a homeowners policy barred the insureds breach of contract claim; however, the statutory bad faith claim was not barred by that contractual term, nor, on the face of the complaint, was it barred by the applicable two year statute of limitations.

Pennsylvania courts apply a two-year statute of limitations to insurance statutory bad faith claims. In general, courts must look to the date on which the insurer allegedly first denied the insured’s claim in bad faith when determining that the statute began to run. In this case, the insured alleged that the insurer denied his claim for the replacement value of his damaged furnace, in November 2012. Suit was filed one year later.

Even though the insured alleged that “some bad-faith conduct occurred more than two years before the Complaint was filed (e.g. [the insurer’s] failure to properly investigate the claim),” the court refused to dismiss the claim as time barred. The denial was without prejudice to the insurer if facts were developed that would permit asserting the defense at a later stage in the case. [Compare to a recent state trial court decision breaking out investigation claims for statute of limitations purposes.]

Finally, the court dismissed the common law claim for breach of the duty of good faith, as this is an implied duty arising out of a contract, and except in exceptional circumstances is subsumed in the breach of contract claim. The insured did not plead any such circumstances, “such as conduct separate and apart from the conduct underlying the breach of contract claim…,” and the common law bad faith claim was dismissed as a separate claim.

Date of Decision: September 3, 2014

Blackwell v. Allstate Ins. Co., CASE NO. 14-878, 2014 U.S. Dist. LEXIS 123067 (E.D. Pa. September 3, 2014) (Rufe, J.)