Daily Archive for September 28th, 2021
Published on
September 28, 2021 in
Covid-19, NJ - Bifurcate/Sever & Stays, NJ - Claims Handling (unreasonable), NJ - Coverage Issues, NJ - Damages, NJ - Estimates, Valuation or Appraisal, NJ - Federal Pleading Adequate, NJ - No coverage due, no bad faith and NJ -ITPA and UCSPA.
This post summarizes two bad faith opinions issued by New Jersey District Judge Hillman in September.
CASE 1 – FIRST PARTY PROPERTY BAD FAITH CLAIM CAN PROCEED
In this first party property damage case, the insurer offered one-ninth of what the insured claim was due. The insured brought breach of contract, breach of the implied covenant of good faith and fair dealing, and bad faith claims. The insurer moved to dismiss the latter two claims, and if unsuccessful, moved to sever and stay the bad faith claim.
Breach of implied contractual covenant good faith and fair dealing subsumed in bad faith claim
Judge Hillman first found that the bad faith claim and breach of the implied covenant of good faith and fair dealing claim were redundant. “[T] requirement to act in ‘good faith’ in processing a claim under an insurance contract is simply the flip-side of the requirement that an insurer may not act in ‘bad faith; in processing that claim. As such, Plaintiff’s claim for the breach of the implied covenant of good faith and fair dealing contained in both of Plaintiff’s counts is redundant of, and subsumed by, Plaintiff’s bad faith claim and must be dismissed as a stand-alone claim, if Plaintiff had intended it to be as such.”
Bad faith claim adequately pleaded
Judge Hillman then found the insured adequately pleaded its bad faith claim. “[A]n insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence. In the case of denial of benefits, bad faith is established by showing that no debatable reasons existed for denial of the benefits.”
To meet this standard:
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“[A] plaintiff must show the absence of a reasonable basis for denying benefits of the policy.”
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“If a plaintiff demonstrates the absence of a reasonable basis, he must then prove that the defendant knew or recklessly disregarded the lack of a reasonable basis for denying the claim.”
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In other words, an insurance company does not act in bad faith if a plaintiff’s insurance claim was “reasonably debatable.”
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A claim is “reasonably debatable” if a plaintiff cannot establish as a matter of law a right to summary judgment on the underlying breach of contract claim.
The court agreed some of the plaintiff’s complaint made conclusory allegations, but sufficient facts were pleaded to make out a plausible bad faith claim. These include factual allegations that the insurer:
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made misrepresentations concerning the lack of documentation for “abatement and appraisal,”
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failed to indicate what ongoing investigation was being pursued in violation of the New Jersey Unfair Claims Settlement Practices,
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determined that Plaintiff was improperly claiming damage for a pre-existing loss of 2013 in the absence of any evidence that there was pre-existing damage in the building from a loss in 2013,
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made false statements concerning the extent of damage to [building] units 403, 407, 300 and 301,
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threatened [the insured] with prosecution for “concealment, misrepresentation or fraud” when it knew that the only misrepresentation and fraud committed in connection with this claim had been committed by Great American, and
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did all these things with the intentional purpose to deny its $267,429.73 claim, which is supported by the estimate of an actual building contractor, and not by a company … that provides services as “independent adjusters” for numerous insurance companies including Great American, and instead pay a fraction of that claim.
Motion to Sever and Stay Denied Without Prejudice
The court applied the four factor test for apply Federal Rule of Civil Procedure 21. These four factors include:
“(1) whether the issues sought to be tried separately are significantly different from one another,
(2) whether the separable issues require the testimony of different witnesses and different documentary proof,
(3) whether the party opposing the severance will be prejudiced if it is granted, and (4) whether the party requesting severance will be prejudiced if it is not granted.”
Judge Hillman observed the tension at issue: “As a general principle it makes sense to hold off discovery on an insurer’s alleged bad faith when such claim is premised on the insured’s success in proving its breach of contract claim. If it is determined that the insurance company did not breach the parties’ contract, then it cannot be found that it acted in bad faith, and, thus, discovery on a claim that may never be considered would tend to be a wasteful expenditure of the parties’ and the Court’s resources. At the same time, however … if an insured is successful on its breach of contract claim and discovery on the insured’s bad faith had been stayed, parties and witnesses may need to be re-deposed and documents re-scanned for relevancy, privilege and other concerns, which would also tend to be wasteful.”
He then observed: “These competing concerns are the reason why the four-factor test is employed to determine whether severance and stay is proper in the particular circumstances of an individual case. In this case, [the insurer] has failed to demonstrate how the general principles of severance and stay of a bad faith claim are specifically applicable here. Unlike [the situation] where the plaintiff had propounded extensive interrogatories relating to the production of voluminous documents not directly related to the plaintiff’s individual dispute, [the insurer] has not indicated that Plaintiff has demanded documents and other information separate from what Plaintiff would demand for its breach of contract claim. Thus, even accepting that the first factor has been met, at this time the Court cannot assess the second factor regarding “whether the separable issues require the testimony of different witnesses and different documentary proof,” and the subsequent third and fourth factors of the Rule 21 test.”
Thus, Judge Hillman denied the request to sever the insured’s bad faith claim and stay discovery on that claim, without prejudice. He added, however, that the insurer could “renew its motion, if appropriate, before the magistrate judge after discovery has commenced.”
Date of Decision: September 1, 2021
801 Asbury Avenue, LLC v. Great American Insurance Company, U.S. District Court District of New Jersey No. 1:20CV16522NLHAMD, 2021 WL 3910147 (D.N.J. Sept. 1, 2021) (Hillman, J.)
CASE 2 – NO COVID-19 COVERAGE DUE = NO BAD FAITH
This Covid-19 business loss coverage case follows the logic in the Pennsylvania and New Jersey decisions summarized in yesterday’s (September 27, 2021) posts; and in an earlier August 2021 ruling by Judge Hillman. Like those decisions, Judge Hillman first finds no coverage due for Covid-19 business closure losses. As to bad faith, he then states:
“Here, Plaintiff’s bad faith claim is based on Defendant’s denial of coverage, but as detailed above, that denial of coverage was proper as a matter of law. Accordingly, a bad faith claim based on these facts would not survive dismissal.”
Judge Hillman cited his own August 2021 Covid-19 decision in Z Business Prototypes LLC v. Twin City Fire Insurance Co., summarized here, “dismissing with prejudice plaintiff’s bad faith claim based on denial of coverage where the virus exclusion applied and barred coverage….”
Date of Decision: September 21, 2021
