AUGUST 2015 BAD FAITH CASE: DENIAL OF COVERAGE FAIRLY DEBATABLE WHERE RECORD NOT CLEAR IF THE LOSS OCCURRED IN THE POLICY PERIOD OR AS TO WHAT CAUSED THE LOSS (New Jersey Federal)
In JPC Merger v. Alterra American Insurance Company, the insured was in the precast concrete business, and alleged that a number of its large metal rigging chains and steel plates went missing. The insured made a claim, and the insurer took the position that either the loss occurred outside the policy period, or that it fell within a “missing property” exclusion, and denied the claim. The insured brought a claim for breach of the implied covenant of good faith and fair dealing, among other claims. The insurer sought summary judgment on the bad faith claim.
The standard for first party bad faith claims in New Jersey is that the insured must show that the insurer lacked a “fairly debatable” reason to deny the claim, and that it knew or recklessly disregarded that fact. In practice, the insured must show that it could win the “fairly debatable” argument on summary judgment to pursue the claim. In addition, “[b]ad faith or ill motive is an essential element of a claim for breach of the implied covenant of good faith and fair dealing.”
The insured attempted to argue that the motion was premature because the parties had not completed discovery. The court ruled for the insurer because (1) whether the loss occurred in the policy period was fairly debatable; and (2) the issue of whether the missing property exclusion applied was fairly debatable. The insured’s evidence showed that “the loss may have occurred either prior to the Policy period, or during a limited window within the Policy period.”
Second, while the insured did offer a plausible explanation for what caused the loss, “at the time the claim was investigated, there was no ‘physical evidence’ to ‘to show what happened’ to the property, as required by the Policy.” Therefore, the insurer had a reasonable basis to deny the claim and was successful on summary judgment as to the bad faith claim.
