APRIL 2015 BAD FAITH CASES: COURT FINDS MERITORIOUS DEFENSE TO BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING WHERE INSURER ALLEGED IT PAID THE BENEFITS, AND OPENS DEFAULT AGAINST INSURER (New Jersey Federal)

In Ryan v. Liberty Mutual Insurance Company, a Hurricane Sandy case, the insurer was attempting to open a default judgment. In looking at the meritorious defense component of the test for opening a default judgment, the court found that the insurer had asserted meritorious defenses to the insureds’ claims for breach of contract and the implied covenant of good faith and fair dealing.

The insurer alleged “that it performed appropriate investigation of the damages to Plaintiffs’ home ‘through two visits to the property,’ ‘recorded the condition of the property in more than one hundred photographs,’ properly adjusted Plaintiffs’ claim, corresponded with Plaintiffs, and paid Plaintiffs’ policy benefits.”

The court found that: “If established at trial, [the insurer’s] satisfaction of its contractual obligations by paying appropriate policy benefits would defeat Plaintiffs’ breach of contract claim. It would also defeat Plaintiffs’ claim for breach of the implied covenant of good faith and fair dealing. To establish a breach of the implied covenant under New Jersey law, a plaintiff must show that ‘the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties.’”

“If [the insurer] were to establish at trial that it properly investigated and paid Plaintiffs’ policy benefits, Plaintiffs could not establish that they were denied the benefit of their bargain.”

Date of Decision: April 1, 2015

Ryan v. Liberty Mut. Ins., Civ. No. 14-06308 (WHW) (CLW), UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY, 2015 U.S. Dist. LEXIS 42660 (D.N.J. April 1, 2015) (Walls, J.)