NOVEMBER 2012 BAD FAITH CASES: COURT GRANTS INSURED’S MOTION TO AMEND IN ORDER TO INCLUDE CAUSE OF ACTION FOR BAD FAITH AGAINST CARRIER ON ALLEGED OMISSIONS OF COVERED DAMAGE FACTORS IN REPORT (New Jersey Federal)

In Dawn Rest., Inc. v. Penn Millers Ins. Co., the court heard an insured’s motion to amend its complaint for breach of contract to include bad faith allegations. The insured was a restaurant that discovered damage to its roof and initiated repairs. After alerting its carrier of the loss, coverage was denied. The carrier’s adjuster initially cited the roof’s long-term load, humidity in the attic, snowfall, and rain as the causes of the damage.

However, in its report, the carrier omitted snowfall and rain as factors contributing to the damage. The insured claims that the inclusion of these factors would have triggered automatic policy coverage and alleges that the omission was done in bad faith. The carrier defends that its failure to include snowfall and rain in the report was, at worst, was negligent on their behalf.

Examining the standard for granting a motion to amend, the court reasoned that the insured should be permitted leave to include bad faith allegations in its complaint. First, the court rejected the carrier’s theory that leave to amend would cause undue delay because the need for additional depositions is not a substantial burden. Second, the court held that the insured’s proposed amended complaint sufficiently pled a bad faith cause of action because it permitted an inference that the carrier engaged in the alleged misconduct.

Date of Decision: August 16, 2011

Dawn Rest., Inc. v. Penn Millers Ins. Co., No. 10-2273, 2011 U.S. Dist. LEXIS 91284, U.S. District Court for the District of New Jersey (D.N.J. Aug. 16, 2011) (Bongiovanni, J.)