NOVEMBER 2012 BAD FAITH CASES: APPELLATE COURT AFFIRMS DENIAL OF INSURED’S BAD FAITH CLAIM, DESPITE FACT THAT TRIAL COURT SHOULD HAVE PERMITTED INSURED’S EXPERT TO TESTIFY REGARDING CARRIER’S ITPA VIOLATIONS WHICH ARE RELEVANT EVIDENCE TO BAD FAITH CASES (New Jersey Appellate Division)

In Lydon v. Chubb Group of Ins. Cos., the appellate court heard an appeal from the dismissal of an insured’s claim for bad faith damages in relation to its carrier’s denial of benefits under a homeowner’s policy.
Specifically, the insured argued that the trial court erred in dismissing its claim for bad faith because it prohibited the insured’s expert from testifying about the carrier’s representative, whose conduct allegedly violated the Insurance Trade Practices Act (“ITPA”).

According to the insured, violations of the ITPA may provide evidence of bad faith. However, the trial court precluded such a discussion because the expert did not mention “the concept of bad faith.” Rather, the judge reasoned that the expert’s report “contained net opinions” that “downgrade[d] the . . . proof required” to sustain a claim for bad faith.

The appellate court disagreed with this reasoning, finding that “the judge conflated two separate issues – whether violations of the ITPA are relevant evidence of bad faith and whether such evidence necessarily proves bad faith.” However, ITPA violations are indeed relevant to a finding of bad faith on behalf of an insurance carrier.

Regardless, the appellate court held that the insured’s evidence was insufficient to yield a finding of bad faith. Assuming that the court did permit the insured’s expert to testify, the insured would have failed to prove that the carrier’s conduct caused them to sustain damages as a result of its alleged bad faith.

Date of Decision: August 30, 2012

Lydon v. Chubb Group of Ins. Cos., No. A-4344-09T1, 2012 N.J. Super. Unpub. LEXIS 2068, Superior Court of New Jersey – Appellate Division (App.Div. Aug. 30, 2012) (Messano, Kennedy and Guadagno, JJ)