Archive for the 'NJ - Coverage Issues' Category

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DECEMBER 2015 BAD FAITH CASES: WHERE NO COVERAGE DUE AND INSURER GAVE HIGHLY PLAUSIBLE EXPLANATION TO DENY COVERAGE, INSURED CANNOT MEET FAIRLY DEBATABLE STANDARD TO PROVE BAD FAITH (New Jersey Federal)

Published on December 29, 2015 in NJ - Claims Handling Procedures and NJ - Coverage Issues. Closed

In One James Plaza Condominium Association v. RSUI Group, Inc., the court found coverage was excluded under a condominium association’s claims made policy, by a Specific Litigation Exclusionary Provision. The issue was whether a second lawsuit against the insured’s board members was related to a prior litigation.

In addressing whether there could be a bad faith claim for refusing to defend the condominium board members, the court applied the rule found in Pickett v. Lloyd’s: “to state a claim for bad faith denial of insurance coverage, Plaintiff must show: (1) the insurer lacked a reasonable basis for its denying benefits, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.” These cases are analyzed by the “fairly debatable” standard, i.e., “[i]f a claim is ‘fairly debatable,’ no liability in tort will arise.’” To meet that standard an insured has to establish that it would have a right to summary judgment as a matter of law. Put another way, if there is an issue of material fact as to the underlying claim regarding Plaintiff’s entitlement to insurance benefits, there is no bad faith.”

In this case, the insurer issued a denial of coverage letter, giving an extensive explanation as to why there was no coverage. The insurer’s explanation provided plausible reasons for the denial of coverage and demonstrated genuine issues whether claims fell within the coverage provided. Thus, the bad faith claim was dismissed.

Dated: December 2, 2015

One James Plaza Condominium Association v. RSUI Grp., Inc., 2015 U.S. Dist. LEXIS 161460, Civil Action No. 15-294, (D.N.J. December 2, 2015) (Rodriguez, J.)

DECEMBER 2015 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE AND CLAIM WAS FULLY INVESTIGATED (New Jersey Federal)

Published on December 23, 2015 in NJ - Claims Handling Procedures and NJ - Coverage Issues. Closed

In Stiso v. State Farm Fire & Casualty Company, a Hurricane Sandy case involving significant interior water damage, the court found coverage was excluded and then went on to address the insureds’ claims for (1) the breach of the implied covenant of good faith and fair dealing and (2) bad faith. It stated that both claims are tantamount to the same cause of action. To prove a first party bad faith claim, the insured must show that (1) the insurer lacked a fairly debatable reason for denying coverage, and (2) insurer knew of or recklessly disregarded the lack of a reasonable basis for denying coverage.

The court stated that: “Plaintiffs clearly have not established these above-referenced factors because they have failed to show, as discussed at length [in analyzing the coverage issue], that [the insurer] lacked a reasonable basis for denying coverage.” With emphasis the court then added: “Indeed, I have granted summary judgment on Plaintiffs’ breach of contract claim.” The claim was investigated by multiple representatives of the insurer, and in reaching its decisions on coverage, the insurer did nothing that convinced the court that the insurer had no reasonable basis for denying certain coverage. Summary judgment was granted on all issues.

Date of Decision: November 18, 2015

Stiso v. State Farm Fire & Cas. Co., Civil Action No. 13-5741 (FLW), 2015 U.S. Dist. LEXIS 155762 (D.N.J. Nov. 18, 2015) (Wolfson, J.)

NOVEMBER 2015 BAD FAITH CASES: NO FIRST PARTY BAD FAITH CLAIM POSSIBLE WHERE NO COVERAGE DUE; DAMAGE WAS EXCLUDED WHETHER CAUSED BY FLOOD WATER OR SUBSTANCES IN FLOOD WATER (New Jersey Appellate Division)

Published on November 11, 2015 in NJ - Coverage Issues. Closed

In Riccio v. Allstate Insurance Company, the Court found that the insureds’ bad faith claims were precluded because their claim of loss was properly denied by the insurer.

The insureds originally filed a claim with the insurer after their home suffered damage from Hurricane Sandy. After the insurer rejected the claim pursuant to a “flood and flowing substance exclusion” in the policy, the insureds filed suit alleging breach of contract, breach of implied covenant of good faith and fair dealing, and breach of fiduciary duties. Specifically, the insureds argued that the property damage resulted from “substances in the water, not a flood.”

In affirming the ruling of the Law Division, the New Jersey Superior Court reasoned that the exclusionary clause in the policy, which precluded coverage for “property loss caused by or consisting of flood damage”, included “damage caused by the toxic substances carried by the flood waters and left behind after that water recedes.” The Court was unconvinced by the insureds’ argument that the terms of the policy were ambiguous, noting that the insureds contended that their damage was caused by substances contained in flood water, while the exclusion “expressly included losses caused by water or any other substances regardless of its source.”

Finally, the Court rejected the bad faith claims brought by the insureds, and noted that in order to establish a first-party bad faith claim for denial of benefits in New Jersey, an insured must show “that no debatable reasons existed for denial of the benefits.” Here, because the claim of loss was properly denied by the insurer, the Court found that the insureds were not entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim, and affirmed summary judgment in favor of the insurer.

Date of Decision: October 22, 2015

Riccio v. Allstate Ins. Co., DOCKET NO. A-4628-13T2, 2015 N.J. Super. Unpub. LEXIS 2417 (App. Div. October 22, 2015) (Yannotti, St. John, and Guadagno, JJ.)

JUNE 2015 BAD FAITH CASES: FIRST PARTY BAD FAITH CLAIM FAILS AS A MATTER OF LAW WHEN AN INSURER IS GRANTED SUMMARY JUDGMENT ON THE BREACH OF CONTRACT CLAIM (New Jersey Federal)

Published on June 25, 2015 in NJ - Coverage Issues. Closed

In 151 E. Leaming Ave Condo Ass’n v. QBE Specialty Ins. Co., the insured’s bad faith claim failed as a matter of law because the Court had already entered summary judgment in favor of the insurer as to the insured’s breach of contract claim.

The underlying suit arose after the insured’s property was damaged during Superstorm Sandy. The insured filed suit against its insurer, claiming breach of contract and breach of the implied covenant of good faith and fair dealing/bad faith. In support, the insured alleged that the insurer “failed to pay insurance benefits due and owed under its policy.” The commercial policy at issue contained water exclusion for property coverage. After investigating the insured’s claim, the insurer determined that the property loss was caused by a flood and denied the claim pursuant to the water exclusion.

The insured argued that the property damage was caused by wind, not water, and obtained an expert report to support this conclusion. The insurer filed for summary judgment. It took the position that the expert report should be stricken based on impermissible “net opinions.” Additionally, the insurer argued that the insured’s expert had no experience with regard to evaluating wind or flood damage, and that his observations as a lay witness did not create a genuine issue of material fact. The Court agreed and ordered the expert report to be stricken.

The Court then considered additional evidence and arguments submitted by plaintiff, but found these too did not create genuine issues of material fact, and granted the insurer summary judgment on the breach of contract claim. The Court found that the insured presented “no competent evidence to permit a rational factfinder to conclude that wind and not water caused plaintiff’s damage.” Thus, the water exclusion applied and summary judgment was granted.

The Court then considered the insured’s bad faith claim, and noted that “in order to establish a bad faith claim, an insured must have been granted summary judgment in their favor on the issue of coverage.” Because the insurer was granted summary judgment as to the insured’s breach of contract claim, the Court found that the insured’s bad faith claim failed as a matter of law.

Date of Decision: June 18, 2015

151 E. Leaming Ave. Condo Association v. Qbe Specialty Ins. Co., Civil No. 14-175 (JS), 2015 U.S. Dist. LEXIS 79002 (D.N.J. June 18, 2015) (Schneider, U.S.M.J.)

MARCH 2015 BAD FAITH CASES: MOTION TO DISMISS NOT SUITABLE MEANS TO ADDRESS WHETHER INSURER’S POSITION WAS FAIRLY DEBATABLE, IN THIS ACTION, AND WAS THEREFORE DENIED (New Jersey Federal)

Published on March 31, 2015 in NJ - Coverage Issues and NJ - Procedural Issues. Closed

In Zodda v. National Union Fire Insurance Company, the insured pleaded bad faith, among other claims, for denial of benefits on a disability policy. The insured brought claims against multiple insurers, alleging an elaborate scheme in marketing the disability insurance at issue, and in denying benefits. As to the insurance bad faith claim, the insurers brought motions to dismiss under Twombly/Iqbal.

Defendants attempted to introduce a letter concerning the insured’s medical condition to show that coverage was at least fairly debatable, and thus not subject to a bad faith claim. The court rejected this effort at the motion to dismiss stage. The medical records relied upon were both outside the complaint, and contradicted by the allegations in the complaint. Further, the motion was premature because “[a] factual issue that appears debatable at the motion to dismiss stage may prove immaterial following discovery.” Thus, whether or not the material facts were fairly debatable would be best addressed at the summary judgment stage, after discovery.

The court did dismiss the claim against one insurer, however, because that insurer had sold its business, prior to the relevant time period, and no request was made to that insurer to pay the benefits at issue. “Under these circumstances, [that insurer] cannot be liable for a bad faith insurance claim when it had no connection to the policy at the point when the claim was denied.”

Date of Decision: March 4, 2015

Zodda v. National Union Fire Insurance Company, Civil Case No. 13-7738, 2015 U.S. Dist. LEXIS 26206 (D.N.J. March 4, 2015) (Hochberg, J.)

MARCH 2015 BAD FAITH CASES: NEW JERSEY APPELLATE DIVISION MAKES CLEAR THAT PROPER PRACTICE REQUIRES SEVERING BAD FAITH CLAIM FROM UNINSURED MOTORIST CLAIM, AND STAYING DISCOVERY OF THE BAD FAITH CLAIM UNTIL THE UNDERLYING CLAIM IS DETERMINED (New Jersey Appellate Division)

Published on March 26, 2015 in NJ - Coverage Issues, NJ - Discovery and Evidence, NJ - General Bad Faith and Litigation Issues and NJ - Procedural Issues. Closed

In Wacker-Ciocco v. GEICO, the court addressed the applicability of its earlier decision in Procopio v. Government Employees Insurance Company, 433 N.J. Super. 377, 80 A.3d 749 (App. Div. 2013), on the issue of discovery and severance of bad faith claims. In the earlier case, the appellate court had ruled that where an uninsured motorist and bad faith claim are bifurcated for trial, it was an abuse of discretion for the trial court to order that discovery on both claims proceed simultaneously.

In Wacker-Ciocco, some bad faith materials had been produced prior to the motion to sever, and the trial court found the cat was therefore out of the bag, and the motion to sever was denied. The appellate court found that this was a misinterpretation of its prior case law on the severance of bad faith claims from the uninsured motorist claim, and the stay of bad faith discovery pending the outcome of the uninsured motorist claim.

In Procopio, the Court had stated: “[It] promotes judicial economy and efficiency by holding in abeyance expensive, time-consuming, and potentially wasteful discovery on a bad faith claim that may be rendered moot by a favorable ruling for the insurer in the UM or UIM litigation. This procedure also avoids the premature disclosure of arguably privileged materials to the prejudice of the insurer’s defense while, at the same time, preserving the insured’s pursuit of its bad faith claim.” The court observed that an insured cannot reach the bad faith claim until it proves its entitlement to coverage, and the court further observed the higher standard placed on an insured in proving bad faith claims (and that the plaintiff’s complaint only pleaded bad faith in a conclusory manner, and failed to plead wrongful intent).

The judicial efficiency arguments set out in Procopio did not disappear “simply because some discovery relevant to the bad faith claim was produced,” and it was clear discovery on that issue was not complete. Thus, “the competing interests implicated by ordering simultaneous discovery on both the coverage and bad faith claims remained in play.” The court reversed the trial court orders, and granted the motions “to sever and stay the bad faith claim and related discovery until the underlying UIM claim was decided.”

Date of Decision: March 16, 2015

Wacker-Ciocco v. GEICO, DOCKET NO. A-2547-13T4, 2015 N.J. Super. LEXIS 38 (App. Div. March 16, 2015) (Espinosa, Lihotz, St. John, JJ.)

MARCH 2015 BAD FAITH CASES: PLAINTIFF STATED BAD FAITH CLAIM WHEN ALLEGING THAT INSURER’S ADJUSTER ADMITTED A BASIS FOR LOSS AS TO WHICH COVERAGE WAS DUE, BUT INSURER LATER DENIED COVERAGE (New Jersey Federal)

Published on March 19, 2015 in NJ - Claims Handling Procedures, NJ - Coverage Issues, NJ - Lawyer's-Attorney's Fees and NJ - Punitive Damages. Closed

In Bannon v. Allstate Insurance Company, a Hurricane Sandy case, the policy provided “that coverage for dwellings or other structures did not include loss caused by ‘flood, including, but not limited to, surface water, waves, tidal water or overflow of any body of water or spray from any of these things, whether or not driven by wind.’” The insurer denied coverage. However, in the Complaint, the insured alleged that the insurer’s adjuster had conceded that the home was destroyed by wind. She further alleged “that other evidence, including statements from witnesses, photographic evidence, and professional opinions, support a finding that Plaintiff’s home was destroyed as a result of wind damage.” The insurer allegedly had called in an engineer to review the claim after the adjuster’s initial position.

The insured brought claims for breach of the implied duty of good faith and fair dealing, as well as breach of contract and under the Consumer Fraud Act (“CFA”). The insured asserted that the insurer, through its “agents, servants, and employees, improperly adjusted and denied her claims, failed to properly investigate the damage, and unjustifiably refused to perform its obligations.” The insurer moved to dismiss. The issue was whether the insurer’s position was “fairly debatable.”

The Court stated: “The question of whether the claim is ‘fairly debatable’ is, clearly, a fact-specific question. Moreover, it is not obvious from the face of the … Complaint, including the alleged facts that [the insurer’s] adjuster initially opined that the damage to Plaintiff’s home was cause by wind, and that [the insurer] sent an engineer to inspect the property after its denial of coverage, that the denial of coverage for alleged wind damages was ‘fairly debatable.’ While this claim may be subject to dismissal on a summary judgment motion, following discovery, the … Complaint states sufficient facts to permit the claim to go forward.”

The Court further followed “the Third Circuit’s lead by predicting that the New Jersey Supreme Court would find that the New Jersey CFA applies to the payment of insurance benefits.”

The Court did dismiss the punitive damages claim: “Even if Plaintiff can show that Defendant acted in bad faith, Plaintiff has not pleaded facts that rise to the level of egregiousness necessary for punitive damages in an insurance contract case. Certainly the facts as alleged do not show actual malice, or a wanton and willful disregard of persons who might be harmed.”

Finally, the court dismissed the claim for attorneys’ fees, on the basis that Rule 4:42-9(a)(6) does not apply to first party claims, an issue which has been opened for review by New Jersey’s Supreme Court.

Date of Decision: February 24, 2015

Bannon v. Allstate Insurance Company, Civil Action No. 14-1229 (FLW)(LHG), 2015 U.S. Dist. LEXIS 21591 (D.N.J. February 24, 2015) (Wolfson, J.)

MARCH 2015 BAD FAITH CASES: NO BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING IN FIRST PARTY CASE WHERE POLICY HAD LAPSED, AND WHERE NO EVIDENCE OF ILL MOTIVE OR BAD FAITH ON THE RECORD (New Jersey Federal)

Published on March 12, 2015 in NJ - Coverage Issues and NJ - General Bad Faith and Litigation Issues. Closed

In Shilling v. Reassure America Life Insurance Company, the beneficiary of a life insurance policy brought breach of contract and bad faith claims for the insurer’s alleged failure to pay death benefits. The insurer asserted that the policy lapsed for failure to pay premiums. The court found in the insurer’s favor, and granted summary judgment on the breach of contract claim.

As to the bad faith claim, the court observed that there could be no breach of the covenant of good faith and fair dealing where the policy (contract) was no longer in force. Moreover, even if the policy were somehow in force, there was no breach of the covenant of good faith and fair dealing because there was no evidence in the record to suggest the insurer acted negligently or in bad faith; the court further stating that: “A finding of bad faith against an insurer in denying an insurance claim cannot be established through simple negligence.” The court stated further that “a defendant who acts in good faith on an honest, but mistaken, belief that her actions were justified has not breached the covenant of good faith and fair dealing.” The plaintiff is this case did not identify any evidence of ill motive or bad faith, and summary judgment was granted on this alternative basis.

Date of Decision: February 25, 2015

Shilling v. Reassure Am. Life Ins. Co., Civil Action No. 13-2359, 2015 U.S. Dist. LEXIS 22452 (D.N.J. February 25, 2015) (Rodriguez, J.)

DECEMBER 2014 BAD FAITH CASES: WHERE INSURER DENIES CLAIM, AND INSURED SETTLES WITH TORTFEASOR, COURT OBSERVES THAT IF INSURER’S DENIAL IS IN BAD FAITH THERE IS AN EQUITABLE WAIVER OF ITS SUBROGATION CLAIM (New Jersey Appellate Division)

Published on December 27, 2014 in NJ - Coverage Issues and NJ - General Bad Faith and Litigation Issues. Closed

In Nucci v. American Insurance Company, New Jersey’s Appellate Division addressed an insurer’s subrogation rights where it had originally denied coverage, was subject to suit for non-payment, and the insured partially settled the matter with another co-defendant whom had caused the damage for which the insured sought coverage. The insurer argued that the insured’s claims had to be dismissed against it because the insured breached its contract by waiving the insurer’s subrogation rights through the settlement with the third party tortfeasor. In the context of its opinion, the Appellate Division stated: “Plaintiff’s complaint did not expressly assert that [the insurer] acted in bad faith, in which case equity would preclude subrogation. Moreover, the trial court has not yet decided whether [the insurer] denied the claim ‘erroneously or wrongfully,’ and thus in ‘breach of contract.’ …. [The insurer] denied the claim after two inspections of the insured’s property. The trial court may find that the denial was in ‘good faith.’”

In addressing the merits, the Appellate Division rejected the basic premise that the insured would automatically waive the insurer’s potential subrogation rights simply by settling with the tortfeasor. Rather, one issue involved whether the settling co-defendant was aware of the insurer’s subrogation rights, along with the novel issue of whether the third party could still be liable under a subrogation theory when it settled before the insurer had actually made any payment to the insured.

The appellate court remanded, stating: “Accordingly, we … remand this matter to the trial court for the limited purpose of affording the settling co-defendants the opportunity to brief whether their potential subrogation liability continues because they settled with notice of [the insurer’s] cross-claim [for subrogation]. We believe it is also appropriate to give the settling co-defendants the opportunity on remand to brief whether [the insurer] waived its potential subrogation rights by denying plaintiff’s claim, or by failing to pay that claim before the settling co-defendants settled with plaintiff.”

Date of Decision: December 11, 2014

Nucci v. Am. Ins. Co., DOCKET NO. A-0147-13T1 , SUPERIOR COURT OF NEW JERSEY, 2014 N.J. Super. Unpub. LEXIS 2859 (App. Div. December 11, 2014) (Simonelli, Guadagno, Leone, JJ.)

DECEMBER 2014 BAD FAITH CASES: NO ASSIGNMENT CLAUSE DOES NOT BAR COVERAGE WHERE INSURED UNDERGOES A STATUTORY MERGER; INSURER REQUIRED TO PAY COUNSEL FEES, EVEN IN ABSENCE OF BAD FAITH (New Jersey Federal)

Published on December 4, 2014 in NJ - Coverage Issues and NJ - Lawyer's-Attorney's Fees. Closed

In Lime Tree Assocs., LLC v. Burlington Ins. Co., the court considered whether an insurer had properly denied coverage under a ‘no assignment’ clause in the policy, where the underlying insured-company underwent a statutory merger, resulting in a surviving LLC. Under New Jersey law, such a merger entitles the surviving entity to “all of the rights, privileges and powers of each of the partnerships and other business entities that have merged or consolidated, and all property, real, person and mixed, and all debts due to any of those partnerships and other business entities, as well as all other things and causes of action belonging to each of those partnerships and other business entities.” The insurer denied coverage for a personal injury suit under the ‘no assignment’ clause, as well as under the definition of “insured,” which had been modified by a ‘new entities’ exclusion.

Whether the policy language prevented a transfer of contractual rights following and through a merger is an issue that has not yet been considered by the New Jersey Supreme Court, but has been previously addressed by the Appellate Division of New Jersey and district courts of the Third Circuit. Those jurisdictions have all held that in order to prevent a transfer of rights through merger or by operation of law, the contract’s language must be explicit – the exclusionary language must have anticipated such a transfer and purposefully prevented it.

Therefore, a generic clause barring assignment would be insufficient to bar coverage; rather, to be given effect, the exclusionary clause must contain language that specifically addresses the circumstances and issues at hand. The court determined the no assignment clause in the policy was neither specific nor explicit with regard to transfer by merger or operation of law, and was therefore insufficient to bar coverage.

Furthermore, the reasoning behind the no assignment clause did not support a denial of coverage; no assignment clauses are intended to protect the insurer from unknowingly insuring against unforeseen risks when the coverage is transferred to a different insured, but where the loss has occurred prior to the transfer of coverage, that risk is abated entirely. For that reason, courts have refused to apply no assignment clauses to transfers occurring by operation of law because such transfers do not entail any increase in the risk or hazard assumed by the insurer. This comports with New Jersey’s practice of strictly construing clauses that are designed to limit coverage.

Coverage was also not excluded by the new entities exclusion because the surviving entity was not a new entity; it succeeded to all of the original insured’s rights automatically and as a matter of law under the state statute. Therefore, the surviving entity was not a newly acquired entity; it was merely a continuation of the original entity.

The court awarded the LLC counsel fees under R. 4:42-9(a)(6), citing authority that the insured was entitled to such fees as the successful claimant. The insurer had declined a defense “even though it knew about their valid statutory merger.” Moreover, although the insurer’s “refusal may not have been in bad faith,” denying the insured counsel fees would have deprived it of the full benefit of its insurance contract. New Jersey Court Rule 4:42-9(a)(6) permits, at the discretion of the trial court, an award of counsel fees in “an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.”

Date of Decision: November 25, 2014

Lime Tree Assocs., LLC v. Burlington Ins. Co., Civil No.: 13-6017, 2014 U.S. Dist. LEXIS 165794 (D.N.J. Nov. 25, 2014) (Hayden, J.)