Archive for the 'NJ - Delay (Investigation/Claims handling)' Category
The central discussion in this case focused on the duty to defend as distinguished from the duty to reimburse. Where there is coverage on the face of the complaint a defense must be provided, with two exceptions. If there are covered and uncovered claims, or the coverage issue is of a kind that cannot be determined through the underlying action against the insured, then the obligation to defend becomes an obligation to reimburse defense costs if it is later determined coverage was due. Thus, an insurer can reserve its rights and dispute coverage, which can turn the duty to defend into a duty to reimburse.
In this case, there was a policy exclusion with anti-concurrent and anti-sequential language, when compared to the allegations in the complaint, made it premature “to order [the insurer] to assume responsibility for the defense since it was unclear, based on the anti-concurrent and anti-sequential language in the exclusion, whether any claims would be covered.” Thus, the duty to defend became a duty to reimburse.
The insured settled the claim, and sought recovery under the Griggs rule. Under Griggs: “Where an insurer wrongfully refused coverage and a defense to its insured, so that the insured is obliged to defend himself in an action later held to be covered by the policy, the insurer is liable for the amount of the judgment obtained against the insured or of the settlement made by him. The only qualifications to this rule are that the amount paid in settlement be reasonable and that the payment be made in good faith.” The Court refused to apply Griggs to this case where a duty to deny a defense and coverage was made in good faith.
Further, the insurer did not breach its duty of good faith in the steps taken to deny the claim. There was no unreasonable delay in denying the claim, and no purported to prejudice the insured.
This opinion provides a good overview of New Jersey law on policy interpretation and coverage disputes, coverage disputes involving exclusions, and anti-concurrent/anti-sequential clauses.
Date of Decision: July 20, 2018
Wear v. Selective Insurance Co., New Jersey Superior Court Appellate Division, DOCKET NO. A-5526-15T1 A-0033-16T1, 2018 N.J. Super. LEXIS 108 (App. Div. July 20, 2018) (Koblitz, Manahan, Suter, JJ.)
This is a bad faith case arising out of Superstorm Sandy damage to the insured’s home. Coverage for the full loss was denied, and breach of contract and bad faith claims followed. This opinion involves the insurer’s summary judgment motion on the bad faith claim. Judgment was entered on the bad faith claim for the insurer.
Bad Faith Standards
New Jersey recognizes bad faith claims for “both bad faith in denial of benefits and bad faith in delay of processing of claims.” A bad faith claim might exist where payment was intentionally and unreasonably delayed on an undisputed claim. The test is whether a claim is “fairly debatable”. If the insured cannot establish “as a matter of law a right to summary judgment on the substantive claim [e.g., the breach of the insurance contract]” there is no actionable bad faith claim. The plaintiff has to show the “absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.”
In the first party context, under New Jersey law: “Although a fairly debatable claim is a necessary condition to avoid liability for bad faith, it is not always a sufficient condition. Rather, we are satisfied that the appropriate inquiry is whether there is sufficient evidence from which reasonable minds could conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable.” In this case, the “principal issue presented is whether Plaintiff has adduced factual evidence from which a reasonable jury could find that [the insurer] lacked a fairly debatable reason for denying the disputed portion of the claim. Because in this summary judgment motion [the insurer] has set forth the factual basis for its determinations of coverage and loss, and because Plaintiff has not come forward with evidence that Plaintiff’s entitlement to recover for these losses was so clear that it was not fairly debatable, Plaintiff will be unable to prove its bad faith claim in Count 2 and summary judgment will be granted….”
No bad faith conduct on the record in claims handling
Specifically, the court observed that the insured did not seek summary judgment on the breach of contract claim, and the court itself was not going to find it undisputed that the contract was breached. This alone would appear to be fatal to the insured’s opposition under the reasonably debatable standard. Further, the court observed that the insurer considered the opinions and advice of expert consultants in the claims handling process. The court also listed a variety of “plausible” steps the insurer took to adjust the claim.
No bad faith delay
The court further rejected the insured’s delay argument. It found the insurer promptly investigated the damages, retained experts and a licensed contractor to evaluate the claims, and shared its findings with the insured throughout the process. The insured failed to submit responsible estimates during the process with supporting documentation, and was unresponsive for many months at a time, included a delay in submitting a sworn statement in proof of loss.
Rhetorical assertions without support unsuccessful
The court addressed “Plaintiff’s rhetorical assertions that bad faith is demonstrable from assigning incompetent and inattentive claims adjusters who were ‘repeatedly told … to sit back and wait for the statute of limitations to run out in the hopes that the Plaintiff would miss the filing deadline’….” There was no support for this assertion and, to the contrary, the insured’s large loss director instructed the claim adjuster “to remind Plaintiff’s representatives in writing that the policy contained a two-year suit limitation condition” and the adjuster did so by writing a letter calling “attention to the suit limitation in advance of the approaching deadline.”
Alleged incompetent adjusting did not affect this claim
Early in the claims handling process an adjuster was criticized by his superior for not documenting the file. That adjuster was replaced. However, that this adjuster “temporarily failed to address the potential claim does not give rise to a material factual dispute, as it is undisputed that proper investigation was undertaken, results were shared and explained to Plaintiff and Plaintiff’s agent, and the claim file was put squarely on track as directed by the management. That there remains an area of disputed claims, as alleged in Count One, does not imply that those disputes were caused by [the insurer’s] deliberate indifference to a proper investigation and claims adjustment process.”
Attorney’s fees not recoverable
Date of Decision: March 29, 2018
Breitman v. National Surety Corp., Civil Action No. 14-7843 (JBS/AMD), 2018 U.S. Dist. LEXIS 52496 (D.N.J. Mar. 29, 2018) (Simandle, J.)
The insured alleged that she suffered serious bodily injuries after a rear-end collision. The vehicle at fault only had $25,000 in available coverage, and the insured’s UIM policy contained limits of $100,000 per person and $300,000 per accident. Alleging injuries amounting to $75,000 in value, the insured filed a UIM claim with the insurer. The insured allegedly forwarded all documentation supporting her injuries to the insurer’s claims adjuster, but the insurer ignored her documentation or acted with reckless indifference to the documentation provided. She filed a claim against the insurer for breach of the implied duty of good faith and fair dealing.
The insured moved to dismiss this claim, arguing that (1) the Court lacked federal subject matter jurisdiction because the insured’s claim does not exceed $75,000; and (2) that the insured failed to state a claim upon which relief can be granted. The insured also moved to sever and stay the insured’s bad faith claim, pending the disposition of the insured’s claim for breach of contract.
(1) The Court denied insurer’s motion to remand, reasoning that “[the insured’s] bad faith claim, if successful, includes the potential for an award of consequential damages and punitive damages . . .” that would exceed the jurisdictional threshold of $75,000.
(2) The Court denied the insured’s motion to dismiss, reasoning that the complaint “sets forth numerous examples of bad faith conduct that sufficiently allege[s] a ‘reckless disregard’ for [the insured’s] rights.” These allegations included delay tactics, conducting an improper investigation, and failing to evaluate medical records in a reasonable manner.
(3) Finally, the Court granted the insurer’s motion to sever and stay the bad faith claim from the insured’s breach of contract claim, citing judicial economy and avoiding prejudice to the insurer.
Date of Decision: September 12, 2017
The appellate court addressed bad faith in this environmental contamination coverage case. The panel reiterated the law that “an insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence. In the case of denial of benefits, bad faith is established by showing that no debatable reasons existed for denial of the benefits. In the case of processing delay, bad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.”
The court then restated the “fairly debatable” standard, which mandates that an insured bad faith plaintiff must be able to establish “as a matter of law a right to summary judgment on the substantive claim would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.” The court affirmed that the trial court’s summary judgment dismissing the bad faith claim was proper. Although the appellate court affirmed a finding that coverage was due, the insurer had a reasonable basis to deny the claim, “particularly considering that the governing law was not as developed at that time as it is now.”
Date of Decision: April 21, 2017
Mid-Monmouth Realty Assocs. v. Metallurgical Indus., DOCKET NO. A-0237-14T2, 2017 N.J. Super. Unpub. LEXIS 993 (App.Div. Apr. 21, 2017) (Brown, Fuentes, Simonelli, JJ.)
The court previously allowed the insured to amend its inadequately pleaded bad faith claim, based on a refusal to defend and indemnify it for settlement of a trademark infringement action, which the insured litigated unsuccessfully at trial and had up on appeal at the time of settlement.
Under New Jersey law, the bad faith plaintiff must show (1) an absence of a reasonable basis for denying benefits under the policy, and (2) the insurer’s knowledge or reckless disregard of the lack of a reasonable basis in denying the claim. The court originally ruled that the insured adequately pleaded there was no reasonable basis to deny benefits, and the judge saw “no reason to now disturb that finding that is now law of the case.”
The amended allegations went to the test’s second prong, and the court found the new allegations in the amended bad faith claim adequate.
The insured alleged that the insurers had “independently investigated [the insured’s] claim for coverage in the [Underlying] Action; that the Insurers’ counsel confirmed that coverage was due under the policy; that the Insurers were aware that proceedings in the [Underlying] Action were costly and rapidly progressing, and aware of the status of the case; that [the insured’s] counsel explained in correspondence that the Insurers owed a duty to defend under New Jersey law; and that the Insurers ‘have delayed the processing of the claim knowingly or in reckless disregard of the fact that they had no valid reason for doing so.’” These allegations went beyond mere legal conclusions and met the Twombly/Iqbal standards.
Date of Decision: February 14, 2017
In Puzzo v. Metropolitan life Insurance Co., the Court held that an insured could not amend his declaratory judgment complaint to include allegations of bad faith where he failed to allege he was entitled to coverage as a matter of law.
The insured suffered serious brain injuries as a result of a car collision. Pursuant to two insurance policies, the insurer provided the insured with short term disability benefits under both policies, and for approximately two years, provided long term disability benefits. Approximately two years after the insured’s injury, the insurer terminated the long term disability payments under both policies. Plaintiff appealed the insurer’s decision under ERISA’s administrative appeals process, but the insurer never issued a final decision on appeal.
The insured brought a declaratory judgment action against the insurer and later sought to amend his complaint under Fed. R. Civ. P. 15(a) to include claims of bad faith. In the insured’s Motion to Amend he alleged that the insurer acted in bad faith by withholding documents for long periods of time and for failing to obtain necessary medical records before the deadline for issuing a decision on the appeal expired.
The Court denied Plaintiff’s Motion to Amend finding that as alleged, the proposed amendment did not contain sufficient facts to support a finding of bad faith as a matter of law, and was therefore futile. The Court held that the critical question in a bad faith case was whether there was a “fairly debatable” reason for denying coverage, or in a “delay case”, for delaying a coverage opinion. Although the insured sufficiently plead that the insurer delayed in responding to his appeal, these allegations were insufficient to show bad faith. The insured also had to plead that coverage under the policy was not “fairly debatable” and the insurer knew or recklessly disregarded this lack of a reasonable basis when it delayed its coverage decision. The Court denied the insured’s Motion to Amend, holding that delay, without a corresponding duty to provide coverage, cannot provide a basis for bad faith.
Date of Decision: March 29, 2016
Joseph Puzzo v. Metropolitan Life Ins. Co., NO. 3:15-cv-3190, 2016 U.S. Dist. LEXIS 40766 (D.N.J. March, 29, 2016) (Wolfson, J.)
In Nationwide Mutual Insurance Company v. Caris, the underlying facts involved the alleged fraudulent sale of a property with contamination. The insureds entered a consent judgment and assigned their rights against the carrier to the buyers. The buyers then brought various claims against the insurer, including bad faith claims.
The court dismissed a New Jersey Consumer Fraud Act claim because the allegation was that the insurer failed to provide benefits, not that it procured the insurance policy through fraud.
The assignees also had raised a negligence per se claim for improper claims handling and failure to give timely notice that no coverage would be provided. The court found that the assignees had no standing to bring a claim based upon negligence, as such a claim could not be assigned to them prior to judgment being entered.
Moreover, to the extent this was pleaded as an alternative to asserting a bad faith claim, no such cause of action exists under New Jersey law: “[A]n insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence.”
Finally, “there is no private right of action for policyholders against their insurers based on UCSPA violations or negligence.”
Turning to the bad faith claim: the insured “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.” New Jersey courts apply the “fairly debatable” standard, meaning “if there are material issues of disputed fact which would preclude summary judgment as a matter of law, an insured cannot maintain a cause of action for bad faith.”
“In the case of processing delay, bad faith is established by showing no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.” This is essentially the same as the fairly debatable standard, and the “mere failure to settle a debatable claim does not constitute bad faith.”
Despite a litany of bad faith allegations, the assignees could not establish the insurer lacked a reasonable basis to deny coverage, or that its coverage position – that there was no property damage caused by an occurrence during the policy period – was unreasonable.
Thus, “[w]hen a carrier proffers ‘plausible reasons for the denial of coverage’ and ‘demonstrates that there is, at the very least, genuine questions regarding whether [an insured’s] claims fall within the coverage provided,’ dismissal of a related bad faith claim is proper, even on a motion to dismiss.”
The burden in this case was on the insureds to prove the property damage occurred during the policy period, and the court found that issue was fairly debatable. Thus, it granted the motion to dismiss the bad faith claim.
Date of Decision: March 14, 2016
Nationwide Mut. Ins. Co. v. Caris, No. 14-5330, 2016 U.S. Dist. LEXIS 33407 (D.N.J. Mar. 14, 2016) (Rodriguez, J.)
In Onex Credit v. Atrium 5 Ltd., a company has purchased a disability policy on its CEO. The policy provided that if the terms were met, the company could receive a large lump sum payment. There were numerous conditions and exclusions, and after a lengthy investigation by the carrier’s representative coverage was denied. The company brought suit for breach of contract, bad faith (breach of the implied covenant of good faith and fair dealing), and also sought statutory attorney’s fees.
As to the bad faith claim, the company argued that there was a bad faith delay, and a bad faith refusal to pay. To show a bad faith denial of payment, an insured must show that the insurer lacked a “fairly debatable” reason for denying coverage and that it knew or recklessly disregarded the absence of a reasonable basis to deny the claim.
To establish an unreasonable delay case, the delay must be shown to be lacking any valid reason, and that the insurer knew or recklessly disregarded the fact that there was no valid reason justifying the delay. These tests are essentially the same. Thus, to make out a case, the insured has to show that it would be entitled to summary judgment on the bad faith claim, i.e., there can be no material issues of disputed facts that would favor the insurer in precluding summary judgment on the bad faith issue.
In this case, there were disputed issues of material fact as to the reasonableness of the insurer’s denial, specifically concerning its reliance on third party consultants in reaching a conclusion as to their qualifications and findings.
On the delay claim, the court found that the insured overstated the delay by one year and that its objection to producing certain documents resulted in another 6 month delay. The insurer had promised at one point a decision in 30 days, and had not requested the belatedly produced documents until a year after the original claim. The court indicated that a jury could find that, at most, this was the result negligence or mistake, which do not constitute bad faith.
The court rejected the argument that there was a need for more discovery concerning the consultants, as this simply circled back to establishing the presence of disputed facts that would not permit a grant of summary judgment in the insured’s favor.
Thus, the company could not overcome the fairly debatable obstacle to relief. The same result applied to the delay issue, as the reasons for the delay were fairly debatable, and neither negligence nor mistake could make out bad faith. Finally, the court would not entertain the statutory attorney’s fee claim under Rule 4:42-9(a)(6), in connection with having to bring suit to enforce coverage. This court found that this rule did not apply in the first party context.
Date of Decision: September 26, 2014
Onex Credit v. Atrium 5, Civil Action No. 13-5629 (ES), 2014 U.S. Dist. LEXIS 135778 (D.N.J. September 26, 2014) (Salas, J.)
In Johnson v. Plasser American Corporation, an excess carrier paid in its $4,000,000 policy limits to settle a severe personal injury case involving the insured’s employee. There were issues concerning exclusions and whether the duty to defend was ever invoked based on exhaustion of the underlying policy’s limits. There was some alleged delay in response by the excess carrier to demands by the insured’s counsel.
The actual issues before the court involved whether the carrier had to reimburse attorney’s fees under Rule 4:42-9(a)(6), and whether there was bad faith in claims handling.
The court found that the duty to defend was never invoked, and that coverage was excluded. Thus, no attorney’s fees were due as the insured did not prevail on the indemnity claim. As to the bad faith claim, the Appellate Division upheld the trial court’s dismissal of the insured’s bad faith and breach of the covenant of good faith and fair dealing claims.
The insured did not assert bad faith in settlement. The carrier contributed $4 million — its umbrella policy limit — toward settlement of the underlying action, thus (1) shielding the insured from a potential judgment exceeding its coverage; and (2) shielding itself from a possible Rova Farms bad faith claim that it exercised bad faith in refusing to settle.
Rather, the insured focused on the carrier’s delay in providing its position regarding the insured’s request for a defense and indemnification under the umbrella policy. “In short, it alleges bad faith processing of its claim.” The insured also alleged the delay forced it to retain coverage counsel to ascertain its rights to coverage, which the carrier opposed, resulting in putative damages consisting of the insured’s legal fees.
The court found explanations for the delay in the record, though it did not condone a failure to respond; but ultimately it was clear to the insured that the insurer contested coverage.
The Court observed that: “An insurer owes a duty of good faith in processing an insured’s claim. … However, the standard applies to inattention to an uncontested claim.” The Court refused to follow the minority of jurisdictions supporting a cause of action for harm to the insured by the handling of an uncovered claim, but rather approved the majority view that “a covered claim is a sine qua non to maintaining a claim-handling claim”.
In this case, the coverage claim was contested, and contested successfully; thus, the insured’s coverage claim had no merit.
Further, the mere failure to issue a timely response to defense counsel’s letter is insufficient to establish bad faith, as simple negligence is not enough. Rather, “[w]hen a case involves a processing delay: [B]ad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay. In either case (denial or delay), liability may be imposed for consequential economic losses that are fairly within the contemplation of the insurance company.”
Date of Decision: February 26, 2014
Johnson v. Plasser Am. Corp., DOCKET NO. A-2116-12T1, 2014 N.J. Super. Unpub. LEXIS 372 (N.J. Super. App. Div. February 26, 2014) (Reisner and Ostrer, JJ.)
In Skelcy v. Unitedhealth Group, Inc., the administrator of a decedent’s estate brought suit against a health insurer, its parent company, several physicians, and a peer review organization for wrongful death, delay of health insurance benefits, and bad faith, alleging that the defendants’ improper deprivation and delay of medical treatment caused the decedent’s death.
The defendants moved to dismiss all claims and the administrator moved to amend its complaint to include an additional count under the New Jersey Health Care Carrier Accountability Act, which the court granted. The court also granted the defendants’ motion with respect to several claims, but did not dismiss the bad faith claim as pleaded by the administrator.
Date of Decision: December 5, 2012
Skelcy v. Unitedhealth Group, Inc., No. 12-01014, 2012 U.S. Dist. LEXIS 172922, U.S. District Court for the District of New Jersey (D.N.J. Dec. 5, 2012) (Thompson, J.)
