Archive for the 'NJ - Federal Pleading Inadequate' Category
The insureds’ water heater leaked resulting in $8,654 in water damage and $66,415 in mold damage. The insurer paid the $8,654, but only paid $10,000 for the mold damage, per the policy’s mold exclusion and sublimit. The insureds claimed that the refusal to pay the entire $66,415 violated the insurance policy.
In arguing for coverage beyond the $10,000 sublimit, the insureds argued “that their loss was caused by water, not mold, and that Defendants therefore are obligated to pay for the entire amount of the loss.” They focused on the allegation “that the mold growth was a result of the broken valve on the hot water heater, and argue that the mold is the ‘loss,’ rather than the ‘cause.’”
The court, however, recognized that the policy contained an anti-sequential provision: “We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” It found there is no public policy violation “when parties to an insurance contract agree that there will be no coverage for loss due to sequential causes even where the first or the last cause is an included cause of loss.”
The court concluded that because the anti-sequential clause applied to the mold exclusion, the policy limited mold recovery to $10,000, regardless of whether the mold resulted from the valve leak. Therefore, the court ruled that the insurer did not breach the insurance contract.
As to the bad faith claim, under New Jersey law, an insurance company is required to act in good faith to the insured with respect to a first-party claim. However, an insurance company is not liable if a decision with respect to a claim is “fairly debatable.” Further, “[a] claimant who cannot establish a substantive claim that the policy was breached, however, cannot prevail on a claim for an insurer’s alleged bad faith refusal to pay the claim.”
Applying these principles, the court found no actionable bad faith claim: “[A] claim for bad faith is not plausible because Defendants responded to Plaintiffs’ claims, paid the amounts they determined were owed under the contract, and did not disregard any obligations or unreasonably fail to investigate or settle Plaintiffs’ claims.” Thus, the bad faith claim was “at a minimum, fairly debatable” and was dismissed.
Date of Decision: May 23, 2018
Hobbs v. US Coastal Ins. Co., U. S. District Court, District of New Jersey Civil Action No. 17-3673, 2018 U.S. Dist. LEXIS 86484 (D.N.J. May 23, 2018) (Rodriguez, J.)
After the Court granted the insurer’s earlier motion to dismiss the insured’s claim for breach of the covenant of good faith and fair dealing, without prejudice, the insured filed an amended complaint. The amended complaint is identical to the insured’s initial complaint except for seven added paragraphs. The insurer filed another motion to dismiss the bad faith claim.
The Court again granted the insurer’s motion to dismiss the bad faith claim without prejudice. “To state a claim . . ., [the insured] must present some facts indicating bad motive.” “[I]t is not enough, . . . to infer bad intentions from bad consequences.” The Court stated that some facts may exist to eventually support a finding of bad faith, and held that a dismissal with prejudice would therefore be inappropriate at this time.
Date of Decision: April 4, 2018
Adams v. Allstate Life Ins. Co., United States District Court, District of New Jersey, Civil Action No. 16-9465 (RBK), 2018 U.S. Dist. LEXIS 58093 (D.N.J. Apr. 4, 2018) (Kugler, J.)
The insureds submitted claims under their homeowner’s insurance policy after Hurricane Irene damaged the property in August 2011, and after Hurricane Sandy damaged the property in October 2012. After the insurer initially denied coverage, the insureds filed a declaratory judgment action in state court seeking coverage under the policy.
The insureds also alleged breach of contract and breach of the covenant of good faith and fair dealing, among other claims. The insurer moved to dismiss the breach of the covenant of good faith and fair dealing claim, among others.
The Court reiterated the test to establish a claim for bad faith in New Jersey. The insured must show “‘(1) the insurer lacked a “fairly debatable” reason for its failure to pay a claim, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.’”
The Court held, “[the insureds] do not allege that [the insurer] knowingly or with reckless disregard denied their claim without a ‘fairly debatable reason’ for doing so.” The insureds merely alleged that they suffered property damage because of Hurricanes Irene and Sandy, and that the insurer denied these claims in breach of the covenant of good faith and fair dealing. Such conclusory allegations cannot defeat an insurer’s motion to dismiss.
However, the Court gave the insureds an opportunity to amend their complaint.
Additionally, the Court dismissed the insureds’ claim for coverage as to the Hurricane Irene damage because these claims are facially untimely, and the insured failed to plead facts suggesting that equitable tolling should apply.
Lastly, the Court denied the insurer’s motion to dismiss the claim for coverage of the Hurricane Sandy damage due to a factual dispute as to whether the insured’s failure to cooperate prejudiced the insurer.
Date of Decision: September 19, 2017
Kurz v. State Farm Fire & Cas. Co., No. 16-8681, 2017 U.S. Dist. LEXIS 152540 (D. N.J. Sept. 12, 2017) (Bumb, J.)
Between 2010 and 2016, the insurer issued various performance and payment surety bonds on behalf of ongoing construction projects. In connection with these bonds, the insurer also entered into General Indemnity Agreements (“GIA”) with the plaintiffs.
After execution of one of the GIAs, the insurer began receiving claims against the performance bonds. By November of 2016, insurer made payments totaling $8,424,302.57 toward resolving those claims. However, the insurer estimated that its potential liability for the claims could exceed $18 million.
Under the GIA, the insurer interpreted the plaintiffs as indemnitors and principals of the bonds. As such, the insurer wrote to the plaintiffs on two separate occasions, and demanded that the plaintiffs post cash collateral in the amount of $18,807,737.47 to cover the full amount of the claims. Plaintiffs then filed suit against the insurer and alleged breach of the implied covenant of good faith and fair dealing, and violations of various state consumer fraud statutes, among other claims. The insurer moved to dismiss.
In dismissing the breach of the implied covenant of good faith and fair dealing claim, the Court ruled that “[p]laintiffs’ allegations . . . do little more than indicate a disagreement over contractual interpretation, and fail to provide with any specificity how [the insurer] acted in bad faith.” The Court further held that such conclusory and vague pleading failed to comport with Federal Rule of Civil Procedure 8(a)(2), which requires a short and plain statement showing that the pleader is entitled to relief. Citing the same reasoning relating to the inadequacy of the plaintiffs’ pleading, the Court also dismissed the plaintiff’s state fraud claims against the insurer.
Date of Decision: September 13, 2017
Fineman, Krekstein & Harris obtained dismissal of a bad faith claim against the insurer where the insured’s complaint did not set out sufficient facts to make a plausible claim for an inadequate investigation.
The court observed that under the federal rules, courts carry out a three-tiered test to determine if a complaint can survive a motion to dismiss: (1) the court “must take note of the elements the plaintiff must plead to state a claim.”; (2) “the court ‘should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth.”; and (3) “when there are well-pleaded factual allegations, the court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.”
In applying this process, the court observed that under New Jersey law, a bad faith plaintiff must show both “the absence of a reasonable basis for denying the claim for coverage; and … that the insurer knew or recklessly disregarded its absence of a reasonable basis.” Further, “if an insurance company’s reasons for denying coverage are ‘fairly debatable,’ then the insurance company cannot be liable for bad faith.”
In this case, the issue was whether the insured’s property loss was the result of vandalism or theft. The insurer’s investigator concluded, after providing the details for his reasoning, that the loss was due to uncovered theft. The insurer denied coverage on that basis. The insured alleged coverage was denied in bad faith on the alleged basis that the insurer did not “undertake an independent investigation into the cause of the alleged loss.”
The court rejected this argument. It found that the insured “failed to allege facts demonstrating that [the insurer] lacked a reasonable basis for denying the claim for coverage, or that it knew or recklessly disregarded its absence of a reasonable basis.” There was no dispute that an investigation was conducted and the investigator concluded the loss was due to theft, not vandalism. There were no allegations of fact to support a claim that the investigation was conducted in bad faith. Rather, the pleadings merely showed that the insured disagreed with how the insurer conducted its investigation. Even if this alleged negligence, “allegations of simple negligence or mistake cannot support a claim for bad faith.”
The court stated: “Indeed, there are no factual allegations indicating that [the insurer] conducted a sham investigation in order to wrongfully deny [the] claim, or that [the] investigation was so woefully deficient that it should have known it lacked a reasonable basis to deny coverage.”
Thus, the motion to dismiss was granted, the court adding that the insured “may move to amend its counterclaim should discovery later reveal bad faith conduct….”
Date of Decision: April 25, 2017
Hema Mehta of Fineman, Krekstein & Harris was defense counsel.
In our post earlier today, we noted a Pennsylvania Federal Court dismissing bad faith claims for conclusory pleadings, without prejudice. Below is a New Jersey Federal Court doing the same.
Plaintiffs are homeowners who purchased an insurance policy, which they alleged entitled them to coverage for property damage sustained by their home. After the Insurer denied coverage, the Plaintiffs brought suit alleging breach of contract and bad faith. The Insurer later filed a Motion to Dismiss as to the bad faith claim.
The Court granted the motion and agreed that Plaintiffs had failed to state a cognizable bad faith claim. The Court recognized that New Jersey defines bad faith as: (1) the lack of a “fairly debatable” reason for failing to pay a claim, and (2) knowing or reckless disregarded for the lack of a reasonable basis in denying the claim. The lone allegation in the Complaint as to the second element was Plaintiffs’ assertion that the Insurer had “reckless disregard for the rights of the Plaintiffs.”
The Court held that this conclusory allegation was insufficient to state a claim because it left “the Court to infer reckless indifference from the fact that Defendant denied coverage.” The Court declined to take such a leap. The Complaint lacked any allegations explaining how the Insurer acted recklessly, and the Court refused to infer bad faith conduct simply because the Insurer had denied coverage. As the Court explained, this was they very type of speculative pleading forbidden by Twombly and Iqbal. Thus, the Court dismissed the claim, without prejudice.
Date of Decision: April 3, 2017
In Product Source International, LLC v. Foremost Signature Insurance Co., the insured sought defense and indemnification for personal and advertising injury from a trademark infringement suit, and brought a bad faith claim. The insurer moved to dismiss. The court refused to dismiss the insured’s coverage claims, but did dismiss the bad faith claim without prejudice.
The court observed that a New Jersey bad faith plaintiff must show (1) absence of a reasonable basis to deny benefits; and (2) knowing or reckless disregard of its lack of a reasonable basis to deny that benefit. If there is a reasonable basis to deny benefits, or where coverage is “fairly debatable”, there cannot be bad faith. “Under this ‘fairly debatable’ standard, a plaintiff can only succeed on a bad faith claim against his insurer if he can establish that he would be entitled to summary judgment on the underlying claim —- that there are no factual issues over whether the plaintiff is entitled to insurance coverage under his policy.”
In its complaint, the plaintiff pleaded that there was no reasonable basis to deny defense and indemnification, referencing specific policy provisions covering trademark infringement claims. However, the court found that the plaintiff did “not adequately set forth the second element required … Defendants’ knowledge or reckless disregard for the fact that they had no reasonable basis for their denial of insurance benefits.” An allegation that the claim process was delayed with knowledge or reckless disregard that there was no valid basis is a legal conclusion, not a factual allegation under Twombly/Iqbal. Thus, the bad faith claim was dismissed without prejudice, leaving plaintiff an opportunity to re-plead; but in so ordering the court allowed the plaintiff time to cure while stating “if Plaintiff is able to do so consistent with counsel’s obligations under Rule 11….”
Date of Decision: July 6, 2016
In Mitra v. Principal Ins. Co., the insured sought to amend his complaint against his disability insurer, to add a claim for breach of the implied covenant of good faith and fair dealing. The insurer opposed on a number of grounds, including failing to plead a plausible claim and legal futility.
The insured alleged the new claim as based upon his being “diagnosed by two (2) independent qualified physicians with a legitimate illness, which rendered [him] totally disabled and completely unable to work,” undue delay in taking longer than the “pre-established 45-day waiting period to respond to [the insured’s] request for reconsideration,” and an alleged unreasonable IME being required before rendering a decision.
The court applied the first party bad faith standard found in Pickett v. Lloyd’s: “to show a claim for bad faith, a plaintiff must 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.” More “specifically, in the insurance context, a bad faith claim is premised on the insurer’s failure to investigate an insured’s claim for benefits.’” A plaintiff claiming bad faith must be able to establish “a right to summary judgment on his insurance coverage claim” to prevail on the bad faith claim.
The court found that the proposed amended complaint added no new factual allegations to take the case into the realm of bad faith; and in fact, the proposed pleading “catalogue[d] the many steps that [the insurer] took to investigate his claim.” Further, the proposed amended complaint relied upon “mere ‘labels and conclusions’ leaving numerous factual issues unresolved,” contrary to the teachings of Twombly/Iqbal. Moreover, the proposed amendment itself “evidence[d] the many material issues of disputed fact surrounding [the insurer’s] investigation into [the insured’s] claims.” Thus, “[t]he uncertainty of the facts surrounding [the] denial of [the] claim is ‘fairly debatable,’ which would preclude summary judgment as a matter of law.” The presence of these disputed facts required dismissal, as they made the bad faith claim futile.
Date of Decision: July 7, 2015
Mitra v. Principal Ins. Co., Civil Action No. 15-1259 (CCC), 2015 U.S. Dist. LEXIS 89532 (D.N.J. July 7, 2015) (Clark, III, U.S.M.J.)
In Dean v. New England Mutual Life Insurance Company, the plaintiff’s claims concerned allegations of life insurance payments under her ex-husband’s policy directly to their daughters, rather than to her, individually, or to her as trustee for her daughters. A judgment of divorce had provided: “Husband shall maintain and pay the premium for insurance coverage to the amount of Seventy Five Thousand ($75,000) Dollars naming the children as equal beneficiaries and naming the Wife trustee until the children are emancipated.” At the time of death, the daughters were 19 and 20 years old. The former wife/plaintiff argued that the daughters were not emancipated under the terms of a Custody and Visitation Agreement.
The plaintiff alleged that the insurer “breached the implied duty of good faith and fair dealing owed to Plaintiff by the mishandling of the claim, failing to process the claim properly, fail[ing] to pay the proper party, and advising the Plaintiff that the parties[‘] children were legally entitled to the proceeds and moreover misstating to the Plaintiff . . . the insurance policy proceeds.” The court found that this failed to state a claim.
The plaintiff failed to allege that the insurers acted in bad faith or with an improper motive, and that: “Bad faith or ill motive is an essential element of a claim for breach of the implied covenant of good faith and fair dealing.” It noted that: “[A]n allegation of bad faith or unfair dealing should not be permitted to be advanced in the abstract and absent an improper motive.” Rather “to establish a claim for bad faith in the insurance context, the plaintiff must show two elements: (1) the insured lacked a ‘fairly debatable’ reason for its failure to pay a claim, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim….”
There was no bad faith or improper motive alleged in this case, “let alone that Defendants lacked a ‘fairly debatable’ reason for failing to pay out any of the Policy’s proceeds to Plaintiff, either on her own behalf or as Trustee.” Moreover, the plaintiff had acknowledged that the insurers did not deny a claim; rather, they paid out the policy’s proceeds to the claimants, i.e., the daughters, upon the daughters’ request for payment.
The court noted that the insurers had also asked for dismissal under the fairly debatable standard; but that such arguments were appropriate only for summary judgment motions, prior to trial, not motions to dismiss.
Date of Decision: January 29, 2015
Dean v. New Eng. Mut. Life Ins. Co., Civ. Action No. 14-2211 (FLW)(DEA), 2015 U.S. Dist. LEXIS 10244 (D.N.J. January 29, 2015) (Wolfson, J.)
In YAPAK, LLC v. Massachusetts Bay Insurance Co., the insured alleged bad faith against its insurer. The court dismissed the Complaint, without prejudice, as the plaintiff merely alleged the elements of a cause of action in a conclusory manner, and thus failed to adequately set forth a cause of action.
Date of Decision: October 16, 2009
YAPAK, LLC v. Massachusetts Bay Insurance Co., Civ. No. 3:09-cv-3370, 2009 U.S. Dist. LEXIS 96361 (D.N.J. Oct. 16, 2009) (Thompson, J.)
