Archive for the 'NJ - General Bad Faith and Litigation Issues' Category

JANUARY 2018 BAD FAITH CASES: NEW JERSEY BAD FAITH CLAIMS PREEMPTED BY ERISA (District of New Jersey)

Published on January 30, 2018 in NJ - General Bad Faith and Litigation Issues and NJ - Procedural Issues. Closed
Print Friendly

The decedent-insured held a long-term disability policy obtained through his employer. After receiving short and long-term disability benefits the insurer gave notice of termination that the benefits would terminate unless the insurer was provided with an update on his condition. The insured and insurer then disputed over whether he was totally disabled; a dispute which went on past his death as to benefits. Suit was brought for breach of the implied covenant of good faith and fair dealing and bad faith denial of insurance benefits, among others. The insurer moved to dismiss arguing ERISA pre-emption.

The Third Circuit has set forth the following test on whether a policy falls within ERISA coverage: “an ERISA plan ‘is established if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.” The test also states that the “crucial factor” is “whether the employer has expressed an intention to provide benefits on a regular and long-term basis.” In this case “it is undisputed” that the policy at issue falls under ERISA.

Plaintiff’s bad faith claims and other state law claims were preempted by ERISA. The ERISA statute makes clear that it preempts all state laws that “relate to” employee benefit plans. “A ‘state law relates to an ERISA plan if among other things, the rights or restrictions’ created by the state law ‘are predicated on the existence of . . . an [ERISA] plan.” Here, the bad faith claims and other state law claims, were predicated on the employer plan, and thus preempted under ERISA.

The plaintiff argued that the policy should fall under ERISA’s safe harbor provision. Under the safe harbor provision, a policy is not governed by ERISA when it is neither established nor maintained by the employer. However, because the record clearly indicated that the employer created a comprehensive package of insurance coverage, the Court ruled that the safe harbor provisions do not apply. As such, the Court dismissed all of the plaintiff’s state law claims, including the bad faith claims.

Date of Decision: December 28, 2017

Rizzo v. First Reliance Std. Life Ins. Co., No. 17-745, 2017 U.S. Dist. LEXIS 212484 (D. N.J. Dec. 28, 2017) (Sheridan, J.)

NOVEMBER 2017 BAD FAITH CASES: FIRST PARTY BAD FAITH CLAIM POSSIBLE EVEN IF NO CONTRACT OF INSURANCE BETWEEN INSURED AND AN INSURER MERELY SERVICING POLICY, ANALOGIZING TO DUTIES IMPOSED ON AGENTS (New Jersey Federal)

Published on November 6, 2017 in NJ - General Bad Faith and Litigation Issues. Closed
Print Friendly

The insureds were homeowners who suffered property damage. “They were insured under a Prestige Home Premier Policy, issued by Fireman’s Fund, underwritten by National Surety, and serviced by ACE American.” The insureds alleged they reported the claim promptly, and interacted with representatives of the various insurer defendants for 20 months, but did not receive full payment on their claim. ACE sought to dismiss the breach of contract and bad faith claims on the basis that it did not issue any insurance policy, but rather National Surety was the insurer.

The court would not dismiss the complaint. First, it remained unclear on the face of the pleading if there was some kind of contract with ACE. The more interesting holding was that a potential bad faith claim could exist even if there were no insurance policy issued by ACE, rejecting the argument that “without a contract there can be no claim for bad faith.” The court specifically did not accept the argument that any cause of action can only arise out of the implied contractual duty of good faith and fair dealing.

The court looked to the leading first party bad faith case of Pickett v. Lloyds. The court ruled, “Pickett itself … seems to contemplate a bad faith cause of action against a party other than the primary insurance company. Indeed, it reasoned that because an agent owes a duty to the insured, the insurer must ‘owe[] an equal duty.’” It referenced Picket as “affirming a jury award where the jury found the insurer’s agent liable ‘for a lack of good faith and fair dealing outside of its agency relationship with Lloyd’s [the insurer]’ and stating that ‘[a]gents of an insurance company are obligated to exercise good faith and reasonable skill in advising insureds’”

Thus, the court held that “[e]ven if the [insureds] fail to establish the existence of a contract with ACE American, their bad faith cause of action may still be viable.”

Date of Decision: October 20, 2017

Fischer v. National Surety Corp., Civ. No. 16-8220 (KM) (MAH), 2017 U.S. Dist. LEXIS 174267 (D.N.J. Oct. 20, 2017) (McNulty, J.)

JULY 2017 BAD FAITH CASES: INSURER ONLY OWES FIDUCIARY DUTY IN LIMITED CIRCUMSTANCES, AND ORDINARY CONTRACT DISPUTE CANNOT CREATE THAT DUTY (New Jersey Federal)

Published on July 6, 2017 in NJ - General Bad Faith and Litigation Issues. Closed
Print Friendly

This case involved a detailed three-year history concerning a dispute over what coverage the insured paid for, wanted or had. There were no claims against the insured or losses involved. The insured brought numerous claims, including a breach of fiduciary duty claim.

In dismissing that claim, the court observed that there are circumstances in which an insurer owes a fiduciary duty, but these circumstances are limited. Thus, “an insurer acting as an agent to the insured when settling claims owes a fiduciary duty,” and “an insurance company owes a duty of good faith to its insured in processing a first-party claim.”

However, “absent ‘special circumstances’ a claim for fiduciary duty cannot survive.” The court cited case law for the proposition that: “[A]bsent a special relationship, parties operating in the normal contractual posture, not as principal and agent, are typically not in a fiduciary relationship.”

In this case, the insured did not “allege anything to suggest the relationship between Plaintiff and Defendants exceeds an ordinary contractual relationship. Plaintiff’s basis for finding a fiduciary relationship is essentially that he was insured by the Defendants.” There was no first party of third party claim. “Therefore, Plaintiff and Defendants never had the occasion to enter into a fiduciary relationship.”

This claim was dismissed without prejudice.

Date of Decision: June 22, 2017

Degennaro v. American Bankers Insurance Company of Florida, No. 3:16-cv-5274-BRM-DEA, 2017 U.S. Dist. LEXIS 96372 (D.N.J. June 22, 2017) (Martinotti, J.)

MAY 2017 BAD FAITH CASES: COURT FINDS THAT JURY MUST DETERMINE WHETHER INSURED AND INSURER REACHED SETTLEMENT OF SUPERSTORM SANDY CLAIM (New Jersey Federal)

Published on May 30, 2017 in NJ - General Bad Faith and Litigation Issues. Closed
Print Friendly

In this case, the insured submitted a claim to its insurer as a result of wind and flood damage sustained during Superstorm Sandy. The insured and the insurer each hired an engineer/contractor to determine the extent of damage to the building and the cost to repair. Emails between the two contractors seemed to indicate that a settlement had been reached with regard to the replacement cost of covered damage. The insured cashed the insurer’s checks, but never made repairs to the building. The insured’s counsel ultimately sent an additional estimate prepared by another engineer to the insurer. The insurer refused to pay the remaining balance as indicated on the additional estimate, and the insured filed suit for breach of contract and breach of the implied covenant of good faith and fair dealing.

The insurer moved for summary judgment, and argued that it had entered into a binding settlement agreement as a result of the email exchanges between the contractors respectively hired by the insured and the insurer. In response, the insured argued that the contractor it hired did not have authority to bind it to any settlement, and even if it had authority, no settlement had been agreed to.

The court noted that the insured had the burden of proving the elements of its claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Ultimately, the court found that it was for a jury to determine whether the parties entered into a settlement agreement that precludes the insured’s suit against the insurer. The court held that if “a jury finds that no enforceable settlement agreement exits, the jury must then determine whether [the insurer] breached the parties’ insurance contract and did not act in good faith” by failing to pay the balance of the additional estimate that the insured submitted.

Date of Decision: March 31, 2017

Coleman Enters. Co. v. Scottsdale Ins. Co., No. 1:14-cv-07533-NLH-AMD, 2017 U.S. Dist. LEXIS 50078 (D.N.J. March 31, 2017) (Hillman, J.)

tree-bud-2017

APRIL 2017 BAD FAITH CASES: NFIA PREEMPTS STATE LAW BAD FAITH CLAIMS (New Jersey Federal)

Published on April 10, 2017 in NJ - General Bad Faith and Litigation Issues. Closed
Print Friendly

The Court granted summary judgment to the insurer on a breach of good faith and fair dealing claim for attorney’s fees and costs and expenses, because the National Flood Insurance Act preempts state contract law, including bad faith claims.

Date of Decision: March 31, 2017

Caivano v. Allstate Ins. Co., No. 15-5791, 2017 U.S. Dist. LEXIS 50490 (D.N.J. Mar. 31, 2017) (Simandle, J.)

FEBRUARY 2017 BAD FAITH CASES: USE OF UMBRELLA TRADE NAME DOES NOT DEMONSTRATE BAD FAITH (New Jersey Federal)

Published on February 1, 2017 in NJ - General Bad Faith and Litigation Issues and NJ - Procedural Issues. Closed
Print Friendly

The insureds move to remand this New Jersey federal action back to Superior Court. The insureds argued at one point that the insurer defendants, “anticipating a lawsuit, acted in bad faith, using the name ‘Chubb Insurance’ in correspondence to mislead them into naming a defendant that is not a legal entity.” The court stated that: “An entity’s use of an umbrella trade or business name that differs from its legal name does not in itself demonstrate bad faith.”

Date of Decision: December 9, 2016

Fischer v. Chubb Ins., No. 16-8220, 2016 U.S. Dist. LEXIS 170590 (D.N.J. Dec. 9, 2016) (McNulty, J.)

NOVEMBER 2016 BAD FAITH CASES: NO BAD FAITH WHERE HIGHER UM/UIM LIMITS ALLEGEDLY NOT EXPRESSLY OFFERED AT THE TIME LIABILITY LIMITS WERE INCREASED (Third Circuit, New Jersey)

Published on November 22, 2016 in NJ - General Bad Faith and Litigation Issues. Closed
Print Friendly

The insured alleged a breached the implied covenant of good faith and fair dealing in this UM/UIM context. There were 4 putative bases pleaded, all of which the Third Circuit rejected in affirming dismissal of this claim: failure to offer the insureds the option of higher available UM/UIM coverage limits when the insureds increased their coverage limits (ii) using unlicensed agents to sell insurance with the increased coverage limits, and so using agents unaware of their obligation to so advise insureds of higher UM/UIM limits (iii) failing to provide CSFs and Buyer’s guides after insureds purchased increased liability limits, and (iv) denying the UM/UIM claims based on the reduced limits.

The insured had to show that the insurer either “act[ed] in bad faith or engage[d] in some other form of inequitable conduct in the performance of a contractual obligation.” The covenant of good faith and fair requires that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” The covenant is “an independent duty and may be breached even where there is no breach of the contract’s express terms”.

The insured failed to allege with sufficient particularity how the insurer “fail[ed] to act in good faith by offering UM/UIM coverage limits up to the increased BIL coverage limits.” The insured also failed to sufficiently allege how insurer engaged in “inequitable conduct in the performance of [their] contractual obligation” to her. Thus, the dismissal was affirmed.

Date of Decision: October 31, 2016

Ensey v. GEICO, No. 15-1933, 2016 U.S. App. LEXIS 19562 (3d Cir. Oct. 31, 2016) (Ambro, McKee, Scirica, JJ.)

SEPTEMBER 2016 BAD FAITH CASES: MERE MISTAKES ARE NOT BAD FAITH (New Jersey Federal)

Published on September 4, 2016 in NJ - Claims Handling Procedures and NJ - General Bad Faith and Litigation Issues. Closed
Print Friendly

The federal district court observed that mere mistakes cannot be the basis for bad faith claims under New Jersey law. Opposing the insurer’s summary judgment motion, the insureds asserted 4 bases for bad faith. Of the four grounds asserted for bad faith, two were unsupported and on the other two, the plaintiffs themselves conceded were mistakes by the insurer. The mistakes included an incorrect date that was corrected; and a statement that the policy lapsed, but the policy was not treated as lapsed.

Date of Decision: July 12, 2016

Andrews v. Merchs. Mut. Ins. Co., 2016 U.S. Dist. LEXIS 89997 (D.N.J. July 12, 2016) (Rodriguez, J.)

Waterfall

Photo by M. M. Ginsberg

MAY 2016 BAD FAITH CASES: NO PRIVATE RIGHT OF ACTION UNDER NEW JERSEY’S INSURANCE TRADE PRACTICES ACT OR UNFAIR CLAIMS SETTLEMENT PRACTICE ACT (New Jersey Federal)

Published on May 8, 2016 in NJ - General Bad Faith and Litigation Issues. Closed
Print Friendly

In GEICO v. Korn, the court addressed what it called a muddled claim that appeared to be for bad faith. The claim referenced both New Jersey’s Insurance Trade Practices Act and Unfair Claims Settlement Practices Act, neither of which allow for a private cause of action. The insured also pleaded that the insured had “failed to act in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become perfectly clear.” The court dismissed the insureds’ claim without prejudice, and with leave to amend.

Date of Decision: April 21, 2016

GEICO v. Korn, 2016 U.S. Dist. LEXIS 53210 (D.N.J. Apr. 21, 2016) (Bumb, J.)

APRIL 2016 BAD FAITH CASES: (1) NO CONSUMER FRAUD ACT CLAIM FOR DENIAL OF BENEFITS; (2) NEGLIGENCE CLAIM UNDER UNFAIR CLAIMS SETTLEMENT PRACTICES ACT NOT ASSIGNABLE OR ACTIONABLE; AND (3) NO BAD FAITH CLAIM WHERE QUESTION WHETHER PROPERTY DAMAGE FELL WITHIN POLICY PERIOD WAS FAIRLY DEBATABLE (New Jersey Federal)

Published on April 1, 2016 in NJ - General Bad Faith and Litigation Issues. Closed
Print Friendly

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.)