Archive for the 'NJ - No coverage due, no bad faith' Category
The insureds purchased a homeowners policy that provided up to $10,000 in coverage for mold-related damage. The policy did not cover water damage. The insureds’ roof was damaged, causing a leak in the master bedroom. The insurer paid this claim. Shortly thereafter, Hurricane Sandy made landfall, and the insured testified the house was damaged from subsurface water “[coming] up” from the crawl space beneath the house.
Just before Hurricane Sandy hit, the insureds noticed mold damage in the master bathroom and closet. The insureds engaged air quality specialists to test the rest of the home, who found mold in the crawl space beneath the house. On medical and engineering advice, the insureds demolished and rebuilt the home. They submitted a $282,000 claim for renovations. The insurer paid $12,158 for the roof repairs and various other items listed in the engineering report, and the $10,000 policy limit for mold.
The insured sued for breach of contract and breach of the duty of good faith and fair dealing. The trial court granted summary judgment to the insurer, finding the insurer fully performed under the policy, and insufficient evidence to support a claim of bad faith.
The Third Circuit likewise ruled for the insurer. The insurer paid the policy limit for mold damage, and the insureds’ own experts reported the other damages resulted from the water in the crawl space, and water damage was excluded under the policy.
As to the bad faith claim, the Third Circuit stated, “‘[a]n insurance company owes a duty of good faith to its insured in processing a first-party claim,’ but no liability arises if a decision concerning a claim is ‘fairly debatable.’” Because the insureds were unable to prevail on the breach of contract claim, they could not prevail on a bad faith claim for refusal to pay benefits owed under the policy. As such, the Third Circuit affirmed the District Court.
Date of Decision: January 10, 2018
Andrews v. Merchants Mutual Insurance Co., No. 17-1413, 2018 U.S. App. LEXIS 637 (3d Cir. Jan. 10, 2018) (Fuentes, Shwartz, Vanaskie, JJ.)
The insureds owned commercial property damaged due to storm-related incidents. They retained an outside adjusting firm. After the adjusting firm first notified the insurer of the claims, the insurer sent its own adjusters to investigate the property claims and to make a coverage decision. Upon investigation, the insurer concluded the commercial property had not been open to the public for three years, and that the insureds had apparently demolished whole portions of the building. The insurer retained legal counsel to analyze the coverage issues. It ultimately denied coverage.
The insured sued for breach of contract and bad faith. The insurer moved to sever and stay the bad faith claim. The Court stated that the practice of severing the claims “is appropriate where the claims . . . are ‘discrete and separate’ in that one claim is ‘capable of resolution despite the outcome of the other claim.” In making its determination, the Court considers four factors: “(1) whether the issues sought to be tried separately are significantly different from one another; (2) whether the separable issues require the testimony of different witnesses and different documentary proof; (3) whether the party opposing the severance will be prejudiced if it is granted; and (4) whether the party requesting severance will be prejudiced if it is not granted.”
-
First, the Court found that the breach of contract claim concerns coverage under the policy, and that the bad faith claim deals with the insurer’s “general claims handling procedures, its claims conduct in this case, and its knowledge and state of mind about the grounds for denial of coverage.” As such, the Court held that this factor weighs in favor of bifurcation.
-
Next, the Court ruled “the contract and bad faith claims require the testimony of different witnesses and different documentary proof.” Thus, it held that this factor also weighs in favor of bifurcation.
-
The Court then found the insured would not suffer prejudice if the two claims are severed, reasoning that “relatively little discovery has been exchanged and it is therefore uncertain whether the initial coverage claim will be denied. If so, the bad faith claims would similarly fail.” The Court also stated that should the insureds prevail on the breach of contract claim, they could then pursue their bad faith claim.
-
Lastly, the Court held that the insurer would be prejudiced if it were forced to litigate the bad faith claim coextensively, because permitting discovery on the bad faith claim, prior to the resolution of the breach of contract claim would be premature.
In conclusion, all four factors weighed in favor of bifurcation and the Court granted the insurer’s motion to sever and stay the bad faith claim.
Date of Decision: September 26, 2017
Legends Mgmt. Co. v. Affiliated FM Ins., No. 16-CV-1608, 2017 U.S. Dist. LEXIS 158898 (D.N.J. Sept. 26, 2017) (Mannion, J.)
The insured’s property included a bulk liquid storage facility, and operated a propane gas distribution center containing six large liquid propane storage tanks. The policy included a variety of standard exclusions. Five months after the policy issued, the insured noticed sinkholes at the base of its propane tanks. The insured filed a property loss notice with the insurer, and retained an engineering firm to conduct a site inspection.
The engineering firm concluded that the sinkhole opened up after a period of excessive rainfall. The insurer began investigating the claim under a full reservation of its rights. It ultimately denied coverage pursuant to the policy’s “Cost of Excavation,” “Land and Water,” and “Earth Movement Exclusions”. However, the insurer invited the insured to submit further documentation that could alter its denial of coverage. After some back-and-forth, the insured ultimately brought suit for breach of contract and bad faith. The insurer moved for summary judgment on both claims.
The Court granted the insurer’s motion to dismiss the breach of contract claim for two reasons. First, the insured failed to meet its burden of establishing that the actual property covered under the policy was damaged. Second, the Court ruled that the policy’s flood exclusion precluded coverage. The flood exclusion excluded coverage for damaged caused by “surface water,” and the insured’s own engineering firm confirmed that rainfall/surface water contributed to the opening of the sinkholes.
As to the bad faith claim, the Court observed the heightened evidentiary standard “to provide evidence so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the [insurer] acted in bad faith.” The Court ruled that the undisputed facts showed that the insurer had a reasonable basis for its coverage denial, and that the insured failed to produce evidence that a reasonable jury could use to find bad faith by a clear and convincing standard.
The Court granted the insurer’s motion for summary judgment in its entirety.
Date of Decision: September 18, 2017
The insured received medical treatment from several providers after sustaining injuries in a May 2013 auto accident. The policy provided up to $15,000 in PIP benefits per accident. The insurer denied a request for an $8,527.07 payment to Hackensack Surgery Center (“HSC”), as subrogee of the insured, because it determined that the treatment was not medically necessary. HSC then filed a demand for arbitration.
Prior to the arbitration hearing, the insurer advised that only a balance of $2,132.74 remained in available PIP benefits due to prior payments totaling $12,867.26. During the pendency of HSC’s claim, Thermocare Plus, LLC (“Thermocare”), another medical provider of the insured, utilized the insurer’s internal appeals process to seek a reversal of insurer’s earlier denial of its bill totaling $2,032.74. On August 21, 2015, the insurer advised Thermocare that its previous denial was overturned, and that it would process Thermocare’s bill.
On the same day, the insurer received the HSC arbitration award that the HSC treatment was medically necessary, and awarded $8,438.58, plus interest, attorney’s fees, and costs to HSC. However, the arbitration panel stated that the award “was subject to ‘the policy limits for medical payments, still available to [HSC] at the time of the award.’”
Seven days later, the insured paid Thermocare $2,032.74. The insurer then complied with the arbitration award, and processed a payment of $100 to HSC, which reflected the amount of remaining PIP benefits. HSC then filed an order to show cause, arguing that its payment had priority. HSC sought an additional payment of $2,036.99 and attorney’s fees and costs.
The trial judge ordered the insurer to pay HSC an additional $2,036.99, which represented the amount remaining on the arbitration award. The judge reasoned that the insurer did not “engage[] in any sort of bad faith. . .”, but the insurer’s payment decisions did not achieve an equitable outcome. The trial judge denied HSC’s request for attorney’s fees.
On appeal, the insurer argued that the trial judge’s decision ran counter to existing state law because it had already exhausted the PIP policy limits. Furthermore, the insurer argued that it had 35 days to challenge the arbitration award, and thus was under no obligation to comply with the award because it already approved Thermocare’s payment.
In articulating the collateral source rule, which governs the payment of PIP benefits under New Jersey law, the Appellate Division stated that the insurer is required “to pay PIP benefits immediately upon [a] determination that the loss is due and owing, without consideration that the loss may also be covered by another source. . . .”
The Appellate Division held that HSC is entitled to the additional $2,036.99 payment, because HSC’s bill predated Thermocare’s; HSC rendered services prior to Thermocare; the insurer received HSC’s bill prior to Thermocare’s; and because Thermocare’s bill remained unpaid as of the date of the arbitration award. Citing the “broad discretion” given to trial judges when deciding whether to award attorney’s fees, and finding no abuse of discretion, the Appellate Division declined to overrule the judge’s decision to deny HSC its requested attorney’s fees and costs.
Date of Decision: September 5, 2017
Hackensack Surgery Ctr. V. Allstate Ins. Co., No. A-3896-15T3, 2017 N.J. Super. Unpub. LEXIS 2200 (N.J. App. Div. Sept. 5, 2017) (Reisner and Sumners, JJ.)
In this New Jersey appellate case, after finding for the insurer on coverage, the court found no evidence of bad faith. An insured “’must establish the merits of his or her claim for benefits. If there is a valid question of coverage, i.e., the claim is “fairly debatable,” the insurer bears no liability for bad faith.’” In this case, the insurer denied claims above a specific sum consistent with the policy’s terms and conditions. For this reason, the court concluded that there was “no evidence of bad faith on behalf of defendant.”
Date of Decision: May 3, 2017
Schultz Furriers, Inc. v. Travelers Cas. Ins. Co. of Am., NO. A-0170-15T1, 2017 N.J. Super. Unpub. LEXIS 1072 (App.Div. May 3, 2017) (Fasciale, Sapp-Peterson, Yannotti, JJ.)
This case involved a denial of coverage on the basis that the insured failed to get his car physically inspected after purchase. The court affirmed a grant of summary judgment on the coverage claim, and on the bad faith claim.
As to the bad faith claim, an “insured who alleges bad faith by the insurer must establish the merits of his or her claim for benefits. If there is a valid question of coverage, i.e., the claim is ‘fairly debatable,’ the insurer bears no liability for bad faith.” The court found the claim at issue was “fairly debatable”. The insurer was entitled to deny the claim outright. It had “complied with all notice and suspension procedures provided in the regulations. It did not have discretion to provide coverage when plaintiff did not comply and have the vehicle inspected.”
Date of Decision: March 14, 2017
Gibbins v. Geico, DOCKET NO. A-1035-15T3, 2017 N.J. Super. Unpub. LEXIS 632 (App. Div. Feb. 28, 2017) (Fasciale and Gilson, JJ.)
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
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.)
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.)
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
