Archive for the 'NJ - Settlement related issues' Category
This case addresses a wide array of New Jersey bad faith issues. The underlying facts involve disputed coverage and defense obligations in a suit against the insured based on the Telephone Consumer Protection Act (TCPA).
The insurer withdrew its defense based on trial court finding no coverage, which was later reversed on appeal
The insurer had been defending under a reservation of rights, but withdrew the defense when the trial court ruled no coverage was due. The underlying case proceeded. A $19 million judgment was entered on an unopposed summary judgment motion against the insured.
Subsequently, the appellate division reversed the trial court’s coverage ruling, and remanded to explore further factual issues before determining the coverage question.
The insured assigned it claims to the underlying plaintiffs, who counterclaimed for bad faith and failure to settle within policy limits, and who also intervened in the coverage dispute again alleging bad faith. Before reaching a jury in the declaratory judgment action, the court dismissed the bad faith claims “except for the count in its counterclaim that alleged [the insurer] acted in bad faith by failing to settle the underlying action at a time when it controlled that litigation and could have settled the claim within … policy limits.”
The jury found for the insured on coverage, and the court further awarded attorney’s fees under R. 4:42-9(a)(6). The total award exceeded $5 million.
On appeal, the court went through the relevant policy language and exclusions in great detail. Among other issues addressed, it found the verdict should have been reversed on the issue of what constituted “property damage,” with a single exception, that was also the sole actionable occurrence. Thus, the judgment was significantly undermined on appeal.
Bad faith issues
The court then addressed a variety of bad faith issues. This was triggered by the insurer’s late effort on the eve of trial to renew an attempt to dismiss the bad faith failure to settle claims for failure to bring forth expert testimony to support the failure to settle claim.
The insured “objected to the untimeliness of the motion and requested an adjournment if the court was inclined to dismiss for lack of an expert.” The judge found that there was no actionable bad faith claim under the “fairly debatable standard”, and that the insured had failed to negotiate a reasonable settlement once the defense was withdrawn.
“Alternatively, the judge found that any assessment of [the insurer’s] conduct in this complex case was beyond the ken of the average juror and dismissed the bad faith failure to settle claim because [the insured] had no expert. Noting the case management order required [the insured] to furnish an expert report nearly one year earlier, she denied any adjournment and dismissed the bad faith failure to settle counterclaim.”
The Appellate Division agreed an expert was necessary, but reversed the trial court’s ruling. It found that the motion in limine was functionally a summary judgment motion that was untimely and prejudicial.
The Court then addressed the nature of New Jersey bad faith claims, and the standards applicable in first and third party contexts.
Standards for failure to settle within policy limits
The failure to settle a third party claim within policy limits is governed by the New Jersey Supreme Court’s Rova Farms decision. Because the insurer controls the settlement, it has a fiduciary obligation to exercise good faith in considering settlement. The decision not to settle within policy limits “must be a thoroughly honest, intelligent and objective” decision.
“It must be a realistic one when tested by the necessarily assumed expertise of the company. This expertise must be applied, in a given case, to a consideration of all the factors bearing upon the advisability of a settlement for the protection of the insured. While the view of the carrier or its attorney as to liability is one important factor, a good faith evaluation requires more. It includes consideration of the anticipated range of a verdict, should it be adverse; the strengths and weaknesses of all of the evidence to be presented on either side so far as known; the history of the particular geographic area in cases of similar nature; and the relative appearance, persuasiveness, and likely appeal of the claimant, the insured, and the witnesses at trial.”
Expert needed on bad faith claim to assist jury
Rejecting a settlement by itself does not constitute bad faith. There must be “an assessment of the reasonableness of an insurer’s settlement negotiations in the underlying action” and this assessment “will likely hinge upon the credibility of fact witnesses, as well as expert testimony as to what went wrong on the settlement front and why.”
In this case, the factors were varied and complicated, and expert testimony was necessary to assist the jury in making a bad faith decision under Rova Farms and its progeny. Thus, the trial court was right on the issue that an expert was needed.
Some advice of how to handle late raised issues that will be allowed to go to trial, and the ability to sever bad faith claims
In reversing the dismissal, the appellate judges gave some practical advice to trial courts under these circumstances. Either the trial court have been adjourned to allow time to obtain the expert testimony and response, or the bad faith claim could have been severed and tried after the coverage case. The case was remanded for the trial judge to address the bad faith claim.
Some advice of using “fairly debatable” standard (Pickett) in failure to settle cases (Rova Farms)
The appellate judges then stated they would not address the issue of whether the trial judge’s fairly debatable ruling as a basis for dismissal was proper. The court then went on to discuss the interplay of Rova Farms and the Pickett fairly debatable standard at some length. It observed that the fairly debatable standard arose in the first party context, and that Rova Farms addressed failure to settle third party claims.
The Appellate Division had previously ruled that the fiduciary duty implicated in the third party failure to settle context does not exist in the first party context. However, another Appellate Division panel had ruled that the fairly debatable standard did apply in third party coverage cases (as differentiated from failure to settle cases). Thus, “[n]o reported New Jersey decision has addressed whether Pickett‘s ‘reasonably debatable’ standard applies to an insured’s bad faith refusal to settle claim.”
The Third Circuit has addressed the issue, and found that the Rova Farms’ standards, rather than the Pickett fairly debatable standards should control third party failure to settle claims.
“Whether [the insured] would be held liable for [the third-party’s] injuries was “fairly debatable,” but in the context of a third-party claim with a possibility of an excess verdict, Pickett supplies only part of the equation. The “fairly debatable” standard is analogous to the probability liability will attach in a third-party claim, but it does not consider the likelihood of an excess verdict.
A third-party claim that may exceed the policy limit creates a conflict of interest in that the limit can embolden the insurer to contest liability while the insured is indifferent to any settlement within the limit. This conflict is not implicated when the insured is a first-party beneficiary, where the claimant and the insurer are in an adversarial posture and the possibility of an excess verdict is absent.
Rova Farms, not Pickett, protects insureds who are relegated to the sidelines in third-party litigation from the danger that insurers will not internalize the full expected value of a claim due to a policy cap.”
The present panel chose to decide the issue, though (no pun intended), it acknowledged “the appeal of the Third Circuit’s rationale. An insurer who, while exclusively controlling the litigation, acts in bad faith and refuses to settle a third-party claim within its insured’s policy limits exposes the insured to personal liability. The situation therefore presents different concerns from those posed by a suit where the insurer acts in bad faith and wrongfully denies contractual benefits to the insured under its policy of insurance.”
Failure to negotiate a settlement after coverage denial may not preclude a later bad faith claim
Finally, the panel rejected the trial court’s finding that the insured’s failure to negotiate a settlement once coverage was denied precluded the possibility of a later bad faith claim.
The court looked generally to case law concerning insured’s conduct in settling, or not settling, cases where the insurer has declined involvement on the basis it does not believe coverage is due. Insured are not required as a matter of law to settle at their own expense. Rather, “under certain circumstances, insureds could do so without violating policy terms where there has been a breach by the insurer.”
In sum, the panel reversed the bad faith claim dismissal and remanded the matter to proceed on the bad faith claim.
Date of Decision: July 31, 2018
Penn National Insurance Co. v. Group C Communications, Inc., New Jersey Superior Court Appellate Division, DOCKET NOS. A-0754-15T1 A-0808-15T1, 2018 N.J. Super. Unpub. LEXIS 1833 (N.J. App. Div. July 31, 2018) (O’Connor, Messano and Vernoia, JJ.)
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 appeal stems from an underlying UIM action that involved a 2012 automobile accident. The insured settled with the underinsured-tortfeasor for $15,000 and filed a UIM claim with the insurer. After settlement negotiations failed, the insured filed suit against the insurer, and each party then filed an offer of judgment. The insurer offered $30,000 and the insured’s offer of judgment amounted to $85,000. Policy limits were $100,000.
The jury ultimately returned a verdict for $375,000. The trial court entered judgment on the verdict for $360,000 plus interest after subtracting the initial $15,000 settlement without prejudice to either party’s right to file a post-judgment motion for molding or other relief. The insurer filed a motion to mold the verdict to the policy limits. The insured filed a motion to amend the complaint to add a bad faith claim and for counsel fees.
The trial court denied the insured’s motion to amend, but allowed her to file a new complaint asserting a bad faith claim. As to the insurer’s motion to mold to the $100,000 policy limit, the trial court stated that it had discretion not to mold the verdict because the insurer engaged in “scorched earth” settlement practices. Lastly, the trial court awarded the insured counsel fees on the non-molded verdict, per the offer of judgment rule.
On appeal, the Appellate Division ruled that the trial court erred in declining to mold the verdict. The Court primarily relied upon case law that commands molding the verdict, because “UIM cases are first-party contract claims against insurers, but they are generally tried as if they were third-party tort actions with the insurer standing in for the uninsured or underinsured tortfeasor . . . . Thus, courts have appropriately recognized the need to mold jury verdicts in these cases to reflect the rights and duties of the parties under the insurance policy.”
The Appellate Division added that the trial court erred in molding the verdict based upon the insurer’s alleged bad faith, when the issue of bad faith had never been pleaded or adjudicated. It rejected the idea of deciding the bad faith issue without giving both parties the opportunity to litigate the issue.
The Appellate Division did affirm the insured’s right to counsel fees under the offer of judgment rule, however, the sum awarded was in error because the fee application submitted to the trial court was deficient. The Appellate Division stated that “a fee application must ‘be supported by an affidavit of services addressing the factors enumerated by RPC 1.5(a)’ and must include a specific enumeration of the services performed and the hours spent.”
The Appellate Division remanded the action back to the trial court for the various reasons articulated.
Date of Decision: December 14, 2017
Seamon v. State Farm Ins. Co., DOCKET NO. A-0293-16T3, 2017 N.J. Super. Unpub. LEXIS 3069 (New Jersey Appellate Division Dec. 14, 2017) (Reisner and Gilson, JJ.)
This opinion is the culmination of over a decade of litigation, originating in an April 2000 automobile accident. Nancy Palmer, as assignee of the insured-tortfeasor, brought suit against the tortfeasor’s insurer after a three-day trial in August 2004, which resulted in a $460,000 award in Palmer’s favor. The insured-tortfeasor had a $300,000 policy limit.
Prior to filing the underlying lawsuit, Palmer’s attorney made a demand to the insurer for $40,000. The insurer responded that it was not going to engage in any settlement talks, because it did not believe Palmer could meet her burden under New Jersey’s Automobile Insurance Cost Reduction Act, which required a heightened burden of proof for Palmer to recover non-economic damages. After filing the underlying lawsuit, Palmer reduced her demand amount, and an arbitrator entered a non-binding award of $22,500. The insurer rejected this arbitration award, and demanded a trial de novo, which led to the $460,000 verdict.
The insurer unsuccessfully appealed the $460,000 result, and ultimately paid Palmer. Thereafter, the insured-tortfeasor assigned Palmer the right to bring a bad faith claim against the insurer.
After an August 2015 non-jury trial, the trial court ruled that Palmer failed to meet her burden to show that the insurer acted in bad faith, either before the jury verdict or thereafter. Palmer appealed the trial court’s decision, and argued (1) the insurer’s claims handling activities violated its duty to exercise due care in protecting its insured; (2) the insurer failed to employ proper expertise in both investigating and negotiating settlement of the claim; (3) the insurer violated the law in appealing the August 2004 verdict without a reasonable probability of reversal; (4) the insurer failed to put the insured’s interests first; (5) the insurer failed to pursue all available settlement avenues; and (6) the trial judge misinterpreted the law and the evidence.
The Appellate Division disagreed, and affirmed the trial court’s decision. The Court ruled that the trial judge was owed considerable deference in “her critical finding that [the insurer] did convey an offer to settle the case for the policy limits while the appeal of the jury verdict was still pending.” Furthermore, the jury verdict in excess of the policy limits was neither reasonably anticipated nor reflective of Palmer’s own settlement demands. Lastly, the Appellate Division wrote, “we accept the judge’s finding that the insurer’s delay in making the post-verdict offer was neither reflective of bad faith nor that it produced appreciable prejudice to . . . the insured, beyond the happenstance of the excess verdict itself.”
Date of Decision: December 14, 2017
Palmer v. New Jersey Manufacturers Ins. Co., DOCKET NO. A-0854-15T3, 2017 N.J. Super. Unpub. LEXIS 3060 (New Jersey Appellate Division Dec. 14, 2017) (Sabatino, Ostrer, and Whipple, JJ.)
This case provides an exposition of the duty of good faith and fair dealing under Rova Farms, in the context of settlement negotiations where the potential loss exceeds policy limits, and the matter settled well above policy limits.
The insured rear-ended another vehicle seriously injuring that vehicle’s four passengers, who later brought suit against him. The insured’s policy limits provided $25,000 per person or $50,000 per accident, but the documented value of the injury claims alleged far exceeded those limits. The personal injury action eventually settled, with a consent judgment against the insured for $1.155 million dollars.
Prior to that settlement, the personal injury plaintiffs’ counsel made a policy limits settlement demand on the tortfeasor’s insurer. Eleven months later, and after an arbitration award against the insured for $1.3 million, the insurer belatedly tendered its policy limits. Plaintiffs’ counsel rejected this offer, and counteroffered to settle for the policy limits, adding a demand for an assignment of the insured’s breach of good faith and fair dealing against the insurer. The insurer rejected this counteroffer.
The personal injury plaintiffs and the insured subsequently settled by agreeing to a consent judgment in the amount of $1.155 million, with a further agreement that the insured would pursue a bad faith claim against its insurer.
As agreed, the insured brought a bad faith complaint. He alleged the insurer failed to respond to the settlement offer; failed to seek an extension of time to reply to the offer; and that the insurer negligently or intentionally failed to advise the insured of the settlement offer that was within the available policy limits. The insurer sought to dismiss the claim, and the trial court denied that motion.
On appeal, the Appellate Division stated that insurers have “a positive fiduciary duty to take the initiative and attempt to negotiate a settlement within the policy coverage[,]” and “[a]n insurer’s fiduciary duty requires it ‘to make an honest, intelligent and good faith evaluation of the case for settlement purposes and to weigh the probabilities in a fair manner.’”
For purposes of a motion to dismiss, the appellate court would not rule on the issue of a putative collusive settlement, but recited the rule that an insurer could be bound to pay on a settlement sum that was reasonable and made in good faith.
It held the bad faith complaint alleged sufficient facts and circumstances to make out a bad faith claim, by alleging that the insurer did not look to the insured’s interests and take the initiative in attempting to negotiate a settlement offer for its insured within the policy limits.
In dicta, the appellate court stated that there were potential issues on the collusion allegations that the trial court may have to allow the insurer to explore. “We add that Insurance Council’s [sic] assertion the settlement was a product of collusion and bad faith raises some interesting issues. One interpretation of the settlement agreement is that the personal injury plaintiffs will file warrants of satisfaction immediately upon conclusion of this bad faith action, regardless of the outcome. That construction suggests that if plaintiffs recover nothing under the bad faith action, the personal injury plaintiffs will collect nothing further… If that is so, then there is a significant question as to whether [the insured] will ever have to pay a sum in excess of the policy limits. Resolution of that issue may have a bearing on the viability of plaintiffs’ bad faith cause of action. We express no opinion as to that issue. The trial court may decide to conduct discovery and entertain dispositive motions on that issue before permitting the parties to engage in other extensive discovery. We leave that matter to the trial court’s sound discretion.”
Date of Decision: July 20, 2017
Ellington v. Cure Auto Ins., No. A-2470-16T4, 2017 N.J. Super. Unpub. LEXIS 1831 (N.J. Ct. App. July 20, 2017) (Currier, Geiger, Nugent, JJ.) (Unpublished)
An interesting New Jersey 2016 trial court opinion on settling for less than all insureds.
As the court framed the issue: Did the insurer have “the discretion under the policy to settle the claims against [one insured] and thereby exhaust the policy without also obtaining a release from the Plaintiff of the claims against the [other insureds?]” The party resisting the partial settlement was a different insurer for these other insureds, which brought suit to stop the partial settlement.
The settling insurer wanting brought its own arguments to the table that it did have “discretion to exhaust its policy limit in good faith to settle the underlying claims against one of its insureds even if that settlement does not extinguish the claims against its other insureds….”
The opposing carrier countered “that any proposed settlement on behalf of only one of [the] insureds would be unreasonable under the circumstances and would constitute bad faith.” The court found in favor of discretionary partial settlement, holding that the insurer “has discretion to exhaust its policy limit in good faith to settle the underlying claims against one of its insureds even if that settlement does not extinguish the claims against its other insureds….”
The court recognized that “an insurance company owes its insured a duty of good faith that applies when, as here, the insurer reserves control of settlement negotiations….” It examined both New Jersey and other states’ case law on bad faith settlements.
This included a Pennsylvania Commonwealth Court decision standing for the proposition that an “insurer should not be precluded from accepting reasonable settlement offer for fewer than all insureds when no evidence establishing that the proposed settlements are unreasonable” and finding “that [an] insurer may be subject to bad faith action if evidence of unreasonable settlement.” Citing relevant New Jersey case law, the court emphasized a carrier’s “broad discretion to evaluate and settle claims in good faith as they see fit.”
The court considered it significant that a partial settlement would not leave the other insureds bare of any defense or coverage; rather, two other carriers provided potential defense and indemnification for them.
The court found “no impediment to the [insurer’s] exhaustion of its policy to settle the claims against [one insured] without also obtaining a release of the claims against the [other insureds]. The plain language of the policy affords the carrier discretion to investigate occurrences and settle claims as they see fit, so long as the decision is made in good faith.”
Moreover, as stated above, “the two additional insureds in this case each have their own primary liability policies.” Further, “one of the additional insureds … [had] rebuffed Plaintiff’s request to make a meaningful contribution to a global settlement. …. [H]aving failed despite extensive efforts to achieve a global settlement, the carrier has decided to effect a partial settlement to cap the exposure of [the settling insured].
Moreover, in this case, given the amount of coverage both primary and excess available to the [other insureds], the prospect that the settlement would be found in bad faith are in the court’s judgment remote.”
Thus, summary judgment was granted to the settling insurer.
Date of Decision: November 18, 2016
National Surety Corp. v. First Specialty Insurance Corp., No. L-3983-16, 2016 N.J. Super. Unpub. LEXIS 2570 (N.J. L. Div. Essex County Nov. 18, 2016) (Mitterhoff, J.)
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.)
In this case, the insured was an insurer itself (the plaintiff), which was in turn insured under a Trustees Errors and Omissions Liability Insurance for Self Insured Funds by the bad faith defendant insurer (defendant). The plaintiff had settled a matter for its insured above its policy limits, expecting contribution from excess insurers. The excess insurers asserted that they had not received proper notice from plaintiff that the claim could exceed policy limits, and denied any duty to pay toward the settlement.
Without admitting any actual error, the plaintiff sought coverage from defendant for the sum over its policy limits, should that exposure remain due to plaintiff’s failure to give notice to the excess insurers. The defendant denied coverage, asserting that there was no “claim” against the plaintiff as defined in the policy because there was no demand made or threat of litigation against the plaintiff. The defendant had asked that the plaintiff keep it advised of any such developments.
The court found that the policy language was unambiguous and the defendant’s basis for denying coverage was “fairly debatable”. Thus, there could be no bad faith claims, and such claims were dismissed.
Date of Decision: May 11, 2017
The insured made animal health products, and filed a complaint seeking a declaratory judgment that its insurer was required to provide coverage for economic losses suffered by three of the insured’s customers. The customers raised chickens for human consumption, and alleged that the growth of the chickens were stunted due to the chickens ingesting a drug made by the insured intended to control a common intestinal disease. The insured also alleged that the insurer had breached the implied covenant of good faith and fair dealing. Both parties moved for summary judgment.
In granting summary judgment in favor of the insurer, the trial court found that there was no coverage and that the insured waived its right to indemnification by settling customer claims without the insurer’s consent. The insured appealed.
On appeal, the Appellate Division reversed, and concluded that the losses associated with the growth-stunting effects of the insured’s product did constitute “occurrences” and “property damage” within the meaning of the provisions in the policy providing coverage. The Court reasoned that the pivotal question under the insuring clauses was whether the stunted growth of the chickens allegedly caused by the insured’s product was an “accident”, and therefore an “occurrence”. The Court found that the stunted growth was a covered occurrence, because it was not foreseeable that the additive consumed by the chickens would lead to harmful side effects.
The Appellate Division rejected the insurer’s contention that any coverage it may owe to the insured for the payments to the three customers was nullified because the insured settled with the customers without the insurer’s consent. The insurer argued that the insured did not act in good faith when it settled with one of its customers because “it did so before either the amount of damages or its liability to [the customer], if any, was even remotely clear.”
However, the Court found that the insured did not act in bad faith when it settled with its customer, as two and a half months had passed after the insured submitted the claim to the insurer and had yet to receive a response. The Court reasoned that in this situation, the insured “made a reasonable business decision to settle, to ensure continued relations with an important customer and to avoid the risks and costs of litigation.”
Date of Decision: July 14, 2016
Phibro Animal Health Corp. v. Nat’l Union Fire Ins. Co., No. A-5589-13T3, 2016 N.J. Super. Unpub. LEXIS 1632 (Super. Ct. App. Div. July 14, 2016) (Accurso, O’Connor, and Sabatino, JJ.)
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.)
