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

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.)