AUGUST 2014 BAD FAITH CASES: “CLOSING PROTECTION LETTER” ISSUED BY TITLE INSURANCE COMPANY IS AN INDEMNITY AGREEMENT, BUT DOES NOT CONSTITUTE INSURANCE FOR PURPOSES OF BAD FAITH STATUTE (Philadelphia Federal)

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In Bancorp Bank v. Lawyers Title Insurance Corp., the court had to decide whether a “closing protection letter” (CPL) was title insurance, and thus subject to the bad faith statute. Under Pennsylvania law, a closing protection letter is defined as “an agreement by a title insurance company to indemnify a lender, or in some cases a purchaser, for loss caused by a settlement agent’s fraud or dishonesty or by the agent’s failure to follow the lender’s written closing instructions.” The court, after detailed analysis and a review of national case law found: “In this case, the CPL does not protect against losses which arise from liens, encumbrances, or defects which render title unmarketable. Therefore, it did not constitute “title insurance,” as defined by Pennsylvania law. The court had earlier observed that not every indemnity agreement is an insurance agreement, and “[w]hile the CPL may be an indemnity contract, it is not an insurance policy. Because a claim of bad faith denial of insurance benefits can only arise under an insurance policy, [the insurer] cannot maintain this claim [for bad faith].”

Date of Decision: July 8, 2014

Bancorp Bank v. Lawyers Title Ins. Corp., CIVIL ACTION NO. 13-6103, 2014 U.S. Dist. LEXIS 92151 (E.D. Pa. July 8, 2014) (Slomsky, J.)

AUGUST 2014 BAD FAITH CASES: COURT OBSERVES NEARLY 15 YEARS OF PRECEDENT THAT TERLETKSY REASONABLENESS PRONG IS AN OBJECTIVE TEST WHEN EVALUATING BAD FAITH CLAIMS, NOT REQUIRING ACTUAL SHOWING THAT INSURER CONSIDERED PARTICULAR BASIS FOR REASONABLENESS OF ARGUMENT FORMING A BASIS TO DECLINE COVERAGE OR DELAY SETTLEMENT, (Middle District)

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In Bodnar v. Amco Insurance Company, without ruling on the matter, the court observed the potential issue of whether Terletsky’s “reasonableness” prong was to be evaluated objectively or subjectively.  In the seminal case of Williams v. Hartford Cas. Ins. Co., 83 F. Supp. 2d 567, 574 (E.D. Pa. 2000), the court had held that this first prong of the Terletsky bad faith test “is an objective one: that is if there is a reasonable basis for delaying resolution of a claim, even if it is clear that the insurer did not rely on that reason, there cannot, as a matter of law be bad faith.” The Bodnar court further observed that, with only slight dissent, this reasoning has been almost universally followed over the ensuring 14½ years by Pennsylvania’s district courts.  Still, the court was not faced with the issue of deciding whether it needed to apply Williams, and thus would not say at this time that it was controlling law.

Date of Decision:  July 11, 2014

Bodnar v. Amco Ins. Co., 3:12-CV-01337, 2014 U.S. Dist. LEXIS 94931 (M.D. Pa. July 11, 2014) (Mariani, J.)

 

AUGUST 2014 BAD FAITH CASES: FAILURE TO FOLLOW INVESTIGATIVE AND CLAIMS HANDLING STANDARDS IN INSURER’S OWN MANUAL, ADJUSTER’S FAILURE TO CONSULT WITH OTHERS AND GO BEYOND HER OWN CONCLUSIONS, AND FAILURE TO CONDUCT IME DEFEAT MOTION TO DENY BAD FAITH CLAIM (Western District)

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Mineo v. Geico involved a UIM claim.  The insured was a Vietnam War Veteran who had suffered significant combat injuries during the War.  Years later he was in a motor vehicle accident and suffered a shoulder injury.  After the accident, there was some record that he suffered a further shoulder injury.  The insurer offered a settlement sum that the insured rejected.  The insured contended that the adjuster incorrectly placed too much emphasis on the post-accident injury in devaluing the extent of his injury from the accident.

In addressing the insurer’s motion for summary judgment on the bad faith claim, the court stated that in evaluating the insured’s bad faith claim it could consider insurer’s because bad faith can include a lack of good faith investigation into facts, and failure to communicate with the claimant.  The court stated that an “insurance company … is not required to show the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.” However, it “must conduct a meaningful investigation, which may include an in-person interview, examination under oath, medical authorizations, and/or independent medical examinations.”

The adjuster relied on only one physical therapy record to justify her position that the injury was caused or aggravated by the post-accident fall. This was based on her review of the medical records, and her conclusion that no IME was needed.  The court observed she was not a doctor, knew that the insured disputed the record, and the insured’s physical therapist had explained that there was a significant left shoulder dysfunction prior to the post-accident fall.

The court cited to the insurer’s claims manual which “admonishes its adjusters to avoid drawing conclusions based on assumption or speculation,” and which “underscores the importance of completeness….”  The manual warned: “If the denial is unsound, the result may be a complaint or a lawsuit, either of which could have been avoided. Because some cases turn on very fine points, reports must be complete and accurate.”

The manual also included “a Sequence of Investigation, which ‘applies to the majority of cases,’ and sets forth that adjusters should: ‘Determine whether independent medical examinations are necessary, and if so, see your supervisor and then arrange for them. Determine whether medical peer review should be secured. If so, see your supervisor.’” The adjuster did neither, and the carrier only had an IME pursued post-litigation.

The court next addressed the issue of whether the insurer failed to meet its own standards of using a “90-Day Control” which is used to calculated and set reserves and to revisit these matters at 6, 12, and 18 months. Under the insured’s manual “Supervisors and managers review each summary and give direction, comments and instructions…. Each Summary and supervisor/manager review must be completed by the end of the month in which the 90th day falls.” The court questioned whether this was created or produced to the insured.In addressing stalled negotiations and the languishing nature of the process, the court stated that the insurer could have conducted an in-person interview, done an examination under oath, sought medical authorizations and/or an IME.  The IME eventually conducted appeared to favor the insured’s version of events; and the court cited case law for the proposition that a failure to conduct an IME could be the basis for a bad faith claim.  In this regard, the court was “mindful” of the Unfair Insurance Practices Act.

The summary judgment motion was denied.

Date of Decision:  July 15, 2014

Mineo v. Geico, Civil Action No. 12-1547, 2014 U.S. Dist. LEXIS 95686 (W.D. Pa. July 15, 2014) (Fischer, J.)

AUGUST 2014 BAD FAITH CASES: COURT DENIES INSURERS MOTIONS TO PRECLUDE EXPERT TESTIMONY, BIFURCATE THE TRIAL AND FOR SUMMARY JUDGMENT WHERE INSURER REQUIRED 3 IMES WHICH REACHED INCONSISTENT RESULTS (Middle District)

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In Monaghan v. Travelers Prop. Cas. Co. of Am., the Court, in three separate opinions, addressed the issues of the adequate burden of proof in bad faith claims, admissibility of expert testimony, and proper bifurcation of trial. The Court found that the pleading standards were met, that expert testimony should not be precluded, although the scope must be limited, and that defendants failed to meet their burden to establish that bifurcation was appropriate.

In the instant case, Plaintiff was injured in a motor vehicle accident and had an insurance policy with Defendant which included medical benefits up to $100,000 and wage loss benefits up to $15,000. The insurer required Plaintiff to undergo three separate independent medical examinations (IMEs) due to her physical injury claims. The first and second IMEs concluded that Plaintiff’s injuries were due to the accident, while only the third found that the injuries were unrelated. After the third IME, the Defendants stopped providing further benefits and, in response, Plaintiff filed a complaint alleging Breach of Contract, Bad Faith, and violation of the Unfair Trade Practice and Consumer Protection law.

In the Court’s first opinion, on a motion for summary judgment, it addressed Defendant’s claim that Plaintiff failed to provide evidence to support her contention that the discontinuance of benefits was due to self-interest or ill-will. According to Third Circuit precedent, a plaintiff must prevent clear and convincing evidence which shows that both 1) the insurer lacked a reasonable basis for denying benefits, and 2) the insurer knew or recklessly disregarded the lack of a reasonable basis. The Court held that Plaintiff had presented evidence that the third IME resulted in an opinion adverse to the first two, and that it was for a jury to determine whether the defendants engaged in bad faith by repeatedly sending Plaintiff to different doctors until one found that her injuries were unrelated to the accident.

The Court’s second opinion addressed the Defendant’s motion in limine seeking to preclude the testimony of Plaintiff’s insurance expert witness. Defendants argued that 1) the finder of fact does not need the assistance of expert testimony to comprehend the plaintiffs’ bad faith allegations, 2) that some of the expert’s opinions related to the ultimate issues of fact, and 3) the remainder of the expert’s opinions are not based on recognized insurance industry standards. The court first asked whether the factfinder would benefit from hearing the additional expert testimony and concluded that the case before it involved complicated issues of law under the insurance policy and Pennsylvania law which could potentially confuse a jury.

Specifically: “The issue of whether an expert is warranted in a bad faith action is very fact specific to each case and dependent on the complexity of the issues. Not all bad faith claims are equally complex. This case, however, appears to be one which is somewhat complex and in which the factfinder may find an expert useful. The allegations of bad faith involve medical professionals employed by defendant and their use of independent medical examiners’ opinions. It will be important for the factfinder to understand the obligations of first party medical benefit claims handlers in such situations. Moreover, plaintiff’s bad faith allegations include not only the defendants’ legal obligations under the policy, but also under Pennsylvania law.”

Next, the Court held that Defendants could object at trial to any testimony addressing the ultimate issue of fact, but refused to preclude the testimony before it was heard. Finally, in addressing the argument that Plaintiff’s expert’s opinion was not based on “insurance standards”, the Court observed the expert’s level of experience with automobile insurance, and stated that Defendants would have ample opportunity to attack the validity of the witness’s findings through cross-examination and argument at trial, and therefore, the motion in limine should be denied.

In its third opinion, the Court addressed the issue of bifurcation raised by Defendants, who sought to separate the bad faith liability trial from a trial on determining punitive damages if liability were to be found. The Defendants argued that there was significant danger of unfair prejudice once the jury heard the size of their net worth, and so bifurcation would be appropriate. Evidence presented in support of Plaintiff’s punitive damages claim included an estimate of Defendant’s net worth — $113.459 million in surplus and $412.275 million in total assets. Defendant claimed that the estimate of net worth could improperly induce the jury to find that bad faith existed, while Plaintiff contended that it was common knowledge that insurance carriers, as large corporations, had high net worth. The Court agreed with Plaintiff finding that the Court could construct a jury charge and verdict slip to eliminate prejudice such that the benefit derived from bifurcating the trial would be “vastly outweighed by the waste of time and resources inherent to holding two trials.” Therefore, Defendants’ motion to bifurcate was denied.

In sum, the Court found for plaintiff in all three opinions, denying Defendants’ motions for summary judgment, motion in limine to preclude expert testimony, and motion to bifurcate the trial.

Dates of Decision: June 16, 2014 (Opinion 1) and July 16, 2014 (Opinions 2 and 3)

Monaghan v. Travelers Prop. Cas. Co. of Am., No. 3:12cv1285, 2014 U.S. Dist. LEXIS 82368, (M.D. Pa. June 16, 2014) (Munley, J.)

Monaghan v. Travelers Prop. Cas. Co. of Am., No. 3:12cv1285, 2014 U.S. Dist. LEXIS 96524, (M.D. Pa. July 16, 2014) (Munley, J.)

Monaghan v. Travelers Prop. Cas. Co. of Am., No. 3:12cv1285, 2014 U.S. Dist. LEXIS 96525, (M.D. Pa. July 16, 2014) (Munley, J.)

AUGUST 2014 BAD FAITH CASES: COURT PERMITS DEPOSITIONS OF INSURER’S EXECUTIVE OFFICERS WHO WERE NOT DIRECTLY INVOLVED IN HANDLING A SPECIFIC CLAIM, ON THE THEORY THAT THE ACTUAL CLAIMS HANDLERS MAY BE FOLLOWING CORPORATE POLICIES OF THE INSURER THAT RESULTED IN THE ALLEGED BAD FAITH CLAIMS HANDLING (Middle District)

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In Clemens v. New York Central Mutual Fire Insurance Company, the court addressed the propriety of deposing the insurer’s corporate officers in the context of a UIM bad faith claim. The bad faith claim was the only claim remaining in the case. The insurer offered two persons as the appropriate deponents, because they were the only decision makers in the case. There was some dispute over their knowledge, and the insured wanted to depose the insurer’s President and CEO, CFO, and Casualty Manager. Because none of these people had direct involved with the particular claim, the insurer characterized this effort as harassment.

The court found the insurer’s position “overly simplistic.” While the two individuals directly involved with the claim “made all decisions regarding how and when to settle the underlying underinsured motorist claim, this begs the question whether company policies implemented by their superiors affected their decision making in a way contradictory to their insured’s interests, an obviously relevant line of inquiry in the context of a ‘bad faith’ claim.” Invoking the Federal Rules liberal discovery principles, the court found “it appropriate, for now, to authorize the depositions of” the CFO and the Casualty Manager, finding that “given their titles, [they] ought to be persons with knowledge of the policies under which” the claims handlers made their decisions. Moreover, the court left open the possibility that the insurer’s President and CEO could be deposed if the depositions of these two implicated a need to depose that individual.

Date of Decision: July 14, 2014

Clemens v. N.Y. Cent. Mut. Fire Ins. Co., Case No. 3:13-CV-2447,  2014 U.S. Dist. LEXIS 95181 (M.D. Pa. July 14, 2014) (Conaboy, J.)

AUGUST 2014 BAD FAITH CASES: THERE IS NO BAD FAITH CLAIM WHERE THE BREACH OF INSURANCE CONTRACT CLAIMS FAILED EITHER BECAUSE THERE WAS NO COVERAGE OR INSURER’S POSITION WAS REASONABLE; CONTRACT CLAIMS AGAINST THE INSURED CONTRACTOR FAILED BECAUSE THEY DO NOT CONSTITUTE AN OCCURRENCE UNDER KVAERNER OR AS "SUBCONTRACTED WORK PROPERTY DAMAGE"; OR ARE SUBJECT TO CGL EXCLUSIONS j(5) AND j(6), AND CONDUCT AT ISSUE IS OUTSIDE PRODUCTS COMPLETED OPERATION HAZARD; AND THERE IS NO DUTY TO DEFEND IN THE ABSENCE OF A SUIT (Third Circuit and Western District)

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In Allegheny Design Management v. Travelers Indemnity Company of America, the insured was a general contractor with a commercial general liability policy. It hired a subcontractor to install glass and another to clean the glass that was to go in the new construction of a store. After installation, but during the cleaning process, the glass was discovered to have significant scratching. At that time, the store had not yet opened for business. The owner made demand against the insured, but had not brought suit. The carrier declined coverage.

The trial court found that there was no “occurrence” under the Pennsylvania Supreme Court’s 2006 Kvaerner Metals case, the leading Pennsylvania case on faulty workmanship and the definition of “occurrence”. The insured contractor acknowledged that either the installer or the cleaner damaged the glass, but attempted to argue that cleaning glass was not workmanship. The court disagreed.

Next, the policy had a separate definition of “occurrence” for “subcontracted work property damage.” This came down to whether the work at issue was within the “products-completed operations hazard”. The insurer asserted the work had not been completed as the entire contract had not been completed and/or that the particular part of the job had not been put to its intended use by a third party. The court agreed with the carrier that the job had not been completed, as, at a minimum, punch list items remained open; and that the work had not been put to its intended us as the store for which the glass was installed was not opened for business until a few days later.

The trial court also found two exclusions barred coverage: j(5) — “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations” — and j(6) — “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it”.

Further, the trial court found that there could be no duty to defend in the absence of a suit against the insured, and where there was no duty to indemnify.

In addressing the insured’s bad faith claim, the trial court concluded that: “Where, as here, there is no coverage under an insurance policy, an insurer cannot be found to have acted in bad faith for denying coverage.”

On appeal, the Third Circuit affirmed. Rather than drilling into detail on the second definition of occurrence for “subcontracted work property damage,” it found that exclusion j(6) would bar coverage in any event. It agreed with the trial court that the glass had not been put to its intended use until the store for which the glass was installed actually opened for business. The court also agreed that exclusion j(5) applied, and that there was not duty to defend.

On the bad faith issue, the panel concluded there was no bad faith because the carrier “had a reasonable basis for denying coverage … based upon the ‘occurrence’ definition and the Exclusions referred to above.”

Date of Decision in District Court: September 25, 2013

Date of Decision in Third Circuit: July 11, 2014

Allegheny Design Mgmt. v. Travelers Indem. Co. of Am., No. 2:12-cv-00658-TFM, 2013 U.S. Dist. LEXIS 137748 (W.D. Pa. Sept. 25, 2013) (McVerry, J.)

Allegheny Design Mgmt. v. Travelers Indem. Co. of Am., No. 13-4263, 2014 U.S. App. LEXIS 13190 (3d Cir. July 11, 2014) (Rendell, Chagares, Jordan, JJ.)

JULY 2014 BAD FAITH CASES: INSUREDS FAILED TO PLEAD ANY FACTS TO SUPPORT A PLAUSIBLE BAD FAITH CLAIM IN UIM CASE, COURT GIVING EXAMPLES OF FAILURES IN PLEADING, BUT GIVES LEAVE TO AMEND; COURT STATES FIDUCIARY RELATIONSHIP ONLY EXISTS BETWEEN INSURED AND INSURER IN LIMITED CIRCUMSTANCES (Middle District)

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In Flynn v. Nationwide Insurance Company of America, the insured brought a UIM claim, alleging breach of contract, lost wages and bad faith, and included within his complaint allegations that the carrier breached its fiduciary duty.  The carrier moved to dismiss the bad faith claim, and to strike references to its alleged fiduciary duty.

Although the insured alleged 15 kinds of bad faith the claim was dismissed, as the Court found all of these were only legal conclusions, and were not factual allegations sufficient to make out a plausible bad faith claim.  Examples given by the court included  “failing objectively and fairly to evaluate plaintiffs’ claim,” “failing to adopt and implement reasonable standards in evaluating plaintiffs’ claim,” “failing to promptly offer reasonably payments to the plaintiffs,” and “failing to make an honest, intelligent, and objective settlement offer.” Thus, e.g., “plaintiffs claim that [the insured] engaged in ‘abusive claims handling’ without explaining what the abusive behavior was. Plaintiffs also make the perfunctory allegation that [the insurer]‘s payment offers weren’t reasonable, but does not disclose what those offers were, what his damages were, or how defendant’s offers were inadequate and unreasonable.”

The insureds argued that they established the carrier did not have a reasonable basis to deny coverage and recklessly disregarded evidence in the insured’s file; but they failed to explain what evidence was disregarded and how disregarding it was reckless. The court found that the insureds did “little more than state that they have a contract dispute, and assert that because the dispute has not yet ended in a manner favorable to them, that defendant has engaged in bad faith behavior.”

However, the Court did give the plaintiff leave to amend if it could plead a plausible bad faith claim with facts.

The Court then essentially granted the motion to strike references to fiduciary duty as the insureds did not oppose that motion; however, the Court did state that under Pennsylvania law, “a fiduciary relationship between an insurer and policyholder arises only in limited circumstances.”

Date of Decision:  July 7, 2014

Flynn v. Nationwide Ins. Co. of Am., CIVIL ACTION NO. 3:13-2993, 2014 U.S. Dist. LEXIS 91431 (M.D. Pa. July 7, 2014) (Mannion, J.)

JULY 2014 BAD FAITH CASES: NO BAD FAITH CLAIM STATED WHERE COURT FOUND NO DUTY TO PAY BENEFITS; AND FURTHER FOUND THAT THE COMPLAINT DID NOT ALLEGE SUFFICIENT FACTS TO MAKE OUT A BAD FAITH CLAIM EVEN HAD IT RULED OTHERWISE ON COVERAGE (Western District)

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In Hackbarth v. Nationwide Mutual Insurance Company, the insured fell while attempting to enter his car.  The court found that ice caused the fall, and the vehicle was not an instrumentality of the injury.  Thus, there was no coverage.  Thus, it dismissed the insured’s breach of contract claim.

As to the insured’s bad faith claim, while the Court seemed on the verge of wrestling with the argument that there could be bad faith in the absence of any duty to provide benefits, the insured ultimately conceded that if there was no breach of contract, there could be no bad faith.

Moreover, even had the court ruled otherwise on the contract claim, it would still have dismissed the bad faith claim “because Plaintiff’s Complaint fails to aver sufficient facts which allow for drawing a reasonable inference that Defendant acted in bad faith when denying coverage under the Policy.”  The court did not accept the argument that the pleadings were sufficient to allow further development via discovery.  Rather, even accepting the alleged facts as true and disregarding legal conclusions, the insured did not allege sufficient facts to establish that the insurer lacked a reasonable basis for denying benefits and knew or recklessly disregarded its lack of reasonable basis.

Date of Decision:  July 8, 2014

Hackbarth v. Nationwide Mut. Ins. Co., Civil No. 13-1596,  2014 U.S. Dist. LEXIS 92971 (W.D. Pa. July 8, 2014) (Cohill, J.)

JULY 2014 BAD FAITH CASES: INSURED ADEQUATELY ALLEGED BAD FAITH CLAIMS BY PLEADING SPECIFIC FACTS CONCERNING DELAYS IN THE CLAIMS HANDLING PROCESS, A LACK OF COMMUNICATION, AND DISCREPANCY BETWEEN THE ALLEGED INJURY AND SETTLEMENT SUM OFFERED (Philadelphia Federal)

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In Padilla v. State Farm Mutual Automobile Insurance Company, the plaintiff brought a breach of contract and bad faith claim based on UIM coverage. The insurer took an examination under oath, had a medical examination done, and referred the case to counsel. The plaintiff alleged that the defendant acted in bad faith by delaying investigation of the plaintiff’s claim, offering a settlement that was unreasonable in light of the facts of the investigation, and failing to provide an evaluation of her claim, despite multiple requests for such information.

The plaintiff alleged serious injuries, that the same insurer insured both parties to the underlying accident which should presumably have expedited the process, that she made demands for settlement offers to her insurer with delays in getting any response, that her demands were made with requests for more information or ignored, that the settlement offer once made was unreasonably low based on the insurer’s own doctor’s report.

The insurer moved to dismiss the complaint. The court found that plaintiff pleaded unreasonable delays, lack of a reasonable basis for partial denial of benefits, and that the insurer acted out of its own self-interest. The court found that unreasonable delays and failure to communicate can go to an insurer’s bad faith. Further the court distinguished the insurer’s case law on the grounds that those cases either had thread bare allegations of wrongdoing, unlike the details in this case; and that the alleged delay in one other case once only a one-time event.

Thus, the motion to dismiss the complaint was denied.

Date of Decision: July 8, 2014

Padilla v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION No. 14-cv-2102, 2014 U.S. Dist. LEXIS 92230 (E.D. Pa. July 8, 2014) (Stengel, J.)

JULY 2014 BAD FAITH CASES: APPELLATE DIVISION UPHOLDS TRIAL COURT DECISION NOT TO AWARD ATTORNEYS FEES UNDER RULE 4:42-9(a)(6) FROM ONE INSURER TO ANOTHER IN DECLARATORY JUDGMENT ACTION, PARTICULARLY WHERE LOSING INSURER’S ARGUMENT WAS MADE IN GOOD FAITH (New Jersey Appellate Division)

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In Strunk v. M&A Trucking, the court refused to award attorney’s fees under Rule 4:42-9(a)(6) in a declaratory judgment action between two insurers arguing coverage issues, where one insurer had defended and indemnified the insured in the underlying action; particularly where the trial court determined the issues were worthy of consideration.

Date of Decision: June 19, 2014

Strunk v. M&A Trucking & Edson L. Silva, DOCKET NO. A-2344-12T4 A-3195-12T4 , SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2014 N.J. Super. Unpub. LEXIS 1460 (App. Div. June 19, 2014) (Alvarez, Ostrer and Carroll, JJ.)