APRIL 2018 BAD FAITH CASES: INSURED’S FAILURE TO GIVE NOTICE OF IMPORTANT POST-LOSS ACTIVITY BREACHED POLICY AND ELIMINATED COVERAGE (New Jersey Supreme Court)

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This case involved the duty of an insured to keep his UIM carrier informed in connection with the underlying tort litigation. By failing to give timely notice, the insured lost coverage.

In its opinion, the New Jersey Supreme Court stated:

“Our case law has routinely emphasized the importance of candor by insureds and the obligation to act in a forthright, open, and honest manner with their carriers throughout the entire process of their claim. See Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 539, 582 A.2d 1257 (1990) (“[A]n insured’s commitment not to misrepresent material facts extends beyond the inception of the policy to a post-loss investigation.”) We have provided insureds “an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant.” Id. at 541-42, 582 A.2d 1257, 582 A.2d 1257. Although this case arises in a different context, we seek to avoid rewarding insureds for omitting key details in a UIM claim.”

The insured lost coverage for his failure to notify the UIM insurer of the underlying claim and its progress. The court’s decision was “not rooted in [the insured’s] state of mind, but rather in his actions.” The Supreme Court adopted the Appellate Division dissenter’s approach on the issue: “If . . . the insured, regardless of his state of mind, fails to give the UIM carrier any notice of the UIM claim until after the final resolution of the underlying tort action, thereby causing the irretrievable loss of the carrier’s rights to subrogation and intervention before the carrier has ever learned of the existence of the claim, coverage is forfeited.” (Emphasis in original).

Thus, an insured breaches the insurance policy terms by a delay in giving notice until after an arbitration, high-low agreement or jury trial.

Date of Decision: April 11, 2018

Ferrante v. New Jersey Manufacturers Insurance Group, A-87 September Term 2016, 078496, 2018 N.J. LEXIS 477 (Supreme Court of New Jersey April 11, 2018)

 

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