BAD FAITH CLAIM FOR INSURER’S BRINGING RESCISSION SUIT ALLOWED TO PROCEED; LITIGATION PRIVILEGE NOT APPLICABLE (New Jersey Federal)

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Plaintiff was a life insurer and defendant trust owned life insurance policies issued by the insurer. The insurer brought suit seeking rescission based on putative fraudulent representations, which the trust denied. The trust asserted a breach of the duty of good faith and fair dealing counterclaim, among other things. The carrier moved to dismiss the counterclaims.

We only address the motion to dismiss the good faith and fair dealing counterclaim, a claim founded on the insurer’s bringing the rescission suit in bad faith.

The trust pleaded the carrier “breached the duty of good faith and fair dealing by commencing the instant action ‘based on interpretations of the Policies that it knew were clearly contradicted by the medical waiver it had granted, and by the information contained in its underwriting file … relating to [illness at issue].’”  The insurer also allegedly acted in bad faith by “conjuring” up pretend disputes against the trust for the purpose of bringing suit to intimidate the trust into dropping its insurance claims, and “unfairly attempt[ing] to manipulate the sworn testimony of third-party witnesses with the intent to mislead the Court and the parties to this litigation.’”

The insurer argued these claims were “barred by the litigation privilege, which ‘grants absolute privilege and immunity to statements or communications made by attorneys, parties, and their representatives in the course of judicial and quasi-judicial proceedings[.]’” The court rejected this argument.

The court found the carrier “fail[ed] to provide any legal authority demonstrating that (1) the filing of a complaint and commencement of an action constitutes a ‘communication’ protected by the litigation privilege, or (2) the litigation privilege applies to claims alleging breach of the duty of good faith and fair dealing.”

The court relied on precedent holding “that a cause of action for breach of the implied covenant of good faith and fair dealing can be maintained under New Jersey law based on allegations that a party has assert[ed] an interpretation [of the contract] contrary to [its] own understanding of the express terms of that contract.” Moreover, that that earlier case held that the “issue of lack of good faith … cannot be resolved on a motion to dismiss for failure to state a claim.”

Thus, Judge Shipp held the litigation privilege did not apply.  Moreover, the court found the plaintiff could “allege a breach of the duty of good faith and fair dealing related to [the] commencement of the instant action and that, at this stage of the litigation, dismissal of such a claim is inappropriate.”

Date of Decision: February 28, 2021

Symetra Life Insurance Company v. JJK 2016 Insurance Trust, U.S. District Court District of New Jersey No. 18 CV 12350 MASZNQ, 2021 WL 795267 (D.N.J. Feb. 28, 2021) (Shipp, J.)

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