Archive for the 'NJ – Claims Handling (general)' Category
This case focuses on procedural issues and burdens of proof at trial, concerning whether the insured’s alleged fraud during an investigation was grounds to void a policy. At trial, the insured put on her case, and the carrier moved for involuntary dismissal (directed verdict) at the end of plaintiff’s case. The trial court granted judgment to the insurer, and the Appellate Division reversed.
The insured’s claim revolved around a fire loss. In the years before that loss, the insured had a relatively small roof claim, and a large water damage claim. During her testimony at trial, the insured described a meeting with the carrier’s investigator during the fire loss claim. The investigator was not merely a claim adjuster, but was actually a fraud unit investigator – unknown to the insured.
The insured admitted she denied there was any prior damage claim on the water loss, knowing this was not true. She felt it was not the investigator’s business and had nothing to do with the fire loss. The investigator had the insured’s application, which did not include either prior loss. This was part of the investigation, again unknown to the insured. The application itself, however, was never introduced into evidence at trial.
This interview during the claim process was not taken under oath. At her subsequent examination under oath, the insured did admit the two prior loss claims.
Both courts’ focus was on the misleading statement to the investigator about the water damage claim, rather than on the application’s not including the two losses. The two key elements were misrepresentation and materiality. The trial court found a material misrepresentation and voided the policy after plaintiff put on her case.
The Appellate Division disagreed, looking closely at the procedural setting and burdens of proof, in finding that the materiality element was not proved. The court especially noted the different burdens placed on defendant when dismissal is sought at the end of plaintiff’s case, rather than at the end of all parties’ cases.
Plaintiff’s case-in-chief did not include the original application, and the Appellate Division found there was insufficient evidence within plaintiff’s case itself to demonstrate how the water loss was relevant to the fire loss claim, or important in determining the insurer’s course of action. Moreover, the misrepresentation claim was an affirmative defense, with the insurer bearing the burden of proof. As the court stated:
“Accordingly, regardless of whether the information in an application not introduced at trial came from plaintiff or someone else, there was no factual basis for the [trial] judge to find that [the insured] ‘clearly tried to mislead [the investigator] as to something that seemed to justify what looked like misstatements in the application.’ Without the original insurance application or testimony from anyone at [the insurer] as to the nature of the investigation, the trial court clearly erred when it involuntary dismissed [the] suit based on her willful misrepresentation of material facts following her fire loss.”
Finally, the court observed that even though its ruling was based on a fundamental failure to prove materiality in the procedural circumstances at trial below, the insured would not be precluded from arguing at re-trial “a fact-finder could also consider whether [she] corrected her misstatements promptly in her examination under oath in considering their materiality.” July 30, 2019
Pokhan v. State Farm Fire & Cas. Co., New Jersey Superior Court Appellate Division DOCKET NO. A-3336-17T3, 2019 N.J. Super. Unpub. LEXIS 1699, 2019 WL 3425917 (App. Div. July 30, 2019) (Accurso, Fuentes, JJ.)
This Superstorm Sandy case involved a $400,000 discrepancy in damage estimates between the insured’s and insurer’s adjustors. The court found a material issue of fact existed on these damage claims, and thus summary judgment could not be granted on a breach of insurance contract claim. (Some categories of damages were barred as resulting from water damage under an anti-concurrent cause provision in the policy).
Under New Jersey law, a bad faith plaintiff must show the insurer acted unreasonably in denying a claim, and did so knowingly or with reckless disregard. Even negligence, standing alone, cannot constitute bad faith. Under these standards, an insurer cannot act in bad faith if the claim was fairly debatable, i.e., if the insured “could not have established as a matter of law a right to summary judgment on the substantive claim [the insured] would not be entitled to assert a claim for an insurer’s bad faith refusal to pay the claim.”
As summary judgment could not be granted on the basic coverage claim, the insurer’s position remained “fairly debatable”. Thus, the insured’s bad faith claim failed, and summary judgment was granted to the insurer.
The court also granted summary judgment to the insurer on plaintiff’s Consumer Fraud Act (CFA) claim. New Jersey’s “courts are clear the CFA does not provide a remedy for failure to pay benefits….”
Date of Decision: March 18, 2019
Zero Barnegat Bay, LLC v. Lexington Insurance Co., U. S. District Court District of New Jersey Civil Action Nos: 14-cv-1716 (PGS) (DEA), 2019 U.S. Dist. LEXIS 43625 (D.N.J. Mar. 18, 2019) (Sheridan, J.)
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 insured commenced this coverage action after the insurer denied coverage for property damage. The insurer argued no coverage was owed because the water damage derived from either freezing pipes or wear and tear. The insured argued the insurer acted in bad faith by “willfully and intentionally” misrepresenting the communications between the parties, and by falsely accusing the insured of failing to preserve evidence relevant to the claim. The insurer moved for judgment on the pleadings as to the bad faith claim.
The Court held the bad faith claim “may only be supported by factual allegations concerning whether [the insurer] lacked a reasonable basis for denying coverage[,]” not whether insurer deliberately misrepresented communications between the parties months after coverage had already been denied. The Court reasoned, “[i]t is of no moment what alleged mischaracterizations or misrepresentations [the insurer] made . . . because such allegations have no bearing on whether [the] policy . . . covered the water damage from the accident.”
As such, the Court granted the insurer’s motion for judgment on the pleadings, but also granted the insured leave to amend the complaint.
Date of Decision: May 10, 2018
Olirei Investments, LLC v. Liberty Mutual Insurance Co., United States District Court, District of New Jersey, Civil Action No. 18-524, 2018 U.S. Dist. LEXIS 78949 (D.N.J. May 10, 2018) (Chesler, J.)
The insured received medical treatment from several providers after sustaining injuries in a May 2013 auto accident. The policy provided up to $15,000 in PIP benefits per accident. The insurer denied a request for an $8,527.07 payment to Hackensack Surgery Center (“HSC”), as subrogee of the insured, because it determined that the treatment was not medically necessary. HSC then filed a demand for arbitration.
Prior to the arbitration hearing, the insurer advised that only a balance of $2,132.74 remained in available PIP benefits due to prior payments totaling $12,867.26. During the pendency of HSC’s claim, Thermocare Plus, LLC (“Thermocare”), another medical provider of the insured, utilized the insurer’s internal appeals process to seek a reversal of insurer’s earlier denial of its bill totaling $2,032.74. On August 21, 2015, the insurer advised Thermocare that its previous denial was overturned, and that it would process Thermocare’s bill.
On the same day, the insurer received the HSC arbitration award that the HSC treatment was medically necessary, and awarded $8,438.58, plus interest, attorney’s fees, and costs to HSC. However, the arbitration panel stated that the award “was subject to ‘the policy limits for medical payments, still available to [HSC] at the time of the award.’”
Seven days later, the insured paid Thermocare $2,032.74. The insurer then complied with the arbitration award, and processed a payment of $100 to HSC, which reflected the amount of remaining PIP benefits. HSC then filed an order to show cause, arguing that its payment had priority. HSC sought an additional payment of $2,036.99 and attorney’s fees and costs.
The trial judge ordered the insurer to pay HSC an additional $2,036.99, which represented the amount remaining on the arbitration award. The judge reasoned that the insurer did not “engage[] in any sort of bad faith. . .”, but the insurer’s payment decisions did not achieve an equitable outcome. The trial judge denied HSC’s request for attorney’s fees.
On appeal, the insurer argued that the trial judge’s decision ran counter to existing state law because it had already exhausted the PIP policy limits. Furthermore, the insurer argued that it had 35 days to challenge the arbitration award, and thus was under no obligation to comply with the award because it already approved Thermocare’s payment.
In articulating the collateral source rule, which governs the payment of PIP benefits under New Jersey law, the Appellate Division stated that the insurer is required “to pay PIP benefits immediately upon [a] determination that the loss is due and owing, without consideration that the loss may also be covered by another source. . . .”
The Appellate Division held that HSC is entitled to the additional $2,036.99 payment, because HSC’s bill predated Thermocare’s; HSC rendered services prior to Thermocare; the insurer received HSC’s bill prior to Thermocare’s; and because Thermocare’s bill remained unpaid as of the date of the arbitration award. Citing the “broad discretion” given to trial judges when deciding whether to award attorney’s fees, and finding no abuse of discretion, the Appellate Division declined to overrule the judge’s decision to deny HSC its requested attorney’s fees and costs.
Date of Decision: September 5, 2017
Hackensack Surgery Ctr. V. Allstate Ins. Co., No. A-3896-15T3, 2017 N.J. Super. Unpub. LEXIS 2200 (N.J. App. Div. Sept. 5, 2017) (Reisner and Sumners, JJ.)
The insureds purchased a property in 2004. Initially, the insureds did not know that the property contained an underground heating oil tank. In May of 2014, the insureds had the tank removed. During removal, a municipal inspector detected a fuel oil discharge on the property. The discharge resulted in soil and groundwater contamination, and the insureds incurred significant remediation costs.
The insureds submitted claims for the remediation under their homeowners policies, to two insurers. The insurers rejected the claim because the loss was not a sudden and accidental occurrence. Insurer I’s expert report stated that the loss was not “a result from a quick, abrupt, or catastrophic event.”
The insureds filed a coverage action against Insurers I and II, and asserted claims of bad faith. The insurers moved for summary judgment on the bad faith claims, arguing that the insureds failed to show the absence of a reasonable basis for denial of the claim. The insureds did not contest insurers’ argument that its position was debatable, and as such, the Court deemed the issue conceded. Thus, the Court granted Insurer I and II’s motion for summary judgment as to the bad faith claim.
Insurer II also moved for summary judgment as to the insureds’ claim for punitive damages. Because the standard for punitive damages “is a showing by clear and convincing evidence of some egregious circumstances or wantonly reckless or malicious conduct by the insurer[,]” an even more exacting standard than the one used for bad faith, the Court struck this claim.
Date of Decision: August 17, 2017
Benjamin v. State Farm Ins. Co., No. 15-4123, 2017 U.S. Dist. LEXIS 131078 (D. N.J. Aug. 17, 2017) (Simandle, J.)
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.)
Fineman, Krekstein & Harris obtained dismissal of a bad faith claim against the insurer where the insured’s complaint did not set out sufficient facts to make a plausible claim for an inadequate investigation.
The court observed that under the federal rules, courts carry out a three-tiered test to determine if a complaint can survive a motion to dismiss: (1) the court “must take note of the elements the plaintiff must plead to state a claim.”; (2) “the court ‘should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth.”; and (3) “when there are well-pleaded factual allegations, the court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.”
In applying this process, the court observed that under New Jersey law, a bad faith plaintiff must show both “the absence of a reasonable basis for denying the claim for coverage; and … that the insurer knew or recklessly disregarded its absence of a reasonable basis.” Further, “if an insurance company’s reasons for denying coverage are ‘fairly debatable,’ then the insurance company cannot be liable for bad faith.”
In this case, the issue was whether the insured’s property loss was the result of vandalism or theft. The insurer’s investigator concluded, after providing the details for his reasoning, that the loss was due to uncovered theft. The insurer denied coverage on that basis. The insured alleged coverage was denied in bad faith on the alleged basis that the insurer did not “undertake an independent investigation into the cause of the alleged loss.”
The court rejected this argument. It found that the insured “failed to allege facts demonstrating that [the insurer] lacked a reasonable basis for denying the claim for coverage, or that it knew or recklessly disregarded its absence of a reasonable basis.” There was no dispute that an investigation was conducted and the investigator concluded the loss was due to theft, not vandalism. There were no allegations of fact to support a claim that the investigation was conducted in bad faith. Rather, the pleadings merely showed that the insured disagreed with how the insurer conducted its investigation. Even if this alleged negligence, “allegations of simple negligence or mistake cannot support a claim for bad faith.”
The court stated: “Indeed, there are no factual allegations indicating that [the insurer] conducted a sham investigation in order to wrongfully deny [the] claim, or that [the] investigation was so woefully deficient that it should have known it lacked a reasonable basis to deny coverage.”
Thus, the motion to dismiss was granted, the court adding that the insured “may move to amend its counterclaim should discovery later reveal bad faith conduct….”
Date of Decision: April 25, 2017
American Southern Home Insurance Company v. Unity Bank, No. 16-3406, 2017 U.S. Dist. LEXIS 62381 (D.N.J. Apr. 25, 2017) (Wolfson, J.)
Hema Mehta of Fineman, Krekstein & Harris was defense counsel.