Archive for the 'NJ – Claims Handling (unreasonable)' Category

OCTOBER 2018 BAD FAITH CASES: NO BAD FAITH WHERE CLAIM DENIAL SUPPORTED BY EXPERTS; POTENTIAL BAD FAITH FOR CLAIMS OF RETALIATION (New Jersey Federal)

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In this case, the insured’s damage claim would be covered if damages were caused by a sinkhole. The insured and insurer used a number of experts or investigators, who reached opposite conclusions. The insurer’s “team” relied upon its two engineers who concluded there was no sinkhole, and rejected the insured’s expert in favor of its own experts’ conclusions.

The insured brought breach of contract and bad faith claims. There were two distinct bad faith claims. The first was based on the sinkhole denial. The second was based on the insurer’s alleged threat to seek reimbursement of a previous payment on an earlier claim in retaliation for pursuing the sinkhole claim. The court granted summary judgment on the former, but allowed this threat based action to proceed.

No Bad Faith Where Denial Supported By Experts Made Denial Fairly Debatable

The court denied the insurer’s summary judgment motion on coverage, finding a dispute of fact on whether the loss resulted from a sinkhole. However, the court did grant summary judgment on the bad faith claim for denying coverage.

Under New Jersey’s fairly debatable standard, the bad faith plaintiff must show “the insurer knowingly or recklessly lacked a reasonable basis to deny the claim.” “A bad faith claim must fail where the insurer’s denial of the claim was fairly debatable.” Thus, a “claimant who could not have established as a matter of law a right to summary judgment on [the breach of contract claim] would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.”

In this case, the insurer relied upon two expert engineers to deny the claim. The court found that “[n]o facts have been put forth to show that these reports were wholly fraudulent, or were crafted without any investigation or expertise.” It cited Bello v. Merrimack Mut. Fire Ins. Co., for the proposition that the “’fairly debatable’ question was one for the jury, in circumstances “where the insurer relied on a report by a non-engineer that acknowledged the merit of the insured’s claim….” [In that case, the jury found bad faith].

The court concluded: “Examining the record in the light most favorable to Plaintiffs, Defendant rubber-stamped the conclusions of [the insurer’s engineers] and ignored contrary evidence. But the fact that these two engineers arrived at conclusions consistent with Defendant’s decision to deny Plaintiffs’ claim demonstrates that that decision was fairly debatable. Summary judgment must therefore be granted in favor of Defendant on the Second Count.”

Bad Faith Claims Allowed To Proceed On Retaliation Threat Claim

The “insurer acts in bad faith when it acts without a reasonable basis, and when the insurer knows or is reckless in not knowing that its action lacks a reasonable basis.” In its second bad faith count, the insured alleged the carrier’s “decision to retroactively seek reimbursement was made in retaliation for Plaintiffs’ filing a new claim.” The insurer argued that it actually sought reimbursement because of a fraudulent misrepresentation, resulting in erroneous payment. The court found it lacked “sufficient information to rule on this Count as a matter of law,” and denied summary judgment.

Date of Decision: October 9, 2018

Orban v. Liberty Mutual Fire Ins. Co., U. S. District Court District of New Jersey Civ. No. 16-3050, 2018 U.S. Dist. LEXIS 173212 (D.N.J. Oct. 9, 2018) (Thompson, J.)

Should the New Jersey Senate’s proposed Insurance Fair Conduct Act become law in the future, this could very likely change the standards discussed in this case.

AUGUST 2018 BAD FAITH CASES: POTENTIAL BAD FAITH CLAIM FOR UNTIMELY FILING AND BACKDATING FORM (New Jersey Appellate Division)

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The insurer cancelled a workers’ compensation policy, and suit was brought for failing to meet statutory requirements to do so, along with a bad faith claim. The trial court found the cancellation proper.

The New Jersey Appellate Division reversed, and reinstated a bad faith claim for further proceedings, based on allegations that the carrier revoked coverage after failing to file a timely statutory certification, and later attempted to cure its alleged failure by backdating a form.

M&S Waste Service, Inc. v. Praetorian Insurance Co., New Jersey Superior Court Appellate Division DOCKET NO. A-4860-15T1, 2018 N.J. Super. Unpub. LEXIS 1981 (N.J. App. Div. Aug. 24, 2018) (Accurso and Messano, JJ.)

 

JUNE 2018 BAD FAITH CASES: ALLEGING REFUSAL TO (1) REINSPECT LATER DISCOVERED DAMAGES, AND (2) PAY LEGALLY BINDING APPRAISAL AWARD, SUFFICIENT TO SUPPORT BAD FAITH CLAIM (District of New Jersey)

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The insured alleged that she “purchased an ‘all risk insurance policy’ from [the insurer], which covered [the insured’s] home and personal property, including coverage for water damages and for ‘loss of use’ from water damage.” The insured’s pipe broke inside the residence resulting in significant damage. After submitting her claim, she pleaded the insurer “paid for only a ‘small portion’ of the damages covered by the policy.” Subsequently, “it was discovered that the damages greatly exceeded the original amount paid by Defendant.” The insured alleged that her insurer refused “to perform a further inspection,” and refused to pay for contractually obligated living expenses of $28,225.62.

Under New Jersey law, “insurers are required to act in good faith and can be held liable for ‘bad-faith refusal to pay first-party claims or benefits.’ However, as to a bad faith claim, the New Jersey Supreme Court “adopted the ‘fairly debatable’ standard for tort recovery under insurance contracts.” Consequently, “if a claim is fairly debatable, no liability in tort will arise.” On the other hand, “if no debatable reasons existed for the denial of benefits, bad faith can be established.”

The court observed that an insurer’s “mere negligent inattention to a claim is not sufficient” to constitute bad faith. Moreover, an insured “must show that the insurer’s ‘conduct is unreasonable,’ or ‘the insurer knows the conduct is unreasonable or recklessly disregards the fact that the conduct is unreasonable.’”

Applying this law, the court determined that there is no “binding authority to support” the insurer’s argument that “as a matter of law, it cannot be liable because it first paid a claim but then refused to inspect (much less pay) later discovered-damage.” The court concluded that the insured’s allegations that the insurer “refused to reinspect the property once further damage was discovered” and “refused to pay an appraisal award despite its legal obligation” are sufficient facts to support a bad faith claim.

Date of Decision: June 6, 2018

Johnson v. Encompass Insurance Co., U. S. District Court, District of New Jersey Civil Action No. 17-3527, 2018 U.S. Dist. LEXIS 94775 (D.N.J. June 6, 2018) (Vazquez, J.)

 

OCTOBER 2017 BAD FAITH CASES: COMPLAINT STATES PLAUSIBLE BAD FAITH CLAIM BASED ON CLAIMS HANDLING; COURT SEVERS AND STAYS BAD FAITH CLAIM (New Jersey Federal)

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The insured alleged that she suffered serious bodily injuries after a rear-end collision. The vehicle at fault only had $25,000 in available coverage, and the insured’s UIM policy contained limits of $100,000 per person and $300,000 per accident. Alleging injuries amounting to $75,000 in value, the insured filed a UIM claim with the insurer. The insured allegedly forwarded all documentation supporting her injuries to the insurer’s claims adjuster, but the insurer ignored her documentation or acted with reckless indifference to the documentation provided. She filed a claim against the insurer for breach of the implied duty of good faith and fair dealing.

The insured moved to dismiss this claim, arguing that (1) the Court lacked federal subject matter jurisdiction because the insured’s claim does not exceed $75,000; and (2) that the insured failed to state a claim upon which relief can be granted. The insured also moved to sever and stay the insured’s bad faith claim, pending the disposition of the insured’s claim for breach of contract.

(1) The Court denied insurer’s motion to remand, reasoning that “[the insured’s] bad faith claim, if successful, includes the potential for an award of consequential damages and punitive damages . . .” that would exceed the jurisdictional threshold of $75,000.

(2) The Court denied the insured’s motion to dismiss, reasoning that the complaint “sets forth numerous examples of bad faith conduct that sufficiently allege[s] a ‘reckless disregard’ for [the insured’s] rights.” These allegations included delay tactics, conducting an improper investigation, and failing to evaluate medical records in a reasonable manner.

(3) Finally, the Court granted the insurer’s motion to sever and stay the bad faith claim from the insured’s breach of contract claim, citing judicial economy and avoiding prejudice to the insurer.

Date of Decision: September 12, 2017

Gussman v. Government Employees Insurance Company, No. 16-8563, 2017 U.S. Dist. LEXIS 146995 (D. N.J. Sept. 12, 2017) (Rodriguez, J.)

MARCH 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE (New Jersey Appellate Division)

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This case involved a denial of coverage on the basis that the insured failed to get his car physically inspected after purchase. The court affirmed a grant of summary judgment on the coverage claim, and on the bad faith claim.

As to the bad faith claim, an “insured who alleges bad faith by the insurer must establish the merits of his or her claim for benefits. If there is a valid question of coverage, i.e., the claim is ‘fairly debatable,’ the insurer bears no liability for bad faith.” The court found the claim at issue was “fairly debatable”. The insurer was entitled to deny the claim outright. It had “complied with all notice and suspension procedures provided in the regulations. It did not have discretion to provide coverage when plaintiff did not comply and have the vehicle inspected.”

Date of Decision: March 14, 2017

Gibbins v. Geico, DOCKET NO. A-1035-15T3, 2017 N.J. Super. Unpub. LEXIS 632 (App. Div. Feb. 28, 2017) (Fasciale and Gilson, JJ.)

 

APRIL 2016 BAD FAITH CASES: (1) PLAUSIBLE BAD FAITH CLAIM PLEADED BASED ON INSURER’S IME RESULTS, BUT (2) BAD FAITH CLAIM IS SEVERED AND STAYED (New Jersey Federal)

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In Abiona v. Geico Indemnity Company, the insurer sought to dismiss the underinsured motorist bad faith claim, and if not dismissed, then to sever and stay the bad faith claims.  The claim was not dismissed, but the court did agree to sever and stay the bad faith claim.

The insured alleged that the insurer completely denied UIM benefits, declined to participate in non-mandatory find arbitration, and failed to present any good faith settlement offer, despite the insured’s submitting extensive medical records to support the claim of severe and permanent injury.  This documentation allegedly included the insurer’s own IME report, which opined that “the insured is a surgical candidate from the injuries sustained by this accident if the epidural injection therapy does not resolve the significant pain from the herniated lumbar disc caused by this accident.”

In refusing to dismiss the bad faith claim, the court found that the insurer’s medical opinion that surgery could be required “nudges” the allegation of reckless disregard of the lack of a reasonable basis to deny the claim “across the line from conceivable to plausible.”

Next the court found it had jurisdiction to hear the case, when looking at the contract damages, and potential consequential and punitive damages permitted under New Jersey’s bad faith law.

On the issue of severance and stay, the court observed: “The prevailing practice in both state and federal court is to sever breach of insurance contract claims from bad faith claims, and to proceed with the contract claim before turning to the bad faith claim (if still necessary after adjudicating the contract claim).”  The court added that:  “Severance of a bad faith claim will often be desirable because, as courts have recognized, there is real potential for prejudice to the insurer should it ‘be required to produce its claim file prematurely.’”

The court accepted the insurer’s assertion that it would suffer prejudice without severance, and described the insured as “merely” arguing that judicial economy weighs against severance – a position contrary to the above-stated principles and numerous cases following those principles. It quoted from an earlier state court decision: “The toll on judicial economy by allowing full-disclosure up front . . . is obvious. Requiring simultaneous discovery on both claims will result in a significant expenditure of time and money, generally rendered needless if the insurer prevails on plaintiff’s UM or UIM claim.”  Thus, it granted the motion to stay and sever in the interests of judicial economy and to avoid prejudice to the insurer.

Date of Decision:  March 16, 2016

Abiona v. Geico Indem. Co., 2016 U.S. Dist. LEXIS 34179 (D.N.J. Mar. 16, 2016) (Hillman, J.)

JANUARY 2016 BAD FAITH CASES: PENNSYLVANIA COURT APPLYING NEW JERSEY LAW FINDS THAT BAD FAITH QUESTION COULD GO TO JURY, EVEN WITHOUT ADJUSTER’S TESTIMONY FOR SUMMARY JUDGMENT PURPOSES, IN THE ABSENCE OF ANY SETTLEMENT OFFER BY INSURED WHERE THERE SEEMED TO BE NO DEFENSE TO ONE COMPONENT OF INSURED’S DAMAGES CLAIMS (Philadelphia Federal)

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In Stern v. AAA Mid-Atlantic Insurance Company, the Pennsylvania federal court applied New Jersey bad faith law to an Underinsured Motorist claim.

The court applied the fairly debatable standard, which it quoted as: “To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent, then, that the tort of bad faith is an intentional one. * * * implicit in that test is our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless * * * indifference to facts or to proofs submitted by the insured.”

The insured put on a case at arbitration showing physical injuries, pain and suffering, and economic damages, which resulted in a meaningful award, including a specific finding of economic damages. The insurer’s refusal to pay the insured anything focused on claims for non-economic damages, with no explanation about why it would not settle the economic damages claim.  The court found that “Defendant’s failure to make any settlement offer in the face of Plaintiffs’ proofs and a substantial arbitration award relating specifically to economic losses could be interpreted by a reasonable juror as reckless indifference to the facts.”  The insurer’s verbal threshold argument was deemed inapplicable to underinsured claims.

The court concluded, in denying the insurer’s summary judgment motion: “At trial, Defendant will undoubtedly present testimony from its adjusters as to their analysis of both the economic and non-economic components of the claim, and Plaintiffs will be at a tactical disadvantage by having failed to depose them. The defense is correct that ordinarily a plaintiff’s failure to explore the thought process of the claims adjusters would be fatal to a claim for bad faith. But given the broad confines of this case and Defendant’s failure to make any offer whatsoever, there is a basis on which a jury could reasonably find bad faith. The evidence may be scant, but I cannot conclude that it is non-existent.”

Date of Decision:  December 3, 2015

Stern v. AAA Mid-Atlantic Ins. Co., CIVIL ACTION No. 15-0960, 2015 U.S. Dist. LEXIS 162713 (E.D. Pa. December 3, 2015) (McHugh, J.)

AUGUST 2015 BAD FAITH CASES: COURT (1) DENIES INSURER’S MOTION TO DISMISS NJCFA CLAIM AFTER INSUREDS PROVED INSTANCES OF BAD FAITH; (2) FINDS INSUREDS’ CLAIM FOR PUNITIVE DAMAGES INSUFFICIENT; AND (3) HOLDS THAT INSUREDS MAY BE ENTITLED TO ATTORNEYS’ FEES UNDER THE NJCFA ONLY (New Jersey Federal)

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In Ryan v. Liberty Mutual Insurance Company, the Court denied the insurer’s motion to dismiss a claim brought by its insureds under the New Jersey Consumer Fraud Act (“NJCFA”), dismissed the insureds’ claim for punitive damages, and denied the insurer’s motion to dismiss the insureds’ claim for attorneys’ fees.

The dispute arose after the home owned by the insureds was damaged during Hurricane Sandy. The insureds contended that the insurer “unreasonably and in bad faith denied coverage and underpaid for the damage.” The insureds further asserted that the insurer’s agents “improperly adjusted and denied [the insureds’] claims without adequate investigation, even though [the insureds’] losses were covered by the Policy.” Among other things, the insureds also claimed that the insurer was “deceptive in the adjustment of this claim” by “fraudulently creating values and assigning them to the covered loss to increase its own profitability” and by “fraudulently telling its policyholder that the losses were not covered despite evidence that they were.”

Finally, the insureds argued that the insurer’s response to the claim was part of “an ongoing, widespread and continuous scheme to defraud its insureds in the payment of benefits under their policies of insurance.”

In the complaint, the insureds assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the NJCFA. The insurer moved to dismiss the NJCFA claim, as well as the insureds’ claims for punitive damages and attorneys’ fees and costs.

The insurer argued that the NJCFA claim should be dismissed because the NJCFA “does not apply to disputes about insurance benefits or coverage.” The Court acknowledged that federal district courts in New Jersey “have split on whether to dismiss NJCFA claims based on an insurer’s denial of benefits.”

However, the Court pointed to case law from the Third Circuit, which noted that the NJCFA applies to a person’s fraudulent conduct whether it occurs “in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid.”

Here, the Court found that the insureds’ NJCFA claim goes to the insurer’s “subsequent performance of its obligations under the insurance contract.” The Court noted that the insureds do not merely allege that the insurer underpaid their benefits, which would only amount to breach of contract, but allege that the insurer acted fraudulently when investigating the property damage.

Because of this allegation, the insureds “make clear that their NJCFA claim targets [the insurer’s] conduct in performing its contract obligations – which distinguished their NJCFA claim from the type of mere underpayment allegation” that concerned the New Jersey Appellate Division when deciding whether to dismiss NJCFA claims based on an insurer’s denial of benefits.

Thus, the Court refused to dismiss the insureds’ NJCFA claims because it predicted the New Jersey Supreme Court would apply the act to the insurer’s allegedly deceptive conduct in investigating the insureds’ property damage.

The Court next dismissed the insureds’ claim for punitive damages, and noted that “deliberate, overt, and dishonest dealings, insult and personal abuse constitute torts entirely distinct from the bad-faith claim.” Because the insureds did not plead facts “that rise to the level of egregiousness necessary for punitive damages in an insurance contract case,” the Court dismissed the punitive damages claim.

Finally, the Court found that the insureds may be entitled to attorneys’ fees. The insureds requested attorneys’ fees in connection with their claim for breach of the implied covenant of good faith and fair dealing and in their Request for Relief, but the Court noted that the New Jersey Supreme Court has stated that the rule granting attorneys’ fees in an insurance action “does not apply when the insured brings direct suit against his insurer to enforce casualty or other direct coverage.”

Thus, the Court dismissed the insureds’ request for attorneys’ fees arising from their breach of implied covenant claim. However, the Court acknowledged that the insureds may be entitled to attorneys’ fees by virtue of their claims arising under the NJCFA, which mandates the recovery of attorneys’ fees. As such, the Court denied the insurer’s motion to dismiss the insureds’ claim for attorneys’ fees in the Request for Relief.

Date of Decision: July 8, 2015

Ryan v. Liberty Mut. Ins. Co., No. 14-06308, 2015 U.S. Dist. LEXIS 88907 (D.N.J. July 8, 2015) (Walls, J.)

OCTOBER 2014 BAD FAITH CASES: NEW JERSEY FEDERAL JUDGE ELUCIDATES HOW INSUREDS ADEQUATELY PLED BAD FAITH UNDER TWOMBLY TO AVOID DISMISSAL UNDER “FAIRLY DEBATABLE” STANDARD (New Jersey Federal)

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Laing v. American Strategic Insurance Corporation is a Hurricane Sandy case, alleging that the insurer failed to properly adjust the claim and underpaid under the terms of the policy. The insureds alleged that the insurer both misrepresented the scope of the insurance policy and made false representations regarding scope of the damage to their home. Among other claims, the insureds sought relief for breach of the implied covenant of good faith and fair dealing and for bad faith.

The court found that New Jersey’s Supreme Court has held these two putative causes of action amount to the same claim, with the cause of action now being seen as rooted in contract rather than tort.  In interpreting the breach of the implied contractual covenant of good faith and fair dealing in the first party context, an insured must prove (1) the absence of a reasonable basis to deny benefits; and (2) that the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.

There is no bad faith if an insurance claim is “fairly debatable”.  The presence of a “fairly debatable” claim is found where the insured “cannot establish ‘as a matter of law a right to summary judgment on the substantive claim,’ i.e., the underlying contract claim.”

In this case, the insurer moved to dismiss the breach of good faith claims under Twombly/Iqbal in federal court; however, the court found that the pleadings were sufficient to make out a bad faith claim.

The court cited with approval the following allegations being sufficient to support plaintiffs’ case at the pleading stage:  the insurer “refused to pay [Plaintiffs’ claim] in full, despite there being no basis whatsoever on which a reasonable insurance company would have relied to deny the full payment”: the insurer “knew or should have known that it was reasonably clear that the claim was covered”; the insureds “hav[ing] complied with all policy provisions and hav[ing] cooperated fully with the investigation of this claim,” “[the insurer] and/or its agents improperly adjusted the Plaintiffs’ claim”;  the “adjuster misrepresented the cause of, scope of, and cost to repair”; and the insurer “denied at least a portion of the claims without an honest investigation.”

Assuming these allegations to be true as it must under Rule 12(b)(6), this did not make out a fairly debatable case for the insurer at this stage of the litigation. Thus, the court refused to dismiss the claims.

Date of Decision:  October 1, 2014

Laing v. Am. Strategic Ins. Corp., Civil Action No. 14-1103 (MAS) (TJB),  2014 U.S. Dist. LEXIS 139739 (D.N.J. Oct. 01, 2014) (Shipp, J.)

 

DECEMBER 2012 BAD FAITH CASES: COURT GRANTS INSURED’S MOTION TO AMEND COMPLAINT WITH BAD FAITH COUNT, BUT GRANTS PARTIAL PROTECTIVE ORDER TO CARRIER, SHIELDING IT FROM DISCOVERY ON RELATED BAD FAITH CLAIMS (New Jersey Federal)

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In Raritan Bay Fed. Credit Union v. CUMIS Ins. Soc’y, Inc., the insured sought discovery and to amend its complaint after its bad faith claims were initially dismissed without prejudice in 2009. (See this case). The carrier objected on several grounds, seeking to: (1) preclude the insured from conducting discovery on the sales and marketing of the bond it purchased, along with “best practices” advice offered by the carrier to its customers; (2) preclude depositions of present and former employees of the carrier; (3) limit depositions and quash subpoenas seeking information from the carrier’s investigator.

First, the court found that the insured should be entitled to amend its complaint with respect to claims that the carrier engaged in a sham investigation after deciding to deny coverage, for the sole purpose of obtaining information against the insured for future litigation. The court also permitted the insured to amend its complaint with a claim that the carrier failed, in bad faith, to advise the insured as to the basis for its denial. However, the court found that the carrier did not act in bad faith by citing vagueness in the insured’s loan policies as a reason to deny coverage.

Second, the court refused to permit discovery on the carrier’s marketing of its bonds and its “best practices” advice because this information was outside the scope of the insured’s amended claims. The court also denied the insured’s request to depose the carrier’s present and former employees, as well as the subpoenas sought by the insured. The court did permit the insured to seek information relating to the carrier’s investigators, finding that such information was not privileged or attorney work product.

Date of Decision: October 21, 2010

Raritan Bay Fed. Credit Union v. CUMIS Ins. Soc’y, Inc., No. 09-1512, 2010 U.S. Dist. LEXIS 112640, U.S. District for the District of New Jersey (D.N.J. Oct. 21, 2010) (Bongiovanni, J.)