Archive for the 'NJ – Consumer Fraud Act' Category

NO BAD FAITH WHERE COVERAGE AND CLAIM HANDLING CONDUCT WERE “FAIRLY DEBATABLE”; CFA INAPPLICABLE TO COVERAGE CLAIMS (New Jersey Federal)

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This case involves a fire damage claim to plaintiffs’ home.  This was the seventh fire in plaintiffs’ home.  The carrier denied coverage based on various theories, such as fraud in the application and during the investigation process, failure to cooperate, and alleged arson against plaintiffs.  Plaintiffs sued for breach of contract, violation of New Jersey’s Consumer Fraud Act (CFA) and bad faith.  The carrier moved for summary judgment on all claims.

Philadelphia Federal Judge Joel Slomsky was sitting by designation in this New Jersey Federal Action.  He denied summary judgment on the breach of contract claim, as disputes of fact remained for the jury on the above-referenced issues concerning the fire and insurance application; but he granted summary judgment on the CFA and bad faith claims.

Consumer Fraud Act Inapplicable

The CFA claim failed as a matter of law. Judge Slomsky observed, “New Jersey courts have consistently held that the Consumer Fraud Act does not apply to initial coverage.”  Here, the “case involves an initial coverage dispute based on Defendant’s denial of Plaintiffs’ fire loss claim. … Moreover, the record is devoid of any evidence of fraud by Defendant.”

Conduct in Coverage Denial and Claim Handling Fairly Debatable

New Jersey recognizes actionable insurance bad faith for both claim handling and coverage denial.  Coverage denial requires predicate proof that the claim denial was unreasonable.  Plaintiffs bad faith claims based on coverage denial and claim handling were fairly debatable as to their reasonableness, and thus bad faith could not exist.

Judge Slomsky observed, “if determining whether the insurer lacked a reasonable basis for denying a claim is ‘fairly debatable,’ then the insured cannot prevail on a bad faith claim. … In other words, if an insured cannot succeed on their substantive claim at summary judgment, then they cannot succeed on a bad faith claim premised on an insurer’s denial of coverage.”

The same “fairly debatable” standard applies to delays in claim handling.  “The insured must show that there was ‘no valid reason to delay and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.’ … But if the insured cannot succeed on summary judgment for its substantive claim, then it cannot prevail on a bad faith claim based on delay.”

Judge Slomsky already held that the breach of contract/coverage denial claim could not be decided on summary judgment because there were factual disputes.  “As a result, Plaintiffs “cannot establish as a matter of law a right to summary judgment” on their substantive claim, and ‘cannot succeed on [their] claim for bad faith[.]’”

Date of Decision:  August 9, 2021

Bui v. Mid-Century Insurance Company, U.S. District Court District of New Jersey No. CV 19-20053, 2021 WL 3486896 (D.N.J. Aug. 9, 2021) (Slomsky, J.)

BAD FAITH CLAIMS STATED FOR (1) INVESTIGATION NOT WARRANTING COVERAGE DENIAL AND (2) REPORTING INSURED TO COUNTY PROSECUTORS UNDER INSURANCE FRAUD PREVENTION ACT (New Jersey Federal)

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The carrier denied long-term health benefits to the insured, based on its investigation that revealed two facts indicating the insured was not as incapacitated as claimed.  The carrier additionally pursued insurance fraud claims with county prosecutors, who presented those fraud claims to a grand jury.  The grand jury dismissed the bill the same day the claims were presented.  The insured sued for coverage, bad faith, and violation of the Consumer Fraud Act (CFA).

The carrier moved to dismiss all claims.

First, the court found a breach of contract claim pleaded. The court then addressed bad faith, and allowed those claims to proceed.

Plaintiff argued two bases for bad faith: (1) knowing or reckless coverage denial after an improper investigation; and (2) reporting the insured to the county prosecutor for alleged violation of New Jersey’s Insurance Fraud Prevention Act (IFPA).

As to the bad faith investigation claim, the court emphasized it was bound by the pleadings at the motion to dismiss stage. While conceptually possible to rule on bad faith at that stage, the “fairly debatable” standard for bad faith often precludes granting a motion to dismiss because it must be determined whether there are disputes of material facts making the coverage denial fairly debatable.  This is more suited to determination at the summary judgment stage.

Here, the court looked at the facts alleged, and found that the insurer relied on two facts in denying coverage.  These two facts, however, did not create a fairly debatable reason for denying coverage.  Rather, standing alone, the denial on these facts alone could support a finding of bad faith.  Moreover, that the county prosecutor decided to bring those facts to a grand jury in pursuing an insurance fraud criminal claim did not create a fairly debatable basis to deny coverage; especially when the grand jury rejected those charges the same day they were presented.

The court likewise found a bad faith claim stated for the act of bringing the alleged IFPA violation to the county prosecutors. Having already held that plaintiffs adequately alleged the insurer did not have a good faith basis to deny benefits, this necessarily lead to the conclusion that the insurer “similarly did not have a good faith basis to report Plaintiffs for insurance fraud based on that claim.”

Finally, the court did dismiss plaintiffs’ Consumer Fraud Act claim based upon denial of insurance coverage, as beyond the CFA’s scope.  However, the court did permit the CFA claim to proceed for the insurer’s making an insurance fraud claim to the county prosecutors.

Date of Decision:  June 21, 2021

Spina v. Metropolitan Life Insurance Company, U. S. District Court District of New Jersey No. 1:20CV14129NLHKMW, 2021 WL 2525713 (D.N.J. June 21, 2021) (Hillman, J.)

NO BREACH OR BAD FAITH WHEN INSURER REFUSES TO PAY REPLACEMENT VALUE ON BASIS THAT INSURED HAS TO PAY TO HAVE THAT WORK DONE IN THE FIRST INSTANCE (New Jersey Appellate Division)

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The insured suffered property damage. Under the policy, the insurer would initially pay actual cash value for the loss, and would subsequently pay replacement value if the insured first had the replacement work carried out at the insured’s own expense.  The insured raised various arguments, including a central argument that she could not afford to pay for the repairs in advance of receiving payments for those repairs from the insurer, i.e., she was in a Catch-22. (She alleged the repair costs were over $170,000 greater than the ACV payment.)

The insured sued for breach of contract, breach of the duty of good faith and fair dealing, and under the Consumer Fraud Act.  The insurer obtained summary judgment at the trial level, and the Appellate Division affirmed on the basis of the trial court’s reasoning.

Although the policy created this Catch-22, the trial court judge “recognized ‘a party to a contract may not avail itself of a condition precedent where its own conduct rendered compliance with the condition impossible.’” The trial judge did note his own “concern that defendant ‘appears to have no mechanism to provide payment of RCV value until the repairs or replacements are completed[,]’ thereby requiring the insured to ‘front’ the money and seek reimbursement later.’ But the [trial] judge nonetheless found ‘the plain language of the contract provides for a process whether RCV can only occur after the acceptance of a settlement amount or rejection thereof.’”

The trial judge rejected an impossibility of performance argument, and observed that the insured accepted the actual cash value payment and did not put on any expert evidence that the actual cash value sum the insurer paid was incorrect.

Date of Decision: December 31, 2020

Lanier v. Farmers Mutual Fire Insurance Company of Salem County, New Jersey Superior Court Appellate Division No. A-1398-19T2, 2020 WL 7822353 (N.J. Super. Ct. App. Div. Dec. 31, 2020) (Firko, Rose, Whipple, JJ.)

A CLEAR DISPUTE OF FACT OVER COVERAGE DENIAL PRECLUDES BAD FAITH (New Jersey Federal)

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This case involves a water loss coverage dispute. The factual issue is whether the cause of loss was from a specific event or a leak over time damaging the insured’s property.

The insurer denied coverage and the insured sued for breach of contract, bad faith, violation of the Consumer Fraud Act (CFA) and unconscionability. The court found a legitimate dispute of fact over the actual cause of the insured’s damages, but dismissed the bad faith and CFA claims.

As to the bad faith claim, the court set out the following standards:

  1. “A claim for bad faith on a first-party insurance claim in New Jersey requires that the plaintiff show that the insurer (1) had no “reasonable basis for denying benefits of the policy and … [had] knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.”

  2. “Under this ‘fairly debatable’ standard, a claimant who could not have established as a matter of law a right to summary judgment on the substantive claim would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.”

  3. “In other words, if there are material issues of disputed fact which would preclude summary judgment as a matter of law, an insured cannot maintain a cause of action for bad faith.”

  4. Therefore, even at the motion to dismiss stage, the existence of genuine issues of material fact will require the dismissal of a bad faith claim.”

The bad faith claim in this case, however, could not survive. There was a genuine issue of fact directly relating to coverage, as to whether the water loss arose from a single event or a leak over time.  The insured herself had conceded that “certain facts that, if true, would provide at the very least a ‘fairly debatable’ and ‘reasonable basis’ for Defendant’s denial of coverage.”

The court also dismissed the CFA claim. The court observed that the CFA does not apply to denying insurance benefits, and found that the claim at issue was for denial of benefits and not some sort of fraud.

Date of Decision: November 25, 2020

Smith v. State Farm Fire and Casualty Company, U.S. District Court District of New Jersey No. CV1910319RMBAMD, 2020 WL 6938432 (D.N.J. Nov. 25, 2020) (Bumb, J.)

NO BAD FAITH POSSIBLE WHERE DISPUTE OF FACT EXISTS OVER CAUSE OF LOSS; CFA DOES NOT APPLY TO BENEFIT DENIALS (New Jersey Federal)

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The insureds wanted coverage for a fire loss. The carrier’s investigator concluded the fire was set intentionally, but the insureds offered the fire marshal’s conclusion that the fire was of undetermined origin and still under investigation. The carrier denied the claim, and the insured sued. The suit included bad faith and Consumer Fraud Act (CFA) claims, among other causes of action. The insurer successfully moved for summary judgment on the bad faith and CFA claims.

Bad Faith Claim

The court observed generally, “Under New Jersey law, an insurer owes a duty of good faith to an insured when processing first-party claims under an insurance policy. This good faith obligation is greater than that owed under a typical commercial contract because of the fiduciary obligation an insurer owes its insureds. A plaintiff seeking to recover for the bad faith conduct of an insurer is not required to prove bad motive or intention. However, a bad faith claim cannot succeed where the insurer’s conduct amounts to mere negligence.”

Further, “[t]o succeed on a claim against an insurer for the denial in bad faith of benefits under an insurance policy, the insured must demonstrate that no debatable reasons existed for the denial. A plaintiff who cannot establish as a matter of law a right to summary judgment on the issue of coverage cannot succeed on a claim for bad faith denial.”

The court granted summary judgment on the bad faith claim. It reviewed the conflicting fire reports, and found that “[b]ased on conflicting evidence in the record, it is genuinely disputed whether [the insured] caused or did not cause the fire to plaintiffs’ home. A reasonable juror could find that he intentionally set the fire. It follows that plaintiffs could not prevail on a motion for summary judgment that coverage under the policy exists.”

CFA Claim

The Court then addressed the CFA claim. “To prevail on a CFA claim, a plaintiff must establish: (1) the defendant engaged in conduct which violates the CFA; (2) the plaintiff suffered an ascertainable loss; and (3) a causal relationship exists between the unlawful conduct and the loss.” The court also granted the insurer summary judgment on this claim.

“Fraudulently selling or inducing the sale of an insurance policy is a violation of the CFA. However, ‘while the CFA encompasses the sale of insurance policies as goods and services that are marketed to consumers, it was not intended as a vehicle to recover damages for an insurance company’s refusal to pay benefits.’” Date of Decision: July 16, 2020

Watson v. Liberty Mutual Fire Ins. Co., U.S. District Court for the District of New Jersey CIVIL ACTION NO. 19-11994, 2020 U.S. Dist. LEXIS 125361 (D.N.J. July 16, 2020) (Bartle, J.)

 

FAILURE TO DISCLOSE AUTOMATIC COVERAGE/PREMIUM INCREASES STATES CLAIM FOR NEW JERSEY CFA VIOLATION (New Jersey Federal)

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The insured had an ongoing relationship with its carrier, obtaining multiple commercial general liability policies over the years. The insured alleges that the carrier used an undisclosed “inflation guard” program to raise its coverage and premiums over the years, contrary to the insurer’s own requirement that the premium guard program be disclosed to the insured.

Alleging that it was kept in the dark, and would not have agreed to the coverage and premium increased, the insured brought Consumer Fraud Act (CFA) and common law fraud claims against the carrier. The insured describe the carrier’s conduct as “an unconscionable practice of applying undisclosed or hidden automatic premium escalations to insurance contracts that do not appear to call for or disclose such escalations.” The court denied the carrier’s motion to dismiss the fraud and CFA claims.

As to the CFA claims, the court found the insured’s “allegations necessarily implicate an extracontractual fraud. Without disclosure of these charges, Plaintiff was deprived of the opportunity to negotiate them away or seek an alternative carrier. While it is true the product Plaintiff received increased his coverage limits to protect against inflation, non-disclosure of such procedures – and as Plaintiff alleges, intentional concealment of them – may be viewed as unlawful and fraudulent behavior. This type of allegedly unfair and undisclosed business practice is within the spirit and scope of the NJCFA.”

Date of Decision: June 24, 2020

Trocki v. Penn National Mutual Casualty Insurance Co., U.S. District Court District of New Jersey 1:19-cv-13638-NLH-KMW, 2020 U.S. Dist. LEXIS 111150 (D.N.J. June 24, 2020) (Hillman, J.)

NEW JERSEY CONSUMER FRAUD ACT DOES NOT APPLY TO REFUSING TO PAY INSURANCE BENEFITS (New Jersey Federal)

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This New Jersey District Court decision reiterates that New Jersey’s Consumer Fraud Act “is not implicated by the payment of insurance benefits.” Denying insurance benefits that an insured believes are due is not “an unconscionable commercial practice.” Moreover, even where an insurer allegedly violates New Jersey’s Unfair Claims Act regulations, “the alleged violations do not constitute fraudulent or misleading commercial practices.”

Date of Decision: March 13, 2020

Jones-Singleton v. Illinois Mutual Life Insurance Co., U.S. District Court District of New Jersey Case No. 3:19-cv-14220 BRM ZNQ, 2020 U.S. Dist. LEXIS 44613 (D.N.J. Mar. 13, 2020) (Martinotti, J.)

 

NO BAD FAITH WHERE SCOPE OF DAMAGES IS FAIRLY DEBATABLE; NO CFA CLAIMS FOR DENIAL OF INSURANCE BENEFITS (New Jersey Federal)

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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.)

NO SEPARATE CLAIM FOR BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING IF IDENTICAL TO BREACH OF CONTRACT CLAIM (New Jersey Federal)

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This New Jersey federal case involved allegations the insurer underpaid benefits without adequate explanation, and without considering payments required under state law. The case eventually turned into a class action for breach of contract, breach of the implied covenant of good faith and fair dealing, declaratory judgment and injunctive relief, and violation of New Jersey’s Consumer Fraud Act (CFA).

The court found the allegations underlying the breach of contract and implied covenant of good faith and fair dealing claims to be identical. Under New Jersey law, without additional bad faith allegations and adequately distinguishing the bases of the two causes of action, there can be no separate action for breach of the covenant of good faith and fair dealing outside the breach of contract claim. Thus, the implied covenant claim was dismissed.

The CFA claim likewise was dismissed because the damages sought resulted from nothing more than a breach of contract. The court agreed with the insurer that no damages resulted from the insureds relying upon any misrepresentations. Rather, damages only resulted from the insurer’s withholding money allegedly due under the policy, i.e., from a breach of contract. Thus, no damages resulted from the misconduct alleged to violate the CFA, and that claim was dismissed.

The Declaratory Judgment/Injunctive Relief count was dismissed on the basis that, as pleaded, these were forms of relief rather than causes of action.

Date of Decision: March 14, 2019

Lewis v. GEICO, U. S. District Court District of New Jersey No. 1:18-cv-05111-RBK-AMD, 2019 U.S. Dist. LEXIS 41403 (D.N.J. Mar. 14, 2019) (Kugler, J.)

 

NOVEMBER 2018 BAD FAITH CASES: NEW JERSEY CFA CLAIM CAN PROCEED WHERE NO DENIAL OF AN INSURANCE BENEFIT ALLEGED (Third Circuit – New Jersey)

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In this New Jersey action, the plaintiff alleged that the insurer’s agent deceived and defrauded her into signing a release of claims against the insurer. Specifically, the insured alleged that she was injured in an auto accident, and the insurer’s agent showed up at her home with papers to sign. The agent allegedly represented the documents were necessary to process and advance payments on her claim. However, unknown to her, the documents actually included a broad release of all her claims.

Plaintiff initiated a class action under New Jersey’s Consumer Fraud Act (CFA). The District Court found the CFA inapplicable to this fact scenario, on the basis that the CFA does not address the denial of insurance benefits, and further found the CFA conflicts with the Insurance Trade Practices Act (ITPA) or Unfair Claims Settlement Practices (UCSPA) regulations under these circumstances.

The Third Circuit reversed.

The Third Circuit found that the alleged deceptive and fraudulent conduct against a consumer did not amount to the denial of an insurance benefit. It further found that there was no conflict between allowing a statutory CFA private claim to proceed, even if regulatory relief might also be proper under the ITPA or UCSPA.

Date of Decision: November 15, 2018

Alpizar-Fallas v. Favero, United States Court of Appeal for the Third Circuit, No. 17-3837 (3d Cir. Nov. 15, 2018) (Jordan, Rendell, Vanaskie, JJ.)