Archive for the 'NJ – Consumer Fraud Act' Category

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.)

NEW JERSEY SENATE PASSES STATUTORY BAD FAITH BILL -- OR WILL SOME SAY IT IS AN INSURER NEGLIGENCE BILL?

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On June 7, 2018, New Jersey’s Senate passed New Jersey Senate Bill 2144, the New Jersey Insurance Fair Conduct Act (IFCA). In its current form, the proposed law creates an insurance bad faith statute that would provide remedies for “an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy,” and/or for violations N.J. Statute 17:29B-4. Among other provisions, subsection 9 of 17:29B-4 includes New Jersey’s Unfair Claims Settlement Practices Act (UCSPA), which lists 14 different forms of insurer misconduct.

COULD THE PROPOSED LAW ONLY REQUIRE PROOF OF NEGLIGENCE FOR DELAY OR DENIAL OF A BENEFIT?

By contrast with current common law bad faith, the IFCA does not clearly state any additional requirement that an unreasonable delay or denial be accompanied by some form of bad faith, intentional conduct or reckless indifference, or whether the word “unreasonable” itself means more than negligence. Defining common law bad faith, New Jersey’s Supreme Court stated in the Badiali case that: “A finding of bad faith against an insurer in denying an insurance claim cannot be established through simple negligence. … Moreover, mere failure to settle a debatable claim does not constitute bad faith. … Rather, to establish a first-party bad faith claim for denial of benefits in New Jersey, a plaintiff must show that no debatable reasons existed for denial of the benefits.” New Jersey’s federal courts have frequently interpreted the fairly debatable bad faith standard as requiring proof the insurer knew its conduct was unreasonable or recklessly disregarded that fact. This includes both pre and post Badiali cases, including recent decisions.

Thus, without further explanation, it is not wholly clear whether the IFCA is subject to a negligence standard, or if IFCA unreasonableness is meant to include the additional common law elements that go beyond mere negligence. If the standard is negligence, then it would be a misnomer to call this a bad faith statute at all.

The statute proposes including treble damages and attorneys’ fees, and legal costs within its remedies, which some may argue are atypical punishments for merely negligent conduct. By comparison, however, the Consumer Fraud Act (CFA) provides for treble damages and attorney’s fees to address a wide range of conduct and mental states. Thus, the CFA punishes affirmative statements that constitute misrepresentations, irrespective of an intent to mislead; knowing material omissions, which do require proof of intent; or strict liability for regulatory violations.

WHAT STANDARDS APPLY TO UCSPA VIOLATIONS?

On this last point, the proposed IFCA encompasses the UCSPA, among other portions of section 17:29B-4. Within the UCSPA’s 14 subsections, reasonableness is often the express standard, however, some subsections simply describe the conduct constituting whether an insurer has acted improperly, or, in some instances it describes conduct beyond mere negligence. The UCSPA’s language includes, e.g.: “misrepresenting pertinent facts”, “failing to acknowledge and act reasonably promptly”, “failing to adopt and implement reasonable standards”, “refusing to pay claims without conducting a reasonable investigation based upon all available information”, “failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed”, “not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear”, “making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which the payments are being made”, “compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds”.

Despite using reasonableness standards in many instances, the UCSPA is underpinned by the notion that the misconduct is frequent enough to indicate a general business practice. This frequency requirement would seem to indicate that an element of intentionality or purposefulness is the fundamental reason that it is necessary to address the misconduct listed in all 14 subparts. In eliminating the frequency requirement, is the IFCA overlooking the idea that the UCSPA was designed to punish ongoing and continuous bad behavior because of its purposeful, intentional or reckless repetition, and not merely individual instances of negligent or unintentional behavior?

It is also interesting to compare subsection 17:29B-4(9)(f) and the new delay or denial IFCA cause of action. Under UCSPA subsection (9)(f): “Committing or performing with such frequency as to indicate a general business practice any of the following: … (f) ‘Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear….” This statutory language includes two concepts to make out misconduct: (1) a lack of good faith effort to settle when (2) it is unreasonable not to make a fair settlement. Under the proposed new law, the failure to pay a benefit due is actionable if it unreasonable, with no mention of any failure to act in good faith as an additional element.

THERE IS NO STATEMENT ON THE STANDARD OF PROOF

In addition, there is no explanation of what burden of proof applies, i.e., preponderance of the evidence or clear and convincing evidence. It should be noted that the preponderance of evidence standard applies to the Consumer Fraud Act and Insurance Fraud Prevention Act. Moreover, while statutory UCSPA violations require that the acts at issue be committed or performed “with such frequency as to indicate a general business practice,” that is not the proposed standard under the new law. Neither unreasonable delay or denial claims, nor actions for UCSPA violations, require “the claimant … to prove that the insurer’s actions were of such a frequency as to indicate a general business practice.”

IS THE PROPOSED LAW ONLY APPLICABLE TO FIRST PARTY BENEFIT PAYMENTS?

The “Statement” accompanying the bill begins: “This bill, the ‘New Jersey Insurance Fair Conduct Act,’ establishes a private cause of action for first-party claimants regarding certain unfair or unreasonable practices by their insurer.”

The bill defines: “’First-party claimant’” or ‘claimant’ means an individual, corporation, association, partnership or other legal entity asserting an entitlement to benefits owed directly to or on behalf of an insured under an insurance policy.” Under this definition, it certainly appears that a claimant must be an insured who has been denied an entitlement to a benefit. In unreasonable delay or denial cases, there must be a delay or denial “for payment of benefits under an insurance policy….” Thus, if no monetary benefit is due, the statute should not apply.

As to UCSPA cases, claims may be asserted “for any violation of the provisions of” the UCSPA’s sections. Based on the definition of claimant, one would assume that there must be some actual denial of a monetary benefit due to the insured for a claimant to raise a UCSPA based IFCA action. Regulatory oversight should apply where no benefit is denied, but the UCSPA has been violated. The statute could be clearer on this point.

In practice, first party claims are often contrasted with third party claims to mean that first party claims are direct claims by an insured to a carrier to indemnify losses suffered by the insured. Third party claims involve instances where an insured is subject to another’s claim for loss caused by the insured, or where the insured has been sued and is seeking a defense and indemnification for losses suffered by others attributable to the insured. Following these uses, and looking solely to the bill’s text, it is not perfectly clear whether the proposed new law covers third party claims, though it would seem not to cover such claims.

The definition of claimant includes “asserting an entitlement to benefits owed [1] directly to or [2] on behalf of an insured under an insurance policy.” A benefit “owned directly to” an insured clearly addresses first party claims. Some may try to argue that the phrasing, a benefit owed “on behalf of an insured,” could be interpreted to mean owed on behalf of an insured to those making claims against the insured. Moreover, is the duty to pay for the insured’s defense in a third party action a benefit owned directly to the insured?

This language could use some clarification in the statute’s text itself in the first instance if it is to become law, rather than going through years or decades of case law to answer these questions in the courts, as issues of statutory interpretation. One only need look at the effusion of statutory bad faith case law in neighboring Pennsylvania over the last 29 years to see the benefits of writing a clear statute in the first instance. If, as seemingly set forth in the “Statement,” the new law is only to cover traditional first party claims, then make that clear in the text. If it is to cover something more, then make that clear.

REMEDIES AND NEED FOR FURTHER CLARIFICATION

The proposed law provides that “upon establishing that a violation of the provisions of this act has occurred,” plaintiffs “shall be entitled to: (1) actual damages caused by the violation of this act; (2) prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses; and (3) treble damages.”

The new law uses the phrase “upon establishing”, which again points out (1) the absence of what the burden of proof is to establish a cause of action under this statute; (2) whether the statute requires negligence, some form, intent, recklessness or bad faith; (3) whether the unreasonableness must be subjective or objective; and/or (4) whether there could be instances of strict liability.

Moreover, these remedies are mandatory and not discretionary because plaintiffs “shall be entitled” to the listed relief. Again, it arguably would be out of the ordinary to award mandatory treble damages and attorney’s fees upon proof of negligence only.

As to the meaning of “actual damages”, this relief would appear to be redundant with an ordinary breach of contract claim if limited to benefits due and not paid under the policy. However, the meaning of the term is not defined in the proposed new law. Does the term “actual damages” also encompass consequential damages? Does it encompass emotional distress damages? Again, the lack of definition opens the door to years of litigation over such issues.

Some other loose ends: Looking at issues arising in other state’s interpreting bad faith statutes, it may be useful to include an express statute of limitations and what portions of the statute go to the jury or not.

We will be following the legislative process and reporting on the proposed IFCA as it develops.

APRIL 2016 BAD FAITH CASES: (1) NO CONSUMER FRAUD ACT CLAIM FOR DENIAL OF BENEFITS; (2) NEGLIGENCE CLAIM UNDER UNFAIR CLAIMS SETTLEMENT PRACTICES ACT NOT ASSIGNABLE OR ACTIONABLE; AND (3) NO BAD FAITH CLAIM WHERE QUESTION WHETHER PROPERTY DAMAGE FELL WITHIN POLICY PERIOD WAS FAIRLY DEBATABLE (New Jersey Federal)

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In Nationwide Mutual Insurance Company v. Caris, the underlying facts involved the alleged fraudulent sale of a property with contamination.  The insureds entered a consent judgment and assigned their rights against the carrier to the buyers.  The buyers then brought various claims against the insurer, including bad faith claims.

The court dismissed a New Jersey Consumer Fraud Act claim because the allegation was that the insurer failed to provide benefits, not that it procured the insurance policy through fraud.

The assignees also had raised a negligence per se claim for improper claims handling and failure to give timely notice that no coverage would be provided.  The court found that the assignees had no standing to bring a claim based upon negligence, as such a claim could not be assigned to them prior to judgment being entered.

Moreover, to the extent this was pleaded as an alternative to asserting a bad faith claim, no such cause of action exists under New Jersey law: “[A]n insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence.”

Finally, “there is no private right of action for policyholders against their insurers based on UCSPA violations or negligence.”

Turning to the bad faith claim: the insured “must show: (1) the insurer lacked a reasonable basis for its denying benefits, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.”  New Jersey courts apply the “fairly debatable” standard, meaning  “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.”

“In the case of processing delay, bad faith is established by showing no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.” This is essentially the same as the fairly debatable standard, and the “mere failure to settle a debatable claim does not constitute bad faith.”

Despite a litany of bad faith allegations, the assignees could not establish the insurer lacked a reasonable basis to deny coverage, or that its coverage position – that there was no property damage caused by an occurrence during the policy period – was unreasonable.

Thus, “[w]hen a carrier proffers ‘plausible reasons for the denial of coverage’ and ‘demonstrates that there is, at the very least, genuine questions regarding whether [an insured’s] claims fall within the coverage provided,’ dismissal of a related bad faith claim is proper, even on a motion to dismiss.”

The burden in this case was on the insureds to prove the property damage occurred during the policy period, and the court found that issue was fairly debatable.  Thus, it granted the motion to dismiss the bad faith claim.

Date of Decision: March 14, 2016

Nationwide Mut. Ins. Co. v. Caris, No. 14-5330, 2016 U.S. Dist. LEXIS 33407 (D.N.J. Mar. 14, 2016) (Rodriguez, J.)

 

OCTOBER 2015 BAD FAITH CASES: COURT DOES NOT DISMISS CLAIMS FOR ATTORNEY’S FEES IN BREACH OF THE DUTY OF GOOD FAITH AND FAIR DEALING CLAIM AS POTENTIALLY BEING A FORM OF CONSEQUENTIAL DAMAGES (New Jersey Federal)

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In Breitman v. National Surety Corporation, the court was faced with the question of whether an insured could request attorney’s fees as part of consequential damages to a claim of bad faith.

The case arose out of a Hurricane Sandy coverage dispute in which the insurer originally denied the insured’s claim for loss and damage to the insured’s property caused by flood, not wind, as a result of Hurricane Sandy. The insured alleged that the insurer “conducted an improper adjustment, wrongfully denied his claim, and delayed payment.” The insured filed suit and set forth claims for breach of contract, breach of the duty of good faith and fair dealing/bad faith, and violations of the New Jersey Consumer Fraud Act. The insurer moved to strike the request for attorney’s fees from the bad faith claim.

In refusing to strike the insured’s request for attorney’s fees as part of his claim for breach of the duty of good faith, the court noted that under New Jersey law, “attorney’s fees are recoverable where provided for under a court rule or statute, pursuant to a contract, or where counsel feels are a traditional element of damages in a particular cause of action.” The court acknowledged that New Jersey law does not allow for an insured to recover attorney’s fees in a direct suit against his insurer for coverage, but explained that fees may be recoverable on a bad faith claim because “consequential economic damages are part of the damages award in a cause of action for bad faith.”

While the insurer urged the court to hold otherwise, the court stated that it was not necessary to conclusively decide this issue at such an early stage in the litigation. As the insured was able to plausibly show that fees may be part of the consequential damages on a claim of bad faith, the court permitted the request to remain, and reasoned that the issue of damages would be revisited if the insured later proved his claim against the insurer.

Date of Decision:  September 29, 2015

Breitman v. Nat’l Sur. Corp., CIVIL ACTION NO. 14-7843, 2015 U.S. Dist. LEXIS 130744 (D.N.J. September 29, 2015) (Simandle, 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.)

MARCH 2015 BAD FAITH CASES: PLAINTIFF STATED BAD FAITH CLAIM WHEN ALLEGING THAT INSURER’S ADJUSTER ADMITTED A BASIS FOR LOSS AS TO WHICH COVERAGE WAS DUE, BUT INSURER LATER DENIED COVERAGE (New Jersey Federal)

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In Bannon v. Allstate Insurance Company, a Hurricane Sandy case, the policy provided “that coverage for dwellings or other structures did not include loss caused by ‘flood, including, but not limited to, surface water, waves, tidal water or overflow of any body of water or spray from any of these things, whether or not driven by wind.’” The insurer denied coverage.

However, in the Complaint, the insured alleged that the insurer’s adjuster had conceded that the home was destroyed by wind.  She further alleged “that other evidence, including statements from witnesses, photographic evidence, and professional opinions, support a finding that Plaintiff’s home was destroyed as a result of wind damage.” The insurer allegedly had called in an engineer to review the claim after the adjuster’s initial position.

The insured brought claims for breach of the implied duty of good faith and fair dealing, as well as breach of contract and under the Consumer Fraud Act (“CFA”).  The insured asserted that the insurer, through its “agents, servants, and employees, improperly adjusted and denied her claims, failed to properly investigate the damage, and unjustifiably refused to perform its obligations.”  The insurer moved to dismiss. The issue was whether the insurer’s position was “fairly debatable.”

The Court stated: “The question of whether the claim is ‘fairly debatable’ is, clearly, a fact-specific question. Moreover, it is not obvious from the face of the … Complaint, including the alleged facts that [the insurer’s] adjuster initially opined that the damage to Plaintiff’s home was cause by wind, and that [the insurer] sent an engineer to inspect the property after its denial of coverage, that the denial of coverage for alleged wind damages was ‘fairly debatable.’ While this claim may be subject to dismissal on a summary judgment motion, following discovery, the … Complaint states sufficient facts to permit the claim to go forward.”

The Court further followed “the Third Circuit’s lead by predicting that the New Jersey Supreme Court would find that the New Jersey CFA applies to the payment of insurance benefits.”

The Court did dismiss the punitive damages claim: “Even if Plaintiff can show that Defendant acted in bad faith, Plaintiff has not pleaded facts that rise to the level of egregiousness necessary for punitive damages in an insurance contract case. Certainly the facts as alleged do not show actual malice, or a wanton and willful disregard of persons who might be harmed.”

Finally, the court dismissed the attorneys’ fee claim, on the basis that Rule 4:42-9(a)(6) does not apply to first party claims, an issue that has been opened for review by New Jersey’s Supreme Court.

Date of Decision:  February 24, 2015

Bannon v. Allstate Insurance Company, Civil Action No. 14-1229 (FLW)(LHG), 2015 U.S. Dist. LEXIS 21591 (D.N.J. February 24, 2015) (Wolfson, J.)

 

MARCH 2014 BAD FAITH CASES: CLAIMS THAT AN INSURER ACTED UNREASONABLY DO NOT SET OUT A BAD FAITH CLAIM ON THE FACE OF THE CLAIM, BUT CFA CLAIM ALLOWED TO PROCEED (New Jersey Federal)

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In Beekman v. Excelsior Ins. Co., another Superstorm Sandy case, the plaintiff’s asserted that the insurer defendants improperly adjusted his loss claim.  His pleaded that this amounted to a breach of the implied covenant of good faith and fair dealing. It is true that under New Jersey law, a duty of good faith and fair dealing is implicit in every contract of insurance; however, a claiming its breach “’must provide evidence sufficient to support a conclusion that the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties.’”

The plaintiff’s allegations were couched in terms of what was, or was not, “reasonable” on the part of the Defendant insurers.  However, claims insurers acted unreasonably are insufficient alone to support a finding that Defendants breached the covenant of good faith and fair dealing, and that claim was dismissed.

Following Third Circuit precedent, however, the Court did allow the New Jersey Consumer Fraud Act claim to stand, and that this statute could be applied to insurance claims.

Date of Decision:  February 21, 2014

Beekman v. Excelsior Ins. Co., Civ. No. 14-363, , 2014 U.S. Dist. LEXIS 21864 (D.N.J. Feb. 21, 2014) (Thompson, J.)

2013 BAD FAITH CASES: DISTRICT COURT CONFIRMS ARBITRATION AWARD IN FAVOR OF INSURER FINDING INSURED ATTEMPTED TO MAKE FRAUDULENT CLAIM (New Jersey Federal)

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Defendant was an insured under a $1.5M Voluntary Accident Insurance Policy, providing coverage for, amongst other things, ‘permanent total disability.’ In 2005, defendant gave notice of a claim for permanent total disability benefits as a result of injuries suffered from a fall down an escalator at the Munich Airport in Munich, Germany. Plaintiff denied defendant’s claim. Defendant filed a demand for arbitration disputing the denial of her claim and asserting claims for breach of contract, equitable reformation, insurance bad faith, and violations of the New Jersey Consumer Fraud Act.

Plaintiff filed a counterclaim in the arbitration for common law fraud founded upon representations made by defendant during the claim investigation and the arbitration. The arbitration panel entered an award in plaintiff’s favor on all of the defendant’s claims and a partial award as to liability on plaintiff’s counterclaim for fraud. The panel chair concluded that defendant’s claimed disabilities and limitations were largely or entirely feigned for the purpose of financial gain, and that defendant had engaged in deliberate deception. Plaintiff was separately awarded fees and costs.

Plaintiff filed a motion to confirm the arbitration awards. Defendant opposed plaintiff’s motion to confirm, but failed to raise any viable arguments in support of her position, with her filings focusing primarily on the believed misconduct of her attorneys and unsubstantiated allegations of arbitrator partiality. Defendant also failed to move to vacate the arbitration award, thereby forfeiting the right to oppose confirmation of the award when sought by the opposing party.

Plaintiff also sought to dismiss defendant’s counterclaims and strike defendant’s answer for failing to comply with the Federal Rules of Civil Procedure. Due to the arbitration clause in the insurance contract, the court dismissed the counterclaim entirely, as it should have been raised in an arbitration setting. The court did, however, allow the answer to stand, given defendant’s pro se status, but deemed all allegations which defendant failed to deny admitted.

Date of Decision: November 26, 2013

Fed. Ins. Co. v. Von Windherburg-Cordiero, Civil Action No. 12-2491 (JAP), 2013 U.S. Dist. LEXIS 168482 (D.N.J. Nov. 27, 2013) (Pisano, J.).