Archive for the 'NJ – Declaratory Judgment' Category

INSUREDS HAD ONGOING DUTY TO COOPERATE, AND TO PROVIDE DOCUMENTS AND SUBMIT TO EXAMINATION UNDER OATH IN THIRD PARTY CASE, EVEN AFTER SETTLEMENT (New Jersey Federal)

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The insureds were attorneys sued by an insurance carrier. The insured attorneys sought coverage from their own professional liability carrier, and the malpractice carrier asserted no coverage was due. The attorneys/insureds and the professional liability carrier each sought a declaration in their favor on coverage.

The insureds won an early summary judgment ruling form a magistrate judge that the professional liability carrier had a duty to defend. The magistrate judge denied the professional liability carrier reconsideration and permission to take an interlocutory appeal.  She did not rule on any indemnification responsibility, as the underlying suit against the attorneys remained pending.

The professional liability insurer still wanted to take an examination under oath, and the insured responded by seeking a protective order.  Initially, the magistrate judge administratively terminated the case, pending the outcome of the underlying action.

Issues arose concerning the insured’s cooperation in connection with defending the underlying suit.  The magistrate judge reopened the case, ruling that an examination under oath should go forward, that the insureds had a duty to cooperate under the professional liability policy, and that the insureds were not entitled to defense costs during periods of non-cooperation.

The present decision involves an appeal to the District Court from the magistrate judge’s order.

The magistrate judge found the insureds had failed to cooperate by delaying the examination under oath, failed to respond to the professional liability carrier’s offer of defense, and failed to respond to a request for information. She held that although the insureds did not act in bad faith, their actions did appreciably prejudice the malpractice carrier.

On appeal, the District Court agreed that there had been a failure to cooperate, but this failure was not the result of bad faith. The District Court reversed, however, on the issue of appreciable prejudice, finding none. Most important, the insurer had not “irretrievably lost the opportunity to take [an examination under oath]….” Nor was the carrier “precluded from discovering facts that may weigh against coverage under the Policy.”

The District Court agreed with the magistrate judge that there was no appreciable prejudice due to the insured’s refusal to respond concerning the carrier’s providing a defense, stating: “Irrespective of whether Plaintiffs accepted or rejected the defense offer before the [underlying] suit settlement, the only issue remaining post settlement pertains to indemnification. … Thus, there can be no appreciable prejudice … for its inability to defend the [underlying] suit before it settled. Any dispute regarding Plaintiffs’ alleged failure to provide information, including defense costs, may be addressed when the indemnification issue is decided. Accordingly, because [the professional liability carrier] failed to demonstrate appreciable prejudice, it cannot disclaim coverage for Plaintiffs’ noncooperation under the Policy.”

The District Court affirmed the magistrate’s ruling that there was no defect in the malpractice carrier’s reservation of rights.

Likewise, the District Court upheld the magistrate’s decision that the carrier was entitled to the examination under oath, and finding a failure to cooperate. First, the right to take the examination had not been waived. Nor was the request for the examination unreasonable or unfair: “For the reasons already stated, [the] ROR was proper after this Court determined that [the underlying] suit triggered a duty to defend and reserved on the issue of indemnification. It would defy logic to find that [the professional liability carrier] has a duty to defend and properly reserved its rights as to liability yet preclude an EUO to investigate the underlying claims pursuant to the Policy.”

Finally, simply settling the case did not end the insured’s obligations to cooperate under the policy, which expressly provided the insurer with the right to take an examination under oath.

Date of Decision:  September 23, 2020

Karzadi, v. Evanston Insurance Company, U.S. District Court District of New Jersey No. 17-5470 SDWCLW, 2020 WL 5652442 (D.N.J. Sept. 23, 2020) (Wigenton, J.)

INJURED PARTY HAS NO STANDING TO BRING DIRECT THIRD PARTY BAD FAITH CLAIM, EVEN IF AN ADDITIONAL INSURED; BAD FAITH COVERAGE DENIAL CANNOT BE BASIS FOR PUNITIVE DAMAGES (New Jersey Federal)

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The plaintiff stored its food products in the insured’s warehouse. The products were damaged and plaintiff made demand for the damages. The insured sought indemnification from its carrier, which refused coverage based on a care, custody and control exclusion.

The plaintiff sued, and the insured joined its insurer as a third party defendant seeking indemnification against plaintiff’s claims. The injured plaintiff itself also brought third party claims against the same insurer for declaratory judgment and bad faith, both for third party liability and bad faith, and for first party claims. The defendant was an additional insured under the policy. [Though not discussed below, the plaintiff also joined the insured’s agent for failing to obtain proper coverage.]

The insurer sought summary judgment on the insured’s liability claims and plaintiff’s third party claims. The insurer also sought to dismiss the plaintiff’s punitive damages claim against the insurer on the first party claims.

As to the insured’s liability claim, the court denied summary judgment based on a reasonable expectations argument that required more discovery of the facts on what the insured sought and what the carrier led the insured to believe.

As to the plaintiff’s direct third party and bad faith claims against the defendant’s insurer, the court granted summary judgment. While plaintiff was an additional insured, it was not seeking a defense or coverage for claims made against it. Rather, it was seeking to force the insurer to indemnify the insured against the plaintiff’s own claims. Under the policy, and New Jersey law, the plaintiff had no standing to bring direct indemnity claims prior to any settlement or judgment; and it had no standing to bring bad faith claims that only belonged to the insured.

The insurer did not seek summary judgment on plaintiff’s first party claims, but only sought to dismiss the punitive damages claim associated with that count.

The court framed this as follows: “Plaintiff submits that its Third Party Complaint sufficiently supports an award based on egregious and wonton willful disregard by [the insurer] because it shows that [the insurer] denied [the insured] first party coverage in contravention of the terms of the policy and insurance agent’s understanding of the policy.” [It is not clear why the plaintiff had standing to bring a first party claim on the basis that the insurer denied coverage to another party, the insured, which was also a party to the case and was well able to bring such a claim if it were viable.]

The court held that even if the insured denied the first party coverage claim in bad faith, this was insufficient to state a punitive damages claim. The court observed that New Jersey’s Supreme Court does not allow for punitive damages in wrongful refusal to pay first party claims absent egregious circumstances, and an alleged bad faith breach of the insurance contract does not by itself reach that level. “Therefore, here, even if the Third Party complaint supports the inference that [the insurer’s] denial was wrongful or in bad faith, the allegation[s] do not support Plaintiff’s conclusion that denying liability on the basis that the policy did not cover damage to property of others was egregious conduct.”

Date of Decision: March 18, 2020

Pavino v. Cold Storage, U.S. District Court District of New Jersey Civil Action No. 18-14596, 2020 U.S. Dist. LEXIS 46562 (D.N.J. Mar. 18, 2020) (Rodriguez, 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.)

 

OCTOBER 2018 CASES: NOT A BAD FAITH CASE, BUT YOU WILL FIND IT INTERESTING IF YOU ARE INVOLVED IN FEDERAL DECLARATORY JUDGMENT COVERAGE ACTIONS (New Jersey Federal)

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This is a recent decision on the issue of discretionary abstention in federal declaratory judgment actions in the Third Circuit concerning insurance coverage cases. The key point is the court’s reiterating that there is a per se presumption that an insurer’s declaratory judgment action is distinct from an underlying state tort action against the insured, where the insurer is a not a party to that tort case.

The district court looks to the Third Circuit’s direction in Kelly v. Maxum Specialty Insurance Group, which amplified that Court’s 2014 Reifer decision, in giving district courts clarity on the standards governing their refusal to hear insurance coverage cases. The key directive involves the meaning of parallel proceedings.

Under Reifer, “a district court should first determine whether there is a parallel state proceeding.” While the presence of a parallel proceeding is one of many factors, “the absence of pending parallel state proceedings militates significantly in favor of exercising jurisdiction, although it alone does not require such an exercise.” “Relatedly, when a parallel proceeding does exist, ‘district courts exercising jurisdiction should be rigorous in ensuring themselves that the existence of pending parallel state proceedings is outweighed by opposing factors.’”

Following the 2017 Kelly opinion, “[t]o be considered parallel, there must be ‘substantial similarity in issues and parties’ between the pending proceedings.” This “means that the parties involved are closely related and that the resolution of an issue in one will necessarily settle the matter in the other.” A “mere potential or possibility that two proceedings will resolve related claims between the same parties is not sufficient to make those proceedings parallel.”

Insurance cases are parallel when they involve the same parties and claims. Getting to the essence of it, however, “the Kelly decision creates a per se presumption that an insurer’s declaratory judgment action is distinct from underlying tort actions in state court where the insurer is a non-party.”

In Pennsylvania, where coverage claims against the insurer are not joined with the underlying tort claim in the same case, this should have the practical effect of working against federal abstention. In New Jersey, where the insured may join the insurer in the tort case on the issue of coverage, this will depend on the procedural posture of the case. In the instant case, the insurer was not a party in the New Jersey state court tort action, and the presumption that there was no parallel action, and thus a presumption against abstention, applied.

After adopting the presumption in favor of jurisdiction in the absence of parallel proceedings, the court weighed the 8 Reifer factors in determining whether the insured could overcome that presumption. These include: “(1) the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy; (2) the convenience of the parties; (3) the public interest in settlement of the uncertainty of obligation; (4) the availability and relative convenience of other remedies; (5) a general policy of restraint when the same issues are pending in a state court; (6) avoidance of duplicative litigation; (7) prevention of the use of the declaratory action as a method of procedural fencing or as a means to provide another forum in a race for res judicata; and (8) (in the insurance context), an inherent conflict of interest between an insurer’s duty to defend in a state court and its attempt to characterize that suit in federal court as falling within the scope of a policy exclusion.”

Each of these factors will be unique to the specific case at hand. In this matter, the factors weighed in favor of retaining federal jurisdiction.

Date of Decision: September 28, 2018

Colony Insurance Co. v. Troensa Construction, Inc., U. S. District Court District of New Jersey Civil No. 17-03577 (RBK/KMW), 2018 U.S. Dist. LEXIS 167683 (D.N.J. Sept. 28, 2018) (Kugler, J.)

 

NOVEMBER 2017 BAD FAITH CASES: FEDERAL DISTRICT COURT WOULD NOT ABSTAIN IN DECLARATORY JUDGMENT MATTER BASED ON ALLEGED FRAUD IN INSURANCE APPLICATION (New Jersey Federal)

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An insurer brought a declaratory judgment action seeking policy rescission based upon alleged misstatements concerning the insured’s business in the application process. The insured was subject to a liability suit in state court, and asked the federal court to abstain from hearing this federal action.

The federal court refused. It cited recent Third Circuit case law making clear that there is no policy favoring blanket abstention of insurance declaratory judgment actions; and focused on the fact that the two cases were not parallel proceedings and were not substantially similar.

Date of Decision: October 20, 2017

Scottsdale Indemnity Co. v. Collazos, Civil No. 16-8239 (RBK/KMW), 2017 U.S. Dist. LEXIS 173990 (D.N.J. Oct. 20, 2017) (Kugler, J.)

MARCH 2016 BAD FAITH CASES: ATTORNEYS FORMERLY REPRESENTING INSURER IN DECLARATORY JUDGMENT ACTION WERE NOT ALLOWED TO LATER REPRESENT INSUREDS AS DEFENSE COUNSEL IN CIVIL ACTION (New Jersey Appellate Division)

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In Bukowiec v. Adamo, the case arose out of a one car accident resulting in a death and severe injury.  The car had been provided to the driver’s mother as a courtesy car by a dealer.  The insureds were successful in defeating a declaratory judgment against one of their potential insurers, i.e., the dealer’s insurer. The trial court found coverage was due from that insurer.  The opinion makes repeated references to that insurer ultimately intending to appeal the trial court’s decision, which was interlocutory and not then appealable as of right.

One of the insurer’s law firm’s on the declaratory judgment claims later entered an appearance for the insureds as defense counsel, to defend the insureds against the underlying civil claims brought by the estate of one of the accident victims. That law firm withdrew as the insurer’s counsel as to the declaratory judgment aspect of the matter.

The insureds agreed to allow that counsel to serve as their defense counsel in the civil litigation. However, plaintiff’s counsel on the civil claims moved for disqualification.  The appellate court ruled for the disqualification.

Among the various reasons discussed, the court stated:  “[the insured’s and insurer’s] interests remained adverse after the [firm] withdrew from representing [the insurer]. It remained in [the insured’s] best interest to settle the case. [The insurer’s] only position of record — espoused by the … firm during earlier proceedings — was its intention to appeal. For these reasons and those we have previously noted, ‘there is a significant risk that the representation of [the insured] will be materially limited by [the …firm’s] responsibility to . . . a former client,’ namely, [the insurer]. R.P.C. 1.7(a)(2). In view of the … firm’s previous representation of [the insurer], it cannot now advocate the reasons [the insurer] should make a good faith effort to settle plaintiff’s claims, including avoiding a bad faith claim.”

Date of Decision:  January 6, 2016

Bukowiec v. Adamo, DOCKET NO. A-4092-13T1, SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2016 N.J. Super. Unpub. LEXIS 36 (App. Div.  May 12, 2015) (Fisher, Nugent, Manahan, JJ.)

MARCH 2015 BAD FAITH CASES: INSURER ENTITLED TO ATTORNEY’S FEES AGAINST OTHER INSURER IN DECLARATORY JUDGMENT ACTION; CLAIM OF UNCLEAN HANDS REJECTED (New Jersey Federal)

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In Carolina Casualty Insurance Company v. Travelers Property Casualty Company, the plaintiff insurer brought a declaratory judgment action against two other insurers.  It sought a judgment that it owed no defense or coverage obligations in connection with an underlying claim.  The defendant insurers were successful in finding plaintiff owed coverage.  The plaintiff insurer was required to pay reimbursement toward a prior settlement, paid fully by defendant insurers.

The defendant insurers sought attorney’s fees and costs under R. 4:42(9)(a)(6), as the prevailing parties in the coverage action.  The parties agreed a successful carrier could recover under the rule, however, the plaintiff insurer argued the defendant insurers should not be allowed to recover, under the doctrine of unclean hands.  It claimed that the defendant insurers were precluded from recovery for deliberate delays and failures to settle, and by bringing a claim against another insurer which they later abandoned; all of which allegedly increased the legal fees.

The court rejected this argument, finding that there was “no conduct so inequitable as to bar an otherwise appropriate recovery.” Rather, the defendant insurers had a “right to assert their case against a potentially liable insurer…, [and] [t]hat they subsequently chose to release their claims (which turned out to be worth $15,000) is not blameworthy.”  Thus, they could still recover fees and costs under Rule 4:42-9(a)(6).

Moreover, even if these carriers were somehow “dilatory, these acts are not ‘directly related’ in the sense that they are inconsistent with the basic entitlement to costs.” The court analogized this to the recovery of attorney’s fees in insurance bad faith cases, such as breaching a fiduciary duty to settle claims, noting that the mere failure to settle a debatable claim does not give rise to bad faith.  In this case, the defendant insurer’s position was not only debatable, it was correct; and its failure to accept the plaintiff insurer’s settlement offer was not inequitable.

Date of Decision: February 25, 2015

Carolina Casualty Insurance Company v. Travelers Property Casualty Company, Civ. No. 09-4871, 2015 U.S. Dist. LEXIS 22674 (D.N.J. February 25, 2015) (McNulty, J.)

JANUARY 2015 BAD FAITH CASES: APPELLATE DIVISION REITERATES FACTORS FOR TRIAL COURTS TO CONSIDER IN DETERMINING WHETHER TO AWARD FEES UNDER R. 4:42-9(a)(6) (New Jersey Appellate Division)

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In Encompass Insurance Company v. Quincy Mutual Fire Insurance Company, the court addressed the standards for awarding counsel fees under Rule 4:42-9(a)(6) to a successful claimant in a declaratory judgment action.  The court made clear that insurer bad faith is not a perquisite, but it is a factor trial courts may consider.

The trial court has broad discretion and may consider an insurer’s good faith refusal to pay demands, the excessiveness of a plaintiff’s demands, the bona fides of either party, the insurer’s justification for litigating the matter, the insured’s conduct in substantially contributing to the necessity for the litigation, the parties’ general conduct, and the totality of the circumstances.

The court also observed that fees can be awarded if the claimant is the insured or the insurer.  In this case, the dispute was between insurers, and the court observed that in suits between insurers, as opposed to a claim between insured and insurer, it does no violence to the general principles of R. 4:42-9(a) to have each party bear its own legal fees, if the totality of the circumstances so suggests. Date of Decision:  November 14, 2014

Encompass Ins. Co. v. Quincy Mut. Fire Ins. Co., DOCKET NO. A-3000-12T4, SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2014 N.J. Super. Unpub. LEXIS 2684 (November 14, 2014) (Hayden and Leone, JJ.)

SEPTEMBER 2014 BAD FAITH CASES: INSURER DID NOT PROVE INSURED ENTERED SETTLEMENT IN BAD FAITH OR UNREASONABLY; INSURED DID NOT HAVE TO PROVE BAD FAITH TO RECOVER ATTORNEYS’ FEES (New Jersey Federal)

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In The Travelers Property Casualty Co. of America v. USA Container Co., the insured was subject to suit over a spoiled overseas delivery of corn syrup to a European buyer. The carrier declined coverage, but during settlement negotiations between the insured and plaintiff, did make a limited offer to contribute to a settlement, subject to a right of reimbursement. The insured declined, and settled.

The insurer later claimed it should not have to reimburse the full settlement, in the context of its declaratory judgment action. The court found that the insurer failed to produce evidence that the settlement was entered in bad faith or was unreasonable, and thus it was liable for the full amount.

The court then analyzed the 7 factor test for determining whether the unsuccessful insurer in the declaratory judgment action was liable for attorneys’ fees under N.J. Ct. R. 4:42-9(a)(6), and observed that the insured need not establish bad faith to recover fees; rather, the presence of bad faith was only one factor to consider.

Date of Decision: July 21, 2014

Travelers Prop. Cas. Co. of Am. v. USA Container Co., Civil Action No. 09-1612 (JLL) (JAD),  2014 U.S. Dist. LEXIS 99635 (D.N.J. July 21, 2014) (Linares, J.)

JULY 2014 BAD FAITH CASES: APPELLATE DIVISION UPHOLDS TRIAL COURT DECISION NOT TO AWARD ATTORNEYS FEES UNDER RULE 4:42-9(a)(6) FROM ONE INSURER TO ANOTHER IN DECLARATORY JUDGMENT ACTION, PARTICULARLY WHERE LOSING INSURER’S ARGUMENT WAS MADE IN GOOD FAITH (New Jersey Appellate Division)

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In Strunk v. M&A Trucking, the court refused to award attorney’s fees under Rule 4:42-9(a)(6) in a declaratory judgment action between two insurers arguing coverage issues, where one insurer had defended and indemnified the insured in the underlying action; particularly where the trial court determined the issues were worthy of consideration.

Date of Decision: June 19, 2014

Strunk v. M&A Trucking & Edson L. Silva, DOCKET NO. A-2344-12T4 A-3195-12T4 , SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2014 N.J. Super. Unpub. LEXIS 1460 (App. Div. June 19, 2014) (Alvarez, Ostrer and Carroll, JJ.)