Archive for the 'NJ – Estimates, Valuation or Appraisal' 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.)

DECEMBER 2018 BAD FAITH CASES: NO BAD FAITH WHERE CARRIER’S SETTLEMENT OFFERS ARE BASED ON THIRD PARTY EVALUATION, AND ANY DELAYS WERE CREATED BY INSURED (New Jersey Appellate Division)

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This first party bad faith case centered on damage to plaintiff’s automobile. The insured claimed the carrier knowingly failed to tender the true value of plaintiff’s property damage. The lower court granted the insurer summary judgment on bad faith, and the insured appealed.

The appellate court found no bad faith. The insurer “made multiple offers to settle the claim that were all based upon third-party evaluations” of a vehicle with 269,000 miles on it. Moreover, it was the insured who “initially delayed the processing of the claim by insisting he would obtain an amended police report showing he was not at fault in the accident,” but “after the passage of several weeks, he relented.” Further, after finally supplying requested information to the insurer, the third party evaluator did substantially increase the settlement offer.

Under these circumstances, “no reasonable factfinder could conclude that defendant acted with knowledge or reckless disregard of the lack of a reasonable basis for denying the claim or with reckless . . . indifference to facts or to proofs submitted by the insured.”

Date of Decision: December 3, 2018

Ferro v. Travelers Insurance Co., Superior Court of New Jersey DOCKET NO. A-5174-16T3, 2018 N.J. Super. Unpub. LEXIS 2642, 2018 WL 6272940 (New Jersey Appellate Division Dec. 3, 2018)

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.)

 

MAY 2017 BAD FAITH CASES: COURT FINDS THAT JURY MUST DETERMINE WHETHER INSURED AND INSURER REACHED SETTLEMENT OF SUPERSTORM SANDY CLAIM (New Jersey Federal)

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In this case, the insured submitted a claim to its insurer as a result of wind and flood damage sustained during Superstorm Sandy. The insured and the insurer each hired an engineer/contractor to determine the extent of damage to the building and the cost to repair. Emails between the two contractors seemed to indicate that a settlement had been reached with regard to the replacement cost of covered damage. The insured cashed the insurer’s checks, but never made repairs to the building.

The insured’s counsel ultimately sent an additional estimate prepared by another engineer to the insurer. The insurer refused to pay the remaining balance as indicated on the additional estimate, and the insured filed suit for breach of contract and breach of the implied covenant of good faith and fair dealing.

The insurer moved for summary judgment, and argued that it had entered into a binding settlement agreement as a result of the email exchanges between the contractors respectively hired by the insured and the insurer. In response, the insured argued that the contractor it hired did not have authority to bind it to any settlement, and even if it had authority, no settlement had been agreed to.

The court noted that the insured had the burden of proving the elements of its claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Ultimately, the court found that it was for a jury to determine whether the parties entered into a settlement agreement that precludes the insured’s suit against the insurer.

The court held that if “a jury finds that no enforceable settlement agreement exits, the jury must then determine whether [the insurer] breached the parties’ insurance contract and did not act in good faith” by failing to pay the balance of the additional estimate that the insured submitted.

Date of Decision: March 31, 2017

Coleman Enters. Co. v. Scottsdale Ins. Co., No. 1:14-cv-07533-NLH-AMD, 2017 U.S. Dist. LEXIS 50078 (D.N.J. March 31, 2017) (Hillman, J.)

JULY 2015 BAD FAITH CASES: PA FEDERAL COURT, APPLYING NEW JERSEY LAW, FINDS HANDLING OF PROPERTY DAMAGE CLAIM “FAIRLY DEBATABLE” AS TO THE SUM DEMANDED, REFUSAL TO ENTER APPRAISAL PROCESS, AND TIMING OF ASKING FOR EXPERT REPORT AFTER SUIT INITIATED (Philadelphia Federal)

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In Beyer v. State Farm Fire & Casualty Company, a Pennsylvania federal court was called upon to apply New Jersey law to a first party property damage claim. Under New Jersey law, bad faith cannot be established if the insurer’s position was “fairly debatable”. In practice this means that if the facts are sufficiently in dispute that an insured could not win a motion for summary judgment on coverage, then the claim is fairly debatable.

Under New Jersey law, an insured need not prove any dishonest motive on the insurer’s part, though the insured must prove that the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.

In this case, the insurer carried out a series of inspections, after some of which the insurer increased its payments to the insureds but did not give the insured all sums sought. The court found that this did not amount to bad faith where the record showed the payments the insurer refused were in dispute.

Next the insurer’s refusal to agree to an appraisal on certain items remained the subject of material dispute as to whether there was coverage for those loses, i.e., if there were no coverage an appraisal would be unwarranted.

Finally, where the insureds did not request an expert report from the insurer until after litigation had started, any delay in producing that report did not delay the claim processing. Rather, “[a]fter the [insureds] filed suit, the [expert] report became discoverable subject to the applicable rules of civil procedure.” Thus summary judgment was granted on the bad faith claim.

Of considerable interest is the first paragraph of this Opinion, which is quoted here verbatim:

“A property insurance policy for a beach home is a negotiated document through which the insurer, competing against other insurers, will cover certain losses based on its risk assessment. After a loss, repeated negotiations and supplemental insurance payments against the backdrop of disputed claims is often part of the insurance recovery process. The insurer is entitled to dispute coverage for items it believes are not covered so long as its positions are fairly debatable and the insured may challenge such determinations. This process is part of many litigated property loss claims. An insurer timely negotiating but refusing to budge from a position it believes to have merit is not bad faith.

Here, the parties disagree as to coverage, submission to appraisal and producing a report. Plaintiffs claim the insurer breached their contract in failing to tender payments. In the accompanying Order, we grant the insurer’s motion for partial summary judgment on the insured’s bad faith claim in Count II of the Complaint as there are no genuine issues of material fact the insurer did not act in bad faith under applicable New Jersey law.”

Date of Decision July 20, 2015

Beyer v. State Farm Fire & Cas. Co., CIVIL ACTION NO. 14-4887, 2015 U.S. Dist. LEXIS 94456 (E.D. Pa. July 20, 2015) (Kearney, J.)

MAY 2014 BAD FAITH CASES: NEW JERSEY DISTRICT COURT FINDS THAT “FAIRLY DEBATABLE” STANDARD DID NOT APPLY IN CONTEXT OF THIRD PARTY CLAIM, WHERE INSURED ASSERTED BAD FAITH FOR FAILURE TO SETTLE WITHIN POLICY LIMITS TO AVOID AN EXCESS VERDICT (New Jersey Federal)

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In State National Insurance Company v. County of Camden, the County was sued for a serious personal injury sustained when the injured party drove off the road and into a guardrail owned and maintained by the County. After a series of events, including the jury awarding over $31 Million and the trial judge reducing the award to over $19 Million, the County eventually settled, while the case was pending on appeal, for over $15 Million.

The insurer contended that the County: delayed in notifying it of the lawsuit, repeatedly represented that the case was within the County’s $300,000 self-insured retention, made errors in investigating and defending the case, and that the County’s re-valuation of the case four days into trial breached the insurance contract’s notice provision and the adequate investigation and defense condition to coverage.

The insurer brought an action (1) seeking declaratory relief that there was no coverage; (2) claiming a breach of the duty of good faith based on the County’s alleged failure to settle the Anderson claim within the County’s self-insured retention of $300,000; and (3) claiming breach of the duty of good faith for the County’s alleged failure to tender the self-insured retention.

The County raised counterclaims against the insurer, including: (1) a claim for breach of contract (2) a claim for a declaratory judgment that there was coverage; and (3) a claim for bad faith with respect to the insurer’s handling of the underlying tort matter, thereby exposing the County to a verdict of over $20 million in excess of its policy limits.

The insurer sought summary judgment on three issues: (1) whether the insurance contract required the carrier to defend and investigate the underlying litigation; (2) the adequacy of the County’s defense and investigation of the underlying suit; and (3) whether insurer acted in bad faith or breached any duty of good faith and fair dealing.

After a lengthy analysis denying the insurer’s first two arguments on summary judgment, the court addressed the bad faith claim. This came down to an analysis on the proper bad faith standard to apply in a third party context involving an excess verdict situation, being either the “reasonably debatable” standard, as exemplified in Pickett v. Lloyd’s, 131 N.J. 457, 621 A.2d 445 (N.J. 1993), or the standard set out in Rova Farms Resort, Inc. v. Investors Ins. Co. of America, 65 N.J. 474, 323 A.2d 495 (N.J. 1974).

The County argued that the insurer never issued a coverage denial, never performed an independent coverage evaluation, refused to engage in settlement discussions, and failed to protect the County from an excessive verdict even though it knew the matter could be settled within the policy limits. The insurer argued that the County misled the insurer and did not live up to its bargain under the insurance policy.

Without going into the detail of all facts, the court concluded that there were disputed issues of fact, but then observed that it must decide the issue of law as to whether the insurer’s actions should be viewed under the “fairly debatable” standard, which requires a finding that the insurer had no debatable basis to deny coverage, and that the insurer acted with reckless disregard to the facts and proof submitted by the insured or whether the “fairly debatable” standard did not apply to the case at hand because that standard is only employed in cases involving first-party claims, rather than bad faith claims in the third party failure to settle context.

The court also noted that under the 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.

As noted by the court, the standard for evaluating good faith under Rova Farms is that a decision not to settle must be a thoroughly honest, intelligent and objective one, which is realistic when tested by the necessarily assumed expertise of the insurance company. Such expertise must be applied, in any given case, to a consideration of all factors bearing upon the advisability of settling for insured’s protection.

The insurer’s or its attorney’s views on liability are an important factor, a good faith evaluation under Rova Farms requires more, including consideration of the anticipated verdict range (should it be adverse); the strengths and weaknesses of all of the evidence to be presented by both sides to the extent known; the history of the particular geographic area in similar cases; and the relative appearance, persuasiveness, and likely appeal of the claimant, the insured, and the witnesses at trial.

The court concluded that the “fairly debatable” standard did not apply to the analysis of the bad faith claim in the case before it. It observed that even though no bright-line rule was established in the case law as to whether the “fairly debatable” standard only applies to first-party claims, and there was no specific case precluding the application of that standard here, it still found that the rationale of Rova Farms was more applicable to the County’s action than the rationale of Pickett.

The court looked at both Pickett and Rova Farms in coming to its conclusion. It observed that Picket explained Rova Farms, and stated that Rova Farms held that an insured may recover more than the policy limit for a liability insurer’s bad-faith refusal to settle a third-party claim against its insured within that limit, when the refusal results in the third party obtaining a judgment against the insured that exceeds the policy limit.

The terms of a liability policy prevent the insured from settling on its own behalf except at its own expense, and thus the carrier makes itself the agent of the insured in this respect, creating an inherent fiduciary obligation.

This duty to act on the insured’s behalf means that a decision not to settle within the policy limits must be an honest one, resulting from a weighing of probabilities in a fair manner. To be a good faith decision, it must be an honest and intelligent one in the light of the insurer’s expertise in the field. Thus, where reasonable and probable cause appears for rejecting a settlement offer and for defending the damage action, the good faith of the insurer will be vindicated.

The court noted that a Rova Farms bad faith claim is a simple breach of contract claim and is a cause of action against an insurer in those instances where certain circumstances coalesce, i.e., there is a settlement demand within the policy limits, the insurer in bad faith refuses to settle the claim, and the verdict above the policy limits is returned. In that defined setting, the carrier’s bad faith failure to settle the claim within the policy limits may render the carrier liable for the entire judgment, including the excess above the policy limits.

Pickett itself, however, involved a first party claim. In that context, the court adopted a “balanced approach” to analyzing first party bad faith claims.

Thus, 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. This was distinguished from the Rova Farms standard.

The court then cited a Third Circuit case for the proposition that although the issue of whether the insured would be held liable for the third-party plaintiff’s injuries was “fairly debatable,” in the context of a third-party claim with a possibility of an excess verdict, Pickett supplies only part of the equation.

Thus, the fairly debatable standard is analogous to the probability that liability will attach in a third-party claim, but it does not consider the likelihood of an excess verdict. A third-party claim that may exceed the policy limit creates a conflict of interest in that the limit can embolden the insurer to contest liability while the insured is indifferent to any settlement within the limit.

Such a conflict is not implicated when the insured is a first-party beneficiary, where the claimant and the insurer are in an adversarial posture and the possibility of an excess verdict is absent. Thus, Rova Farms, not Pickett, protects insureds who are relegated to the sidelines in third-party litigation from the danger that insurers will not internalize the full expected value of a claim due to a policy cap.

Applying its analysis to the facts asserted by the County, the County claimed that there was a refusal to perform an independent analysis of the underlying case or participate in preparing for trial, and after the trial was underway, there was a refusal to participate in settlement talks, even though the demand was $10 million, and the trial judge had recommended settlement in the $6 million — $8 million range, both within policy limits.

The County also alleged that counsel had been appointed for the insurer to observe the penultimate day of trial and reported that a jury verdict potential was in the $10 million to $15 million range, that a reasonable settlement value was $4 million, and that there was a small window to settle the case the next day before the jury returned its verdict.

The County argued that instead of settling within policy limits, the carrier instead focused on supporting its case to disclaim coverage under the policy based on the County’s alleged breach of the adequate defense provision.

The insurer argued that the facts should have taken this matter out of a Rova Farms analysis, and into Pickett: (1) the County maintained full control over the defense; (2) the insurer was relegated to the sidelines, (3) the insurer denied coverage on the last day of trial just before the jury returned its verdict, and (4) the County had the ability to settle the case itself.

Were there no dispute of fact on these issues, the court stated that Pickett might have applied. However, there were disputes as to the insurer’s duty to provide a defense, as to whether the County’s control over the litigation was by its own choice or was the result of necessity due to the alleged refusal of the carrier to get involved, and the County’s ability to settle on its own without input from the insurer, particularly when any proposed settlement would exceed the County’s SIR and implicate duties and obligations in the CGL policy.

Thus, in denying summary judgment, viewing the insurer’s action in the light most favorable to the County, it could be found by a jury that the insurer did not diligently seek a possible settlement to protect the larger interest of its insured, and instead focused on its own interest in its attempt to pay nothing by disclaiming coverage instead of the $10 million policy limit.

The case differed from the Pickett determination of whether the insurer had a reasonable basis for denying the County’s claim for defense and coverage under the $10 million policy, and it was instead more analogous to the Rova Farms analysis.

Date of Decision: March 31, 2014

State National Ins. Co. v. County of Camden, CIV. NO. 08-5128(NLH)(AMD), 2014 U.S. Dist. LEXIS 43229 (D.N.J. March 31, 2014) (Hillman, J.)

MARCH 2013 BAD FAITH CASES: COURT GRANTS SUMMARY JUDGMENT FOR CARRIER BECAUSE INSURED’S REFUSED TO COMPLY WITH REQUIRED APPRAISAL PROCEDURES (Eastern District)

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In Correnti v. Merchs. Preferred Ins. Co., the court granted a carrier’s motion for summary judgment filed in response to the insureds’ suit for bad faith and breach of contract. The insureds originally filed suit after the parties disagreed on the amount of the insured’s loss. However, the insureds refused to comply with an appraisal process as required by their insurance policy. As such, the court granted the carrier’s summary judgment motion.

Date of Decision: January 31, 2013

Correnti v. Merchs. Preferred Ins. Co., No. 12-6303, 2013 U.S. Dist. LEXIS 13053, U.S. District Court for the District Court of Pennsylvania (E.D. Pa. Jan. 31, 2013) (Diamond, J.)

NOVEMBER 2012 BAD FAITH CASES: COURT DENIES BAD FAITH CLAIM BECAUSE CARRIER’S DELAY WAS VALID IN LIGHT OF THE INSURED’S ALLEGED MISREPRESENTATIONS OF FACT (District of New Jersey)

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In Certain Underwriters at Lloyd’s of London v. Alesi, the court heard an insurer’s declaratory judgment action seeking a determination of its liability for damages alleged by its insured under a homeowner’s policy. The insured counterclaimed for breach of contract and bad faith damages, to which the carrier responded by filing a motion for summary judgment. The dispute originally arose from an insurance claim made by the insured party for personal property loss and lost rent under a homeowner’s policy purchased from the carrier. The personal property loss claim concerned items that were allegedly stolen from the home by the insured’s estranged ex-wife. The insured’s claim for benefits also sought coverage for property damages that his home sustained when it was allegedly vandalized and flooded.

The carrier’s motion argued that, because of the insured’s willful misrepresentations of fact concerning his losses, the insured’s policy should be voided and summary judgment should be granted in the carrier’s favor. Having rejected the insured’s claims for personal property loss and lost rents, the court rejected the bad faith count as related to those two claims.

With respect to the insured’s property damage claim, stemming from the alleged vandalism to his home, the insured argued that irreconcilable estimates of damages justified its delay. Moreover, the insured was under investigation for insurance fraud in connection to the vandalism of his property. The carrier also claimed that the insured had sought coverage for items that he wanted to purchase, not merely required repairs.

Given these factual circumstances, the court reasoned, the insured was not entitled to damages for bad faith. The court therefore ruled in favor of the carrier under the “reasonably debatable” bad faith standard, concluding that the insured’s continued misrepresentations during the adjustment period were made to the carrier’s detriment.

Date of Decision: December 30, 2011

Certain Underwriters at Lloyd’s of London v. Alesi, 843 F. Supp. 2d 517, U.S. District Court for the District of New Jersey (D.N.J. 2011) (Hillman, J.)