Archive for the 'NJ – Experts' Category


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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.)


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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.)



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In this case, New Jersey’s Appellate Division affirmed the dismissal and grant of summary judgment to the insurer on all claims, but reversed the trial court’s award of frivolous litigation sanctions against the insured because there was no finding the insured acted in bad faith in bringing the claims.

Factual Background

The insurer provided the eighth layer of excess insurance in this Superstorm Sandy case. The primary and lower layers provided $75 Million, and the eighth layer provided another $50 Million above that.

In 2012, the insured hired a contractor to do repair and restoration work. The contractor allocated $950,000 to specific building repair and restoration work. The excess carriers all determined repair and restoration work was not covered. In 2014, the insured reached a global settlement with all insurers for $93.5 Million. The eighth layer insurance contributed $16 Million. The insured executed a release for any and all claims and demands for Superstorm Sandy property damage and business income losses, discharging the eighth layer insurer.

In 2015, however, the insured asked the eighth layer insurer to reconsider paying the contractor’s repair and restoration costs, after another anticipated source for this loss did not pan out. The eighth layer carrier refused. The insured brought suit in 2015.

The Litigation

The insured alleged it relied on the advice of the excess insurers’ adjuster and experts in how the repair and restoration costs were allocated, which resulted in it obtaining no sum to settle that out-of-pocket payment. The insured alleges that it only agreed to the 2014 settlement based on this bad advice, and would otherwise have included these repair and replacement costs in its negotiations and settlement with the insured, beyond the sum actually paid.

The insured brought various claims against the adjusters and experts, and claimed the eighth layer insurance was liable for their acts and omissions on an agency theory. The insured also claimed the eighth layer insurer was liable for breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, and bad faith in denying the claim for the repair and restoration costs. Defendants moved to dismiss all claims, which the trial court granted in part, including the unjust enrichment claim and some of the agency theory claims. The remaining claims were later dismissed on summary judgment.

The eighth layer insurer filed a motion against the insured for frivolous litigation sanctions. The trial court granted that motion, and ruled the insurer was entitled to the attorney’s fees and costs.

The insured appealed the grant of summary judgment and the sanctions.

The Appellate Division Affirms for the Insurer on the Merits

First, the Appellate Division found no support in the record that the release was only executed as the result of fraud. The insured was well aware it was settling all Superstorm Sandy related claims, that the repair and restoration costs were not part of the settlement, and that the release would bar Superstorm Sandy related claims against all insurers. The insured was also aware that the repair and restoration costs were subject to recovery regarding another entity and its insurers, and that the settling excess insurance companies would not agree to make their settlement contingent on the outcome of that separate matter.

Next, the Appellate Division affirmed the trial court’s findings that there was no common law fraud or negligent misrepresentation by the agent or the insurer. It likewise affirmed judgment on the negligence claim on the basis that no expert testimony was proffered regarding the conduct of the independent insurance adjuster (which plaintiff was trying to bootstrap into a claim against the insurer as well).

The Appellate Division Reverses Sanctions Because there was no Finding of Bad Faith

The Appellate Division addressed the sanction award against the insured for frivolous litigation. [There were no sanctions against counsel.] The insurer’s attorneys had sent the insured’s counsel a letter stating the “complaint was frivolous because the release precluded … asserting any causes of action against [the eighth layer insurer].” The letter “also stated that [the] fraud claims were unsustainable because [the insured’s] representatives had acknowledged the [repair and restoration costs at issue] were not recoverable….” Despite this letter, the insured’s “counsel did not withdraw the complaint.”

A motion for attorneys’ fees and costs ensued. The insured and its counsel both asserted that they believed the claims had merit.

The trial judge found the claims frivolous on the basis that the insured’s claims had no reasonable basis in the law or equity, and there was no good faith argument for the extension, modification or reversal of existing law. Further, the trial judge found the insured knew that the repair and restoration costs would have to come from another source, and that the excess insurers would not make their settlement contingent on recovery of those costs from another source.

The Appellate Division reversed the frivolous litigation sanctions, finding the trial court relied upon the wrong standards. The frivolous litigation statute, N.J.S.A. 2A:15-59.1, which applies only to represented parties, requires a finding of bad faith on the plaintiff’s part. Here, there was no such finding. Thus, the claim failed.

The Appellate Division laid out these bad faith standards:

Where ‘a prevailing defendant’s allegation is based on the absence of a ‘reasonable basis in law or equity’ for the plaintiff’s claim and the plaintiff is represented by an attorney, an award cannot be sustained if the ‘plaintiff did not act in bad faith in asserting’ or pursuing the claim.” …. A finding of bad faith is essential because “clients generally rely on their attorneys ‘to evaluate the basis in law or equity of a claim or defenses,’ and ‘a client who relies in good faith on the advice of counsel cannot be found to have known that his or her claim or defense was baseless.’” …. Furthermore, under the FLS, the party seeking the imposition of sanctions “bears the burden of proving that the non-prevailing party acted in bad faith.” …. We have held that “a grant of a motion for summary judgment in favor of a [prevailing party], without more, does not support a finding that the [non-prevailing party] filed or pursued the claim in bad faith.”

The trial court did reference Rule 1:48, which only applies to attorneys and pro se parties, and thus had no application in this matter.

Date of Decision: October 4, 2019

Fedway Assocs. v. Engle Martin & Assocs., Superior Court of New Jersey Appellate Division DOCKET NO. A-0297-18T4, 2019 N.J. Super. Unpub. LEXIS 2048 (N.J. App. Div. Oct. 4, 2019) (Currier, Hoffman, Yannotti, JJ.) (Unpublished)


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In this case, the court provides a concise and clear analysis of New Jersey’s “fairly debatable” standard in bad faith cases. If an insured cannot win summary judgment on coverage, then the claim is fairly debatable and there can be no bad faith as a matter of law.

In this disability case, medical and vocational experts disputed each other on critical points. This created issues of material fact as to whether the insured could perform in any gainful occupation; a dispute that could only be decided by a jury.   Thus, the court denied the insured summary judgment on coverage.

This necessarily made the claim “fairly debatable” for bad faith purposes, and the court granted summary judgment to the insurer on the bad faith claim.

Date of Decision: April 29, 2019

Bell v. Crown Life Insurance Co., U. S. District Court District of New Jersey Civil Action No. 3:16-cv-8006-BRM-DEA, 2019 U.S. Dist. LEXIS 79013 (D.N.J. April 29, 2019) (Martinotti, J.)


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

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

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

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

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

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

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

Bad Faith Claims Allowed To Proceed On Retaliation Threat Claim

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

Date of Decision: October 9, 2018

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

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


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This case addresses a wide array of New Jersey bad faith issues. The underlying facts involve disputed coverage and defense obligations in a suit against the insured based on the Telephone Consumer Protection Act (TCPA).

The insurer withdrew its defense based on trial court finding no coverage, which was later reversed on appeal

The insurer had been defending under a reservation of rights, but withdrew the defense when the trial court ruled no coverage was due. The underlying case proceeded. A $19 million judgment was entered on an unopposed summary judgment motion against the insured.

Subsequently, the appellate division reversed the trial court’s coverage ruling, and remanded to explore further factual issues before determining the coverage question.

The insured assigned it claims to the underlying plaintiffs, who counterclaimed for bad faith and failure to settle within policy limits, and who also intervened in the coverage dispute again alleging bad faith. Before reaching a jury in the declaratory judgment action, the court dismissed the bad faith claims “except for the count in its counterclaim that alleged [the insurer] acted in bad faith by failing to settle the underlying action at a time when it controlled that litigation and could have settled the claim within …  policy limits.”

The jury found for the insured on coverage, and the court further awarded attorney’s fees under R. 4:42-9(a)(6). The total award exceeded $5 million.

On appeal, the court went through the relevant policy language and exclusions in great detail. Among other issues addressed, it found the verdict should have been reversed on the issue of what constituted “property damage,” with a single exception, that was also the sole actionable occurrence. Thus, the judgment was significantly undermined on appeal.

Bad faith issues

The court then addressed a variety of bad faith issues. This was triggered by the insurer’s late effort on the eve of trial to renew an attempt to dismiss the bad faith failure to settle claims for failure to bring forth expert testimony to support the failure to settle claim.

The insured “objected to the untimeliness of the motion and requested an adjournment if the court was inclined to dismiss for lack of an expert.” The judge found that there was no actionable bad faith claim under the “fairly debatable standard”, and that the insured had failed to negotiate a reasonable settlement once the defense was withdrawn.

“Alternatively, the judge found that any assessment of [the insurer’s] conduct in this complex case was beyond the ken of the average juror and dismissed the bad faith failure to settle claim because [the insured] had no expert. Noting the case management order required [the insured] to furnish an expert report nearly one year earlier, she denied any adjournment and dismissed the bad faith failure to settle counterclaim.”

The Appellate Division agreed an expert was necessary, but reversed the trial court’s ruling. It found that the motion in limine was functionally a summary judgment motion that was untimely and prejudicial.

The Court then addressed the nature of New Jersey bad faith claims, and the standards applicable in first and third party contexts.

Standards for failure to settle within policy limits

The failure to settle a third party claim within policy limits is governed by the New Jersey Supreme Court’s Rova Farms decision. Because the insurer controls the settlement, it has a fiduciary obligation to exercise good faith in considering settlement. The decision not to settle within policy limits “must be a thoroughly honest, intelligent and objective” decision.

“It must be a realistic one when tested by the necessarily assumed expertise of the company. This expertise must be applied, in a given case, to a consideration of all the factors bearing upon the advisability of a settlement for the protection of the insured. While the view of the carrier or its attorney as to liability is one important factor, a good faith evaluation requires more. It includes consideration of the anticipated range of a verdict, should it be adverse; the strengths and weaknesses of all of the evidence to be presented on either side so far as known; the history of the particular geographic area in cases of similar nature; and the relative appearance, persuasiveness, and likely appeal of the claimant, the insured, and the witnesses at trial.”

Expert needed on bad faith claim to assist jury

Rejecting a settlement by itself does not constitute bad faith. There must be “an assessment of the reasonableness of an insurer’s settlement negotiations in the underlying action” and this assessment “will likely hinge upon the credibility of fact witnesses, as well as expert testimony as to what went wrong on the settlement front and why.”

In this case, the factors were varied and complicated, and expert testimony was necessary to assist the jury in making a bad faith decision under Rova Farms and its progeny. Thus, the trial court was right on the issue that an expert was needed.

Some advice of how to handle late raised issues that will be allowed to go to trial, and the ability to sever bad faith claims

In reversing the dismissal, the appellate judges gave some practical advice to trial courts under these circumstances. Either the trial court have been adjourned to allow time to obtain the expert testimony and response, or the bad faith claim could have been severed and tried after the coverage case. The case was remanded for the trial judge to address the bad faith claim.

Some advice of using “fairly debatable” standard (Pickett) in failure to settle cases (Rova Farms)

The appellate judges then stated they would not address the issue of whether the trial judge’s fairly debatable ruling as a basis for dismissal was proper. The court then went on to discuss the interplay of Rova Farms and the Pickett fairly debatable standard at some length. It observed that the fairly debatable standard arose in the first party context, and that Rova Farms addressed failure to settle third party claims.

The Appellate Division had previously ruled that the fiduciary duty implicated in the third party failure to settle context does not exist in the first party context. However, another Appellate Division panel had ruled that the fairly debatable standard did apply in third party coverage cases (as differentiated from failure to settle cases). Thus, “[n]o reported New Jersey decision has addressed whether Pickett‘s ‘reasonably debatable’ standard applies to an insured’s bad faith refusal to settle claim.”

The Third Circuit has addressed the issue, and found that the Rova Farms’ standards, rather than the Pickett fairly debatable standards should control third party failure to settle claims.

“Whether [the insured] would be held liable for [the third-party’s] injuries was “fairly debatable,” but in the context of a third-party claim with a possibility of an excess verdict, Pickett supplies only part of the equation. The “fairly debatable” standard is analogous to the probability 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. This 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.

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.”

The present panel chose to decide the issue, though (no pun intended), it acknowledged “the appeal of the Third Circuit’s rationale. An insurer who, while exclusively controlling the litigation, acts in bad faith and refuses to settle a third-party claim within its insured’s policy limits exposes the insured to personal liability. The situation therefore presents different concerns from those posed by a suit where the insurer acts in bad faith and wrongfully denies contractual benefits to the insured under its policy of insurance.”

Failure to negotiate a settlement after coverage denial may not preclude a later bad faith claim

Finally, the panel rejected the trial court’s finding that the insured’s failure to negotiate a settlement once coverage was denied precluded the possibility of a later bad faith claim.

The court looked generally to case law concerning insured’s conduct in settling, or not settling, cases where the insurer has declined involvement on the basis it does not believe coverage is due. Insured are not required as a matter of law to settle at their own expense. Rather, “under certain circumstances, insureds could do so without violating policy terms where there has been a breach by the insurer.”

In sum, the panel reversed the bad faith claim dismissal and remanded the matter to proceed on the bad faith claim.

Date of Decision: July 31, 2018

Penn National Insurance Co. v. Group C Communications, Inc., New Jersey Superior Court Appellate Division, DOCKET NOS. A-0754-15T1 A-0808-15T1, 2018 N.J. Super. Unpub. LEXIS 1833 (N.J. App. Div. July 31, 2018) (O’Connor, Messano and Vernoia, JJ.)



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This is a bad faith case arising out of Superstorm Sandy damage to the insured’s home. Coverage for the full loss was denied, and breach of contract and bad faith claims followed. This opinion involves the insurer’s summary judgment motion on the bad faith claim. Judgment was entered on the bad faith claim for the insurer.

Bad Faith Standards

New Jersey recognizes bad faith claims for “both bad faith in denial of benefits and bad faith in delay of processing of claims.” A bad faith claim might exist where payment was intentionally and unreasonably delayed on an undisputed claim. The test is whether a claim is “fairly debatable”. If the insured cannot establish “as a matter of law a right to summary judgment on the substantive claim [e.g., the breach of the insurance contract]” there is no actionable bad faith claim. The plaintiff has to 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.”

In the first party context, under New Jersey law: “Although a fairly debatable claim is a necessary condition to avoid liability for bad faith, it is not always a sufficient condition. Rather, we are satisfied that the appropriate inquiry is whether there is sufficient evidence from which reasonable minds could conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable.” In this case, the “principal issue presented is whether Plaintiff has adduced factual evidence from which a reasonable jury could find that [the insurer] lacked a fairly debatable reason for denying the disputed portion of the claim. Because in this summary judgment motion [the insurer] has set forth the factual basis for its determinations of coverage and loss, and because Plaintiff has not come forward with evidence that Plaintiff’s entitlement to recover for these losses was so clear that it was not fairly debatable, Plaintiff will be unable to prove its bad faith claim in Count 2 and summary judgment will be granted….”

No bad faith conduct on the record in claims handling

Specifically, the court observed that the insured did not seek summary judgment on the breach of contract claim, and the court itself was not going to find it undisputed that the contract was breached. This alone would appear to be fatal to the insured’s opposition under the reasonably debatable standard. Further, the court observed that the insurer considered the opinions and advice of expert consultants in the claims handling process. The court also listed a variety of “plausible” steps the insurer took to adjust the claim.

No bad faith delay

The court further rejected the insured’s delay argument. It found the insurer promptly investigated the damages, retained experts and a licensed contractor to evaluate the claims, and shared its findings with the insured throughout the process. The insured failed to submit responsible estimates during the process with supporting documentation, and was unresponsive for many months at a time, included a delay in submitting a sworn statement in proof of loss.

Rhetorical assertions without support unsuccessful

The court addressed “Plaintiff’s rhetorical assertions that bad faith is demonstrable from assigning incompetent and inattentive claims adjusters who were ‘repeatedly told … to sit back and wait for the statute of limitations to run out in the hopes that the Plaintiff would miss the filing deadline’….” There was no support for this assertion and, to the contrary, the insured’s large loss director instructed the claim adjuster “to remind Plaintiff’s representatives in writing that the policy contained a two-year suit limitation condition” and the adjuster did so by writing a letter calling “attention to the suit limitation in advance of the approaching deadline.”

Alleged incompetent adjusting did not affect this claim

Early in the claims handling process an adjuster was criticized by his superior for not documenting the file. That adjuster was replaced. However, that this adjuster “temporarily failed to address the potential claim does not give rise to a material factual dispute, as it is undisputed that proper investigation was undertaken, results were shared and explained to Plaintiff and Plaintiff’s agent, and the claim file was put squarely on track as directed by the management. That there remains an area of disputed claims, as alleged in Count One, does not imply that those disputes were caused by [the insurer’s] deliberate indifference to a proper investigation and claims adjustment process.”

Attorney’s fees not recoverable

The court previously ruled that attorney’s fees could only be recoverable as consequential damages on a bad faith claim, and not for a direct suit to enforce casualty or other direct coverage. Since the bad faith claim was dismissed, no attorney’s fees were recoverable.

Date of Decision: March 29, 2018

Breitman v. National Surety Corp., Civil Action No. 14-7843 (JBS/AMD), 2018 U.S. Dist. LEXIS 52496 (D.N.J. Mar. 29, 2018) (Simandle, J.)


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

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

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

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

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

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

Date of Decision:  March 16, 2016

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


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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.)


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A state-wide podiatrist society asserted that a health insurer violated its duty of good faith and fair dealing in deciding not to cover a medical procedure, for which it previously had provided coverage.  The provider was part of a broader national federation of related insurers, which did not generally provide coverage for this procedure. The court assumed for the sake of argument that this claim was properly pleaded, but found no case was made because a violation of the duty of good faith and fair dealing requires a showing of malice or bad faith.

In this case, the medical organization failed to identify any malice or bad faith reason for the change in insurer’s policy on covering this procedure. The plaintiff did not, “for example, contend that [the insurer] was trying to drive the podiatrists out of business or steer its insureds to other types of medical providers.” The fact that this insurer may have changed its position based upon the position taken by other insurers in the broader organization likewise did not constitute bad faith.  A difference among medical experts about the reliability of a procedure, resulting in a change in position on coverage, does not render the decision to change positions a breach of the duty of good faith and fair dealing.

Date of Decision:  November 17, 2014

New Jersey Podiatric Med. Soc’y, Inc. v. Horizon Blue Cross Blue Shield, DOCKET NO. A-1459-13T1, SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2014 N.J. Super. Unpub. LEXIS 2704 (App. Div. Nov. 17, 2014) (Reisner, Koblitz and Haas, JJ.)