Archive for the 'NJ – Federal Pleading Inadequate' Category

IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIM DISMISSED BECAUSE IT DUPLICATED BREACH OF CONTRACT CLAIM (New Jersey Federal)

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The court denied a motion to dismiss the insured’s breach of insurance contract claim, pleaded on a third party beneficiary basis.

New Jersey Federal Judge Wolfson, however, did dismiss the insured’s breach of the implied covenant of good faith and fair dealing count, agreeing that the plaintiff could not “maintain a cause of action for breach of the implied covenant of good faith and fair dealing because that claim is duplicative of [the] breach of contract claim.”

In circumstances “where it is undisputed that a valid and unrescinded contract governs the conduct at issue, breach of implied duty claims can be dismissed at the motion to dismiss stage.” Judge Wolfson further observed, “[w]here a party has breached a specific term of a contract, that party cannot be found separately liable for breaching the implied covenant of good faith and fair dealing when the two asserted breaches basically rest on the same conduct.”

The present bad faith claim met all the criteria for dismissal. The bad faith claim was based on a valid and unrescinded insurance policy. Further, the plaintiff’s  “Complaint does not even attempt to differentiate the allegations relating to the breach of contract claim … and the allegations relating to the breach of the implied covenant of good faith and fair dealing. Rather, the Complaint simply acknowledges that [the insurer’s] ‘aforementioned actions and inactions’ provide a basis for their breach of implied covenant claim ….”

Judge Wolfson concluded defendant’s alleged “actions and inactions” concerning bad faith were the same “actions and inactions” pleaded to support the breach of contract claim. She found simply adding an allegation that the same conduct was done in bad faith did not make out a plausible bad faith claim: “A conclusory statement that a breach of contract is done in bad faith is insufficient to state a [separate] claim for breach of the implied covenant of good faith.”

Thus, the bad faith claim was duplicative and merited dismissal.

Date of Decision:  January 28, 2021

760 NEW BRUNSWICK URBAN RENEWAL LLC v. NAVIGATORS SPECIALTY INSURANCE CO., U.S. District Court District of New Jersey No. CV 20-5877 (FLW), 2021 WL 287876 (D.N.J. Jan. 28, 2021) (Wolfson, J.)

NO BAD FAITH IN BRINGING INTERPLEADER ACTION (New Jersey Federal)

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The husband-beneficiary of his wife’s life insurance policy brought breach of contract, bad faith, and unfair trade practices counterclaims against an insurer for interpleading the policy proceeds into court.  The couple’s children were contingent beneficiaries on the policy.

The insured had died in unclear circumstances. She either was murdered or committed suicide (the central dispute being whether she did or could have stabbed herself 47 times while being intoxicated on oxycodone).  For a time the husband had been charged with murder, and was incarcerated.  The criminal case, however, was eventually dismissed, and the husband released.  The prosecutors, however, did not conclude the husband was innocent, instead stating that there was insufficient evidence to prove a case beyond a reasonable doubt and that they could not morally continue the prosecution. The charges were dismissed, but without prejudice.

The court held the insurer “properly invoked the interpleader device, due to a legitimate fear of multiple liability under the Slayer Statute.”  The court stated, “it takes little examination of the facts to see that they could support competing, colorable claims to the benefits.” The court found it clear the insurer faced a decision that was far from ordinary.

“Although the record is only minimally developed, the evidence thus far suggests two starkly divergent paths: the Insured either died from extreme Oxycodone use, which allowed her to self-inflict forty-seven stab wounds, or was killed by [her husband]. Factually, it is also undisputed that [he] was at home alone with the Insured when she died, touched the weapon used to stab her, and was found with blood on his hands. … Therefore, ‘[e]ven though no other claims have been made on the insurance,’ potential colorable claims exist. … In a case with such gruesome facts and conflicting narratives, [the insurer] seems entitled to invoke interpleader.”

The court next found that the insurer did not bear any responsibility “for the existence of the ownership controversy.” Nor did the insurer’s decision to interplead result from its own failure to resolve the dispute between potential claimants. The husband did not allege “any plausible facts that suggest a ‘bad faith’ motivation, besides [the insurer’s] legitimate concern for avoiding multiple liability.” He was simply claiming bad faith on the basis the carrier filed an interpleader action instead of paying him the policy proceeds.

Thus, interpleader was proper and all claims against the carrier were dismissed.

Date of Decision:  January 7, 2021

Prudential Insurance Company of America v. Ianetti, U.S. District Court District of New Jersey No. 19-21849 (SDW) (LDW), 2021 WL 71593 (D.N.J. Jan. 7, 2021) (Wigenton, J.)

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

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

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

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

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

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

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

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

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

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

Date of Decision: November 25, 2020

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

NEW JERSEY COURT DISMISSES BREACH OF CONTRACT, BAD FAITH, FRAUD, AND UNFAIR CLAIM SETTLEMENT PRACTICES ACT COUNTS WITHOUT PREJUDICE, AND GIVES AN OPPORTUNITY TO AMEND (New Jersey Federal)

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A pro se plaintiff brought a barrage of claims against its commercial general liability insurer, among others. He alleges water damage to the insured’s work on a retaining wall the insured was engaged to build. However, there was no third party claim for damages against the insured relating to water damaged wall. The insurer denied the claim, i.e., a claim for damages to a wall built for a third party on which the third party asserted no claim.

First, the court found there was no breach of contract, and dismissed a number of counts on those grounds. However, dismissal was without prejudice and plaintiff could amend if it he could plead specific facts showing a breach.

Next, the court dismissed counts alleging violations of New Jersey’s Unfair Claim Settlement Practices Act (UCSPA). The court stated the “UCSPA does not apply to general liability and property insurance.” Thus, “[b]ecause the Policy is a general liability policy … and not a life or health insurance policy or annuity, the UCSPA Counts … are dismissed without prejudice.” The court specifically declined to address the argument that there is no UCSPA private right of action, saying the law was unclear on that point. The court gave leave to amend, but the plaintiff “must provide additional factual allegations detailing how the Policy falls under the UCSPA.”

Third, plaintiff asserted bad faith claims based upon an inadequate investigation. The court recited New Jersey’s bad faith standards:

  1. “To state a claim for bad faith denial of insurance coverage, Plaintiff 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.”

  2. Bad faith claims should be “analyzed in light of a ‘fairly debatable’ standard, which posits that ‘[i]f a claim is “fairly debatable,” no liability in tort will arise.’”

  3. “[T]o 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.’”

  4. “Thus, when the insured’s complaint presents issues of material fact as to the underlying claim, dismissal of a related bad faith claim is proper.”

The court found no bad faith claim stated because the plaintiff did not “allege that Defendants lacked a fairly debatable reason for its denial of coverage. Rather, the Policy illustrates that Defendants did possess a reasonable basis for its denying benefits.” Again, however, the bad faith claims were dismissed without prejudice, with leave to amend given, but only if the plaintiff can provide “additional factual allegations detailing how Defendants lacked a reasonable basis for denying Plaintiff’s insurance claim.”

Lastly, plaintiff alleged fraudulent misrepresentation in the policy’s sale to plaintiff, concerning the scope of coverage. Again, the court dismissed without prejudice, but would only consider amendment proper the plaintiff could plead actual facts supporting a fraud claim.

Date of Decision: August 31, 2020

Gage v. Preferred Contractors Ins. Co., U.S. District Court for the District of New Jersey No. 19-cv-20396 MAS ZNQ, 2020 WL 5107351 (D.N.J. Aug. 31, 2020) (Shipp, J.)

PUNITIVE DAMAGES NOT PERMITTED ABSENT A SPECIAL RELATIONSHIP OR AGGRAVATED CIRCUMSTANCES; FIRST PARTY INSURANCE CLAIMS DO NO CREATE A FIDUCIARY RELATIONSHIP (New Jersey Federal)

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The insured disputed the sum the insurer was willing to pay for property damage. She brought claims for breach of contract and breach of the implied covenant of good faith and fair dealing, seeking punitive damages on both counts. The original complaint was dismissed and she filed an amended complaint. The insurer moved to dismiss the punitive damages claims.

In New Jersey, punitive damages are governed by statute, N.J.S.A. §2A:15-5.12(a): “Punitive damages may be awarded to the plaintiff only if the plaintiff proves, by clear and convincing evidence, that the harm suffered was the result of the defendant’s acts or omissions, and such acts or omissions were actuated by actual malice or accompanied by a wanton and willful disregard of persons who foreseeably might be harmed by those acts or omissions.”

Under New Jersey law, punitive damages require more than showing a breach of good faith obligations. Egregious circumstances are required, described by the court as malicious, evil-minded, or wanton acts of reckless disregard. In this case, the insured failed to plead actual malice or a wanton and willful disregard for her rights, and the punitive damages claims were dismissed.

Specifically, as to the breach of contract claim, the insured claimed that “aggravated circumstances” were present, providing an exception to the usual rule that punitive damages cannot be recovered for contract claims. The court thought otherwise: “Plaintiff’s Amended Complaint does not provide adequate factual allegations to support this assertion, nor does she suggest the existence of any fiduciary relationship.”

As to the implied covenant of good faith and fair dealing claim, the court again focused on whether there was any special relationship between the insured and insurer, or aggravated circumstances. In a first party coverage case, New Jersey law holds there is no fiduciary relationship. Thus, punitive damages cannot be asserted under a special relationship theory. Further, as stated above, no aggravated circumstances were pleaded.

In addition, the court looked at the leading case of Pickett v. Lloyd’s on tort theories and punitive damages, stating:

Plaintiff relies on Pickett, … as to an insurance company’s bad faith liability when denying benefits or processing a claim. …. The court in Pickett held that a claimant must show that either there was no debatable reason to deny benefits or, as to a processing delay, no valid reason existed for the delay and the insurance company knew or recklessly disregarded that fact. …. The court also asserted that while there is no right to punitive damages for an insurer’s wrongful refusal to pay a first-party claim, “[d]eliberate, overt and dishonest dealings” were torts distinct from a bad-faith claim. …. As pled, Defendant’s behavior does not rise to the level of egregiousness required for an award of punitive damages. Plaintiff has not sufficiently alleged that there were any deliberate, overt, or dishonest dealings on Defendant’s part.

As the insured had already been given an opportunity to re-plead punitive damages in an amended complaint, the punitive damages claims were dismissed outright.

Date of Decision: June 20, 2019

Johnson v. Encompass Insurance Co., U. S. District Court District of New Jersey Civil Action No. 17-3527 (JMV) (MF), 2019 U.S. Dist. LEXIS 103290, 2019 WL 2537809 (D.N.J. June 20, 2019) (Vazquez, J.)

TWO NEW JERSEY CASES FINDING NO BAD FAITH: (1) NO BAD FAITH WHERE NO COVERAGE IS DUE (New Jersey Superior Court Appellate Division); (2) NO PLAUSIBLE BAD FAITH CLAIM PLEADED UNDER NEW JERSEY LAW (New Jersey Federal)

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Bad faith claims failed in two recent New Jersey cases, one in the Superior Court’s Appellate Division, and the other after removal to federal court.

Case 1:  There Can be no Bad Faith if Coverage is Not Due 

The New Jersey Superior Court Appellate Division affirmed the trial court’s ruling that there was no “property damage” as defined under the policy, because lost money is not “tangible property.” The trial court thus granted summary judgment on the coverage claim. It had also dismissed the insured’s bad faith claim.

The Appellate Division affirmed the judgment that no coverage was due. In light of the absence of any coverage duty, it found no need to address any other arguments, presumably including the bad faith claim.

Date of Decision: May 9, 2019

Estate of Louis F. Keppel v. Angela’s Angels Home Healthcare, Superior Court of New Jersey Appellate Division DOCKET NO. A-3868-17T1, 2019 N.J. Super. Unpub. LEXIS 1068 (N.J. App. Div. May 9, 2019) (Currier, Koblitz, Mayer, JJ.)

Case 2:  The Insured’s Conclusory Allegations Fail to Set Out a Plausible Bad Faith Claim

The insured brought a breach of contract and bad faith complaint against the carrier in the Superior Court, which was removed to federal court on diversity grounds. She alleged the carrier did not pay the full amount due on her water loss. No motion to dismiss the contract claim was asserted, but the insurer did move to dismiss the insured’s bad faith claim and request for punitive damages.

The bad faith count included allegations that the insurer “(1) failed to properly and promptly investigate Plaintiff’s claims; (2) denied and delayed her coverage with no debatable reason to do so; (3) violated the Unfair Claims Settlement Practices Act; and (4) unreasonably denied adjusting and paying Plaintiff’s claim.”

These allegations did not support a plausible bad faith claim under federal pleading standards. The court stated:

To allege bad faith in the insurance context under New Jersey law, a plaintiff must allege facts to plausibly suggest that the insurer (1) did not have a “fairly debatable” reason for its failure to pay the claim, and (2) that the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim. … Here, Plaintiff alleges no facts to plausibly suggest that Defendant lacked a fairly debatable reason for denying the claim or that it knew or recklessly disregarded the lack of a reasonable basis for doing so. Plaintiff simply provides bald legal conclusions in claiming that Defendant’s failure to pay amounted to bad faith. Because conclusory allegations are not sufficient, [the bad faith count] is dismissed.

Once the court dismissed the bad faith claim, there was no basis to pursue punitive damages. The only remaining claim was for breach of contract, and the rare circumstances allowing punitives damages for breaches of contract did not exist on this complaint.

Date of Decision: May 29, 2019

Johnson v. State Farm Fire & Casualty Co., U.S. District Court District of New Jersey Civil No. 18-15209 (RBK/KMW), 2019 U.S. Dist. LEXIS 89613 (D.N.J. May 29, 2019) (Kugler, 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.)

 

JUNE 2018 BAD FAITH CASES: WHEN INSURER PROPERLY PAYS WHAT IS DUE UNDER POLICY LANGUAGE, BAD FAITH CLAIM NOT PLAUSIBLE (District of New Jersey)

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The insureds’ water heater leaked resulting in $8,654 in water damage and $66,415 in mold damage. The insurer paid the $8,654, but only paid $10,000 for the mold damage, per the policy’s mold exclusion and sublimit. The insureds claimed that the refusal to pay the entire $66,415 violated the insurance policy.

In arguing for coverage beyond the $10,000 sublimit, the insureds argued “that their loss was caused by water, not mold, and that Defendants therefore are obligated to pay for the entire amount of the loss.” They focused on the allegation “that the mold growth was a result of the broken valve on the hot water heater, and argue that the mold is the ‘loss,’ rather than the ‘cause.’”

The court, however, recognized that the policy contained an anti-sequential provision: “We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” It found there is no public policy violation “when parties to an insurance contract agree that there will be no coverage for loss due to sequential causes even where the first or the last cause is an included cause of loss.”

The court concluded that because the anti-sequential clause applied to the mold exclusion, the policy limited mold recovery to $10,000, regardless of whether the mold resulted from the valve leak. Therefore, the court ruled that the insurer did not breach the insurance contract.

As to the bad faith claim, under New Jersey law, an insurance company is required to act in good faith to the insured with respect to a first-party claim. However, an insurance company is not liable if a decision with respect to a claim is “fairly debatable.” Further, “[a] claimant who cannot establish a substantive claim that the policy was breached, however, cannot prevail on a claim for an insurer’s alleged bad faith refusal to pay the claim.”

Applying these principles, the court found no actionable bad faith claim: “[A] claim for bad faith is not plausible because Defendants responded to Plaintiffs’ claims, paid the amounts they determined were owed under the contract, and did not disregard any obligations or unreasonably fail to investigate or settle Plaintiffs’ claims.” Thus, the bad faith claim was “at a minimum, fairly debatable” and was dismissed.

Date of Decision: May 23, 2018

Hobbs v. US Coastal Ins. Co., U. S. District Court, District of New Jersey Civil Action No. 17-3673, 2018 U.S. Dist. LEXIS 86484 (D.N.J. May 23, 2018) (Rodriguez, J.)

APRIL 2018 BAD FAITH CASES: BAD FAITH PLAINTIFFS MUST DO MORE THAN “INFER BAD INTENTIONS FROM BAD CONSEQUENCES” (New Jersey Federal)

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We previously discussed this case on September 6, 2017. It involves the alleged illicit draining of funds from the insured’s annuity account by her former husband.

After the Court granted the insurer’s earlier motion to dismiss the insured’s claim for breach of the covenant of good faith and fair dealing, without prejudice, the insured filed an amended complaint. The amended complaint is identical to the insured’s initial complaint except for seven added paragraphs. The insurer filed another motion to dismiss the bad faith claim.

The Court again granted the insurer’s motion to dismiss the bad faith claim without prejudice. “To state a claim . . ., [the insured] must present some facts indicating bad motive.” “[I]t is not enough, . . . to infer bad intentions from bad consequences.” The Court stated that some facts may exist to eventually support a finding of bad faith, and held that a dismissal with prejudice would therefore be inappropriate at this time.

Date of Decision: April 4, 2018

Adams v. Allstate Life Ins. Co., United States District Court, District of New Jersey, Civil Action No. 16-9465 (RBK), 2018 U.S. Dist. LEXIS 58093 (D.N.J. Apr. 4, 2018) (Kugler, J.)

OCTOBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSUREDS MERELY ALLEGED A DENIAL OF CLAIMS UNDER THE POLICY (New Jersey Federal)

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The insureds submitted claims under their homeowner’s insurance policy after Hurricane Irene damaged the property in August 2011, and after Hurricane Sandy damaged the property in October 2012. After the insurer initially denied coverage, the insureds filed a declaratory judgment action in state court seeking coverage under the policy.

The insureds also alleged breach of contract and breach of the covenant of good faith and fair dealing, among other claims. The insurer moved to dismiss the breach of the covenant of good faith and fair dealing claim, among others.

The Court reiterated the test to establish a claim for bad faith in New Jersey. The insured must show “‘(1) the insurer lacked a “fairly debatable” reason for its failure to pay a claim, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.’”

The Court held, “[the insureds] do not allege that [the insurer] knowingly or with reckless disregard denied their claim without a ‘fairly debatable reason’ for doing so.” The insureds merely alleged that they suffered property damage because of Hurricanes Irene and Sandy, and that the insurer denied these claims in breach of the covenant of good faith and fair dealing. Such conclusory allegations cannot defeat an insurer’s motion to dismiss.

However, the Court gave the insureds an opportunity to amend their complaint.

Additionally, the Court dismissed the insureds’ claim for coverage as to the Hurricane Irene damage because these claims are facially untimely, and the insured failed to plead facts suggesting that equitable tolling should apply.

Lastly, the Court denied the insurer’s motion to dismiss the claim for coverage of the Hurricane Sandy damage due to a factual dispute as to whether the insured’s failure to cooperate prejudiced the insurer.

Date of Decision: September 19, 2017

Kurz v. State Farm Fire & Cas. Co., No. 16-8681, 2017 U.S. Dist. LEXIS 152540 (D. N.J. Sept. 12, 2017) (Bumb, J.)