Archive for the 'NJ – General Bad Faith and Litigation Issues' Category
The insured’s home was damaged by a sump pump failure. The policy did not cover sump pump failures. Years before the loss, the carrier sent the insured notice that his policy did not cover sump pump failures and offered an endorsement for additional sump pump protection. The insured saw the notice, but took no action. The insurer did not send the same notice in the ensuing years.
The insured brought negligence and bad faith claims because the insurer did not send the notice for sump pump coverage every year.
The trial court granted summary judgment to the insurer, and the Appellate Division affirmed.
The Appellate Division observed that, absent a special relationship, “there is no common law duty of a carrier or its agents to advise an insured concerning the possible need for higher policy limits upon renewal of the policy.” Further, “to establish a special relationship creating a duty to advise about adequacy of insurance, ‘there must be a long-standing relationship between the parties, some type of interaction on the question of coverage, and reliance by the insured on representations of the insurance agent to the insured’s detriment….’”
In this case, the insured did not establish “a basis for finding a special relationship … that would give rise to a duty to inform him of the need to buy sump pump coverage, or to inform him annually of the option to do so.” Simply providing notice years earlier that there was no coverage and insureds needed to purchase an endorsement to obtain sump pump coverage did not create that relationship. Rather, the notice clearly told the insured that he had no coverage, and the policy itself unambiguously excluded coverage.
In sum, the insured put on no evidence that he could rightly “assume his policy included coverage in subsequent years without purchasing the endorsement.”
Date of Decision: June 22, 2020
Yew v. FMI Insurance Co., Superior Court of New Jersey Appellate Division DOCKET NO. A-4947-18T3, 2020 N.J. Super. Unpub. LEXIS 1200 (N.J. App. Div. June 22, 2020) (Messano, Ostrer, JJ.)
The Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog is celebrating its 14th anniversary.
We’ve posted nearly 1,700 case summaries since June of 2006, with hundreds of thousands of views. We have taken a matter of fact approach, with our focus on presenting judges’ opinions as explained by the judges themselves, only occasionally with editorial comment.
Our view is that seeing and understanding what the courts are actually saying is vital not only for attorneys pursuing or defending bad faith actions, but essential for parties to understand how the courts will interpret their conduct. This allows, e.g., for insurers to get a handle on the parameters of good faith claim management in Pennsylvania and New Jersey to avoid bad faith claims before they arise. It also provides an understanding to insureds that bad faith will not be measured solely from an insured’s viewpoint, which may be subject to the frustration, fear or anger naturally arising from a loss or being sued, but objectively from the totality of the circumstances, including the insurer’s perspective as well as the insured’s.
We certainly expect to see bad faith case law developing around Covid-19 coverage claims in the coming months and next few years, and will be reporting on those cases as they arise.
But most of all, we wish safety and good health for all of you.
Fineman, Krekstein & Harris
The Business Courts Blog has provided an updated list of Courts across the United States directing or encouraging the use of remote teleconferencing and videoconferencing in lieu of appearing in-person for conferences and hearings, to limit health risks. You can find that post here.
It has been over thirteen years since we started the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog. This week we uploaded our 1600th post.
We believe that persistence in posting summaries of current opinions as they are issued has been a useful addition to the Pennsylvania and New Jersey insurance coverage and bad faith universe.
Though we often see repeat issues in bad faith decisions forming clear patterns over time, there is occasionally that new twist, or application of law to a new set of facts, that keeps things fresh. And for those not regularly living in the bad faith universe, discovering patterns in a daunting sea of bad faith case law may be quite a relief when trying to navigate a wise course.
We have set out tens of categories on the left hand side of our home page to easily organize cases by topic with a single click. You can also use the search box under the calendar, in the upper left side of the home page, to collate your own set of case summaries by search terms of interest. For example, we list each judge and court issuing an opinion. The search function can organize summaries by judge or court, as well as by substantive or procedural search terms.
We have not noticed any significant change in the number of bad faith opinions issued each year. For example, we posted on 122 days between October 16, 2018 and October 16, 2019, with multiple posts on a few of those days. From October 16, 2017 through October 16, 2018, we posted on 124 days, again with a few multiple postings on individual days. From October 16, 2016 through October 16, 2017 we posted on 134 days.
That being said, in recent years we have posted more summaries of Pennsylvania Superior Court non-precedential decisions.
If you have a bad faith opinion from Pennsylvania or New Jersey you think would fit with this Blog, please feel free to email a copy to lapplebaum@finemanlawfirm.com, and we will certainly give you credit for alerting us to the case.
Attached here is a link to an op-ed in the Newark Star-Ledger concerning New Jersey Senate Bill 2144, the “New Jersey Insurance Fair Conduct Act”, which we posted on in June 2018.
In this New Jersey action, the plaintiff alleged that the insurer’s agent deceived and defrauded her into signing a release of claims against the insurer. Specifically, the insured alleged that she was injured in an auto accident, and the insurer’s agent showed up at her home with papers to sign. The agent allegedly represented the documents were necessary to process and advance payments on her claim. However, unknown to her, the documents actually included a broad release of all her claims.
Plaintiff initiated a class action under New Jersey’s Consumer Fraud Act (CFA). The District Court found the CFA inapplicable to this fact scenario, on the basis that the CFA does not address the denial of insurance benefits, and further found the CFA conflicts with the Insurance Trade Practices Act (ITPA) or Unfair Claims Settlement Practices (UCSPA) regulations under these circumstances.
The Third Circuit reversed.
The Third Circuit found that the alleged deceptive and fraudulent conduct against a consumer did not amount to the denial of an insurance benefit. It further found that there was no conflict between allowing a statutory CFA private claim to proceed, even if regulatory relief might also be proper under the ITPA or UCSPA.
Date of Decision: November 15, 2018
Alpizar-Fallas v. Favero, United States Court of Appeal for the Third Circuit, No. 17-3837 (3d Cir. Nov. 15, 2018) (Jordan, Rendell, Vanaskie, JJ.)
We have posted nearly 1,500 bad faith case summaries over the last 12 years. During October and November 2018, we significantly upgraded the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog and all of those posts, making them easier to search and read. Many hours and thousands of edits have gone into this process.
New Searchable Categories
We have added tens of new search categories, grouping cases by topic into distinct, searchable, subsets. These categories can be found on the far left of the home page, and are broken down into New Jersey (NJ) post categories, and Pennsylvania (PA) post categories. You can click on the category to pull up the posts tagged under that category.
General Searches and Opinion Links
You can also search using words you choose yourself. In the upper left of the home page, under the calendar, is a search box where users can enter search terms and get a set of posts with those terms.
We include the names of the judges making the decisions summarized in our posts so you can search posted case summaries by an individual judge’s name. We similarly include the court names in each summary’s caption so you can search by court name as well. (Our shorthand for courts names can be found here.)
We have added hundreds of links to the opinions themselves for many of the summaries that previously had no links (though we do not have an opinion link for all 1,500 posts).
Finally, some trends appear when organizing the cases by topic. Among other things, it is interesting to see where the balance falls between decisions finding claims handling reasonable or unreasonable, or between courts addressing whether bad faith can or cannot exist if there is no contractual duty to provide a benefit of indemnification or defense. And while it is not surprising that many cases originate in the uninsured/underinsured motorist context, it still leaps out that nearly 20% of our posts come from UM/UIM cases, indicating the impact this case type has in shaping bad faith law generally.
Again, we invite you to explore the site.
If you have a Pennsylvania or New Jersey bad faith judicial opinion or jury verdict of interest, please feel free to email us the case for posting. You can email us at lapplebaum@finemanlawfirm.com.
The insured attempted to bring a claim under Senate Bill 2144, the proposed Insurance Fair Conduct Act. However, this bill has never become law, and the court would not permit the insured to pursue such a claim. Nor could the insured pursue a claim under New Jersey’s Unfair Claims Settlement Practices Act since this did not provide a private right of action.
Date of Decision: October 23, 2018
Bell v. Crown Life Ins. Co., United States District Court District of New Jersey Civil Action No. 3:16-cv-08006 BRM-DEA, 2018 U.S. Dist. LEXIS 181562 (D.N.J. Oct. 23, 2018) (Arpert, J.)
COULD THE PROPOSED LAW ONLY REQUIRE PROOF OF NEGLIGENCE FOR DELAY OR DENIAL OF A BENEFIT?
By contrast with current common law bad faith, the IFCA does not clearly state any additional requirement that an unreasonable delay or denial be accompanied by some form of bad faith, intentional conduct or reckless indifference, or whether the word “unreasonable” itself means more than negligence. Defining common law bad faith, New Jersey’s Supreme Court stated in the Badiali case that: “A finding of bad faith against an insurer in denying an insurance claim cannot be established through simple negligence. … Moreover, mere failure to settle a debatable claim does not constitute bad faith. … Rather, to establish a first-party bad faith claim for denial of benefits in New Jersey, a plaintiff must show that no debatable reasons existed for denial of the benefits.” New Jersey’s federal courts have frequently interpreted the fairly debatable bad faith standard as requiring proof the insurer knew its conduct was unreasonable or recklessly disregarded that fact. This includes both pre and post Badiali cases, including recent decisions.
Thus, without further explanation, it is not wholly clear whether the IFCA is subject to a negligence standard, or if IFCA unreasonableness is meant to include the additional common law elements that go beyond mere negligence. If the standard is negligence, then it would be a misnomer to call this a bad faith statute at all.
The statute proposes including treble damages and attorneys’ fees, and legal costs within its remedies, which some may argue are atypical punishments for merely negligent conduct. By comparison, however, the Consumer Fraud Act (CFA) provides for treble damages and attorney’s fees to address a wide range of conduct and mental states. Thus, the CFA punishes affirmative statements that constitute misrepresentations, irrespective of an intent to mislead; knowing material omissions, which do require proof of intent; or strict liability for regulatory violations.
WHAT STANDARDS APPLY TO UCSPA VIOLATIONS?
On this last point, the proposed IFCA encompasses the UCSPA, among other portions of section 17:29B-4. Within the UCSPA’s 14 subsections, reasonableness is often the express standard, however, some subsections simply describe the conduct constituting whether an insurer has acted improperly, or, in some instances it describes conduct beyond mere negligence. The UCSPA’s language includes, e.g.: “misrepresenting pertinent facts”, “failing to acknowledge and act reasonably promptly”, “failing to adopt and implement reasonable standards”, “refusing to pay claims without conducting a reasonable investigation based upon all available information”, “failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed”, “not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear”, “making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which the payments are being made”, “compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds”.
Despite using reasonableness standards in many instances, the UCSPA is underpinned by the notion that the misconduct is frequent enough to indicate a general business practice. This frequency requirement would seem to indicate that an element of intentionality or purposefulness is the fundamental reason that it is necessary to address the misconduct listed in all 14 subparts. In eliminating the frequency requirement, is the IFCA overlooking the idea that the UCSPA was designed to punish ongoing and continuous bad behavior because of its purposeful, intentional or reckless repetition, and not merely individual instances of negligent or unintentional behavior?
It is also interesting to compare subsection 17:29B-4(9)(f) and the new delay or denial IFCA cause of action. Under UCSPA subsection (9)(f): “Committing or performing with such frequency as to indicate a general business practice any of the following: … (f) ‘Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear….” This statutory language includes two concepts to make out misconduct: (1) a lack of good faith effort to settle when (2) it is unreasonable not to make a fair settlement. Under the proposed new law, the failure to pay a benefit due is actionable if it unreasonable, with no mention of any failure to act in good faith as an additional element.
THERE IS NO STATEMENT ON THE STANDARD OF PROOF
In addition, there is no explanation of what burden of proof applies, i.e., preponderance of the evidence or clear and convincing evidence. It should be noted that the preponderance of evidence standard applies to the Consumer Fraud Act and Insurance Fraud Prevention Act. Moreover, while statutory UCSPA violations require that the acts at issue be committed or performed “with such frequency as to indicate a general business practice,” that is not the proposed standard under the new law. Neither unreasonable delay or denial claims, nor actions for UCSPA violations, require “the claimant … to prove that the insurer’s actions were of such a frequency as to indicate a general business practice.”
IS THE PROPOSED LAW ONLY APPLICABLE TO FIRST PARTY BENEFIT PAYMENTS?
The “Statement” accompanying the bill begins: “This bill, the ‘New Jersey Insurance Fair Conduct Act,’ establishes a private cause of action for first-party claimants regarding certain unfair or unreasonable practices by their insurer.”
The bill defines: “’First-party claimant’” or ‘claimant’ means an individual, corporation, association, partnership or other legal entity asserting an entitlement to benefits owed directly to or on behalf of an insured under an insurance policy.” Under this definition, it certainly appears that a claimant must be an insured who has been denied an entitlement to a benefit. In unreasonable delay or denial cases, there must be a delay or denial “for payment of benefits under an insurance policy….” Thus, if no monetary benefit is due, the statute should not apply.
As to UCSPA cases, claims may be asserted “for any violation of the provisions of” the UCSPA’s sections. Based on the definition of claimant, one would assume that there must be some actual denial of a monetary benefit due to the insured for a claimant to raise a UCSPA based IFCA action. Regulatory oversight should apply where no benefit is denied, but the UCSPA has been violated. The statute could be clearer on this point.
In practice, first party claims are often contrasted with third party claims to mean that first party claims are direct claims by an insured to a carrier to indemnify losses suffered by the insured. Third party claims involve instances where an insured is subject to another’s claim for loss caused by the insured, or where the insured has been sued and is seeking a defense and indemnification for losses suffered by others attributable to the insured. Following these uses, and looking solely to the bill’s text, it is not perfectly clear whether the proposed new law covers third party claims, though it would seem not to cover such claims.
The definition of claimant includes “asserting an entitlement to benefits owed [1] directly to or [2] on behalf of an insured under an insurance policy.” A benefit “owned directly to” an insured clearly addresses first party claims. Some may try to argue that the phrasing, a benefit owed “on behalf of an insured,” could be interpreted to mean owed on behalf of an insured to those making claims against the insured. Moreover, is the duty to pay for the insured’s defense in a third party action a benefit owned directly to the insured?
This language could use some clarification in the statute’s text itself in the first instance if it is to become law, rather than going through years or decades of case law to answer these questions in the courts, as issues of statutory interpretation. One only need look at the effusion of statutory bad faith case law in neighboring Pennsylvania over the last 29 years to see the benefits of writing a clear statute in the first instance. If, as seemingly set forth in the “Statement,” the new law is only to cover traditional first party claims, then make that clear in the text. If it is to cover something more, then make that clear.
REMEDIES AND NEED FOR FURTHER CLARIFICATION
The proposed law provides that “upon establishing that a violation of the provisions of this act has occurred,” plaintiffs “shall be entitled to: (1) actual damages caused by the violation of this act; (2) prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses; and (3) treble damages.”
The new law uses the phrase “upon establishing”, which again points out (1) the absence of what the burden of proof is to establish a cause of action under this statute; (2) whether the statute requires negligence, some form, intent, recklessness or bad faith; (3) whether the unreasonableness must be subjective or objective; and/or (4) whether there could be instances of strict liability.
Moreover, these remedies are mandatory and not discretionary because plaintiffs “shall be entitled” to the listed relief. Again, it arguably would be out of the ordinary to award mandatory treble damages and attorney’s fees upon proof of negligence only.
As to the meaning of “actual damages”, this relief would appear to be redundant with an ordinary breach of contract claim if limited to benefits due and not paid under the policy. However, the meaning of the term is not defined in the proposed new law. Does the term “actual damages” also encompass consequential damages? Does it encompass emotional distress damages? Again, the lack of definition opens the door to years of litigation over such issues.
Some other loose ends: Looking at issues arising in other state’s interpreting bad faith statutes, it may be useful to include an express statute of limitations and what portions of the statute go to the jury or not.
We will be following the legislative process and reporting on the proposed IFCA as it develops.
Relying on prior Third Circuit appellate and New Jersey district court precedent, the district court judge ruled that ERISA preempted the plaintiff’s state law bad faith claims. The court listed numerous district court cases supporting this position, summarizing: “Consistent with the jurisprudence of the Supreme Court and the Third Circuit, courts within this District routinely hold that common law claims alleging breach of contract, bad faith, or negligence in connection with the denial of benefits under an ERISA-governed plan are preempted.”
The court had already made clear “[a]t the outset, the Court finds that Plaintiff’s claims for breach of contract (Count One), bad faith (Count Two), and malicious, willful, wanton, and/or reckless disregard of Plaintiff’s rights (Count Three) undoubtedly relate to the Plan, and thus, are preempted under ERISA. As the Third Circuit has explained, claims alleging breach of contract, bad faith, or negligence in connection with the denial of benefits under an ERISA-covered plan are preempted under ERISA, because those claims are ‘are premised on the existence of the plan….’”
Date of Decision: March 22, 2018
Hocheiser v. Liberty Mutual Insurance Co., Civil Action No. 17-6096 (FLW) (DEA), 2018 U.S. Dist. LEXIS 47870 (D.N.J. Mar. 22, 2018) (Wolfson, J.)
