Archive for the 'NJ – Negligence not bad faith' Category
The insured successfully defeated a summary judgment motion on the issue of coverage, but lost on bad faith.
The policy excluded coverage for burst radiator pipes unless the insured took reasonable steps to maintain heat at the property to avoid the problem. Here, the 76-year old insured temporarily moved from his home so family could take care of him after double knee surgery. The record showed a detailed history of the insured’s considerable efforts to maintain heating in his absence, and a somewhat unpredictable set of circumstances leading to the local utility turning off his heat for a short time, which unfortunately led to burst pipes and flood damage in the home.
The record showed a jury could find the insured had taken reasonable steps to maintain the heat, and denied the insurer’s summary judgment motion seeking a ruling that no coverage was due. Thus, the breach of contract claim proceeded.
However, the court did grant the insurer’s motion on bad faith under the fairly debatable standard.
The court first observed New Jersey recognizes two forms of bad faith, either in denying or processing claims. As to the latter, processing focuses on delay in claim handling.
These two types of bad faith claims are subject to “’essentially the same’ test under New Jersey law, namely, the ‘fairly debatable’ standard.” “A bad faith denial claim succeeds when ‘no debatable reasons existed for denial of the benefits.’” “For a processing claim, bad faith is established when there is ‘no valid reason to delay and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.’” Merely mishandling a claim, however, is insufficient; rather there must be “knowledge that no reason [for denying the claim] existed’”.
In this case, the insured first argued bad faith denial. The court rejected that claim, observing:
“The policy at issue specifically precludes coverage for damage resulting from frozen pipes unless the insured maintained heat or shut off the water. Plaintiff admits to not shutting off the water. Moreover, the interruption of gas service to the house did result in heat not being maintained. Plaintiff left his house unattended for over a year, with no one checking in on the property, and the gas bills did show no gas usage, even though the bills also charged Plaintiff every month. Thus, while the question of reasonable care will be submitted to the jury, a reasonable factfinder could only find on this record that coverage was, indeed, fairly debatable.”
On the delay in processing theory, “Plaintiff claims that Defendants impermissibly focused on ‘the result’ rather than the ‘reasonable care’ exercised to ensure the house was heated. … However, bad faith process claims are typically grounded in an excessive delay, not the nature of the process itself … and it is undisputed that Defendants promptly responded to and investigated the claim. Indeed, the record shows that an investigation took place within days of the loss, and a final determination was issued exactly one month after the discovery of the loss.”
Date of Decision: September 2, 2020
Titley v. Hanover Insurance Company, U.S. District Court District of New Jersey No. 1:18-CV-13388 (RMB), 2020 WL 5229387 (D.N.J. Sept. 2, 2020) (Bumb, J.)
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.)
In this reinsurance litigation, non-party Resolute Management, Inc. (“Resolute”) filed a motion to quash a FRCP 30(b)(6) deposition served upon it by Defendant/insured J.M. Huber Corporation. Resolute sought a protective order barring the insured from inquiring into certain subjects during the future depositions of two of its employees. Additionally, Plaintiff/insurer Continental Casualty moved for a protective order barring the insured from inquiring into certain subjects during the insurer’s 30(b)(6) deposition. The insured opposed both Resolute’s motion and the insurer’s motion.
BACKGROUND
The factual background is as follows: Between 1969 and 1994, the insurer issued policies to the insured that were subject to “incurred loss retrospective premium plans” whereby the insured’s premiums are calculated according to the total number of payments and reserves on claims submitted under the policies. The retrospective premiums are calculated annually on the 1st of December, and continue year to year until all claims submitted are closed or until the maximum premium is reached. These retrospective premiums are called “Rating Plan Adjustments.”
The insurer sued over multiple unpaid invoices from previous Rating Plan Adjustments. The insurer alleged it was owed $33,629 under a March 2012 invoice, $737,116 under a March 2013 invoice, and $978,222 under a February 2014 Rating Plan Adjustment calculation. As such, the insurer brought claims for breach of contract and unjust enrichment.
The insured then filed its answer and brought counterclaims for breach of contract and breach of the duty of good faith and fair dealing. The insured alleged that, for decades, both parties enjoyed a professional and amicable relationship where any questions the insured would have about the Rating Plan Adjustments would be satisfactorily answered by the insurer and then promptly paid.
According to the insured, this all changed in 2010 when Berkshire Hathaway and its affiliates, Resolute and National Indemnity Company (“NICO”) “entered into an agreement with [the insurer] pursuant to which [the insurer’s] legacy asbestos and environmental pollution liabilities were transferred to NICO.”
It was alleged that once NICO assumed the insurer’s liabilities, Resolute became a third-party administrator of the insured’s asbestos and environmental claims. After having questions about the particular invoices on the Rating Plan Adjustments, the insured contends that neither the insurer nor Resolute satisfactorily addressed its concerns, and the insured was never provided with an adequate explanation as to the basis of the contested premiums.
ARGUMENTS
In filing the motion to quash, Resolute wanted to prevent the insured from exploring particular subjects during depositions concerning Resolute’s and the insurer’s (1) corporate practices, (2) claims handling procedures, and (3) the corporate relationships between the insurer, Resolute, NICO, and Berkshire Hathaway. The motion concerns both the Rule 30(b)(6) depositions and the depositions of particular Resolute employees.
The insurer and Resolute argued that the insured’s 30(b)(6) deposition topics were overbroad, would cause an undue burden, and would seek irrelevant information. They argued that the insured should only seek information relevant to the calculation of the retrospective premiums, and that the insured’s efforts were unreasonably duplicative because the insured seeks very similar, if not identical, information from both Resolute and the insurer.
The insured argued that all of the information was necessary for the claims and relevant. Resolute and the insurer also filed a motion for a protective order, seeking to bar the insured from inquiring into certain topics during the depositions of two particular Resolute employees. The insured took the position these employees are key witnesses.
COURT’S ANALYSIS
Initially, in discussing Federal Rule of Civil Procedure 26, the Court stated that “[it] is required to limit discovery where (i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or (iii) the proposed discovery is outside the scope permitted by Rule 26(b)(1).”
The Court also addressed FRCP 45 governing subpoenas. The Court stated that four circumstances would warrant it to quash or modify a subpoena: (i) if the subpoena fails to allow a reasonable time to comply; (ii) if it requires a person to comply beyond the geographical limits specified in Rule 45(c); (iii) if it requires disclosure of privileged or other protected matter, if no exception or waiver applies; or (iv) if it subjects a person to an undue burden.
Failure to specify basis for objections and harm from compliance
The Court ruled that Resolute failed to (1) state its objections to the insured’s subpoena with specificity, and (2) it further failed to articulate any specific harm that could arise with its compliance. Thus, the court denied Resolute’s motion to quash. For the same reasons, the Court also denied Resolute’s motion for a protective order.
Discovery limited on some topics
Ruling in Resolute’s favor, the Court found that some of the insured’s deposition topics did exceed the scope of permissible discovery, and specifically limited such topics. These included (1) privileged information between Resolute and the insurer, (2) lawsuits against Resolute involving its administration of claims on behalf of other insurers, (3) particular document demands it found unreasonably cumulative, and (4) the insurer’s losses under other policies and Resolute’s knowledge thereof.
Discovery of corporate relationships, claims handling, and operating protocols relevant within limits
The Court further ruled that “discovery into the corporate relationships between [the insurer, Resolute, NICO, and Berkshire Hathaway], along with Resolute’s claims handling practices and operating protocols, is relevant to [the insured’s] claims and defenses in this matter.”
However, the Court went on to limit the discovery here to only relevant pieces of information, such as Resolute’s corporate structure and its affiliations.
The Court further limited the insured’s inquiries to “communications and correspondence regarding Resolute’s administration of Defendant’s claims; and Resolute’s policies, procedures and practices regarding the administration of claims on behalf of Plaintiffs involving retrospective premiums and its financial goals related to the same.”
The Court looked at a prior case involving Resolute, Pepsi-Cola Metro. Bottling Co. v. Ins. Co. of N. Am., No. CIV 10-MC-222, 2011 U.S. Dist. LEXIS 154369, 2011 WL 239655 (E.D. Pa. Jan. 25, 2011). That case also involved a bad faith claim against insurers, where the insureds “sought discovery from the insurers’ claims handler, non-party Resolute Management, Inc. by way of a 30(b)(6) subpoena. The 30(b)(6) subpoena sought information related to Resolute’s corporate relationships and structure and its operating protocols and business practices.
Resolute moved for a protective order and to quash the 30(b)(6) subpoena claiming that the information sought regarding its corporate relationships and business practices was irrelevant to the plaintiff’s claims against its insurers for bad faith.” Resolute argued “that its operating protocols and business practices were irrelevant to the plaintiff’s allegations….”
The Pepsi Court “noted that [t]o show bad faith, as opposed to mere negligence ‘a review of the policies and procedures of the companies in order to determine whether those policies instructed claims handlers to act in bad faith or provided them with an incentive structure that led to bad faith action is necessary,”
“Accordingly, in light of the plaintiff’s contention that the reinsurance relationship between the plaintiff’s insurers and Resolute and their claims handling practices may have resulted in the bad faith denial of the plaintiff’s claims, the [Pepsi] court found that the plaintiff had provided sufficient evidence of the relevance of the information sought by the subpoena and allowed the plaintiff to obtain discovery regarding Resolute’s corporate relationships and structure and its operating protocols and business practices.”
The present Court followed the Pepsi opinion, and agreed with the insureds’ position in concluding “that Defendant has demonstrated the requisite relevance of the information it seeks to its claims in this matter. In this case, Defendant claims that once Resolute became Plaintiffs’ third-party administrator, Defendant received improper and unexplained retrospective premium notices from Resolute and a letter from Resolute ‘abruptly’ denying coverage for a claim which Plaintiffs had long been providing coverage. …. Because Defendant’s bad faith claims against Plaintiffs result from conduct which arose when Resolute began handling Defendant’s claims, Defendant claims that the corporate relationships between Plaintiffs, Resolute, NICO and Berkshire Hathaway, and the corporate practices of these entities as they relate to Resolute’s claims handling practices is relevant to Defendant’s bad faith claim against Plaintiffs.”
Thus, “discovery into the corporate relationships between Resolute and Plaintiffs and Resolute as its affiliates, along with Resolute’s claims handling practices and operating protocols, is relevant to Defendant’s claims and defenses in this matter.” The Court went to limit that discovery: “However, while the Court will permit discovery into Resolute’s corporate relationships and general practices, Defendant’s requests must be narrowed to seek such information only as relevant to the claims in this matter.”
The Court found that the insurer failed to articulate the specific harm it would suffer if it complied with the insured’s subpoena, so its motion for a protective order was denied. Similarly, the Court also limited the scope of the insured’s discovery against the insurer to relevant information.
Date of Decision: December 19, 2017
Continental Casualty Co. v. J.M. Huber Corp., No. 13-4298 (CCC), 2017 U.S. Dist. LEXIS 208182 (D.N.J. Dec. 19, 2017) (Clark, III, M.J.)
Fineman, Krekstein & Harris obtained dismissal of a bad faith claim against the insurer where the insured’s complaint did not set out sufficient facts to make a plausible claim for an inadequate investigation.
The court observed that under the federal rules, courts carry out a three-tiered test to determine if a complaint can survive a motion to dismiss: (1) the court “must take note of the elements the plaintiff must plead to state a claim.”; (2) “the court ‘should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth.”; and (3) “when there are well-pleaded factual allegations, the court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.”
In applying this process, the court observed that under New Jersey law, a bad faith plaintiff must show both “the absence of a reasonable basis for denying the claim for coverage; and … that the insurer knew or recklessly disregarded its absence of a reasonable basis.” Further, “if an insurance company’s reasons for denying coverage are ‘fairly debatable,’ then the insurance company cannot be liable for bad faith.”
In this case, the issue was whether the insured’s property loss was the result of vandalism or theft. The insurer’s investigator concluded, after providing the details for his reasoning, that the loss was due to uncovered theft. The insurer denied coverage on that basis. The insured alleged coverage was denied in bad faith on the alleged basis that the insurer did not “undertake an independent investigation into the cause of the alleged loss.”
The court rejected this argument. It found that the insured “failed to allege facts demonstrating that [the insurer] lacked a reasonable basis for denying the claim for coverage, or that it knew or recklessly disregarded its absence of a reasonable basis.” There was no dispute that an investigation was conducted and the investigator concluded the loss was due to theft, not vandalism. There were no allegations of fact to support a claim that the investigation was conducted in bad faith. Rather, the pleadings merely showed that the insured disagreed with how the insurer conducted its investigation. Even if this alleged negligence, “allegations of simple negligence or mistake cannot support a claim for bad faith.”
The court stated: “Indeed, there are no factual allegations indicating that [the insurer] conducted a sham investigation in order to wrongfully deny [the] claim, or that [the] investigation was so woefully deficient that it should have known it lacked a reasonable basis to deny coverage.”
Thus, the motion to dismiss was granted, the court adding that the insured “may move to amend its counterclaim should discovery later reveal bad faith conduct….”
Date of Decision: April 25, 2017
Hema Mehta of Fineman, Krekstein & Harris was defense counsel.
The appellate court addressed bad faith in this environmental contamination coverage case. The panel reiterated the law that “an insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence. In the case of denial of benefits, bad faith is established by showing that no debatable reasons existed for denial of the benefits. In the case of processing delay, bad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.”
The court then restated the “fairly debatable” standard, which mandates that an insured bad faith plaintiff must be able to establish “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.” The court affirmed that the trial court’s summary judgment dismissing the bad faith claim was proper. Although the appellate court affirmed a finding that coverage was due, the insurer had a reasonable basis to deny the claim, “particularly considering that the governing law was not as developed at that time as it is now.”
Date of Decision: April 21, 2017
Mid-Monmouth Realty Assocs. v. Metallurgical Indus., DOCKET NO. A-0237-14T2, 2017 N.J. Super. Unpub. LEXIS 993 (App.Div. Apr. 21, 2017) (Brown, Fuentes, Simonelli, JJ.)
The federal district court observed that mere mistakes cannot be the basis for bad faith claims under New Jersey law. Opposing the insurer’s summary judgment motion, the insureds asserted 4 bases for bad faith. Of the four grounds asserted for bad faith, two were unsupported and on the other two, the plaintiffs themselves conceded were mistakes by the insurer. The mistakes included an incorrect date that was corrected; and a statement that the policy lapsed, but the policy was not treated as lapsed.
Date of Decision: July 12, 2016
In Nationwide Mutual Insurance Company v. Caris, the underlying facts involved the alleged fraudulent sale of a property with contamination. The insureds entered a consent judgment and assigned their rights against the carrier to the buyers. The buyers then brought various claims against the insurer, including bad faith claims.
The court dismissed a New Jersey Consumer Fraud Act claim because the allegation was that the insurer failed to provide benefits, not that it procured the insurance policy through fraud.
The assignees also had raised a negligence per se claim for improper claims handling and failure to give timely notice that no coverage would be provided. The court found that the assignees had no standing to bring a claim based upon negligence, as such a claim could not be assigned to them prior to judgment being entered.
Moreover, to the extent this was pleaded as an alternative to asserting a bad faith claim, no such cause of action exists under New Jersey law: “[A]n insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence.”
Finally, “there is no private right of action for policyholders against their insurers based on UCSPA violations or negligence.”
Turning to the bad faith claim: the insured “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.” New Jersey courts apply the “fairly debatable” standard, meaning “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.”
“In the case of processing delay, bad faith is established by showing no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.” This is essentially the same as the fairly debatable standard, and the “mere failure to settle a debatable claim does not constitute bad faith.”
Despite a litany of bad faith allegations, the assignees could not establish the insurer lacked a reasonable basis to deny coverage, or that its coverage position – that there was no property damage caused by an occurrence during the policy period – was unreasonable.
Thus, “[w]hen a carrier proffers ‘plausible reasons for the denial of coverage’ and ‘demonstrates that there is, at the very least, genuine questions regarding whether [an insured’s] claims fall within the coverage provided,’ dismissal of a related bad faith claim is proper, even on a motion to dismiss.”
The burden in this case was on the insureds to prove the property damage occurred during the policy period, and the court found that issue was fairly debatable. Thus, it granted the motion to dismiss the bad faith claim.
Date of Decision: March 14, 2016
Nationwide Mut. Ins. Co. v. Caris, No. 14-5330, 2016 U.S. Dist. LEXIS 33407 (D.N.J. Mar. 14, 2016) (Rodriguez, J.)
In Barratt v. Metropolitan Life Insurance Company, the insured asserted a breach of the covenant of good faith and fair dealing for failure to pay life insurance proceeds. The carrier defended by arguing the policy has lapsed for non-payment of premiums. The court granted the insurer summary judgment on the bad faith claim.
As a first party claim, a finding of bad faith against an insurer in denying an insurance claim cannot be established through simple negligence or by mere failure to settle a debatable claim. Rather the insured must show no fairly debatable basis for denying the claim. In this case, the insurer offered its facts to show non-payment, which would preclude summary judgment and thus it defeated the insured’s argument that no fairly debatable basis existed to deny the claim.
Date of Decision: March 26, 2015
Barratt v. Metro. Life Ins. Co., Civ No. 2:12-6734 (KM)(MAH), 2015 U.S. Dist. LEXIS 39510 (D.N.J. March 26, 2015) (McNulty, J.)
In Shilling v. Reassure America Life Insurance Company, the beneficiary of a life insurance policy brought breach of contract and bad faith claims for the insurer’s alleged failure to pay death benefits. The insurer asserted that the policy lapsed for failure to pay premiums. The court found in the insurer’s favor, and granted summary judgment on the breach of contract claim.
As to the bad faith claim, the court observed that there could be no breach of the covenant of good faith and fair dealing where the policy (contract) was no longer in force.
Moreover, even if the policy were somehow in force, there was no breach of the covenant of good faith and fair dealing because there was no evidence in the record to suggest the insurer acted negligently or in bad faith; the court further stating that: “A finding of bad faith against an insurer in denying an insurance claim cannot be established through simple negligence.” The court stated further that “a defendant who acts in good faith on an honest, but mistaken, belief that her actions were justified has not breached the covenant of good faith and fair dealing.” The plaintiff is this case did not identify any evidence of ill motive or bad faith, and summary judgment was granted on this alternative basis.
Date of Decision: February 25, 2015
Shilling v. Reassure Am. Life Ins. Co., Civil Action No. 13-2359, 2015 U.S. Dist. LEXIS 22452 (D.N.J. February 25, 2015) (Rodriguez, J.)
In Onex Credit v. Atrium 5 Ltd., a company has purchased a disability policy on its CEO. The policy provided that if the terms were met, the company could receive a large lump sum payment. There were numerous conditions and exclusions, and after a lengthy investigation by the carrier’s representative coverage was denied. The company brought suit for breach of contract, bad faith (breach of the implied covenant of good faith and fair dealing), and also sought statutory attorney’s fees.
As to the bad faith claim, the company argued that there was a bad faith delay, and a bad faith refusal to pay. To show a bad faith denial of payment, an insured must show that the insurer lacked a “fairly debatable” reason for denying coverage and that it knew or recklessly disregarded the absence of a reasonable basis to deny the claim.
To establish an unreasonable delay case, the delay must be shown to be lacking any valid reason, and that the insurer knew or recklessly disregarded the fact that there was no valid reason justifying the delay. These tests are essentially the same. Thus, to make out a case, the insured has to show that it would be entitled to summary judgment on the bad faith claim, i.e., there can be no material issues of disputed facts that would favor the insurer in precluding summary judgment on the bad faith issue.
In this case, there were disputed issues of material fact as to the reasonableness of the insurer’s denial, specifically concerning its reliance on third party consultants in reaching a conclusion as to their qualifications and findings.
On the delay claim, the court found that the insured overstated the delay by one year and that its objection to producing certain documents resulted in another 6 month delay. The insurer had promised at one point a decision in 30 days, and had not requested the belatedly produced documents until a year after the original claim. The court indicated that a jury could find that, at most, this was the result negligence or mistake, which do not constitute bad faith.
The court rejected the argument that there was a need for more discovery concerning the consultants, as this simply circled back to establishing the presence of disputed facts that would not permit a grant of summary judgment in the insured’s favor.
Thus, the company could not overcome the fairly debatable obstacle to relief. The same result applied to the delay issue, as the reasons for the delay were fairly debatable, and neither negligence nor mistake could make out bad faith. Finally, the court would not entertain the statutory attorney’s fee claim under Rule 4:42-9(a)(6), in connection with having to bring suit to enforce coverage. This court found that this rule did not apply in the first party context.
Date of Decision: September 26, 2014
Onex Credit v. Atrium 5, Civil Action No. 13-5629 (ES), 2014 U.S. Dist. LEXIS 135778 (D.N.J. September 26, 2014) (Salas, J.)
