Archive for the 'NJ – No coverage due, no bad faith' Category

NO BAD FAITH UNDER NEW JERSEY LAW WHERE INSURED CANNOT ESTABLISH A BREACH OF THE INSURANCE CONTRACT (New Jersey Appellate Division) (Unpublished)

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The insured had a long-term care policy. The carrier denied coverage and the insured sued for breach of contract, bad faith, and breach of the duty to act in good faith. The trial court granted summary judgment on all counts, and the Appellate Division affirmed.

The crux of the case involved policy interpretation and the carrier’s alleged failure to review a physician letter/plan. The trial court found the policy was unambiguous, i.e., it was not susceptible to two reasonable readings of the same policy language, one of which favored the insured over the insurer. Rather, the language was clear, sufficiently prominent, and written in plain language. That language put the insured’s claims outside the policy’s coverage terms.

To the extent the physician letter may have arguably come within the policy’s coverage, the evidence showed that letter was never provided to the carrier before suit. Further, there was no other evidence showing the insurer acted unreasonably.

As to bad faith, “[t]he trial court also found that the bad faith claim failed under the ‘fairly debatable’ standard, since plaintiff could not establish the breach of contract claim as a matter of law.” As stated above, the Appellate Division affirmed on all counts.

Date of Decision: November 12, 2019

Cooper v. CNA Insurance Co., Superior Court of New Jersey Appellate Division DOCKET NO. A-4824-17T4, 2019 N.J. Super. Unpub. LEXIS 2316, 2019 WL 5884584 (App. Div. Nov. 12, 2019) (Koblitz, Mawla, Whipple, JJ.) (unpublished)

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.)

JANUARY 2018 BAD FAITH CASES: NO BAD FAITH WHERE THE INSURED FAILS TO SHOW ANY BREACH OF THE POLICY TERMS (Third Circuit, New Jersey)

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The insureds purchased a homeowners policy that provided up to $10,000 in coverage for mold-related damage. The policy did not cover water damage. The insureds’ roof was damaged, causing a leak in the master bedroom. The insurer paid this claim. Shortly thereafter, Hurricane Sandy made landfall, and the insured testified the house was damaged from subsurface water “[coming] up” from the crawl space beneath the house.

Just before Hurricane Sandy hit, the insureds noticed mold damage in the master bathroom and closet. The insureds engaged air quality specialists to test the rest of the home, who found mold in the crawl space beneath the house. On medical and engineering advice, the insureds demolished and rebuilt the home. They submitted a $282,000 claim for renovations. The insurer paid $12,158 for the roof repairs and various other items listed in the engineering report, and the $10,000 policy limit for mold.

The insured sued for breach of contract and breach of the duty of good faith and fair dealing. The trial court granted summary judgment to the insurer, finding the insurer fully performed under the policy, and insufficient evidence to support a claim of bad faith.

The Third Circuit likewise ruled for the insurer. The insurer paid the policy limit for mold damage, and the insureds’ own experts reported the other damages resulted from the water in the crawl space, and water damage was excluded under the policy.

As to the bad faith claim, the Third Circuit stated, “‘[a]n insurance company owes a duty of good faith to its insured in processing a first-party claim,’ but no liability arises if a decision concerning a claim is ‘fairly debatable.’” Because the insureds were unable to prevail on the breach of contract claim, they could not prevail on a bad faith claim for refusal to pay benefits owed under the policy. As such, the Third Circuit affirmed the District Court.

Date of Decision: January 10, 2018

Andrews v. Merchants Mutual Insurance Co., No. 17-1413, 2018 U.S. App. LEXIS 637 (3d Cir. Jan. 10, 2018) (Fuentes, Shwartz, Vanaskie, JJ.)

OCTOBER 2017 BAD FAITH CASES: SEVERANCE AND STAY OF BAD FAITH CLAIM GRANTED ON ALL FOUR CRITERIA; RESOLUTION OF BREACH OF CONTRACT CLAIM DETERMINITIVE OF BAD FAITH CLAIM (New Jersey Federal)

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The insureds owned commercial property damaged due to storm-related incidents. They retained an outside adjusting firm. After the adjusting firm first notified the insurer of the claims, the insurer sent its own adjusters to investigate the property claims and to make a coverage decision. Upon investigation, the insurer concluded the commercial property had not been open to the public for three years, and that the insureds had apparently demolished whole portions of the building. The insurer retained legal counsel to analyze the coverage issues. It ultimately denied coverage.

The insured sued for breach of contract and bad faith. The insurer moved to sever and stay the bad faith claim. The Court stated that the practice of severing the claims “is appropriate where the claims . . . are ‘discrete and separate’ in that one claim is ‘capable of resolution despite the outcome of the other claim.” In making its determination, the Court considers four factors: “(1) whether the issues sought to be tried separately are significantly different from one another; (2) whether the separable issues require the testimony of different witnesses and different documentary proof; (3) whether the party opposing the severance will be prejudiced if it is granted; and (4) whether the party requesting severance will be prejudiced if it is not granted.”

  1. First, the Court found that the breach of contract claim concerns coverage under the policy, and that the bad faith claim deals with the insurer’s “general claims handling procedures, its claims conduct in this case, and its knowledge and state of mind about the grounds for denial of coverage.” As such, the Court held that this factor weighs in favor of bifurcation.

  2. Next, the Court ruled “the contract and bad faith claims require the testimony of different witnesses and different documentary proof.” Thus, it held that this factor also weighs in favor of bifurcation.

  3. The Court then found the insured would not suffer prejudice if the two claims are severed, reasoning that “relatively little discovery has been exchanged and it is therefore uncertain whether the initial coverage claim will be denied. If so, the bad faith claims would similarly fail.” The Court also stated that should the insureds prevail on the breach of contract claim, they could then pursue their bad faith claim.

  4. Lastly, the Court held that the insurer would be prejudiced if it were forced to litigate the bad faith claim coextensively, because permitting discovery on the bad faith claim, prior to the resolution of the breach of contract claim would be premature.

In conclusion, all four factors weighed in favor of bifurcation and the Court granted the insurer’s motion to sever and stay the bad faith claim.

Date of Decision: September 26, 2017

Legends Mgmt. Co. v. Affiliated FM Ins., No. 16-CV-1608, 2017 U.S. Dist. LEXIS 158898 (D.N.J. Sept. 26, 2017) (Mannion, J.)

It is interesting to compare this analysis with the recent Federal Rule 42 decision in Pennsylvania’s Middle District, which denied the motion to bifurcate.

OCTOBER 2017 BAD FAITH CASES: RESOLUTION OF COVERAGE DISPUTE IN INSURER’S FAVOR LED TO DISMISSAL OF BAD FAITH CLAIM BASED ON SAME COVERAGE DISPUTE (Middle District)

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The insured’s property included a bulk liquid storage facility, and operated a propane gas distribution center containing six large liquid propane storage tanks. The policy included a variety of standard exclusions. Five months after the policy issued, the insured noticed sinkholes at the base of its propane tanks. The insured filed a property loss notice with the insurer, and retained an engineering firm to conduct a site inspection.

The engineering firm concluded that the sinkhole opened up after a period of excessive rainfall. The insurer began investigating the claim under a full reservation of its rights. It ultimately denied coverage pursuant to the policy’s “Cost of Excavation,” “Land and Water,” and “Earth Movement Exclusions”. However, the insurer invited the insured to submit further documentation that could alter its denial of coverage. After some back-and-forth, the insured ultimately brought suit for breach of contract and bad faith. The insurer moved for summary judgment on both claims.

The Court granted the insurer’s motion to dismiss the breach of contract claim for two reasons. First, the insured failed to meet its burden of establishing that the actual property covered under the policy was damaged. Second, the Court ruled that the policy’s flood exclusion precluded coverage. The flood exclusion excluded coverage for damaged caused by “surface water,” and the insured’s own engineering firm confirmed that rainfall/surface water contributed to the opening of the sinkholes.

As to the bad faith claim, the Court observed the heightened evidentiary standard “to provide evidence so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the [insurer] acted in bad faith.” The Court ruled that the undisputed facts showed that the insurer had a reasonable basis for its coverage denial, and that the insured failed to produce evidence that a reasonable jury could use to find bad faith by a clear and convincing standard.

The Court granted the insurer’s motion for summary judgment in its entirety.

Date of Decision: September 18, 2017

Heller’s Gas, Inc. v. International Insurance Co. of Hannover Ltd., No. 4:15-CV-01350, 2017 U.S. Dist. LEXIS 151072 (M.D. Pa. Sept. 18, 2017) (Brann, J.)

SEPTEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE DENIAL OF PIP BENEFITS STEMMED FROM EXHAUSTION OF THE POLICY LIMITS (New Jersey Appellate Division)

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The insured received medical treatment from several providers after sustaining injuries in a May 2013 auto accident. The policy provided up to $15,000 in PIP benefits per accident. The insurer denied a request for an $8,527.07 payment to Hackensack Surgery Center (“HSC”), as subrogee of the insured, because it determined that the treatment was not medically necessary. HSC then filed a demand for arbitration.

Prior to the arbitration hearing, the insurer advised that only a balance of $2,132.74 remained in available PIP benefits due to prior payments totaling $12,867.26. During the pendency of HSC’s claim, Thermocare Plus, LLC (“Thermocare”), another medical provider of the insured, utilized the insurer’s internal appeals process to seek a reversal of insurer’s earlier denial of its bill totaling $2,032.74. On August 21, 2015, the insurer advised Thermocare that its previous denial was overturned, and that it would process Thermocare’s bill.

On the same day, the insurer received the HSC arbitration award that the HSC treatment was medically necessary, and awarded $8,438.58, plus interest, attorney’s fees, and costs to HSC. However, the arbitration panel stated that the award “was subject to ‘the policy limits for medical payments, still available to [HSC] at the time of the award.’”

Seven days later, the insured paid Thermocare $2,032.74. The insurer then complied with the arbitration award, and processed a payment of $100 to HSC, which reflected the amount of remaining PIP benefits. HSC then filed an order to show cause, arguing that its payment had priority. HSC sought an additional payment of $2,036.99 and attorney’s fees and costs.

The trial judge ordered the insurer to pay HSC an additional $2,036.99, which represented the amount remaining on the arbitration award. The judge reasoned that the insurer did not “engage[] in any sort of bad faith. . .”, but the insurer’s payment decisions did not achieve an equitable outcome. The trial judge denied HSC’s request for attorney’s fees.

On appeal, the insurer argued that the trial judge’s decision ran counter to existing state law because it had already exhausted the PIP policy limits. Furthermore, the insurer argued that it had 35 days to challenge the arbitration award, and thus was under no obligation to comply with the award because it already approved Thermocare’s payment.

In articulating the collateral source rule, which governs the payment of PIP benefits under New Jersey law, the Appellate Division stated that the insurer is required “to pay PIP benefits immediately upon [a] determination that the loss is due and owing, without consideration that the loss may also be covered by another source. . . .”

The Appellate Division held that HSC is entitled to the additional $2,036.99 payment, because HSC’s bill predated Thermocare’s; HSC rendered services prior to Thermocare; the insurer received HSC’s bill prior to Thermocare’s; and because Thermocare’s bill remained unpaid as of the date of the arbitration award. Citing the “broad discretion” given to trial judges when deciding whether to award attorney’s fees, and finding no abuse of discretion, the Appellate Division declined to overrule the judge’s decision to deny HSC its requested attorney’s fees and costs.

Date of Decision: September 5, 2017

Hackensack Surgery Ctr. V. Allstate Ins. Co., No. A-3896-15T3, 2017 N.J. Super. Unpub. LEXIS 2200 (N.J. App. Div. Sept. 5, 2017) (Reisner and Sumners, JJ.)

MAY 2017 BAD FAITH CASES: NO EVIDENCE OF BAD FAITH WHEN INSURER’S ACTS MEET POLICY TERMS AND CONDITIONS (New Jersey Appellate Division)

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In this New Jersey appellate case, after finding for the insurer on coverage, the court found no evidence of bad faith. An insured “’must establish the merits of his or her claim for benefits. If there is a valid question of coverage, i.e., the claim is “fairly debatable,” the insurer bears no liability for bad faith.’” In this case, the insurer denied claims above a specific sum consistent with the policy’s terms and conditions. For this reason, the court concluded that there was “no evidence of bad faith on behalf of defendant.”

Date of Decision: May 3, 2017

Schultz Furriers, Inc. v. Travelers Cas. Ins. Co. of Am., NO. A-0170-15T1, 2017 N.J. Super. Unpub. LEXIS 1072 (App.Div. May 3, 2017) (Fasciale, Sapp-Peterson, Yannotti, JJ.)

 

MARCH 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE (New Jersey Appellate Division)

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This case involved a denial of coverage on the basis that the insured failed to get his car physically inspected after purchase. The court affirmed a grant of summary judgment on the coverage claim, and on the bad faith claim.

As to the bad faith claim, an “insured who alleges bad faith by the insurer must establish the merits of his or her claim for benefits. If there is a valid question of coverage, i.e., the claim is ‘fairly debatable,’ the insurer bears no liability for bad faith.” The court found the claim at issue was “fairly debatable”. The insurer was entitled to deny the claim outright. It had “complied with all notice and suspension procedures provided in the regulations. It did not have discretion to provide coverage when plaintiff did not comply and have the vehicle inspected.”

Date of Decision: March 14, 2017

Gibbins v. Geico, DOCKET NO. A-1035-15T3, 2017 N.J. Super. Unpub. LEXIS 632 (App. Div. Feb. 28, 2017) (Fasciale and Gilson, JJ.)

 

DECEMBER 2015 BAD FAITH CASES: WHERE NO COVERAGE DUE AND INSURER GAVE HIGHLY PLAUSIBLE EXPLANATION TO DENY COVERAGE, INSURED CANNOT MEET FAIRLY DEBATABLE STANDARD TO PROVE BAD FAITH (New Jersey Federal)

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In One James Plaza Condominium Association v. RSUI Group, Inc., the court found coverage was excluded under a condominium association’s claims made policy, by a Specific Litigation Exclusionary Provision.  The issue was whether a second lawsuit against the insured’s board members was related to a prior litigation.

In addressing whether there could be a bad faith claim for refusing to defend the condominium board members, the court applied the rule found in Pickett v. Lloyd’s:  “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.”  These cases are analyzed by the “fairly debatable” standard, i.e., “[i]f a claim is ‘fairly debatable,’ no liability in tort will arise.’” To meet that standard an insured has to establish that it would have a right to summary judgment as a matter of law.  Put another way, if there is an issue of material fact as to the underlying claim regarding Plaintiff’s entitlement to insurance benefits, there is no bad faith.”

In this case, the insurer issued a denial of coverage letter, giving an extensive explanation as to why there was no coverage.  The insurer’s explanation provided plausible reasons for the denial of coverage and demonstrated genuine issues whether claims fell within the coverage provided. Thus, the bad faith claim was dismissed.

Dated:  December 2, 2015

One James Plaza Condominium Association v. RSUI Grp., Inc., 2015 U.S. Dist. LEXIS 161460, Civil Action No. 15-294, (D.N.J. December 2, 2015) (Rodriguez, J.)

DECEMBER 2015 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE AND CLAIM WAS FULLY INVESTIGATED (New Jersey Federal)

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In Stiso v. State Farm Fire & Casualty Company, a Hurricane Sandy case involving significant interior water damage, the court found coverage was excluded and then went on to address the insureds’ claims for (1) the breach of the implied covenant of good faith and fair dealing and (2) bad faith.  It stated that both claims are tantamount to the same cause of action. To prove a first party bad faith claim, the insured must show that (1) the insurer lacked a fairly debatable reason for denying coverage, and (2) insurer knew of or recklessly disregarded the lack of a reasonable basis for denying coverage.

The court stated that:  “Plaintiffs clearly have not established these above-referenced factors because they have failed to show, as discussed at length [in analyzing the coverage issue], that [the insurer] lacked a reasonable basis for denying coverage.” With emphasis the court then added: “Indeed, I have granted summary judgment on Plaintiffs’ breach of contract claim.”

The claim was investigated by multiple representatives of the insurer, and in reaching its decisions on coverage, the insurer did nothing that convinced the court that the insurer had no reasonable basis for denying certain coverage. Summary judgment was granted on all issues.

Date of Decision: November 18, 2015

Stiso v. State Farm Fire & Cas. Co., Civil Action No. 13-5741 (FLW), 2015 U.S. Dist. LEXIS 155762 (D.N.J. Nov. 18, 2015) (Wolfson, J.)