Archive for the 'NJ – Standing, Assignment or Outside Scope' Category

JULY 2018 BAD FAITH CASES: NO BAD FAITH POSSIBLE FOR FAILING TO PAY INJURED THIRD PARTY WHERE INSURED NOT LIABLE TO INJURED PARTY (New Jersey Appellate Division) (Unpublished)

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In this case, the insured sued her mother for injuries suffered from a slip and fall at the mother’s house. She also brought a bad faith claim against the mother’s insurer for refusing to assess the claim and give the daughter a payment. The trial court found no negligence and granted the mother summary judgment. The Appellate Division agreed.

There is no reference in the opinion that the claim against the insurer was assigned to the daughter, and there was clearly no judgment against the mother giving the daughter a direct action against the insurer. Thus, it is unclear how the daughter even had a right to assert a bad faith claim against her mother’s insurer in the first instance.

That being said, the court found no basis for the bad faith claim once it was ruled the insured was not negligent. The Appellate Division held “that plaintiff’s claim for bad faith … lacked any legal basis once the judge found that [the] insured … was not negligent.”

Date of Decision: June 27, 2018

Spellman v. Theresa Kosenski & Plymouth Rock Assurance, New Jersey Superior Court Appellate Division NO. A-3381-16T3, 2018 N.J. Super. Unpub. LEXIS 1539 (N.J. App. Div. June 27, 2018) (Reisner and Mayer, JJ.)

NOVEMBER 2017 BAD FAITH CASES: FIRST PARTY BAD FAITH CLAIM POSSIBLE EVEN IF NO CONTRACT OF INSURANCE BETWEEN INSURED AND AN INSURER MERELY SERVICING POLICY, ANALOGIZING TO DUTIES IMPOSED ON AGENTS (New Jersey Federal)

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The insureds were homeowners who suffered property damage. “They were insured under a Prestige Home Premier Policy, issued by Fireman’s Fund, underwritten by National Surety, and serviced by ACE American.” The insureds alleged they reported the claim promptly, and interacted with representatives of the various insurer defendants for 20 months, but did not receive full payment on their claim. ACE sought to dismiss the breach of contract and bad faith claims on the basis that it did not issue any insurance policy, but rather National Surety was the insurer.

The court would not dismiss the complaint. First, it remained unclear on the face of the pleading if there was some kind of contract with ACE. The more interesting holding was that a potential bad faith claim could exist even if there were no insurance policy issued by ACE, rejecting the argument that “without a contract there can be no claim for bad faith.” The court specifically did not accept the argument that any cause of action can only arise out of the implied contractual duty of good faith and fair dealing.

The court looked to the leading first party bad faith case of Pickett v. Lloyds. The court ruled, “Pickett itself … seems to contemplate a bad faith cause of action against a party other than the primary insurance company. Indeed, it reasoned that because an agent owes a duty to the insured, the insurer must ‘owe[] an equal duty.’” It referenced Picket as “affirming a jury award where the jury found the insurer’s agent liable ‘for a lack of good faith and fair dealing outside of its agency relationship with Lloyd’s [the insurer]’ and stating that ‘[a]gents of an insurance company are obligated to exercise good faith and reasonable skill in advising insureds’”

Thus, the court held that “[e]ven if the [insureds] fail to establish the existence of a contract with ACE American, their bad faith cause of action may still be viable.”

Date of Decision: October 20, 2017

Fischer v. National Surety Corp., Civ. No. 16-8220 (KM) (MAH), 2017 U.S. Dist. LEXIS 174267 (D.N.J. Oct. 20, 2017) (McNulty, J.)

APRIL 2016 BAD FAITH CASES: (1) NO CONSUMER FRAUD ACT CLAIM FOR DENIAL OF BENEFITS; (2) NEGLIGENCE CLAIM UNDER UNFAIR CLAIMS SETTLEMENT PRACTICES ACT NOT ASSIGNABLE OR ACTIONABLE; AND (3) NO BAD FAITH CLAIM WHERE QUESTION WHETHER PROPERTY DAMAGE FELL WITHIN POLICY PERIOD WAS FAIRLY DEBATABLE (New Jersey Federal)

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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.)

 

AUGUST 2015 BAD FAITH CASES: NEW JERSEY SUPREME COURT FINDS INJURED PARTIES DO NOT BECOME THIRD PARTY BENEFICIARIES TO INSURANCE CONTRACTS SIMPLY BECAUSE THEY WERE INJURED BY AN INSURED, IN THE ABSENCE EXPRESS INTENT TO MAKE THOSE INJURED PERSONS PARTIES TO THE INSURANCE CONTRACT PRIOR TO THE INJURY (New Jersey Supreme Court)

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In Ross v. Lowitz, New Jersey’s Supreme Court reaffirmed the rule that an injured party has no direct rights against a tortfeasor’s insurer, absent an assignment or standing as an express third party beneficiary.

In that case, the plaintiffs suffered damages from their neighbor’s oil tank leak.  They sought to bring claims directly against the neighbor’s insurer, in the absence of an assignment.  The court observed that generally, “an individual or entity that is ‘a stranger to an insurance policy has no right to recover the policy proceeds.’” A non-insured may get around this limitation and bring a bad faith claim against a tortfeasor’s insurer by virtue of an assignment of rights. In this case, however, there was no such assignment. Rather, the injured parties took the position that they were third-party beneficiaries to the tortfeasor’s insurance contracts with here insurers, “and that the insurers breached that duty by delaying the remediation of [the injured plaintiffs’] residence.”

The court’s analysis made clear that there was no automatic third party beneficiary status under insurance policies to parties injured by the insured.  In essence it rejected the idea of universal third party status to the public who might be injured by an insured, or retroactive findings that an injured third party must have been an intended beneficiary because all injured parties are intended to be party to the contract by virtue of being injured by the insured.

Instead, to determine third party beneficiary status, an inquiry must be made into whether the insured and insurer, as the contracting parties, “’intended others to benefit from the existence of the contract, or whether the benefit so derived arises merely as an unintended incident of the agreement.’” In this inquiry, the determining factor is the intention of the contracting parties.

“’Thus, the real test is whether the contracting parties intended that a third party should receive a benefit which might be enforced in the courts; and the fact that such a benefit exists, or that the third party is named, is merely evidence of this intention.’” In making this determination: “If there is no intent to recognize the third party’s right to contract performance, ‘then the third person is only an incidental beneficiary, having no contractual standing.’”

The court then observed the basic theory of bad faith loss, under the contractual duty of good faith and fair dealing when processing claims: “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. . . . [L]iability may be imposed for consequential economic losses that are fairly within the contemplation of the insurance company.”

It then observed that this claims processing duty to the insured had “never been applied in New Jersey to recognize a bad-faith claim by an individual or entity that is not the insured or an assignee of the insured’s contract rights.”

Citing the Appellate Division, “[t]he right of the assured to recover against the insurer for its failure to exercise good faith in settling a claim within the limits of a liability policy . . . is predicated upon the potential damage to the assured in being subjected to a judgment in excess of her policy limits and the consequent subjection of her assets to the satisfaction of such judgment. The damage is peculiarly to the assured by reason of a breach of an implied condition of the policy contract. The injured third party is a stranger in that sense. Moreover, public policy does not mandate that the injured party in the accident should be deemed the intended beneficiary of the company’s contractual duty to its policyholder to act in good faith regarding settlement.” (Emphasis in original)

The Supreme Court concurred in this reasoning, finding that it “is a fundamental premise of contract law that a third party is deemed to be a beneficiary of a contract only if the contracting parties so intended when they entered into their agreement.” (Emphasis added) In the case at hand, there was “no suggestion in the record that the parties to the insurance contracts at issue had any intention to make plaintiffs, then the neighbors of the insured, a third-party beneficiary of their agreements. Nor does the migration of oil from [the insured’s] property to plaintiffs’ residence retroactively confer third-party beneficiary status on plaintiffs. The insurers’ duty of good faith and fair dealing in this case extended to their insured, not to plaintiffs.”

Thus the insurers were granted summary judgment.

Date of Decision:  August 6, 2015

Ross v. Lowitz, A-101 September Term 2013, 074200, 2015 N.J. LEXIS 819 (N.J. August 6, 2015)

 

DECEMBER 2014 BAD FAITH CASES: NO ASSIGNMENT CLAUSE DOES NOT BAR COVERAGE WHERE INSURED UNDERGOES A STATUTORY MERGER; INSURER REQUIRED TO PAY COUNSEL FEES, EVEN IN ABSENCE OF BAD FAITH (New Jersey Federal)

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In Lime Tree Assocs., LLC v. Burlington Ins. Co., the court considered whether an insurer had properly denied coverage under a ‘no assignment’ clause in the policy, where the underlying insured-company underwent a statutory merger, resulting in a surviving LLC.  Under New Jersey law, such a merger entitles the surviving entity to “all of the rights, privileges and powers of each of the partnerships and other business entities that have merged or consolidated, and all property, real, person and mixed, and all debts due to any of those partnerships and other business entities, as well as all other things and causes of action belonging to each of those partnerships and other business entities.”

The insurer denied coverage for a personal injury suit under the ‘no assignment’ clause, as well as under the definition of “insured,” which had been modified by a ‘new entities’ exclusion.

Whether the policy language prevented a transfer of contractual rights following and through a merger is an issue that has not yet been considered by the New Jersey Supreme Court, but has been previously addressed by the Appellate Division of New Jersey and district courts of the Third Circuit.  Those jurisdictions have all held that in order to prevent a transfer of rights through merger or by operation of law, the contract’s language must be explicit – the exclusionary language must have anticipated such a transfer and purposefully prevented it.

Therefore, a generic clause barring assignment would be insufficient to bar coverage; rather, to be given effect, the exclusionary clause must contain language that specifically addresses the circumstances and issues at hand.  The court determined the no assignment clause in the policy was neither specific nor explicit with regard to transfer by merger or operation of law, and was therefore insufficient to bar coverage.

Furthermore, the reasoning behind the no assignment clause did not support a denial of coverage; no assignment clauses are intended to protect the insurer from unknowingly insuring against unforeseen risks when the coverage is transferred to a different insured, but where the loss has occurred prior to the transfer of coverage, that risk is abated entirely.

For that reason, courts have refused to apply no assignment clauses to transfers occurring by operation of law because such transfers do not entail any increase in the risk or hazard assumed by the insurer.  This comports with New Jersey’s practice of strictly construing clauses that are designed to limit coverage.

Coverage was also not excluded by the new entities exclusion because the surviving entity was not a new entity; it succeeded to all of the original insured’s rights automatically and as a matter of law under the state statute.  Therefore, the surviving entity was not a newly acquired entity; it was merely a continuation of the original entity.

The court awarded the LLC counsel fees under R. 4:42-9(a)(6), citing authority that the insured was entitled to such fees as the successful claimant. The insurer had declined a defense “even though it knew about their valid statutory merger.” Moreover, although the insurer’s “refusal may not have been in bad faith,” denying the insured counsel fees would have deprived it of the full benefit of its insurance contract.

New Jersey Court Rule 4:42-9(a)(6) permits, at the discretion of the trial court, an award of counsel fees in “an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.”

Date of Decision: November 25, 2014

Lime Tree Assocs., LLC v. Burlington Ins. Co., Civil No.: 13-6017, 2014 U.S. Dist. LEXIS 165794 (D.N.J. Nov. 25, 2014) (Hayden, J.)

NOVEMBER 2014 BAD FAITH CASES: NAMING WRONG INSURER WITHIN INSURANCE GROUP AS DEFENDANT REQUIRES DISMISSAL OF CLAIMS (New Jersey Federal)

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In Klein v. Hanover Insurance Company, the court addressed the not infrequent situation where an insurance company is part of a family or group of insurers, and either the group name or another member of the group is named as a defendant.  In this breach of contract/breach of the covenant and good faith and fair dealing case, the insurer named on the policy was issued by Citizens Insurance Company, which was part of the Hanover Insurance Group, Inc. However, the insured named Hanover Insurance Company, another member of Hanover Insurance Group, as the defendant.  The court dismissed the claims as the Hanover Insurance Company was not a party to the insurance contract.

Date of Decision:  October 27, 2014

Klein v. Hanover Insurance Company, Civil Action No.: 14-1055, 2014 U.S. Dist. LEXIS 152407 (D.N.J. Oct. 27, 2014) (Cecchi, J.)

MAY 2014 BAD FAITH CASES: INJURED THIRD PARTY HAS NO DIRECT CLAIM AGAINST INSURERS OF TORTFEASOR FOR BAD FAITH PROCESSING OF CLAIM IN ABSENCE OF ASSIGNMENT (New Jersey Superior Court Appellate Division)

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In Ross v. Lowitz, New Jersey’s Appellate Division upheld the lower court’s dismissal of a third party’s claims directly against the insurers of the alleged tortfeasor for bad faith in the processing of the claim brought by them against the tortfeasor-insured. The lower court had found in a comprehensive written statement of reasons, that there was no basis as a matter of law to assert direct claims alleging breach of the covenant of good faith and fair dealing against the insurance companies, as there was no fiduciary duty or any special relationship between them.

The appellate court first noted that persons purportedly injured by the carriers’ insured are precluded from filing direct claims against the insurance companies absent an assignment of rights. In addition, these parties were not third-party beneficiaries to the contracts of insurance. Thus, the grant of summary judgment on this claim was upheld.

Date of Decision: March 18, 2014

Ross v. Lowitz, DOCKET NO. A-1024-12T4, 2014 N.J. Super. Unpub. LEXIS 568 (N.J. Super. Ct. App. Div. March 18, 2014) (Ashrafi, St. John, and Leone, JJ.)

This decision was affirmed by the Supreme Court.

MAY 2014 BAD FAITH CASES: THERE CAN BE NO BREACH OF THE CONTRACTUAL COVENANT OF GOOD FAITH AND FAIR DEALING WHERE THERE IS NO CONTRACT BETWEEN PLAINTIFF AND DEFENDANT (New Jersey Federal)

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In Zodda v. National Union Fire Insurance Company, the plaintiff alleged various claims based on an accident disability insurance policy. The court observed in regard to one defendant’s motion to dismiss that the plaintiff had made claims against four sets of defendants, but had not properly distinguished conduct as to each of them in the complaint.

In regards to the claims for breach of the contractual covenant of good faith and fair dealing in relation to the insurance policy, one defendant moved to dismiss, observing that the plaintiff never pleaded that his decedent had any contract with this defendant; nor had he pleaded any clear contractual relation between the moving defendant and any other defendant. In the absence of a contract there can be no breach of the contractual duty of good faith and fair dealing, and the claim was dismissed.

Date of Decision: April 21, 2014

Zodda v. National Union Fire Ins. Co., Civil Case No. 13-7738 (FSH), 2014 U.S. Dist. LEXIS 54916 (D.N.J. April 21, 2014) (Hochberg, J.)

NOVEMBER 2012 BAD FAITH CASES:COURT AFFIRMS DISMISSAL OF BAD FAITH CLAIM BECAUSE UNDERLYING JUDGMENT WAS NOT EXECUTED AGAINST ASSIGNOR’S ESTATE PRIOR TO DEATH (New Jersey Appellate Division)

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In Nieves v. Allstate Ins. Co., the court heard an assignee’s appeal from the dismissal of her bad faith claim against the decedent insured-assignor’s carrier. The dispute arose from a car accident in which an individual driving the assignor’s automobile injured the assignee. After a $185,000 jury verdict in the assignee’s favor, the assignor-insured’s carrier paid the $50,000 limits of his automobile policy. However, the assignor-insured died a week before the jury verdict was affirmed on appeal.

In 2003, the assignee, who had not yet been assigned the assignor-insured’s rights under the automobile policy, brought a direct action against the carrier, alleging bad faith refusal to settle her claim. In 2004, the complaint was dismissed because she needed an assignment of rights in order to bring a direct action against the carrier. In 2007, the assignor-insured’s mother assigned her late son’s bad faith claim against the carrier to the assignee.

However, the trial court dismissed the bad faith claim on summary judgment, reasoning that the assignor-insured did not have a judgment executed against him during his lifetime and the decedent had no assets left in his estate. As such, the court concluded that there is no pecuniary loss that the decedent suffered during his life that could be enforced by way of assignment.

The assignee appealed, arguing that her claim accrued when the underlying jury verdict was affirmed and that any analysis of pecuniary harm to the decedent insured must be made at the time of accrual. The assignee also argued that the court should adopt the “judgment rule,” which holds that a claimant is permitted to recover damages if the insured is solvent at the time of the judgment.

The appellate court rejected both of these arguments. First, the court ruled that no claim accrued at the time of the judgment because the insured had no assets and was not threatened with any claim for the difference between the verdict and his policy limits. Second, the court refused to adopt the judgment rule because such an argument was not raised before the trial court. The court therefore affirmed the grant of summary judgment to the carrier.

Date of Decision: May 3, 2011

Nieves v. Allstate Ins. Co., No. A-6128-09T3, 2011 N.J. Super. Unpub. LEXIS 1096, Superior Court of New Jersey, Appellate Division (App.Div. May 3, 2011) (Fuentes, Ashrafi, Newman, JJ.)