Archive for the 'NJ – UIM/UM Cases' Category

APRIL 2018 BAD FAITH CASES: INSURED’S FAILURE TO GIVE NOTICE OF IMPORTANT POST-LOSS ACTIVITY BREACHED POLICY AND ELIMINATED COVERAGE (New Jersey Supreme Court)

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This case involved the duty of an insured to keep his UIM carrier informed in connection with the underlying tort litigation. By failing to give timely notice, the insured lost coverage.

In its opinion, the New Jersey Supreme Court stated:

“Our case law has routinely emphasized the importance of candor by insureds and the obligation to act in a forthright, open, and honest manner with their carriers throughout the entire process of their claim. See Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 539, 582 A.2d 1257 (1990) (“[A]n insured’s commitment not to misrepresent material facts extends beyond the inception of the policy to a post-loss investigation.”) We have provided insureds “an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant.” Id. at 541-42, 582 A.2d 1257, 582 A.2d 1257. Although this case arises in a different context, we seek to avoid rewarding insureds for omitting key details in a UIM claim.”

The insured lost coverage for his failure to notify the UIM insurer of the underlying claim and its progress. The court’s decision was “not rooted in [the insured’s] state of mind, but rather in his actions.” The Supreme Court adopted the Appellate Division dissenter’s approach on the issue: “If . . . the insured, regardless of his state of mind, fails to give the UIM carrier any notice of the UIM claim until after the final resolution of the underlying tort action, thereby causing the irretrievable loss of the carrier’s rights to subrogation and intervention before the carrier has ever learned of the existence of the claim, coverage is forfeited.” (Emphasis in original).

Thus, an insured breaches the insurance policy terms by a delay in giving notice until after an arbitration, high-low agreement or jury trial.

Date of Decision: April 11, 2018

Ferrante v. New Jersey Manufacturers Insurance Group, A-87 September Term 2016, 078496, 2018 N.J. LEXIS 477 (Supreme Court of New Jersey April 11, 2018)

 

JANUARY 2018 BAD FAITH CASES: TRIAL COURT ERRS IN DECIDING BAD FAITH PREMATURELY AS BASIS NOT TO MOLD VERDICT TO POLICY LIMITS (New Jersey Appellate Division)

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This appeal stems from an underlying UIM action that involved a 2012 automobile accident. The insured settled with the underinsured-tortfeasor for $15,000 and filed a UIM claim with the insurer. After settlement negotiations failed, the insured filed suit against the insurer, and each party then filed an offer of judgment. The insurer offered $30,000 and the insured’s offer of judgment amounted to $85,000. Policy limits were $100,000.

The jury ultimately returned a verdict for $375,000. The trial court entered judgment on the verdict for $360,000 plus interest after subtracting the initial $15,000 settlement without prejudice to either party’s right to file a post-judgment motion for molding or other relief. The insurer filed a motion to mold the verdict to the policy limits. The insured filed a motion to amend the complaint to add a bad faith claim and for counsel fees.

The trial court denied the insured’s motion to amend, but allowed her to file a new complaint asserting a bad faith claim. As to the insurer’s motion to mold to the $100,000 policy limit, the trial court stated that it had discretion not to mold the verdict because the insurer engaged in “scorched earth” settlement practices. Lastly, the trial court awarded the insured counsel fees on the non-molded verdict, per the offer of judgment rule.

On appeal, the Appellate Division ruled that the trial court erred in declining to mold the verdict. The Court primarily relied upon case law that commands molding the verdict, because “UIM cases are first-party contract claims against insurers, but they are generally tried as if they were third-party tort actions with the insurer standing in for the uninsured or underinsured tortfeasor . . . . Thus, courts have appropriately recognized the need to mold jury verdicts in these cases to reflect the rights and duties of the parties under the insurance policy.”

The Appellate Division added that the trial court erred in molding the verdict based upon the insurer’s alleged bad faith, when the issue of bad faith had never been pleaded or adjudicated. It rejected the idea of deciding the bad faith issue without giving both parties the opportunity to litigate the issue.

The Appellate Division did affirm the insured’s right to counsel fees under the offer of judgment rule, however, the sum awarded was in error because the fee application submitted to the trial court was deficient. The Appellate Division stated that “a fee application must ‘be supported by an affidavit of services addressing the factors enumerated by RPC 1.5(a)’ and must include a specific enumeration of the services performed and the hours spent.”

The Appellate Division remanded the action back to the trial court for the various reasons articulated.

Date of Decision: December 14, 2017

Seamon v. State Farm Ins. Co., DOCKET NO. A-0293-16T3, 2017 N.J. Super. Unpub. LEXIS 3069 (New Jersey Appellate Division Dec. 14, 2017) (Reisner and Gilson, JJ.)

NOVEMBER 2016 BAD FAITH CASES: NO BAD FAITH WHERE HIGHER UM/UIM LIMITS ALLEGEDLY NOT EXPRESSLY OFFERED AT THE TIME LIABILITY LIMITS WERE INCREASED (Third Circuit, New Jersey)

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The insured alleged a breached the implied covenant of good faith and fair dealing in this UM/UIM context. There were 4 putative bases pleaded, all of which the Third Circuit rejected in affirming dismissal of this claim: failure to offer the insureds the option of higher available UM/UIM coverage limits when the insureds increased their coverage limits (ii) using unlicensed agents to sell insurance with the increased coverage limits, and so using agents unaware of their obligation to so advise insureds of higher UM/UIM limits (iii) failing to provide CSFs and Buyer’s guides after insureds purchased increased liability limits, and (iv) denying the UM/UIM claims based on the reduced limits.

The insured had to show that the insurer either “act[ed] in bad faith or engage[d] in some other form of inequitable conduct in the performance of a contractual obligation.” The covenant of good faith and fair requires that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” The covenant is “an independent duty and may be breached even where there is no breach of the contract’s express terms”.

The insured failed to allege with sufficient particularity how the insurer “fail[ed] to act in good faith by offering UM/UIM coverage limits up to the increased BIL coverage limits.” The insured also failed to sufficiently allege how insurer engaged in “inequitable conduct in the performance of [their] contractual obligation” to her. Thus, the dismissal was affirmed.

Date of Decision: October 31, 2016

Ensey v. GEICO, No. 15-1933, 2016 U.S. App. LEXIS 19562 (3d Cir. Oct. 31, 2016) (Ambro, McKee, Scirica, JJ.)

APRIL 2016 BAD FAITH CASES: (1) PLAUSIBLE BAD FAITH CLAIM PLEADED BASED ON INSURER’S IME RESULTS, BUT (2) BAD FAITH CLAIM IS SEVERED AND STAYED (New Jersey Federal)

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In Abiona v. Geico Indemnity Company, the insurer sought to dismiss the underinsured motorist bad faith claim, and if not dismissed, then to sever and stay the bad faith claims.  The claim was not dismissed, but the court did agree to sever and stay the bad faith claim.

The insured alleged that the insurer completely denied UIM benefits, declined to participate in non-mandatory find arbitration, and failed to present any good faith settlement offer, despite the insured’s submitting extensive medical records to support the claim of severe and permanent injury.  This documentation allegedly included the insurer’s own IME report, which opined that “the insured is a surgical candidate from the injuries sustained by this accident if the epidural injection therapy does not resolve the significant pain from the herniated lumbar disc caused by this accident.”

In refusing to dismiss the bad faith claim, the court found that the insurer’s medical opinion that surgery could be required “nudges” the allegation of reckless disregard of the lack of a reasonable basis to deny the claim “across the line from conceivable to plausible.”

Next the court found it had jurisdiction to hear the case, when looking at the contract damages, and potential consequential and punitive damages permitted under New Jersey’s bad faith law.

On the issue of severance and stay, the court observed: “The prevailing practice in both state and federal court is to sever breach of insurance contract claims from bad faith claims, and to proceed with the contract claim before turning to the bad faith claim (if still necessary after adjudicating the contract claim).”  The court added that:  “Severance of a bad faith claim will often be desirable because, as courts have recognized, there is real potential for prejudice to the insurer should it ‘be required to produce its claim file prematurely.’”

The court accepted the insurer’s assertion that it would suffer prejudice without severance, and described the insured as “merely” arguing that judicial economy weighs against severance – a position contrary to the above-stated principles and numerous cases following those principles. It quoted from an earlier state court decision: “The toll on judicial economy by allowing full-disclosure up front . . . is obvious. Requiring simultaneous discovery on both claims will result in a significant expenditure of time and money, generally rendered needless if the insurer prevails on plaintiff’s UM or UIM claim.”  Thus, it granted the motion to stay and sever in the interests of judicial economy and to avoid prejudice to the insurer.

Date of Decision:  March 16, 2016

Abiona v. Geico Indem. Co., 2016 U.S. Dist. LEXIS 34179 (D.N.J. Mar. 16, 2016) (Hillman, J.)

JANUARY 2016 BAD FAITH CASES: PENNSYLVANIA COURT APPLYING NEW JERSEY LAW FINDS THAT BAD FAITH QUESTION COULD GO TO JURY, EVEN WITHOUT ADJUSTER’S TESTIMONY FOR SUMMARY JUDGMENT PURPOSES, IN THE ABSENCE OF ANY SETTLEMENT OFFER BY INSURED WHERE THERE SEEMED TO BE NO DEFENSE TO ONE COMPONENT OF INSURED’S DAMAGES CLAIMS (Philadelphia Federal)

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In Stern v. AAA Mid-Atlantic Insurance Company, the Pennsylvania federal court applied New Jersey bad faith law to an Underinsured Motorist claim.

The court applied the fairly debatable standard, which it quoted as: “To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent, then, that the tort of bad faith is an intentional one. * * * implicit in that test is our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless * * * indifference to facts or to proofs submitted by the insured.”

The insured put on a case at arbitration showing physical injuries, pain and suffering, and economic damages, which resulted in a meaningful award, including a specific finding of economic damages. The insurer’s refusal to pay the insured anything focused on claims for non-economic damages, with no explanation about why it would not settle the economic damages claim.  The court found that “Defendant’s failure to make any settlement offer in the face of Plaintiffs’ proofs and a substantial arbitration award relating specifically to economic losses could be interpreted by a reasonable juror as reckless indifference to the facts.”  The insurer’s verbal threshold argument was deemed inapplicable to underinsured claims.

The court concluded, in denying the insurer’s summary judgment motion: “At trial, Defendant will undoubtedly present testimony from its adjusters as to their analysis of both the economic and non-economic components of the claim, and Plaintiffs will be at a tactical disadvantage by having failed to depose them. The defense is correct that ordinarily a plaintiff’s failure to explore the thought process of the claims adjusters would be fatal to a claim for bad faith. But given the broad confines of this case and Defendant’s failure to make any offer whatsoever, there is a basis on which a jury could reasonably find bad faith. The evidence may be scant, but I cannot conclude that it is non-existent.”

Date of Decision:  December 3, 2015

Stern v. AAA Mid-Atlantic Ins. Co., CIVIL ACTION No. 15-0960, 2015 U.S. Dist. LEXIS 162713 (E.D. Pa. December 3, 2015) (McHugh, J.)

MARCH 2015 BAD FAITH CASES: NEW JERSEY APPELLATE DIVISION MAKES CLEAR THAT PROPER PRACTICE REQUIRES SEVERING BAD FAITH CLAIM FROM UNINSURED MOTORIST CLAIM, AND STAYING DISCOVERY OF THE BAD FAITH CLAIM UNTIL THE UNDERLYING CLAIM IS DETERMINED (New Jersey Appellate Division)

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In Wacker-Ciocco v. GEICO, the court addressed the applicability of its earlier decision in Procopio v. Government Employees Insurance Company, 433 N.J. Super. 377, 80 A.3d 749 (App. Div. 2013), on the issue of discovery and severance of bad faith claims.  In the earlier case, the appellate court had ruled that where an uninsured motorist and bad faith claim are bifurcated for trial, it was an abuse of discretion for the trial court to order that discovery on both claims proceed simultaneously.

In Wacker-Ciocco, some bad faith materials had been produced prior to the motion to sever, and the trial court found the cat was therefore out of the bag, and the motion to sever was denied.  The appellate court found that this was a misinterpretation of its prior case law on the severance of bad faith claims from the uninsured motorist claim, and the stay of bad faith discovery pending the outcome of the uninsured motorist claim.

In Procopio, the Court had stated: “[It] promotes judicial economy and efficiency by holding in abeyance expensive, time-consuming, and potentially wasteful discovery on a bad faith claim that may be rendered moot by a favorable ruling for the insurer in the UM or UIM litigation. This procedure also avoids the premature disclosure of arguably privileged materials to the prejudice of the insurer’s defense while, at the same time, preserving the insured’s pursuit of its bad faith claim.”

The court observed that an insured cannot reach the bad faith claim until it proves its entitlement to coverage, and the court further observed the higher standard placed on an insured in proving bad faith claims (and that the plaintiff’s complaint only pleaded bad faith in a conclusory manner, and failed to plead wrongful intent).

The judicial efficiency arguments set out in Procopio did not disappear “simply because some discovery relevant to the bad faith claim was produced,” and it was clear discovery on that issue was not complete.  Thus, “the competing interests implicated by ordering simultaneous discovery on both the coverage and bad faith claims remained in play.”

The court reversed the trial court orders, and granted the motions “to sever and stay the bad faith claim and related discovery until the underlying UIM claim was decided.”

Date of Decision: March 16, 2015

Wacker-Ciocco v. GEICO, DOCKET NO. A-2547-13T4, 2015 N.J. Super. LEXIS 38   (App. Div. March 16, 2015) (Espinosa, Lihotz, St. John, JJ.)

MARCH 2015 BAD FAITH CASES: NEW JERSEY SUPREME COURT FINDS NO BAD FAITH WHERE INSURER RELIED UPON UNPUBLISHED APPELLATE DIVISION OPINION IN TAKING ACTION, AND WHERE POLICY LANGUAGE MADE INSURER’S POSITION FAIRLY DEBATABLE; COURT RESTATES NEW JERSEY LAW ON FIRST PARTY BAD FAITH CLAIMS (New Jersey Supreme Court)

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In Badiali v. New Jersey Manufacturers Insurance Group, the New Jersey Supreme Court issued its second opinion in a single day involving first party insurance bad faith claims.  The insured was injured by an uninsured motorist.  The insured had two insurers.  The matter went to arbitration on the uninsured motorist claim, and the insured was awarded $29,148.62.  One of the insurers paid its half of the award, $14,574.31, but the other insurer appealed.  The policy provided that awards under $15,000 were binding, but awards over $15,000 could be appealed.  The insured brought a bad faith claim, on the basis that the award was less than $15,000 and was binding.

Based upon an unpublished Appellate Division opinion, the appealing insurer took the position that the number used to determine the appeal was the total award, i.e., $29,148.62, not the amount actually due from the particular insurer.  The court found that this made the insurer’s position fairly debatable, and there was no bad faith.  The issue was not whether the Appellate Division’s decision was legally correct, but whether the insurer could reasonably rely upon that decision in taking the appeal. Alternatively, the Court held that the insurer’s reading of the policy language was reasonable, and thus its position was fairly debatable for this reason as well.

That being said, the Court then went on to clarify the law for future cases. It held that “any reference in a policy of insurance to the statutory $15,000 policy limit as the basis for rejecting an arbitration award applies only to the amount that the insurance company is required to pay, not to the total amount of the award.”

Finally, we will quote the Court’s summary of the law on the duty of good faith and fair dealing, including statutory references, for the value of having the Supreme Court’s recent restatement of that law.

“All contracts impose an implied obligation of good faith and fair dealing in their performance and enforcement. …. The New Jersey Legislature has attempted to codify these principles, particularly in the insurance industry, by defining what is considered to be unfair or deceptive business practices in the area of insurance claims settlement. See N.J.S.A. 17:29B-4(9). Such practices include: ‘[r]efusing to pay claims without conducting a reasonable investigation based upon all available information[,]’ N.J.S.A. 17:29B-4(9)(d); ‘[f]ailing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed[,]’ N.J.S.A. 17:29B-4(9)(e); ‘[c]ompelling 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[,]’ N.J.S.A. 17:29B-4(9)(g); and, finally, ‘[n]ot attempting to negotiate in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear[,]’ N.J.S.A. 17:29B-4(9)(f) (emphasis added).”

“Good faith is generally defined as ‘honesty in fact in the conduct or transaction concerned.’ N.J.S.A. 12A:1-201(19). The good faith obligations of an insurer to its insured run deeper than those in a typical commercial contract. Unlike with a typical commercial contract, in which ‘[p]roof of bad motive or intention” is vital to an action for breach of good faith, … an insurer’s breach of good faith may be found upon a showing that it has breached its fiduciary obligations, regardless of any malice or will….’”

“One inherent fiduciary obligation of every insurer is the duty to settle claims. …. Whether an insurer has acted in bad faith and thereby breached its fiduciary obligation in connection with the settlement of claims ‘must depend upon the circumstances of the particular case.’” “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.”’”

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

Date of Decision:  February 18, 2015

Badiali v. New Jersey Mfrs. Ins. Group, A-48 September Term 2012, 071931, 2015 N.J. LEXIS 133 (N.J. February 18, 2015) (Fernadez-Vina for unanimous court)

MARCH 2015 BAD FAITH CASES: NEW JERSEY SUPREME COURT FINDS UM BAD FAITH CLAIM BARRED BY RES JUDICATA, BUT REFERS THE FOLLOWING ISSUES TO THE CIVIL PRACTICE COMMITTEE IN CONNECTION WITH THE SCOPE AND APPLICABILITY OF NEW JERSEY’S RULES TO UM CLAIMS: (1) THE APPLICABILITY OF THE ENTIRE CONTROVERSY DOCTRINE TO ALLOWING THE BAD FAITH CLAIM TO BE RAISED AFTER THE UNDERLYING UM CASE IS LITIGATED; (2) WHETHER THE SANCTIONS UNDER AN OFFER OF JUDGMENT SHOULD BE MEASURED AGAINST A VERDICT MOLDED TO FIT POLICY LIMITS OR THE JURY VERDICT; AND (3) WHETHER R. 4:42-9(a)(6)’s EXCLUSION OF DIRECT CLAIMS BY INSUREDS SHOULD BE CHANGED (New Jersey Supreme Court)

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In Wadeer v. New Jersey Manufacturers Insurance Company, New Jersey’s Supreme Court took the opportunity to address potential changes in the Rules of Civil Procedure in the context of first party bad faith claims. In this uninsured motorist case, the plaintiff insured was injured by a driver who was never identified. The matter went to UM contractual arbitration, and the insurer appealed an award favorable to the insured.

The matter then went to arbitration in the Superior Court, and the insurer again appealed an unfavorable result, demanding a trial de novo.  At trial, the insured obtained its largest award yet, from a jury, of over $200,000.  The UM limit was $100,000 and the trial judge molded the award to $100,000, finding no bad faith under the “fairly debatable” standard.  The insured had argued that the insurer’s bad faith should have permitted an award of the full $200,000.

The insured then filed a new, second, action in Superior Court, alleging breach of the duty of good faith and fair dealing. The insured asserted that the insurer acted in bad faith by failing to make a settlement offer and by failing to timely settle the claim. The insurer obtained summary judgment under the entire controversy doctrine and principles of res judicata. The Appellate Division affirmed the entire controversy doctrine ruling.

On appeal to the Supreme Court, the Court affirmed the res judicata ruling, but took steps toward clarifying the law on application of the entire controversy doctrine, the offer of judgment rule, and the rule governing awards of attorney’s to a successful first party claimant in a declaratory judgment action.

First, the court restated the law governing first party bad faith claims:

“[I]t is well-settled that, in New Jersey, ‘every insurance contract contains an implied covenant of good faith and fair dealing.'” …. As an extension, “an insurance company owes a duty of good faith to its insured in processing a first-party claim.” ….  In order to make a showing of bad faith in a first-party claim based on a denial of benefits[fn2] “[a] plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent, then, that the tort of bad faith is an intentional one . . . implicit in that test is our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless . . . indifference to facts or to proofs submitted by the insured.”

….

[Fn2]. The test is “essentially the same” when showing bad faith based on “inattention to payment of a valid, uncontested claim.” ….

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

The court applied the doctrine of res judicata in ruling for the insurer. It found that the first action was substantially similar to the second action; and that the insured was seeking to re-litigate an issue that was before the trial court in the first action which had already been fully litigated and determined by that court.  The second case sought damages for the insurer’s alleged bad faith in handling the UM claim, and it alleged the same wrongs and same legal theories, and included the same evidence and material facts, as in the first case.

However, the Court gave distinct treatment to the entire controversy doctrine (“ECD”) when applied to UM cases. Agreeing that the ECD was equitable in nature, “its application was unfair because [the insurer’s] bad faith, for the most part, came to light during the course of the underlying litigation surrounding plaintiff’s UM claim, …. [and that] barring such bad faith claims on the basis of the entire controversy doctrine is inappropriate in the UM context.” Thus, the Court stated “that the nature of first-party bad faith claims warrants exemption from a harsh application of this rigid doctrine.”

The Court reasoned: “Acts of first-party bad faith in the UM context can, and often will, continue throughout the course of the underlying legal proceedings; that is, an insurance carrier’s acts of bad faith may often not cease until a verdict is returned, and this is only after the plaintiff has been forced to fully litigate the matter through arbitration and trial. Rather than forcing a plaintiff to amend the initial complaint to add and reflect each incident of bad faith, we believe that viewing bad faith claims as separate and distinct actions promotes judicial efficiency and economy. We also note the difficulties that will be encountered in the discovery process by seeking information as to bad faith acts which may be prohibited in the UM cause of action.”

This did not end the discussion, because there remained questions of “whether fairness requires that our court rules be modified to permit an insured to bring a bad faith cause of action against an insurer after the underlying UM claim is resolved. In [the Court’s] view, the goals of the entire controversy doctrine are not served by mandating that the plaintiff simultaneously file a first-party bad faith claim with the underlying breach of contract/UM lawsuit. However, to foster debate about whether our courts should allow first-party bad faith claims to be asserted and decided after resolution of the underlying, interrelated UM action, we refer Rule 4:30A to our Civil Practice Committee for review.”

The Court’s directing Committee review for potential Rule revisions did not stop there, as it next addressed the Offer of Judgment Rule (R.4:58-2) and the Rule governing the award of attorneys’ fees (R.4:42-9(a)(6)) and whether that should apply in first party insurance cases.

As to the Offer of Judgment Rule, the current rule does not explicitly provide whether the jury’s verdict is the trigger for the sanctions and remedies available, or whether the molded judgment controls. The Court found generally that the molded verdict “is appropriate when done to conform with and reflect allocation of liability. However, in the UM/UIM context, where reduction is based not on a tortfeasor’s comparative negligence but instead on the policy limits of a given carrier,” the Court found there would be no incentive “for such carriers to settle …  [because] carriers are prone to take their chances at trial where the offer of judgment is somewhat near their policy limits because they have relatively little to lose in doing so.” “Thus, the rule’s required reduction of a monetary jury award artificially to the policy limits renders moot any reasonable offer of settlement by the insured below the 120% threshold; unless an insured makes an offer of judgment that is unreasonably below its policy limits, it is unlikely that an insurance carrier will choose to settle the respective claim.” Therefore, the Court concluded that “the aims of Rule 4:58-2, ‘to encourage, promote and stimulate early out-of-court settlement,’ …  are ill-achieved in the UM/UIM context under the rule’s current construction.” It then referred Rule 4:58-2 to the Civil Practice Committee “to consider and recommend an appropriate amendment addressing this infirmity.”

Finally, the Court addressed R.4:42-9(a)(6) which allows “for counsel fees to be awarded ‘in an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.’” The Court observed that this Rule, as it now stands, does not apply to first part claims against insurers, where the insured brings a direct claim against the insurer. The Court likewise referred “this issue to the Civil Practice Committee for comments and recommendations addressing the issue.”

Date of Decision:  February 18, 2015

Wadeer v. New Jersey Mfrs. Ins. Co., A-54 September Term 2012, 2015 N.J. LEXIS 132 (N.J.  February 18, 2015) (Fernandez-Vina)

DECEMBER 2013 BAD FAITH CASES: NEW JERSEY SUPERIOR COURT HOLDS SIMULTANEOUS BREACH OF CONTRACT AND BAD FAITH CLAIMS MUST BE BIFURCATED, WITH THE BAD FAITH CLAIM, INCLUDING DISCOVERY, STAYED PENDING RESOLUTION OF THE BREACH OF CONTRACT CLAIM (New Jersey Appellate Division)

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The Appellate Division reversed an order from the Law Division bifurcating and staying plaintiff’s bad faith claim from his UIM claim for trial purposes, but allowing discovery to advance simultaneously on the two claims. Although the trial court judge allowed that any discovery requests implicating privileged materials would be subject to a motion for a protective order and that he would not permit discover into a privileged area, the insurer maintained the trial court abused its discretion by compelling discovery on the bad faith claim prior to resolution of the UIM claim.

Based on New Jersey case law, the Appellate Division found an insured cannot obtain complete discovery of an insurance company’s claim file simply by bringing simultaneous breach of contract and bad faith claims, but rather must wait until the insured establishes an entitlement on the underlying contract claim.

Essentially, a plaintiff must first show that he or she is entitled to recover on the contract before he or she can prove the insurer dealt with him or her in bad faith. Furthermore, in instances such as plaintiff’s, the appropriate practice is to sever the bad faith claim, and stay the claim, including discovery, pending resolution of the underlying contract claim to protect against prejudices such as the discovery issue presented by the Law Division’s order.

Thus, the Appellate Division reversed and remanded, finding whatever benefits might be gained by simultaneous discovery were substantially outweighed by the adverse impacts on the parties, making the order an erroneous exercise of discretion by the Law Division.

Date of Decision: November 21, 2013

Procopio v. Gov’t Emples. Ins. Co., Civil Action No. A-2313-12T2, 2013 N.J. Super. LEXIS 167 (NJ Sup. Ct. App. Div. Nov. 21, 2013) (Parrillo, Harris, Guadagno, JJ.).

MAY 2013 BAD FAITH CASES: COURT GRANTS CARRIER’S SUMMARY JUDGMENT MOTION BECAUSE INSURED FAILED TO ALLEGE A CLAIM FOR BAD FAITH (Philadelphia Federal)

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In Quinn v. Liberty Mut. Group, the carrier filed for summary judgment on a claim for bad faith brought by the representative of an insured decedent’s estate (see this post). The decedent sustained serious injuries as the result of a car accident with an uninsured motorist. The carrier refused to pay an arbitration award and the representative filed suit for bad faith.

The carrier claimed that it acted with the reasonable belief that New Jersey law applied, which would permit them to properly reject the arbitration award and demand a trial.

The court granted the carrier’s motion, reasoning that it did not need to decide whether Pennsylvania or New Jersey law applied because the claimant’s allegations were insufficient to sustain a finding of bad faith.

Date of Decision: March 7, 2013

Quinn v. Liberty Mut. Group, No. 11-5364, 2013 U.S. Dist. LEXIS 31194, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Mar. 7, 2013) (Bartle, J.)