DECEMBER 2012 BAD FAITH CASES: COURT GRANTS INSURED’S MOTION TO AMEND COMPLAINT WITH BAD FAITH COUNT, BUT GRANTS PARTIAL PROTECTIVE ORDER TO CARRIER, SHIELDING IT FROM DISCOVERY ON RELATED BAD FAITH CLAIMS (New Jersey Federal)

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In Raritan Bay Fed. Credit Union v. CUMIS Ins. Soc’y, Inc., the insured sought discovery and to amend its complaint after its bad faith claims were initially dismissed without prejudice in 2009. (See this case). The carrier objected on several grounds, seeking to: (1) preclude the insured from conducting discovery on the sales and marketing of the bond it purchased, along with “best practices” advice offered by the carrier to its customers; (2) preclude depositions of present and former employees of the carrier; (3) limit depositions and quash subpoenas seeking information from the carrier’s investigator.

First, the court found that the insured should be entitled to amend its complaint with respect to claims that the carrier engaged in a sham investigation after deciding to deny coverage, for the sole purpose of obtaining information against the insured for future litigation. The court also permitted the insured to amend its complaint with a claim that the carrier failed, in bad faith, to advise the insured as to the basis for its denial. However, the court found that the carrier did not act in bad faith by citing vagueness in the insured’s loan policies as a reason to deny coverage.

Second, the court refused to permit discovery on the carrier’s marketing of its bonds and its “best practices” advice because this information was outside the scope of the insured’s amended claims. The court also denied the insured’s request to depose the carrier’s present and former employees, as well as the subpoenas sought by the insured. The court did permit the insured to seek information relating to the carrier’s investigators, finding that such information was not privileged or attorney work product.

Date of Decision: October 21, 2010

Raritan Bay Fed. Credit Union v. CUMIS Ins. Soc’y, Inc., No. 09-1512, 2010 U.S. Dist. LEXIS 112640, U.S. District for the District of New Jersey (D.N.J. Oct. 21, 2010) (Bongiovanni, J.)

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