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.)

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