Archive for the 'NJ – Discovery and Evidence' Category

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.)

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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In Procopio v. Gov’t Emples. Ins. Co., 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.).

NOVEMBER 2013 BAD FAITH CASES: PLAINTIFF’S BAD FAITH CLAIM POTENTIALLY GAVE AN INSURER THE ABILITY TO PIERCE ATTORNEY-CLIENT PRIVILEGE WHERE IT CAN ESTABLISH NO LESS INTRUSIVE SOURCE EXISTS ON THE SUBJECTS OF SETTLEMENT DEMANDS, OFFERS, OR THE REJECTION OF SETTLEMENT DEMANDS OR OFFERS ON AN IMPLIED WAIVER THEORY, BUT IT FIRST HAD TO ATTEMPT DISCOVERY WITHOUT ASKING ABOUT PRIVILEGED COMMUNICATIONS (New Jersey Appellate Division)

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In V.K. v. New Jersey Mfrs. Ins. Co., plaintiff, her husband, and their minor children were involved in a car crash in which their vehicle was hit head-on by the other driver. Plaintiff and her children brought suit against the other driver. The driver carried a half-million dollar policy, which was ultimately offered to settle all claims, less the property damage payments already made. The offer was refused and the case proceeded to trial. Prior to trial, the injured parties accepted an assignment of rights from the driver to pursue a bad faith claim against his insurer in return for releasing him from any judgment exceeding his policy limit. They were awarded a total of $17.5 million at trial.

After the minor plaintiffs filed their bad faith action, the insurer took plaintiff’s deposition. Disputes arose as to what information was protected by the attorney-client privilege since plaintiff and her children were represented by different counsel in both the underlying and bad faith suits. On a motion by the insurer, the trial court ordered plaintiff’s continued deposition and disallowed any objection on the grounds of privilege to questions concerning settlement demands, offers, or the rejection of settlement demands or offers. Plaintiff appealed the order claiming the insurer failed to demonstrate appropriate grounds for piercing the privilege. The insurer argued that it could pierce the privilege because it had a legitimate need to reach the evidence sought to be shielded, and that the information could not be secured from any less intrusive source.

On appeal, the court affirmed, disallowing plaintiff’s ability to assert the attorney-client privilege regarding settlement demands, offers, and rejections, because, based on the transcript, it appeared the insurer had been thwarted from legitimately inquiring about non-privileged information.

The court found the insurer could only establish the “need prong” to pierce the privilege where a constitutional right is at stake, or a party has explicitly or implicitly waived the privilege. While no constitutional right is at stake in a bad faith claim, the court found “when an insured pursues a bad faith claim, the likelihood that she would have settled the case for the policy limits is “in issue,” and, therefore,… [the insured] has “implicitly waived” the privilege as to communications regarding her knowledge of the settlements offers and demands, and whether she would or would not have accepted a settlement for the full policy limits,” thereby establishing the “need prong.” Nevertheless, the court held the insurer failed to establish questioning plaintiff about actual communications she had with counsel was the least intrusive method of obtaining the needed information. The opportunity still existed for the insurer to show plaintiff the written settlement offers and ask her questions as to what she knew about the offers, rather than inquiring into privileged communications.

Date of Decision: August 26, 2013

V.K. v. New Jersey Mfrs. Ins. Co., Docket No. A-4681-11T4, A-4682-11T4, 2013 N.J. Super. Unpub. LEXIS 2111 (N.J. Super. Ct. App. Div. August 26, 2013) (per curiam).

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.)

NOVEMBER 2012 BAD FAITH CASES: COURT AFFIRMS DENIAL OF BAD FAITH CLAIM BECAUSE CARRIER PROPERLY DENIED BENEFITS AFTER INSURED SUBMITTED PROOF OF LOSS AFTER THE TIME PERMITTED BY HIS POLICY (New Jersey Appellate Division)

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In Heller v. First UNUM Life Ins. Co., the Appellate Division heard an insured’s appeal from the trial court’s denial of his cross-motion for summary judgment. The motion sought a ruling that the carrier acted in bad faith by denying the insured’s claim for disability benefits.
The injuries that lead to the insured’s claim occurred in early 1993. However, the insured did not file a proof of loss with the carrier until 1996 because he was serving a jail sentence for federal disability fraud. He later withdrew this claim and refiled it in 2000 after experiencing back pain. The carrier denied coverage because (1) it did not find the claim credible; (2) the insured provided false information on his applications for insurance coverage; and (3) the carrier was prejudiced by the lack of supporting evidence related to the insured’s claimed shoulder injury. The trial court agreed and found for the carrier.
The insured appealed this decision to the Appellate Division, arguing that he was entitled to coverage and that the carrier acted in bad faith by denying his insurance claim. The panel disagreed, writing a per curium decision in support of the trial court’s findings. Part of the court’s agreement with the carrier was based on a finding of disputed fact with respect to whether the insured had failed to disclosure certain information, to the carrier’s prejudice, in order to hide his conviction for fraud.
Date of Decision: May 24, 2012
Heller v. First UNUM Life Ins. Co., NO. A-0688-10T3, 2012 N.J. Super. Unpub. LEXIS 1145, New Jersey Superior Court Appellate Division (App.Div. May 24, 2012) (Axelrad, Sapp-Peterson and Ostrer, JJ.)

NOVEMBER 2012 BAD FAITH CASES: COURT AFFIRMS TRIAL COURTS RULING THAT PREJUDICE TO CARRIER WARRANTED FORFEITURE OF COVERAGE BY INSURED (New Jersey Appellate Division)

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In Demasi v. Lexington Ins. Co., an insured appealed the trial court’s grant of summary judgment to its carrier in a coverage and bad faith suit brought by the insurer. The dispute stemmed from a fire at a property owned by the insured. After discovering the fire, the insured made a claim for benefits under a homeowner’s policy purchased from the carrier. During the litigation, the insured was required to provide a variety of documents to the carrier, but it failed to oblige the request. The carrier had requested specific documents because it suspected that arson had occurred at the insured property.
The insured’s failure to produce the requested documents resulted in a breach of a policy provision requiring him to cooperate with the carrier. As such, the trial court granted the carrier’s summary judgment motion because the insured failed to comply in good faith with the discovery requests. The appellate court affirmed the trial court’s findings, reasoning that the carrier had suffered an “appreciable prejudice,” warranting a forfeiture of coverage by the insured.
Date of Decision: July 23, 2010
Demasi v. Lexington Ins. Co., NO. A-3206-08T3, 2010 N.J. Super. Unpub. LEXIS 1762, New Jersey Superior Court – Appellate Division (App.Div. July 23, 2010) (Axelrad and Espinosa, JJ.)

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.)

NOVEMBER 2012 BAD FAITH CASES: COURT DENIES BAD FAITH CLAIM BECAUSE UNDERLYING COVERAGE ACTION FAILED (District of New Jersey)

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In Wojciechowski v. State Farm Fire & Cas. Co., the court heard a carrier’s summary judgment motion stemming from a coverage dispute and bad faith claim alleged by its insureds. The dispute arose from a broken pipe in the insureds’ home. To discover the broken pipe, a plumber had to rip up carpet and flooring in the insured’s home. When the insureds sought coverage for the damage and broken pipe, the carrier refused, citing applicable policy exclusions. Specifically, the carrier’s expert found that the pipe had burst because of wear and tear, a category of damages excluded from the insureds’ homeowner’s policy.
The insureds filed suit, seeking to determine coverage under the policy and alleging bad faith. The carrier responded by filing for summary judgment. First, the insured argued that, despite the wear and tear exclusion, the “Resulting Loss Exception” in the policy nevertheless provided coverage for damage caused by water leaking from the broken pipe. The court disagreed, refusing to read the exception so broadly as to allow it to swallow the exclusion. Second, the court reasoned that the leak exclusion in the policy also applied, barring coverage for water damaged caused by leakage from the broken pipe. Third, the court addressed the insured’s claim that a sub-surface water exclusion in the policy should apply. The insured argued that, although the pipe was below a concrete slab in the floor, it was nevertheless placed above ground. The court rejected this claim for lack of competent evidence.
The court therefore granted the carrier’s motion for summary judgment. Because the insureds’ underlying coverage action failed, its bad faith claim was also denied.
Date of Decision: May 8, 2012
Wojciechowski v. State Farm Fire & Cas. Co., No. 11-566,2012 U.S. Dist. LEXIS 65093, U.S. District Court for the District of New Jersey (D.N.J. May 8, 2012) (Bumb, J.)

NOVEMBER 2012 BAD FAITH CASES: APPELLATE COURT AFFIRMS DENIAL OF INSURED’S BAD FAITH CLAIM, DESPITE FACT THAT TRIAL COURT SHOULD HAVE PERMITTED INSURED’S EXPERT TO TESTIFY REGARDING CARRIER’S ITPA VIOLATIONS WHICH ARE RELEVANT EVIDENCE TO BAD FAITH CASES (New Jersey Appellate Division)

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In Lydon v. Chubb Group of Ins. Cos., the appellate court heard an appeal from the dismissal of an insured’s claim for bad faith damages in relation to its carrier’s denial of benefits under a homeowner’s policy.
Specifically, the insured argued that the trial court erred in dismissing its claim for bad faith because it prohibited the insured’s expert from testifying about the carrier’s representative, whose conduct allegedly violated the Insurance Trade Practices Act (“ITPA”). According to the insured, violations of the ITPA may provide evidence of bad faith. However, the trial court precluded such a discussion because the expert did not mention “the concept of bad faith.” Rather, the judge reasoned that the expert’s report “contained net opinions” that “downgrade[d] the . . . proof required” to sustain a claim for bad faith.
The appellate court disagreed with this reasoning, finding that “the judge conflated two separate issues – whether violations of the ITPA are relevant evidence of bad faith and whether such evidence necessarily proves bad faith.” However, ITPA violations are indeed relevant to a finding of bad faith on behalf of an insurance carrier.
Regardless, the appellate court held that the insured’s evidence was insufficient to yield a finding of bad faith. Assuming that the court did permit the insured’s expert to testify, the insured would have failed to prove that the carrier’s conduct caused them to sustain damages as a result of its alleged bad faith.
Date of Decision: August 30, 2012
Lydon v. Chubb Group of Ins. Cos., No. A-4344-09T1, 2012 N.J. Super. Unpub. LEXIS 2068, Superior Court of New Jersey – Appellate Division (App.Div. Aug. 30, 2012) (Messano, Kennedy and Guadagno, JJ)