Archive for the 'NJ – General Bad Faith and Litigation Issues' Category

JULY 2017 BAD FAITH CASES: INSURER ONLY OWES FIDUCIARY DUTY IN LIMITED CIRCUMSTANCES, AND ORDINARY CONTRACT DISPUTE CANNOT CREATE THAT DUTY (New Jersey Federal)

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This case involved a detailed three-year history concerning a dispute over what coverage the insured paid for, wanted or had. There were no claims against the insured or losses involved. The insured brought numerous claims, including a breach of fiduciary duty claim.

In dismissing that claim, the court observed that there are circumstances in which an insurer owes a fiduciary duty, but these circumstances are limited. Thus, “an insurer acting as an agent to the insured when settling claims owes a fiduciary duty,” and “an insurance company owes a duty of good faith to its insured in processing a first-party claim.”

However, “absent ‘special circumstances’ a claim for fiduciary duty cannot survive.” The court cited case law for the proposition that: “[A]bsent a special relationship, parties operating in the normal contractual posture, not as principal and agent, are typically not in a fiduciary relationship.”

In this case, the insured did not “allege anything to suggest the relationship between Plaintiff and Defendants exceeds an ordinary contractual relationship. Plaintiff’s basis for finding a fiduciary relationship is essentially that he was insured by the Defendants.” There was no first party of third party claim. “Therefore, Plaintiff and Defendants never had the occasion to enter into a fiduciary relationship.”

This claim was dismissed without prejudice.

Date of Decision: June 22, 2017

Degennaro v. American Bankers Insurance Company of Florida, No. 3:16-cv-5274-BRM-DEA, 2017 U.S. Dist. LEXIS 96372 (D.N.J. June 22, 2017) (Martinotti, J.)

MAY 2017 BAD FAITH CASES: COURT FINDS THAT JURY MUST DETERMINE WHETHER INSURED AND INSURER REACHED SETTLEMENT OF SUPERSTORM SANDY CLAIM (New Jersey Federal)

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In this case, the insured submitted a claim to its insurer as a result of wind and flood damage sustained during Superstorm Sandy. The insured and the insurer each hired an engineer/contractor to determine the extent of damage to the building and the cost to repair. Emails between the two contractors seemed to indicate that a settlement had been reached with regard to the replacement cost of covered damage. The insured cashed the insurer’s checks, but never made repairs to the building. The insured’s counsel ultimately sent an additional estimate prepared by another engineer to the insurer. The insurer refused to pay the remaining balance as indicated on the additional estimate, and the insured filed suit for breach of contract and breach of the implied covenant of good faith and fair dealing.

The insurer moved for summary judgment, and argued that it had entered into a binding settlement agreement as a result of the email exchanges between the contractors respectively hired by the insured and the insurer. In response, the insured argued that the contractor it hired did not have authority to bind it to any settlement, and even if it had authority, no settlement had been agreed to.

The court noted that the insured had the burden of proving the elements of its claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Ultimately, the court found that it was for a jury to determine whether the parties entered into a settlement agreement that precludes the insured’s suit against the insurer. The court held that if “a jury finds that no enforceable settlement agreement exits, the jury must then determine whether [the insurer] breached the parties’ insurance contract and did not act in good faith” by failing to pay the balance of the additional estimate that the insured submitted.

Date of Decision: March 31, 2017

Coleman Enters. Co. v. Scottsdale Ins. Co., No. 1:14-cv-07533-NLH-AMD, 2017 U.S. Dist. LEXIS 50078 (D.N.J. March 31, 2017) (Hillman, J.)

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APRIL 2017 BAD FAITH CASES: NFIA PREEMPTS STATE LAW BAD FAITH CLAIMS (New Jersey Federal)

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The Court granted summary judgment to the insurer on a breach of good faith and fair dealing claim for attorney’s fees and costs and expenses, because the National Flood Insurance Act preempts state contract law, including bad faith claims.

Date of Decision: March 31, 2017

Caivano v. Allstate Ins. Co., No. 15-5791, 2017 U.S. Dist. LEXIS 50490 (D.N.J. Mar. 31, 2017) (Simandle, J.)

FEBRUARY 2017 BAD FAITH CASES: USE OF UMBRELLA TRADE NAME DOES NOT DEMONSTRATE BAD FAITH (New Jersey Federal)

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The insureds move to remand this New Jersey federal action back to Superior Court. The insureds argued at one point that the insurer defendants, “anticipating a lawsuit, acted in bad faith, using the name ‘Chubb Insurance’ in correspondence to mislead them into naming a defendant that is not a legal entity.” The court stated that: “An entity’s use of an umbrella trade or business name that differs from its legal name does not in itself demonstrate bad faith.”

Date of Decision: December 9, 2016

Fischer v. Chubb Ins., No. 16-8220, 2016 U.S. Dist. LEXIS 170590 (D.N.J. Dec. 9, 2016) (McNulty, J.)

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.)

SEPTEMBER 2016 BAD FAITH CASES: MERE MISTAKES ARE NOT BAD FAITH (New Jersey Federal)

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The federal district court observed that mere mistakes cannot be the basis for bad faith claims under New Jersey law. Opposing the insurer’s summary judgment motion, the insureds asserted 4 bases for bad faith. Of the four grounds asserted for bad faith, two were unsupported and on the other two, the plaintiffs themselves conceded were mistakes by the insurer.  The mistakes included an incorrect date that was corrected; and a statement that the policy lapsed, but the policy was not treated as lapsed.

Date of Decision: July 12, 2016

Andrews v. Merchs. Mut. Ins. Co., 2016 U.S. Dist. LEXIS 89997 (D.N.J. July 12, 2016) (Rodriguez, J.)

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Photo by M. M. Ginsberg

MAY 2016 BAD FAITH CASES: NO PRIVATE RIGHT OF ACTION UNDER NEW JERSEY’S INSURANCE TRADE PRACTICES ACT OR UNFAIR CLAIMS SETTLEMENT PRACTICE ACT (New Jersey Federal)

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In GEICO v. Korn, the court addressed what it called a muddled claim that appeared to be for bad faith.  The claim referenced both New Jersey’s Insurance Trade Practices Act and Unfair Claims Settlement Practices Act, neither of which allow for a private cause of action. The insured also pleaded that the insured had “failed to act in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become perfectly clear.” The court dismissed the insureds’ claim without prejudice, and with leave to amend.

Date of Decision:  April 21, 2016

GEICO v. Korn, 2016 U.S. Dist. LEXIS 53210 (D.N.J. Apr. 21, 2016) (Bumb, 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.)

 

MARCH 2016 BAD FAITH CASES: ATTORNEYS FORMERLY REPRESENTING INSURER IN DECLARATORY JUDGMENT ACTION WERE NOT ALLOWED TO LATER REPRESENT INSUREDS AS DEFENSE COUNSEL IN CIVIL ACTION (New Jersey Appellate Division)

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In Bukowiec v. Adamo, the case arose out of a one car accident resulting in a death and severe injury.  The car had been provided to the driver’s mother as a courtesy car by a dealer.  The insureds were successful in defeating a declaratory judgment against one of their potential insurers, i.e., the dealer’s insurer. The trial court found coverage was due from that insurer.  The opinion makes repeated references to that insurer ultimately intending to appeal the trial court’s decision, which was interlocutory and not then appealable as of right.

One of the insurer’s law firm’s on the declaratory judgment claims later entered an appearance for the insureds as defense counsel, to defend the insureds against the underlying civil claims brought by the estate of one of the accident victims. That law firm withdrew as the insurer’s counsel as to the declaratory judgment aspect of the matter.

The insureds agreed to allow that counsel to serve as their defense counsel in the civil litigation. However, plaintiff’s counsel on the civil claims moved for disqualification.  The appellate court ruled for the disqualification.

Among the various reasons discussed, the court stated:  “[the insured’s and insurer’s] interests remained adverse after the [firm] withdrew from representing [the insurer]. It remained in [the insured’s] best interest to settle the case. [The insurer’s] only position of record — espoused by the … firm during earlier proceedings — was its intention to appeal. For these reasons and those we have previously noted, ‘there is a significant risk that the representation of [the insured] will be materially limited by [the …firm’s] responsibility to . . . a former client,’ namely, [the insurer]. R.P.C. 1.7(a)(2). In view of the … firm’s previous representation of [the insurer], it cannot now advocate the reasons [the insurer] should make a good faith effort to settle plaintiff’s claims, including avoiding a bad faith claim.”

Date of Decision:  January 6, 2016

Bukowiec v. Adamo, DOCKET NO. A-4092-13T1, SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2016 N.J. Super. Unpub. LEXIS 36 (App. Div.  May 12, 2015) (Fisher, Nugent, Manahan, JJ.)

FEBRUARY 2016 BAD FAITH CASES: NO BAD FAITH WHERE INSURER MAKES PAYMENT TO PLAINTIFF’S BANK WHICH WAS LISTED AS THE NAMED INSURED IN THE POLICY (New Jersey Federal)

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In Hossain v. American Security Insurance Company, the court rejected the notion that an insurance payment to the plaintiff’s bank was made in bad faith.  Under the relationship between the insured and the bank, the insured’s policy listed the bank as the named insured, and the insured as the borrower. “The insurance policy … explains that loss payments ‘will be made payable to the named insured and the borrower as their interests appear.’” Thus, there was no violation by the insurer making payment directly to the bank.

Date of Decision:   February 8, 2016

Hossain v. Am. Sec. Ins. Co., Civil Action No. 15-8138, 2016 U.S. Dist. LEXIS 14871 (D.N.J. Feb. 8, 2016) (Simandle, J.)